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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

Federal Trade Commission v. Accusearch, Inc., d/b/a Abika.com, and Jay Patel

Case No. 06-CV-105-D (D. Wy., September 28, 2007)

Court finds defendants guilty of engaging in unfair business practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. Section 45(a), by obtaining and selling confidential customer phone records without the affected customers’ authorization.  The Court found that defendant Abika.com arranged for the purchase of these phone records from third party vendors, which they subsequently resold via their website to third parties.  Illegal means were used by these vendors to obtain the confidential phone records, a fact of which, the Court found, defendant was aware.

In reaching this result, the Court rejected defendants’ claim that they were immunized from suit by application of Section 230 of the Communications Decency Act (“CDA”).  Defendants attempted to come within the ambit of the CDA by casting themselves as a search engine that put those seeking to purchase phone records in touch with ‘researchers’ seeking to sell them.  This characterization of their conduct was rejected by the Court.   The Court held that CDA immunity was not available to defendants because the claims at issue did not seek to treat them as the publisher of information, a prerequisite to such immunity.  Rather, they arose out of defendants’ purchase and resale of confidential information to third parties that was obtained through illegal means.  The Court further held that CDA immunity was not available because of defendants’ role in causing the information at issue to be obtained.  As such, defendants were held to have ‘participated in the creation or development of the information, and thus do not qualify for Section 230 immunity.’

Finally, the Court rejected defendants’ claim that the FTC was equitably estopped by its prior failure to prosecute phone record brokers from doing so here.  Such alleged inactivity was insufficient to estop the government from enforcing the laws of the land.

Defendant Accusearch operates a website at Abika.com.   Accusearch is owned by its President, defendant Jay Patel.  At its website, Abika offers for sale a variety of information products, including records of telephone call details.  The Court found that defendant purchased these phone records from third party vendors, and resold them to its customers.  It further found that these third party vendors used false and fraudulent means to obtain these records without the consent of the consumer.  Said the Court:

Because federal law makes consumer phone records confidential and prohibits their unauthorized release, the only way a third party can obtain a consumer’s phone records without the consumer’s permission , or as otherwise authorized by law, is through theft or deception.

The Court further held that defendants were aware that such false and fraudulent means were used to obtain the phone records at issue.

The FTC commenced this suit, charging that defendants’ conduct constituted an unfair business practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. Section 45(a).  The Court agreed.

To establish an unfair business practice, the FTC “must establish 1) that the practice complained of causes or is likely to cause substantial injury to consumers; 2) which is not reasonably avoidable by the consumers themselves; and 3) is not outweighed by countervailing benefits to consumers or competition.”  The unfair business practice at issue was “defendants’ obtaining and selling of confidential consumer phone records where that practice was necessarily accomplished through illegal means.” 

The Court held the FTC established each of the requisite elements necessary to establish that defendants were engaged in unfair business practices.  The resale of consumer phone records caused consumers ‘substantial injury’ by exposing them to stalkers and harassers, causing them to expend increased funds to switch phone carriers and obtain security of those records, and causing consumers emotional distress by the unauthorized disclosure of such phone records.  The injury at issue clearly was unavoidable by consumers.  Abika obtained these records despite considerable efforts by consumers to keep them private.  And finally, there was no countervailing benefit to consumers or competition by defendants’ actions.

In finding defendants guilty of violating Section 5(a) of the FTC Act, the Court rejected defendants’ claim that they were immunized from prosecution by Section 230 of the Communications Decency Act.  Defendants argued that they were merely a search engine that allowed parties seeking phone records to connect with parties seeking to sell such records.  As such, argued defendants, they were being prosecuted for publishing information – the phone records at issue – supplied by third parties for which they could not be held liable under the CDA.

To be entitled to immunity under the CDA, a defendant must establish “1) that it is a provider or user of a interactive computer service; 2) the claims asserted ‘treat’ the defendant as the publisher or speaker of information; and 3) the published information was provided by another information content provider (i.e. the defendant itself did not create or develop, in whole or in part, the information content at issue.)”

The Court held the CDA inapplicable to the case at bar because the claims at issue did not seek to treat defendants as the publisher of information.  Rather, they sought to hold defendants liable for “advertis[ing] the availability of phone records, solicit[ing] orders, purchas[ing] the records from third party sources for a fee and then resold them to end-consumers.”  By holding defendants responsible for such conduct, held the Court, defendants were not being treated as a ‘publisher’ of the phone records.

The Court held the defendants were also not entitled to immunity under the CDA because of the role they played in the creation of the content at issue.  Under the CDA, a party cannot claim immunity if it is “responsible, in whole or in part, for the creation or development of information provided through the internet …”.  Here, the Court held that by soliciting requests for the phone records, and purchasing them from third parties, defendants were responsible, in whole or in part, for their creation, and hence not entitled to immunity under the CDA.  Said the Court:

Where a defendant contributes to and shapes the content of the information at issue, there is no immunity under the CDA. … The phone records at issue … clearly were ‘created’ … by various telephone companies for lawful purposes.  As a result of Defendants’ business efforts, they were subsequently misappropriated and ultimately transmitted via Defendants’ website to end-consumers.  While Defendants made admittedly few changes to the records themselves, the Court finds that by soliciting requests for such phone records and purchasing them for resale, defendants ‘participated in the creation or development of the information, and thus do not qualify for Section 230 immunity.

Finally, the Court rejected defendants’ argument that the FTC was equitably estopped from prosecuting defendants for selling phone records because of its purported failure to prosecute others for such misconduct.  To establish such a claim, which is ‘generally disfavored,’ a defendant must, at a minimum establish some “affirmative misconduct on the part of the government,” which defendant totally failed to do here.  Said the Court:

The circumstances and facts of this case present no justification for applying the estoppel defense to the FTC.  Defendants rely instead on an ‘everyone else is doing it’ justification.  The alleged inaction on the part of the FTC constitutes no more than the Commission’s exercise of discretion and judgment in the allocation of agency time and resources and will not form the basis of an equitable estoppel defense.

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