Designer Skin LLC v. S & L Vitamins, Inc., et al.
Hotmail Corporation v. Van Money Pie Inc., et al.
C98-20064 (N.D. Ca., April 20, 1998)
Plaintiff provides free e-mail services to over 10 million customers under its trade name and service mark "hotmail." To utilize plaintiff's services, one must agree to Hotmail's Terms of Service, which expressly prohibit the use of Hotmail e-mail accounts to facilitate the transmission of unsolicited commercial e-mail, otherwise known as spam. Users agree to these Terms of Service via a click-wrap agreement, in which the customer, after being given the opportunity to view plaintiff's Terms of Service on his computer, clicks a box indicating his assent to be bound thereby.
Defendants used the services of third parties to send spam which advertised, among other things, allegedly pornographic materials. Defendants altered the return addresses of this e-mail to falsely indicate that it was sent from a Hotmail account. This was accomplished by using plaintiff's mark in the e-mail's reply address. Numerous recipients of defendants' spam responded with complaints, which were sent to accounts defendants had set up at Hotmail for the receipt of e-mail. This utilized much of the finite capacity of plaintiff's computer network.
Plaintiff moved to enjoin defendants both from sending "spam" which falsely stated it came from plaintiff's service, and from using Hotmail accounts as mail boxes for "spam" reply. Plaintiff alleged that defendants' conduct infringed and diluted plaintiff's service mark, violated the Computer Fraud and Abuse Act, and constituted both unfair competition and breach of plaintiff's Terms of Service. The Court agreed and issued a preliminary injunction, enjoining defendants from continuing this course of conduct.
Defendants used plaintiff's "Hotmail" mark in the reply address of spam defendants sent. The court found that this was likely to confuse members of the public by causing them to think that plaintiff was involved in sending them unwanted spam when, in fact, it was not. As such, plaintiff had established it was likely to prevail on its claims of false designation of origin and unfair competition.
The Court also found that defendants' conduct was likely to violate the Computer Fraud and Abuse Act, and constituted a trespass on chattel. The former act, 18 U.S.C. §1030, prohibits persons from knowingly causing the transmission of information that intentionally causes damage to protected computers. Defendants committed the requisite injury to plaintiff's computers by causing spam e-mail to bounce back to plaintiff's computers by use of a false return address. This conduct also caused a prohibited trespass on plaintiff's chattels, namely its computers.
The most interesting facet of the Court's decision was its holding that "the evidence supports a finding that plaintiff will likely prevail on its breach of contract claim." This contract was contained in plaintiff's Terms of Service, which prohibited use of plaintiff's service to facilitate the transmission of spam. This was breached by defendants' use of Hotmail accounts and the Hotmail mark in their transmission of spam. To reach this conclusion, the Court first had to hold that the plaintiff and defendants were parties to an enforceable agreement. By so doing, the Court indicated its willingness to uphold the validity of a click-wrap agreement, as defendants agreed to be bound by plaintiff's Terms of Service solely by indicating their assent by clicking "I agree" after being presented with an opportunity to view the Terms of Service.
Lastly, the Court found that plaintiff had been irreparably injured by defendants' conduct "because of the loss of good will and reputation arising from customer confusion about the source of defendants' spam e-mails and/or plaintiffs's affiliation or sponsorship of them."