EFF Amicus Letter to Calif. Supreme Court

in Ferguson v. Friendfinders Inc. (Feb. 15, 2002)

February 15, 2002

Honorable Ronald M. George, Chief Justice and the Associate Justices Supreme Court of California 350 McAllister Street San Francisco, CA 94102-4783

Re: Ferguson v. Friendfinders, Inc. (2002) 94 Cal.App. 4th 1255
California Supreme Court No. S104154
(First District Court of Appeal No. A092653)

Dear Chief Justice George and Associate Justices:

This letter of amicus curiae in support of a petition for review is respectfully submitted by the Electronic Frontier Foundation.

I. The Nature of the Applicant's Interest

The Electronic Frontier Foundation ("EFF") is a non-profit, civil liberties group working to protect rights in the digital world. EFF is based in San Francisco with members all over the United States, and maintains one of the most-linked-to Web sites (http://www.eff.org) in the world. EFF encourages and challenges industry and government to support free expression, privacy, and openness in the information society. EFF has litigated and filed amicus briefs in many Internet cases. Thus, EFF's interest in this case.

II. Why This Court Should Grant Review

The legal issue presented in this case is the constitutionality of California's anti-"spam" law, Business & Professions Code § 17538.4 ("§ 17538.4"). The problematic effect of the statute is its extraterritorial reach, which creates the potential for conflicting state regulation of unsolicited commercial e-mail ("UCE").

The Commerce Clause (U.S. Const., Art. I, § 8, cl. 3) encompasses an implicit or "dormant" limitation on the authority of states to enact legislation affecting interstate commerce. Healy v. The Beer Institute (1989) 491 U.S. 324, 326, n.1. Thus, a state statute that "has the 'practical effect' of regulating commerce occurring wholly outside that State's borders is invalid." Id. at 336 ("'Commerce Clause . . . precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the State'") (quoting Edgar v. MITE Corp. (1982) 457 U.S. 624, 642-43); Brown-Forman Distillers Corp. v. New York State Liquor Auth. (1986) 476 U.S. 578, 582 (New York liquor-price affirmation statute directly regulated out-of-state transactions in violation of Commerce Clause); NCAA v. Miller (9th Cir. 1993) 10 F.3d 633, 639 (issue is "potential interaction or conflict with similar statutes in other jurisdictions.") (striking down Nevada law that required specified procedures in NCAA hearings).

Although § 17538.4 appears geographically limited to in-state activity -- it applies only to the sending of UCE to California residents -- it has an extraterritorial "practical effect" for the simple reason that it is not possible to determine from a person's e-mail address where the person is or even lives. Sorkin, Technical and Legal Approaches to Unsolicited Electronic Mail (2001) 35 U.S.F. L.REV. 325, 380 n. 269 ("a sender generally cannot determine the location of a recipient if the only information he or she has is the recipient's e-mail address").

Accordingly, the statute creates strict liability. Anyone who does business in California and sends UCE must comply with § 17538.4 or risk violating the statute.

But while this is a case about UCE, the decision of the Court of Appeal has far greater implications for the Internet as a medium of speech. Because § 17538.4 is not limited to fraudulent or deceptive UCE and reaches protected commercial speech, the Court of Appeal's analysis implies that every state has jurisdiction to regulate e-mail because it may be addressed to a person or traverses a computer in that state. That an individual at one end of a communication might be unpredictably subjected to the law of a jurisdiction at the other end is a classic extraterritoriality concern.

The key point here is that under Healy, "direct" regulation of interstate commerce exceeds the inherent limits of a state's power. Such regulation is simply ultra vires, regardless of the balance of benefits and burdens, because it is reserved to Congress unless Congress says otherwise.

A. Why the case is important

Certain types of commerce demand consistent treatment and are therefore generally amenable to national rather than state regulation under the Commerce Clause. Thus, states may not impose burdensome regulations on the nations' railroads and highways. See Southern Pac. Co. v. Arizona (1944) 325 U.S. 761, 767 (state regulation of train length impeded flow of interstate commerce; "confusion and difficulty" would attend "unsatisfied need for uniformity"); Wabash St. L. & P. Ry. Co. v. Illinois (1886) 118 U.S. 557 (railroad rates exempt from state regulation); Bibb v. Navajo Freight Lines, Inc. (1959) 359 U.S. 520 (state statute requiring use of contour mudguards on trucks in Illinois violated Commerce Clause).

"[M]any courts and commentators have argued that the Internet itself is an instrument of interstate commerce." Klein, State Regulation of Unsolicited Commercial E-Mail (2001) 16 Berk. Tech. L. J. 435, 439; see, e.g., Am. Libraries Ass'n v. Pataki (S.D.N.Y. 1997) 969 F. Supp. 160, 173; id. at 169 ("the Internet is one of those areas of commerce that must be marked off as a national preserve to protect users from inconsistent legislation that, taken to its most extreme, could paralyze development of the Internet altogether."); Blake, Note, Destination Unknown: Does the Internet's Lack of Physical Situs Preclude State and Federal Attempts to Regulate It? (1998) 46 Clev. St. L. Rev. 129, 141-142; Bassinger, Note, Dormant Commerce Clause Limits on State Regulation of the Internet: The Transportation Analogy (1998) 32 Ga. L. Rev. 889; Burk, Federalism in Cyberspace (1996) 28 Conn. L. Rev. 1095, 1125-1126; cf. ACLU v. Johnson (10th Cir. 1999) 194 F.3d 1149 1162 ("certain types of commerce have been recognized as requiring national regulation. . . . The Internet is surely such a medium.") (following Pataki); Cyberspace Communications, Inc. v. Engler (E.D. Mich. 2001) 142 F.Supp.2d 827, 830-831 (following Pataki); Psinet, Inc. v. Chapman (W.D. Va. 2001) 167 F.Supp.2d 878, 890-891 (while "some advancement has been made" since Pataki, "it remains technologically infeasible for a Web site operator to limit access to online materials by geographic location").

Moreover, unlike railroads and highways, the Internet is a medium for speech. The Court of Appeal manifested no recognition that its analysis has dangerous implications for freedom of speech on the Internet. For instance, § 17538.4 simply regulates UCE -- not merely deceptive or fraudulent UCE. Worse, nothing in the Court of Appeal's analysis would limit its reach to UCE. Its dormant Commerce Clause analysis could apply to all e-mail. Such a result runs counter to the U.S. Supreme Court's holding in Reno v. ACLU (1997) 521 U.S. 844, which was rooted partly in extraterritoriality concerns. In Reno, the U.S. Supreme Court found that the Communications Decency Act was overbroad in part because a parent who sent birth control information in e-mail to out-of-state 17-year-old college student could be prosecuted even though "neither he, his child, nor anyone in their home community found the material" objectionable "if the college town's community thought otherwise." Id. at 878

B. The Court of Appeal erroneously found that § 17538.4 does not violate the dormant Commerce Clause

The states may not enact laws that unduly interfere with interstate commerce absent express Congressional authorization. The key feature of extraterritorial state statutes is that they exceed the inherent limits of a state's authority, whether or not they lead to inconsistent legislation. Healy, 491 U.S. at 336. Here, however, inconsistent legislation already exists and the inconsistency problem is likely to worsen over time.

1. § 17538.4 is per se invalid because it directly regulates interstate commerce entirely outside of California

The sending of e-mail over the Internet qualifies as interstate commerce. See Klein, supra, 16 Berk. Tech. L. J. at 451 & n. 100 (citing cases). Therefore, state regulation of e-mail over the Internet is generally subject to dormant Commerce Clause scrutiny.

Clearly, "a statute that directly controls commerce occurring wholly outside the boundaries of a State exceeds the inherent limits of the enacting State's authority and is invalid regardless of whether the statute's extraterritorial reach was intended by the legislature. The critical inquiry is whether the practical effect of the regulation is to control conduct outside the boundaries of the State." Healy, 491 U.S. at 336.

The extraterritorial effects of § 17538.4 are plain on its face; its requirements apply to any "person or entity conducting business in this state." § 17538.4 (a). Under classic "minimum contacts" principles, many out-of-state persons and entities do business in California.

The Court of Appeal, however, did not understand the practical effects of § 17538.4. The Court of Appeal reasoned that the statute was geographically limited, saying that § 17538.4 "does not regulate the Internet or Internet use per se. It regulates individuals and entities who (1) do business in California, (2) utilize equipment located in California and (3) send UCE to California residents. The equipment used by electronic-mail service providers does have a geographic location. And e-mail recipients are people or businesses who function in the real world and have a geographic residence." Ferguson, 94 Cal.App.4th at 1264.

The Court of Appeal failed to grasp that the statute has significant extraterritorial practical effects that must be considered here. Edgar v. MITE Corp., 457 U.S. at 642-643 ("The Commerce Clause . . . precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the state.")

The practical extraterritorial effects occur for two reasons. First, with respect to prong (3), e-mail addresses do not correspond to geographical location. Amicus EFF is located in San Francisco, but not all "eff.org" e-mail addresses belong to San Francisco or even California residents. Some of EFF's board members use "eff.org" e-mail addresses even though they reside in other states. It is quite likely that "aol.com" e-mail addresses belong to residents of every state.

Indeed, a benefit of an e-mail address is that you can keep the same address no matter where you are physically. The obvious analogy is to a person's cellular telephone number, which a person may keep even if he or she moves to another state. And there is no national directory of e-mail addresses that can be checked to find out where the "owner" of a particular e-mail address lives. Recent Cases, Constitutional Law--Dormant Commerce Clause--Washington Supreme Court Upholds State Anti-Spamming Law.--Washington v. Heckel, 24 P.3d 404 (Wash. 2001), Cert. Denied, 70 U.S.L.W. 3193 (U.S. Oct. 29, 2001) (No. 01-469) (2002) 115 Harv. L. Rev. 931, 935 ("given the current state of technology, it is virtually impossible to determine the geographic location of any particular email address") (fn. omitted); Thus, prong (3) above does not, in practical effect, create a geographical limit.

Second, prong (2) above, which limits the applicability of § 17538.4 to e-mail that uses equipment located in California, is plagued by the same problem. The Court of Appeal believed otherwise, for two reasons: first, by requiring the use of California equipment, "our Legislature ensured that the statute would not reach conduct occurring 'wholly' outside the State"; second, because it may be possible to determine the geographic residence of an e-mail recipient. Ferguson, 94 Cal.App.4th at 1265.

Neither reason works. To use EFF as an example again, e-mail sent to anyone at an "eff.org" e-mail address will be processed by EFF's mail servers, which are located in California -- whether or not the recipient is actually in California. This effect is even more pronounced for national e-mail service providers that use equipment in many states, because no e-mail sender can know in advance the path that e-mail will take. As already noted, there is no "white pages" for the Internet that discloses the residence that corresponds to a particular e-mail address.^[2] And there is certainly none that could track all "equipment" used in the process. Goldsmith & Sykes, The Internet and the Dormant Commerce Clause (2001) 110 Yale L.J. 785, 813 ("Because there is no cost-effective way (at present) to identify e-mail addresses by geography, he must take these steps even for e- mail recipients in jurisdictions where these steps are not required.").

As a result, neither prong (2) nor prong (3) in actuality limits the practical effect of § 17538.4 to California. Instead, the practical effect of § 17538.4 is that any entity that sends unsolicited e-mail and does business in California must comply with § 17538.4 or risk violating it.

The Court of Appeal sought to evade this problem by labeling an e-mail sender's decision to comply with § 17538.4 in the face of such uncertainty as a "business decision" that "simply does not establish that § 17538.4 controls conduct occurring wholly outside California." Ferguson, 94 Cal.App.4th at 1265.

But this evasion is disingenuous. After all, many extraterritorial effects can be termed "business decisions." In Healy, for instance, the Connecticut price-affirmation statute and a Massachusetts beer-pricing statute taken together meant that a brewer could "undertake competitive pricing based on the market realities of either Massachusetts or Connecticut, but not both." Healy, 491 U.S. at 338 (citation and quotation marks omitted). Clearly, the brewer's choice is a "business decision," but the point of the dormant Commerce Clause is that states may not put the brewer to such a choice.

The Court of Appeal tried to distinguish Pataki by noting that the New York statute in that case applied to all Internet activity. But as amicus has just shown, this distinction is immaterial. Even when the only Internet activity being regulated is the sending and receiving of e-mail, interstate commerce is inevitably affected.

Similarly, the Court of Appeal's reliance on Hatch v. Superior Court (2000) 80 Cal.App.4th 170 is misplaced. The Hatch court found that Pataki was not controlling mainly because the statute in Hatch, unlike that in Pataki, contained the element of "intent to seduce." Hatch, at 195. The Hatch court essentially characterized communication for purposes of seduction as a form of conduct, not speech. Indeed, the Hatch court observed that "a ban on the simple communication of certain materials may interfere with an adult's legitimate rights." Ibid. Although § 17538.4 does not ban communication, it is closer to Pataki than Hatch because § 17538.4 has no scienter element.

Indeed, the Washington statute in Heckel, supra, survived dormant Commerce Clause scrutiny in part because it contained a scienter element. Rev. Code of Wash. 19.190.020(1) ("No person may initiate the transmission ... of a commercial electronic mail message from a computer located in Washington or to an electronic mail address that the sender knows, or has reason to know, is held by a Washington resident.") (emphasis added) (quoted in Heckel, 24 P.3d at 407). Indeed, Hatch and Heckel, taken together, strongly suggest that § 17538.4 fails dormant Commerce Clause scrutiny because it lacks any scienter element.

Finally, although the Court of Appeal relied heavily on the analysis in Heckel,^[3] the Washington statute targeted "deceptive" spam that uses a third-party's domain name without permission, misrepresents or disguise the e-mail's point of origin or transmission path, or uses a misleading subject line. Id. at 409-411. § 17538.4 does not.

2. The Court of Appeal improperly downplayed the problems of inconsistent state legislation.

The "practical effects" that must be considered in a dormant Commerce Clause challenge include not only the statute's own direct effects but also the hypothetical situation if many states, or even every state, "adopted similar . . . inconsistent legislation." Healy, 491 U.S. at 336.

The Court of Appeal defended its analysis by noting that the existing legislation of most states is not inconsistent with California law. It also dismissed as insubstantial the one present actual conflict with Pennsylvania law -- but only because the Court of Appeal believed that the geographic limitations of § 17538.4 were effective. As EFF has already shown, however, these limits are not effective.

Equally important, the inconsistency among existing statutes is not the issue under Healy, especially in a facial challenge. Courts must analyze "potential interaction or conflict with similar statutes in other jurisdictions." NCAA, 10 F.3d at 639. California and Pennsylvania now require that "adult" UCE have the slightly different "ADV:ADLT" and "ADV-ADLT" as the first characters of the subject line. Would "the doctrine of substantial compliance" would be a defense, Ferguson, 94 Cal.App.4th at 1266, if another state required "ADV: NOT FOR KIDS"?

Nothing in the Court of Appeal's analysis prevents states from requiring labels for other kinds of e-mail. More state content-labeling requirements is a likely result. Perhaps another state will require "ADV-GAMBLING" for casino ads or "ADV: MED" for Internet prescriptions.

Nor does the problem end with the question of how to label one's speech. States may adopt inconsistent definitions of what e-mail must be labeled. What is "adult" material will vary among states, judicial districts, and communities. Cf. United States v. Thomas (6th Cir. 1996) 74 F.3d 701, 711 (community standards of Western District of Tennessee); United States v. California Publishers Liquidating Corp (N.D. Tex. 1991) 778 F. Supp. 1377 (community standards of Dallas Division of Northern District of Texas)

Indeed, the U.S. Supreme Court in Healy not only considered what would happen if every state adopted such statutes, but then condemned the hypothetically resultant practical effect for a reason independent of inconsistency: "This kind of potential regional and even national regulation . . . is reserved by the Commerce Clause to the Federal Government and may not be accomplished piecemeal through the extraterritorial reach of individual state statutes." Id. at 340; id. at 343 (holding retrospective price-affirmation statutes unconstitutional because they require that pricing decisions reflect non-local market conditions "that would be irrelevant absent the binding force of the affirmation statutes").

III. Conclusion

The Court of Appeal misconstrued dormant Commerce Clause jurisprudence without considering the potential effects of its reasoning on Internet speech. The petition for review should be granted in order to correct these errors.

Sincerely yours,

Lee Tien
Attorney for Amicus Curiae
Electronic Frontier Foundation

Endnotes

1. The Court of Appeal misleadingly suggested that California courts have generally rejected the reasoning of Pataki, citing People v. Hsu (2000) 82 Cal.App.4th 976 and Hatch v. Superior Ct. (2000) 80 Cal.App.4th 170. But these cases merely distinguished Pataki on its facts because the statute at issue in Pataki had no scienter element. Pataki itself observed that a scienter element mattered. Pataki, 969 F.Supp. at 179. Of course, § 17538.4 lacks any scienter element.
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2. The Court of Appeal spoke of a registry of e-mail addresses, but EFF is unaware of any state that maintains a registry of all of its residentsÕ e-mail addresses. The state of Washington maintains a database of persons who do not wish to receive UCE. Goldsmith & Sykes, supra, 110 Yale L.J. at 812 n. 117. Such a database does not even come close to being a registry of every state resident's e-mail address. Ironically, such a database would likely itself entail a significant threat to personal privacy.
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3. See, e.g., Ferguson, 94 Cal.App.4th at 1267 (citing Heckel for proposition that harms of UCE Òexacerbated by the use of deceptive tacticsÓ); id. at 1268 ("We agree with the Heckel court that protecting a state's citizens from the economic damage caused by deceptive UCE constitutes a legitimate local purpose.") (internal quotation marks omitted).
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