California Business and Professions Code Section 17200 -- The Law That Roared
Internet litigation is often filed in California. This powerful law intended to advance the public interest, California Business & Professions Code § 17200 et. seq., acquires great significance in the context of Internet litigation. Section 17200 (and related statutes) allows any individual or entity that is the victim of an “unfair business practice” or of “deceptive advertising” to sue for injunctive relief, damages, “restitution of unlawful gains,” attorney's fees, and other penalties. It further makes it an unlawful practice to violate virtually any regulatory law respecting trade or industry, and beyond that, even to just ordinary bad business behavior. When all else fails, you may still have a B & P Code claim.
In the Sex.Com case, § 17200 provided the basis for an award of $45 Million of restitution to the original registrant of the Sex.Com domain name, the amount of money the court determined the defendant had made from wrongfully possessing the domain name for five years. This award was made even though there was no showing by the original Sex.Com registrant who won the lawsuit, that if the name had not been stolen, he would have generated $45 Million in profits. Quite the contrary — the original registrant allowed the domain name to lie fallow for the entire year and a half after he originally registered it. Nevertheless, under § 17200 it is preferable to give a windfall to a plaintiff than to allow a thief to escape with ill-gotten gains. Section 17200 directs that a “restitutionary remedy” be applied to thefts of commercial property to deter theft. Subsequent rulings in other cases involving the diversion of Internet traffic have upheld the application of B & P Code § 17200 to a variety of situations outside the well-established ruts of simple consumer fraud. There is every indication that § 17200, and similar statutes in other states, will continue to be a powerful vehicle for protecting property rights yet to be discovered in the Internet universe.
Using § 17200, it is easy to view current Internet frauds against the backdrop of old scams. One famous U.S. Supreme Court case, International News v. Associated Press, involved the theft of an entire newspaper, on a daily basis, using a newfangled machine called a telegraph. Every day, the plaintiff would research, report and print the news on the East coast, and the defendant would have these telegraph operators send it all across the nation to San Francisco in dots and dashes, where the defendants would publish their own newspaper at zero cost in time and shoe-leather. The Supremes disposed of the AP's arguments simply, saying that if something of value is produced by effort or ingenuity, then taking it for nothing is unfair competition. This rule has become part of the law of § 17200. Strong judicial support for rules of commercial fairness help preserve an honest marketplace, for honesty will only flourish when it can call upon the law to protect the value of work that has been honestly performed. In California, that is still the law.
Section 17200 thus gives a powerful incentive to anyone doing business in California to do so in a way that is above board and non-deceptive. For example, in May, 2002, the California Supreme Court held that the Nike Corporation, which manufactured products using subcontractors in China, Vietnam, and Indonesia, could be sued if it falsely informed the California consuming public that it had committed no labor violations in those countries, in order to keep California consumers buying Nike shoes. I found out about this case when I was reading an outraged editorial in the Wall Street Journal, whose anonymous author seemed to believe that it was the natural born right of every corporation to “exercise its free speech,” which in WSJ-speak apparently means to say any damn thing, in order to protect its business interests. The editorial expressed outrage that the California Supreme Court could deem Nike's statements to be mere “commercial speech,” not deserving of the highest protections available under the First Amendment; however, I find the California Supreme Court's reasoning unsurprising, because the only thing a corporation does is generate profits, all of its activities are commercial, and anything it says is for the purpose of making a profit or avoiding a loss. Since every statement made by a corporation is in furtherance of its commercial activities, any law that requires all such statements to be truthful sounds like a good idea to me. And in California, that is the law.
Another interesting case that recently was filed in California under Section 17200 is a class action suit against Direct TV, the satellite television provider. According to the lawsuit, Direct TV undertook a civil campaign of suing and seizing records from all of the companies that were selling substitute microchips that would allow non-subscribers to obtain Direct TV programs. According to a Wall Street Journal article, Direct TV then sent threatening letters to 100,000 people, accusing them of stealing satellite content. Many of those 100,000 people claim they had nothing to do with stealing satellite television programs from Direct TV, and have called it a case of widespread harassment and abuse of seized data.
Direct TV of course has responded by asking the court to throw the case out, claiming that it is a frivolous attempt to hold up Direct TV; however, I find it interesting that Direct TV is represented by the Quinn Emanuel law firm, infamous for its aggressive prosecution of anyone who utilizes the “Barbie” name in ways that Mattel doesn't like. Ex parte seizures are their forte, and their hardball methods raise eyebrows even in L.A.'s legal community. Additionally, Direct TV's “office of signal integrity” is headed by a former FBI agent named Larry E. Rissler, who first attacked the problem of signal decryption by transmitting an electronic pulse designed to destroy illegally programmed chips, a project that backfired when hackers responded to the widespread damage by offering replacement devices on their websites. When responding to the charge that the company's tactics were overbroad and abusive, Rissler dipped into his counter-espionage knowledge, and responded that “simple possession of certain kinds of satellite-signal decryption equipment has been outlawed by federal wiretapping laws.” So, if you didn't know that stealing satellite TV could expose you to criminal liability for illegal wiretapping, tell them you heard it first from Larry Rissler. And stay tuned here to find out how this lawsuit turns out.
To sum up then, for Internet merchants offering goods and services in the California market, it is important to understand that § 17200 and related statutes make it unlawful to advertise any product or service by making statements “that will have a tendency to deceive” the consumer. Thus, the deceptive advertising aspect of the statute creates a fraud claim in which it is not necessary to prove that anyone was actually induced to make a purchase.
The reach of § 17200 will apply to any Internet merchant who injects himself into the stream of commerce in California. One of the most important things to understand about Section 17200 is that it is a law made solely for judges to apply. Section 17200 does not give a plaintiff the right to try their claims to a jury. It puts all the power in the hands of a judge, allowing one person to seize and order the disposition of any property that comes within his or her power. To implement a restitutionary remedy, a judge can seize bank accounts and other assets. When a federal judge wields this authority, that means that any order made is automatically enforceable through the federal system, with its obliging U.S. Marshal service ready to serve process and seize property. So in a sense, California law becomes the law of the land. If you are making sales in California through an online business, you are exposed to the reach of § 17200, and should be advised of the consequences of running afoul of its restrictions. In the Legal Links you will find links to the statute and online resources concerning its interpretation. § 17200 has been extensively studied, and you can learn a lot about the scope of its application from perusing existing online resources. To obtain specific advice concerning the operation of your business in the context of § 17200, please arrange a consultation.
In the Sex.Com case, § 17200 provided the basis for an award of $45 Million of restitution to the original registrant of the Sex.Com domain name, the amount of money the court determined the defendant had made from wrongfully possessing the domain name for five years. This award was made even though there was no showing by the original Sex.Com registrant who won the lawsuit, that if the name had not been stolen, he would have generated $45 Million in profits. Quite the contrary — the original registrant allowed the domain name to lie fallow for the entire year and a half after he originally registered it. Nevertheless, under § 17200 it is preferable to give a windfall to a plaintiff than to allow a thief to escape with ill-gotten gains. Section 17200 directs that a “restitutionary remedy” be applied to thefts of commercial property to deter theft. Subsequent rulings in other cases involving the diversion of Internet traffic have upheld the application of B & P Code § 17200 to a variety of situations outside the well-established ruts of simple consumer fraud. There is every indication that § 17200, and similar statutes in other states, will continue to be a powerful vehicle for protecting property rights yet to be discovered in the Internet universe.
Using § 17200, it is easy to view current Internet frauds against the backdrop of old scams. One famous U.S. Supreme Court case, International News v. Associated Press, involved the theft of an entire newspaper, on a daily basis, using a newfangled machine called a telegraph. Every day, the plaintiff would research, report and print the news on the East coast, and the defendant would have these telegraph operators send it all across the nation to San Francisco in dots and dashes, where the defendants would publish their own newspaper at zero cost in time and shoe-leather. The Supremes disposed of the AP's arguments simply, saying that if something of value is produced by effort or ingenuity, then taking it for nothing is unfair competition. This rule has become part of the law of § 17200. Strong judicial support for rules of commercial fairness help preserve an honest marketplace, for honesty will only flourish when it can call upon the law to protect the value of work that has been honestly performed. In California, that is still the law.
Section 17200 thus gives a powerful incentive to anyone doing business in California to do so in a way that is above board and non-deceptive. For example, in May, 2002, the California Supreme Court held that the Nike Corporation, which manufactured products using subcontractors in China, Vietnam, and Indonesia, could be sued if it falsely informed the California consuming public that it had committed no labor violations in those countries, in order to keep California consumers buying Nike shoes. I found out about this case when I was reading an outraged editorial in the Wall Street Journal, whose anonymous author seemed to believe that it was the natural born right of every corporation to “exercise its free speech,” which in WSJ-speak apparently means to say any damn thing, in order to protect its business interests. The editorial expressed outrage that the California Supreme Court could deem Nike's statements to be mere “commercial speech,” not deserving of the highest protections available under the First Amendment; however, I find the California Supreme Court's reasoning unsurprising, because the only thing a corporation does is generate profits, all of its activities are commercial, and anything it says is for the purpose of making a profit or avoiding a loss. Since every statement made by a corporation is in furtherance of its commercial activities, any law that requires all such statements to be truthful sounds like a good idea to me. And in California, that is the law.
Another interesting case that recently was filed in California under Section 17200 is a class action suit against Direct TV, the satellite television provider. According to the lawsuit, Direct TV undertook a civil campaign of suing and seizing records from all of the companies that were selling substitute microchips that would allow non-subscribers to obtain Direct TV programs. According to a Wall Street Journal article, Direct TV then sent threatening letters to 100,000 people, accusing them of stealing satellite content. Many of those 100,000 people claim they had nothing to do with stealing satellite television programs from Direct TV, and have called it a case of widespread harassment and abuse of seized data.
Direct TV of course has responded by asking the court to throw the case out, claiming that it is a frivolous attempt to hold up Direct TV; however, I find it interesting that Direct TV is represented by the Quinn Emanuel law firm, infamous for its aggressive prosecution of anyone who utilizes the “Barbie” name in ways that Mattel doesn't like. Ex parte seizures are their forte, and their hardball methods raise eyebrows even in L.A.'s legal community. Additionally, Direct TV's “office of signal integrity” is headed by a former FBI agent named Larry E. Rissler, who first attacked the problem of signal decryption by transmitting an electronic pulse designed to destroy illegally programmed chips, a project that backfired when hackers responded to the widespread damage by offering replacement devices on their websites. When responding to the charge that the company's tactics were overbroad and abusive, Rissler dipped into his counter-espionage knowledge, and responded that “simple possession of certain kinds of satellite-signal decryption equipment has been outlawed by federal wiretapping laws.” So, if you didn't know that stealing satellite TV could expose you to criminal liability for illegal wiretapping, tell them you heard it first from Larry Rissler. And stay tuned here to find out how this lawsuit turns out.
To sum up then, for Internet merchants offering goods and services in the California market, it is important to understand that § 17200 and related statutes make it unlawful to advertise any product or service by making statements “that will have a tendency to deceive” the consumer. Thus, the deceptive advertising aspect of the statute creates a fraud claim in which it is not necessary to prove that anyone was actually induced to make a purchase.
The reach of § 17200 will apply to any Internet merchant who injects himself into the stream of commerce in California. One of the most important things to understand about Section 17200 is that it is a law made solely for judges to apply. Section 17200 does not give a plaintiff the right to try their claims to a jury. It puts all the power in the hands of a judge, allowing one person to seize and order the disposition of any property that comes within his or her power. To implement a restitutionary remedy, a judge can seize bank accounts and other assets. When a federal judge wields this authority, that means that any order made is automatically enforceable through the federal system, with its obliging U.S. Marshal service ready to serve process and seize property. So in a sense, California law becomes the law of the land. If you are making sales in California through an online business, you are exposed to the reach of § 17200, and should be advised of the consequences of running afoul of its restrictions. In the Legal Links you will find links to the statute and online resources concerning its interpretation. § 17200 has been extensively studied, and you can learn a lot about the scope of its application from perusing existing online resources. To obtain specific advice concerning the operation of your business in the context of § 17200, please arrange a consultation.