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BUSINESS LAW SECTION

CAlawyers.org/Business
INTELLECTUAL PROPERTY LAW SECTION
CAlawyers.org/IP

TO: Hon. Ed Chau CAlawyers.org/Business


Member of the Assembly
State Capitol, Room 5016
Sacramento, CA 94249

FROM: The Internet and Privacy Law Committee of the Business Law Section and the
Executive Committee of the Intellectual Property Law Section

DATE: June 25, 2018

RE: AB 2546 (Chau), as amended June 20, 2018 – Oppose Unless Amended

The California Lawyers Association’s Internet and Privacy Law Committee of the Business Law
Section and Executive Committee of the Intellectual Property Law Section (collectively, the
“CLA Sections”) oppose AB 2546 unless amended.

The CLA Sections agree with the need to update the laws surrounding unsolicited commercial
email. We have monitored AB 2546 as it has gone through committee review. As part of our
charter to provide guidance on legislative issues that fall within our areas of legal expertise, we
believe the following changes need to be made to AB 2546 in order for it to pass judicial muster
and to accomplish the overarching goal of better regulating unscrupulous spam advertisers.

AB 2546 seeks primarily to amend Cal. Business & Professions §17529.1 and §17529.5,1 which
collectively govern commercial email advertising.

The CLA Sections are opposed to AB 2546 in its current form for the following reasons:

1. The expansion of the definition of “commercial email advertisement” in §17529.1 to


include categories of advertisements beyond those conventionally considered to be
“commercial” advertisements for goods and services risks preemption of §17529.1, at
least as applied to certain of the expanded categories. In particular, the inclusion of
“credit, stocks, bonds” and “extension of credit” refer to advertisements for financial
products that are regulated by the U.S. Securities and Exchange Commission, the

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All references to code sections are to the California Business & Professions code except as otherwise noted.

415-795-3347 | BusinessLaw@CAlawyers.org | 180 Howard Street, Suite 410, San Francisco, CA 94105
415-795-7104 | IP@CAlawyers.org | 180 Howard Street, Suite 410, San Francisco, CA 94105
Consumer Financial Protection Bureau, the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of
Thrift Supervision. To the extent that §17529.1 seeks to regulate advertisements for
those financial products and services, it is likely subject to either express or field
preemption as applied to advertisements for those services.

2. AB 2546’s change to §17529.5(b)(2) would expand liability for the statutory penalties to
materially false and misleading content in the body of the email, without requiring any
actual damages be suffered by the plaintiff. This expansion is unnecessary since email
recipients already have a remedy for “untrue or misleading” statements under § 17500.
This amendment, however, would circumvent (i) the requirements under § 17500 that a
plaintiff demonstrate either intent or a reckless disregard for the truth and (ii) the
requirement under Proposition 64 that a plaintiff have “suffered injury in fact and has lost
money or property as a result.”

Proposition 64 was enacted overwhelmingly by the voters of California in response to


abusive lawsuits in which no one was injured. The proposed change would create a
separate strict liability standard solely for email advertisements and subject them to the
abuses of vexatious litigants that Proposition 64 sought to eliminate. The CLA Sections
believe there is no rational basis for making such a distinction.

3. The CLA Sections are concerned with the provision in §17529.5(c) that requires courts to
treat header information, such as the from line and subject line, separately from other
parts of the email, as this conflicts with existing case law and may be subject to pre-
emption under the CAN-SPAM Act. In Rosolowski v. Guthy-Renker, LLC, 230
Cal.App.4th 1403 (2014), a California Court of Appeal held that a from line that does not
specifically identify the name of the advertiser is not misleading if the identity of the
sender is readily ascertainable from the body of the email. While the Legislature may
adopt §17529.5(c) as proposed in an attempt to overrule Rosolowski, that statutory
change would not effectively change whether content in the from or subject lines were
materially and actionably false and misleading when considered in connection with the
body of the email. The 9th Circuit, in Gordon v. Virtumundo (2009) 575 F.3d 1040,
adopted the standard that the header information must be materially false or misleading in
the context of the entire commercial email. If the from and subject lines are not
materially false or misleading when considering the commercial email in totality, then the
CAN-SPAM Act’s preemption applies. There are likely few, if any, instances in which
the proposed §17529.5(c) would change the outcome of a potential case that would not be
preempted by the CAN-SPAM Act. All this does is invite pointless litigation.

4. Further, the CLA Sections generally welcome the California Legislature clarifying the
provision of §17259.5(b)(2) that reduces mitigated damages for commercial email
advertisers that use “due care, practices and procedures reasonably designed to
effectively prevent” emails in violation of §17529.5. Proponents argue that the
amendment would assist marketers by explaining what steps to take to benefit from the
reduction in damages, but the language makes clear that its intent is to make the exercise
of such a defense more difficult by imposing burdensome training and record keeping
requirements.

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5. In addition, the proposed changes to the relevant section of §17529.5(d)(2) in AB 2546
would only further obfuscate what a law-abiding business must do to show “due care.”
The amended language refers to “training,” which might be meaningless as to sole
proprietors with no employees, which is a common form of business organization for
email advertisers (as it is across California businesses in many industries). The advertiser
is also to keep “records regarding the effectiveness of the implementation” without clarity
as to what the “effectiveness” should be directed towards, or what the records should
include. The proposed language also requires that the advertiser take “reasonable steps to
address any compliance gaps identified in the assessment” without requiring any
“assessment” or identifying what “gaps” should be identified in relation to the
“assessment.” In short, the proposed revisions to the “due care” provision in the existing
§17529.5 are at best confusing, and should be substantially revised or removed prior to
passage of this bill.

Although alternative language could potentially be crafted, the CLA Sections suggest
replacing proposed §17529.5(d)(2) in AB 2546 with the following:

“If the court finds that the defendant established and implemented, with
due care, practices and procedures reasonably designed to effectively
prevent unsolicited commercial e-mail advertisements that are in violation
of this section, the court shall reduce the liquidated damages recoverable
under paragraph (1) to a maximum of one hundred dollars ($100) for each
unsolicited commercial e-mail advertisement, or a maximum of one
hundred thousand dollars ($100,000) per incident.

(A) A defendant may prove it has established and implemented such


practices and procedures with due care if the defendant has: established
policies and procedures prohibiting the violation of this section, provided
commercially reasonable training or received commercially reasonable
training to its relevant employees on the prevention of violations of this
section, required compliance with the terms of this section in its contracts
with third parties engaged in sending commercial email on its behalf, and
kept commercially reasonable records evidencing such practices and
procedures.”

In addition to the specific points above, the CLA Sections urge the Legislature to be
cognizant that commercial emails contain commercial speech, and that California has a
Constitutional obligation to respect the free speech of businesses advertising from
California and to the people of California. Pursuant to the U.S. Supreme Court’s decision
in Central Hudson Gas & Elec. Co. v. Pub. Serv. Com’n, 447 U.S. 557 (1980), any laws
limiting truthful speech about legally permitted commercial transactions must relate to a
substantial governmental interest, must directly advance that governmental interest, and
may not be more extensive than is necessary to serve that governmental interest.

The CLA Sections believe that in its present form, AB 2546 may fail to directly advance
the professed governmental interest in reducing “spam” emails and may be substantially
more extensive than is necessary to serve that governmental interest by affecting truthful

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and non-misleading content of emails, as noted above. Those potential failures may open
AB 2546, and possibly the entirety of California’s statutory efforts to regulate
commercial email, to a successful constitutional challenge on free speech grounds.

We appreciate your consideration of these comments. Please do not hesitate to contact us if you
have questions or would like to discuss this bill further. We would also be happy to assist in
crafting amendments or revisions to AB 2546 beyond those provided in this letter, upon request.

CONTACTS:

Internet and Privacy Law Committee

Jared Gordon
McCormick Barstow, LLP
(559) 433-1300 main
(559) 433-2250 direct
Jared.Gordon@mccormickbarstow.com

Intellectual Property Law Section

Bennet G. Kelley
Internet Law Center
(310) 452-0401
bkelley@internetlawcenter.net

California Lawyers Association

Mark Weideman
Weideman Group, Inc.
(916) 600-2288
mark@weidemangroup.com

Saul Bercovitch
Director of Governmental Affairs
California Lawyers Association
(415) 795-7326
saul.bercovitch@calawyers.org

cc: Hon. Hannah-Beth Jackson, Chair, Senate Judiciary Committee


Mike Petersen, Senate Republican Office of Policy