Preemption is a constitutionally-based judicial principle that grants Federal laws supremacy over conflicting US State laws governing the same areas of legislation. In essence, Federal laws trump State laws. An approach sometimes used by attorneys opposing preemption is to argue that the State law in question does not fall under the purview of the Federal law with which it is supposed to be in conflict.

A recent California Appeals Court ruling in the case of Hypertouch vs. ValueClick has shined a light on the issue of preemption as it relates to the Federal Government’s anti-SPAM legislation, the CAN-SPAM Act.

Hypertouch vs. ValueClick: Case Background

In 2008, California-based Internet service provider (ISP), Hypertouch, filed a $45-million dollar lawsuit against online marketing company, ValueClick (NASDQ: VLCK). Hypertouch asserted that ValueClick was partially in violation of the Californian Business and Professions Code; specifically section 17529.5, which essentially stipulates that companies can not send deceptive, unsolicited, spam e-mails. In 2009, the case was thrown out by California Superior Court Judge Richard Adler.

At the time, Judge Adler argued that the 2003 Federal CAN-SPAM Act preempted California’s business regulations. Another cause for Adler’s dismissal was because the plaintiffs, Hypertouch, could not provide any evidence to prove that e-mail fraud was committed. In other words, Adler took the position that unless one follows through on a spam e-mail offer or directive; i.e., the plaintiff actually sends all his personal information and money to the African prince and waits for him to fork over the millions, then fraud cannot be sufficiently proven.

This month, however, the California Appeals Court overturned Adler’s ruling.

Reasons behind the California Appeals Court Decision

The recent Californian Appeals Court judgment is a huge win for both anti-spam and States’ rights advocates, but many are speculating that the most recent ruling will definitely be appealed.

Simply put, this time around, the Appeals Court ruled in favor of Hypertouch on grounds that CAN-SPAM’s preemption provision does not apply in cases where a State’s law goes further than Federal law. In this instance, California law was stricter than the Federal law with regards to falsified e-mails (i.e., Nigerian King-type scams).

In addition, the appeals court went on to cite a US Senate Report which expressly stated:

“Statutes that prohibit fraud and deception in e-mail do not raise the same concern, because they target behavior that a legitimate business trying to comply with relevant laws would not be engaging in anyway.”

In other words, a state’s law should not be subject to preemption if it prohibits otherwise unlawful acts.

How Will Other Courts React to This Ruling?

Preemption is a hot-button legislative issue. It tests the limits of States’ rights, as court rulings on the matter often reshape the law in dramatic ways. In the case of Hypertouch vs. ValueClick, it is almost certain that the California Supreme Court, and perhaps the United States Courts of Appeals, will want to weigh in with opinions.

The Internet is still a fairly new phenomenon, and governing laws have not yet been fully flushed out. The courts must be methodical and thorough when legislating in relation to the Internet, so as not to irrevocably damage the growing industry.

References

1) Hypertouch, Inc. v. ValueClick, Inc., et al., Los Angeles County Super. Ct. No. LC081000 (2011).