FTC Seeks Comment on Proposed Can-Spam Rules on "Primary Purpose"

By Ronald L. Plesser, James J. Halpert, Stuart Ingis and Alisa Bergman

The Federal Trade Commission (FTC or Commission), on August 13, 2004, published a notice of proposed rulemaking (NPRM) regarding how to determine the "primary purpose" of commercial electronic mail messages under the CANSPAM Act (Pub. L. No. 108-187).¹ This issue is of great importance because it determines the range of e-mail messages that are subject to the Act’s requirements to honor an opt out and include a physical address and an indication that the e-mail is a solicitation, as well as the Act’s prohibitions against spam falsification. Comments on the proposed rule are due September 13. The Commission has indicated that, due to its tight statutory deadline for completion of this proceeding, it does not intend to extend the comment period.

We believe that it is important to provide substantive comments to the Commission. We believe that this NPRM is a positive effort by the FTC to create fairly objective standards which, to a large extent, would depend upon what the sender includes in the subject line and at the beginning of the message body text. Therefore, subject to law relating to deception, a "sender" can strongly impact the "primary purpose" of the e-mail depending upon the content of the subject line. In the end, this standard may be more effective than some of the other tests that were presented. Another factor to note is that the NPRM does not define very well the categories of commercial, transactional, and relationship e-mails. Finally, the NPRM does not adequately address circumstances in which there are multiple senders. We would continue to assert that where there are several advertisers in a communication, these advertisers are not the sender. The sender is in fact the person who sent the communication, of which the advertisement was part.

The Commission sets forth three different standards for determining the primary purpose of a message, depending on the content of the message:

• First, if a message contains only content that advertises or promotes a product or service ("commercial content"), then the primary purpose is commercial.

• Second, if a message contains content that is both commercial and transactional or relationship in nature,² then the primary purpose is commercial if (1) a recipient reasonably interpreting the subject line likely would conclude that the message advertises or promotes a product or service; or (2) the message’s transactional or relationship content does not appear at or near the beginning of the body of the message.

• Third, if a messages contains content that is both commercial and neither transactional nor relationship in nature, then the primary purpose is commercial if either (1) a recipient reasonably interpreting the subject line likely would conclude that the message advertises or promotes a product or service; or (2) a recipient reasonably interpreting the body of the message likely would conclude that the primary purpose is to advertise or promote a product or service.

This NPRM addresses only the FTC’s proposed primary purpose criteria because this rulemaking must be completed by mid- December 2004. In the NPRM, the Commission states that it soon will address the discretionary rulemaking issues upon which it elicited comment in its Advance Notice of Proposed Rulemaking (ANPRM) proceeding earlier this year.

Of particular interest, the Commission also specifically states that a newsletter that combines editorial or informational content and advertising would not be considered to have a primarily commercial purpose unless it meets the Category 2 criteria. 69 Fed. Reg. at 50099. (See Section III below.) It also offers a preview of its likely interpretation of the "transactional or relationship" definition’s provision concerning delivery of goods or services that the recipient has previously agreed to receive (15 U.S.C. § 7702(17)(A)(v)) (see endnote 2).

After discussing in more detail the proposed criteria for determining the primary purpose of an e-mail message (Section I), we provide an overview of key FTC positions on issues raised in ANPRM comments (Section II), and discuss treatment of electronic newsletters and content (Section III).

The Commission proposes that the primary purpose test, consistent with prior FTC advertising law, be based on the principle that "determining the ‘primary purpose’ of an email message must focus on what the message’s recipient would reasonably interpret the primary purpose to be". 69 Fed. Reg. at 50094. It proposes a test in which the subject line of an e-mail and the relative placement of advertising as opposed to other content within the text of the message are the principal factors in determining whether an e-mail message is "commercial" in nature.

The categories and applicable criteria for determining the "primary urpose" of an e-mail message are as follows:

Category 1. Only content that advertises or promotes a product or service. If an e-mail contains only content that advertises or promotes a product or service, then the primary purpose of the message would be considered commercial.

Subject Line: The commentary to the proposed rule states that e-mail messages that fall in this category would be required to contain subject lines that are consistent with the content.³ However, the "proposed criterion" . . does not include a separate element addressing the subject line." 69 Fed. Reg. at 50095.

Category 2. Both commercial content and content that is "transactional or relationship" in nature. If an e-mail message contains both commercial content and content that falls within one of the categories listed under the Act’s definition of "transactional or relationship messages" (see endnote 2), then the primary purpose of the message would be considered commercial if either:

Category 3. Both commercial content and content that is neither commercial nor "transactional or relationship" in nature. If an email message contains both content that is commercial and content that is neither commercial nor transactional or relationship, then the primary purpose of the message would be considered commercial if either:

• placement of commercial content at or near the beginning of the body of the message;

• proportion of the message dedicated to commercial content; and

• how color, graphics, type size, and style are used to highlight commercial content.

1. Objective Standard./Proportion of Content Standard. The Commission rejected commenters’ proposed use of a percentage of the e-mail’s content to determine the primary purpose. It stated that e-mail marketers seeking to evade CAN-SPAM could easily sidestep such a standard. 69 Fed. Reg. at 50098.

2. Sender’s Intent - e.g., "But For" Test. Under a "but for" test articulated by many commenters, a message would not be considered "commercial" if it would have been sent in any event because of its noncommercial content. In response to this proposal, the Commission states that the focus should be on the recipient’s perspective, not the sender’s intent, but requests comment and information on whether it should consider the sender’s intent within the criteria for Category 3 messages. The Commission notes that "CAN-SPAM refers to the primary purpose of the message, not of the sender." 69 Fed. Reg. at 50098.

3. Messages Must Have "Nothing But" Commercial Content to be Covered/Issues of First Amendment. Commenters had asserted that when the ad or promotional aspects of the message are "inextricably intertwined" with the noncommercial aspects, the message is noncommercial for purposes of First Amendment analysis and thus beyond the reach of the CAN-SPAM requirements. They also discussed the First Amendment implications of the primary purpose rule on company web sites that offer consumers the opportunity to register online to receive a variety of free content and information services, such as electronic newsletters and alerts. The Commission states that, although it is mindful of First Amendment limitations, it believes that "the law is clear that commercial content generally may be regulated without violating the First Amendment". It goes on to note that the proposed criteria, which focus on consumer expectations, reflect an objective test that is consistent with congressional intent and First Amendment considerations. 69 Fed. Reg. at 50099.

4. Requested Exemption for Nonprofits. The Commission notes its jurisdictional limitations over nonprofit entities and declines to carve out a blanket exemption for nonprofits. The Commission notes that, under the proposed primary purpose criteria, "it seems likely that only non-profit entities’ messages whose strongest, most prominent content advertises or promotes a product or service would be considered to have a commercial primary purpose and therefore be covered by the Act". 69 Fed. Reg. at 50100. It also noted that messages between a nonprofit entity and its members are likely to fall within the transactional or relationship category.

5. Standard Based on Whether Commercial Content Finances Other Aspects of an E-mail Message. The Commission states that "the mere fact that noncommercial content is financially supported by accompanying commercial content is not enough to decide the question of an e-mail’s primary purpose". 69 Fed. Reg. at 50102.

As noted above, the Commission’s proposal addresses the treatment of electronic newsletters and content, an issue that has been the subject of many compliance questions. Specifically, the Commission states that that an electronic newsletter that combines editorial content and advertising would be governed by the proposed dual-purpose criteria. 69 Fed. Reg. at 50099. It offers the following guidance on how to apply them:

Category 2 Analysis: If the newsletter satisfies any of the elements of the transactional or relationship message definition, such as delivery of goods or services that the recipient previously agreed to receive, then it would not be considered to have a commercial primary purpose unless (1) a recipient would reasonably interpret the subject line to conclude that the message advertises or promotes a product or service; or (2) the transactional or relationship message does not appear at or near the beginning of the body of the message.

Category 3 Analysis: The Commission states that "in the case of a bona fide electronic newsletter, application of this analysis is likely to result in the conclusion that the message does not have a primary purpose that is commercial". Elaborating on this, the Commission states that if the newsletter does not satisfy any element of the "transactional or relationship message" definition- for example, combining unrequested informational and commercial content-then it would not be considered to have a commercial primary purpose unless (1) a recipient reasonably interpreting the message’s subject line likely would conclude that the message advertises or promotes a product or service, or (2) a recipient reasonably interpreting the body of the message likely would conclude that the primary purpose of the message is to advertise or promote a product or service.

The Federal Communications Commission, on August 12, 2004, released its order implementing the provisions of the CAN-SPAM Act (Pub. L. No. 108-187) regarding "unwanted mobile service commercial messages.".⁵ This rule likely will impact all senders of commercial electronic mail messages because it will require them to take steps to ensure that commercial messages are not sent to e-mail addresses with specific domains designated by wireless providers as requiring express prior authorization for sending such messages. As we set out below, for senders of commercial e-mail messages to e-mail addresses with domain names specified as being for wireless commercial e-mail, this rule sets forth the required disclosures, the means of obtaining express verifiable permission to send such messages, and acceptable mechanisms for complying with the requirement to honor opt out requests.

It is important to remember that any message that is "transactional or relationship" as defined under the Act (such as order confirmation, billing statement, or warranty information notification regarding account or membership) or does not otherwise meet the definition of "commercial electronic mail message" will not be impacted by this rule, as such a message would fall outside of the definition of "mobile service commercial messages".

The rule becomes effective 30 days after publication in the Federal Register, which as of the date of this publication has not yet occurred. In addition, the FCC will conduct a subsequent rulemaking to implement the new wireless domains name registry (to be made available on the FCC’s web site) created by this rule. Thus, presumably, these rules regarding wireless spam will take effect and require senders to obtain express prior authorization as set forth in the rule; however, the obligations to cross reference the registry prior to sending e-mails and the specifics of the registry’s implementation will be determined at a later date.

Scope of Covered Messages

The CAN-SPAM Act directed the FCC to issue rules regarding "mobile service commercial messages," which are defined in the statute as a "commercial electronic mail message that is transmitted directly to a wireless device that is utilized by a subscriber of a commercial mobile service". The FCC adopted a definition under which a commercial e-mail message is presumed to be an MSCM if "it is sent or directed to any address containing a reference, whether or not displayed, to an Internet domain listed on the FCC’s wireless domain names list". Order at 46.

Any commercial e-mail message where the address to which it is sent or transmitted includes a reference to the Internet and is for wireless devices would be covered. The rule will apply to "Internetto- phone SMS" messages when they "include an Internet reference in the address to which the message is sent or delivered". Order at 8. This includes reference to an Internet domain whether or not it is displayed. In a footnote, the FCC specifically states that "[w]ireless carriers that provide Internet website and interfaces for the public to use to send Internet-to-phone SMS messages might want to warn users these provisions apply". Id. at n.55. Entities that send "tell-a-friend" messages should evaluate how this prohibition may impact such services.

The rule requires that senders of commercial e-mail messages not send messages to e-mail addresses with domains that are provided by a commercial mobile radio service (CMRS) provider for delivery to the subscriber’s wireless device unless they have obtained express prior authorization.⁶ To comply with this requirement, senders may not send e-mail messages to addresses that have a domain that is on the list of domain names maintained by the FCC.

The FCC will create a list of Internet domain names associated with CMRS subscribers and prohibit the sending of commercial messages to addresses using those domain names. Entities that initiate commercial messages "would be expected to check the domain name list to ensure that they are not sending MSCMs without express prior authorization". Order at 12. The FCC states that senders "will need to check the list on a regular basis to avoid sending MSCMs to the domain names on the list". Order at 11.

Senders of commercial messages "may use as a .’safe harbor’. defense proof that a specific domain name was not on the list more than 30 days before" the message was sent. Order at 13. This safe harbor will not serve as a defense for "willful" violations where any entity knowingly violates the prohibition even if it is sent within 30 days of the domain name appearing on the list. The prohibition will apply to an "entity on whose behalf the message is sent and to any other entity that knowingly transmits an MSCM without consulting the domain name list". Id.

Senders cannot send commercial e-mail messages to addresses with domains on the FCC list without obtaining "express prior authorization". The FCC declined to require that such authorization be obtained in writing; senders may obtain authorization orally, in writing, or electronically. If written authorization is obtained in paper form or via an electronic means (such as e-mail), it must include the subscriber’s signature and the e-mail address to which the MSCMs may be sent. If the authorization is made orally, senders are expected to take "reasonable steps" to ensure that such authorization can be verified. The Commission is clear that when oral authorization is obtained, "the burden of proof rests squarely on the sender". Order at 18. The Commission also recommends that businesses confirm the e-mail address when authorization is obtained by sending a confirmatory notice to the recipient requesting a reply. In addition, "senders are prohibited from sending any request for authorization to any wireless subscriber’s wireless devices". Id.

The FCC states that "[e]xpress prior authorization may not be obtained in the form of a ‘negative option’"... If the sender uses a web site to obtain authorization, "such authorization must include an affirmative action on the part of the subscriber, such as checking a box or hitting an ‘I Accept’ button.. Order at 19. Express prior authorization need only be obtained one time from the recipient and is valid until revoked. If, subsequent to an authorization, a recipient revokes the authorization, then the sender may not send messages after 10 days following the revocation. Id.

If a recipient gives authorization for a specific purpose, the authorization will not extend more broadly beyond the specific purpose. Id. Finally, "authorization provided to a particular sender will not entitle that sender to send MSCMs on behalf of third parties, including on behalf of affiliated entities and marketing partners". Order at 20.

At the time senders obtain express prior authorization, they are required to disclose to recipients that:

• the subscriber is agreeing to receive MSCMs sent to his wireless device from a particular sender;

• the subscriber may be charged by his wireless service provider for receipt of these messages; and

• the subscriber may revoke authorization to receive the MSCMs at any time.

This disclosure notice must be separate from any other authorizations in the document. Order at 20.

The statute requires that the FCC establish rules that "allow recipients of MSCMs to indicate electronically a desire not to receive future MSCMs from the sender". 15 U.S.C. § 7712(b)(2). The rules will require that "each MSCM have a functioning return electronic mail address or other form of Internet-based communication," and the "sender of an MSCM must provide the recipient with access to whatever mechanism they were given access to in order to grant express prior authorization". Order at 22. For example, if the sender received authorization for sending wireless messages at the web site, then it can fulfill this opt-out requirement by including a link to a web site at which the recipient can opt out of future messages. Similarly, if the sender received authorization through a short code mechanism, the sender must provide the recipient with a short code as a means to electronically opt out of future MSCMs from that sender. Such mechanisms must be available for 30 days following the sending of a message. The sender may not impose new requirements "beyond the means by which [the recipient] provided prior express authorization". Id.

All CMRS carriers, including small carriers, will be required to file with the Commission the names of all electronic mail domain names used to offer subscribers messaging specifically for mobile devices.

Carriers will be required to file updates to their listing with the Commission not less than 30 days before issuing subscribers a new or modified domain name. Carriers also will be required to remove any domain name that has not been issued to subscribers or is no longer in use within 6 months of placing it on the list. Order at 12.

The CAN-SPAM Act provided the FCC with authority, at its discretion, to exempt providers of commercial mobile services from the general prohibition against sending MSCMs. The FCC declined to create such an exemption. Therefore, providers of commercial mobile services that send MSCMs will be subject to the same rules as other senders. Order at 27.

This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.