Firm’s CEO Found Personally Liable For Spam, Fraud Violations Against Facebook

by Tara Arick on September 30, 2013 · 0 comments

in Ethics,social media for lawyers

In a Sept. 25 order denying a social media aggregator firm’s motion to reconsider a 2012 ruling that found it guilty of spam and computer fraud violations against Facebook Inc., a California federal judge also determined that the company’s CEO “authorized and directed” the illegal activities, making him personally liable under the statutes (Facebook Inc. v. Power Ventures Inc., et al., No. 5:08-cv-05780, N.D. Calif.; 2013 U.S. Dist. LEXIS 137890).

Launch Promotion

In December 2008, Facebook sued Power Ventures Inc.

and CEO Steve Vachani in the U.S. District Court for the Northern District of California. Facebook alleged violations of the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act), the Computer Fraud and Abuse Act (CFAA), California Penal Code Section 502, the Digital Millennium Copyright Act (DMCA) and California Business and Professions Code Section 17200. Facebook also alleged federal and state copyright and trademark infringement.

Power Ventures operates a website at power.com, where it offers to integrate Internet users’ various social media accounts into a single experience. To do so, a Facebook user would provide his or her login information to Power Ventures. Thereafter, Power Ventures would “scrape” certain information from the user’s Facebook account and display it on power.com.

To help launch its website, Power Ventures offered its users $ 100 if they invited and signed up the most new users to its service. Participating users provided their Facebook friends list, to which Power Ventures sent emails inviting these friends to sign up for power.com. These messages came from an “@facebookmail.com” email address and purported to be from “The Facebook Team.”

Summary Judgment

In its complaint, Facebook asserted that it never gave Power Ventures permission to use its proprietary information or to send such messages. Facebook called the messages deceptive because they did “not properly identify the initiators of the messages, nor [did] they provide clear or conspicuous notice that the messages [were] advertisements for” power.com.

The DMCA, copyright, trademark and Section 17200 claims were ultimately dismissed. The parties filed cross-motions for summary judgment on the remaining claims. In a Feb. 16, 2012, order, Judge James Ware granted Facebook’s motion and denied the defendants’ motion, as the claims pertained to Power Ventures. However, the judge ordered further briefing on Vachani’s individual liability. The case was reassigned to Judge Lucy H. Koh.

The matter was stayed from August 2012 through April 2013 in light of the defendants’ bankruptcy filings. After the stay was lifted, Power Ventures filed an Aug. 1 motion for leave to file a motion for reconsideration of the February 2012 order. That same day, Facebook filed a supplemental memorandum to support its request for permanent injunctive relief.

Reconsideration Denied

Judge Koh denied the defendants’ motion, finding that they failed to meet their burden to request reconsideration. Regarding the CAN-SPAM violations, the defendants contended that Facebook had actually generated the accused emails and that no one had complained about being misled by them, making the emails not materially misleading and not in violation of the act. Judge Koh found that these were “essentially the same arguments” the defendants made previously, which were considered and rejected by Judge Ware.

Judge Ware correctly found that the messages’ listing of an “@facebookmail.com” email address was materially misleading, Judge Koh said, because the messages “failed to provide the recipient[s] with an ability to identify, locate, or respond to Defendants,” as required by the CAN-SPAM Act. As such, Judge Koh found no clear error in the 2012 ruling.

The defendants repeated many of their previously raised arguments concerning the CFAA and the related Section 502, Judge Koh said. Judge Ware properly determined that Facebook established that it experienced “loss” and “damage” related to its actions to investigate and defend against Power Ventures’ actions, Judge Koh found. Per Gordon v. Virtumundo Inc. (575 F.3d 1040, 1053 [9th Cir. 2009]), a CAN-SPAM claim requires a showing that a plaintiff was “adversely affected by a violation of . . . or a pattern or practice that violates” the act, Judge Koh said, finding that Facebook amply met that threshold.

As such, she also agreed with Judge Ware that Facebook had established standing under the statutes, concluding that reconsideration was not warranted.

Personal Liability

Judge Koh cited Commission for Idaho’s High Desert Inc. v. Yost (92 F.3d 814, 823 [9th Cir. 1996]), which held that “a corporate officer or director is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf.” She found that “the undisputed facts prove that Vachani authorized and directed” the illegal activities.

Vachani admitted that he controlled and directed the “Launch Promotion” and that the campaign was his idea. Power Ventures testified that Vachani was “responsible for developing the technology to allow Power . . . to access the Facebook website” after Facebook attempted to block Power Ventures’ activities. Judge Koh held that this established that Vachani was personally liable for the CFAA, CAN-SPAM and Section 502 violations of which Power Ventures was found guilty in Judge Ware’s ruling.

Relief

Facebook is entitled to recover monetary damages under the CAN-SPAM Act, Judge Koh said, finding this to be appropriate in light of the fact that the defendants “undisputedly utilized the incentive of monetary payments as a means to access Facebook users’ accounts.” However, the judge found Facebook’s requested $ 18 million award to be “unnecessary to address the deterrent and punitive purposes of a statutory damages award.” She awarded Facebook $ 50 for each of the 60,627 spam messages that Power Ventures sent, for a total statutory award of $ 3,031,350.

In light of the size of this award, Judge Koh declined to treble the amount, as Facebook requested. She held that the award and a permanent injunction “will adequately serve the purpose of punishment and deterrence in this case.” Judge Koh also found that Facebook was entitled to compensatory damages under the CFAA, awarding the social network an unspecified amount under the act.

David P. Chiappetta and Joseph P. Cutler of Perkins Coie in Menlo Park, Calif., represent Facebook. Power Ventures and Vachani are represented by Amy Sommer Anderson of Aroplex Law in San Francisco.

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