1267632 Ontario Inv. v. Nexx Online Inc. Decision

Counsel:

 Karl W. Scholz, for the plaintiff.
Trevor Whiffen, for the defendant.

1       WILSON J.:— This is a motion for an interlocutory injunction requiring that the defendant reactivate the plaintiff company's website.  It is the plaintiffs' position that they rely upon the website and its advertising through bulk e-mail to carry on business.  The plaintiffs through a third party were sending unsolicited bulk e-mail through the Internet at the rate of 200,000 e-mails per day.  The defendant service provider warned the plaintiffs that if they did not cease sending the bulk e-mails through the third party, they would deactivate their website as contravening the parties' governing contract.  The plaintiffs continued sending out bulk e-mails.  The defendant disconnected the plaintiff's website.  As the plaintiffs are unable to find another service provider that permits unsolicited bulk e-mails, they bring this motion seeking injunctive relief requiring that the website be reactivated.

2       This motion raises issues with respect to the recent but burgeoning use of the Internet communication services for commercial bulk e-mail advertising purposes, colloquially known amongst internet users as "Spam".  To determine whether an injunction should be granted, it will be necessary to examine the terms of the contract between the parties.  This contract is governed by the rules of "Netiquette", which is defined as the growing body of acceptable, though as yet largely unwritten, etiquette with respect to conduct by users of the internet.

The Test for Granting an Injunction

3       The authority of the court to provide interlocutory relief is found in s. 101 of the Courts of Justice Act (R.S.O. 1990, Chap. C. 43):

    101(1)  In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted ... where it appears to a judge of the court to be just or convenient to do so.
 

4       The test in Canada for granting interlocutory relief was first set out by Lord Diplock in American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396 (H.L.), and has most recently been reaffirmed by the Supreme Court of Canada in RJR-Macdonald Inc. v. Canada (Attorney-General) (1994), 111 D.L.R. (4th) 385.  In determining whether such an order should be made, it is necessary to consider three questions:

1)  Is there a serious question to be tried?
 
2)  Will the applicant suffer irreparable harm, which cannot be compensated by an award of damages, if the injunction is not granted?
 
3)  Which party will suffer the greater harm from granting or refusing the remedy pending a decision on the merits, i.e. where lies the balance of convenience?
 

Factual Background

5       The plaintiff 1267623 Ontario Inc. (1267623) is an Oakville based home furnishing company that sells directly to customers using the Internet.  The plaintiff Codes Communications Inc. (Codes) is a web page design company that works exclusively for and acts as agent on behalf of 1267623.

6       The defendant Nexx Online, Inc. (Nexx) is an Internet service provider based in Toronto.  Its primary business is hosting web pages, also called websites, on the Internet, which is also known as the "World Wide Web".  For a fee, a web host provides shared computer space on its server to allow businesses, organizations and individual clients to have websites available for viewing by Internet users.  A web page is identified and located using a domain name, beginning with "www" (the short form for "world wide web"), followed by a unique identifier (often the business name), and concluding with the highest sub-domain (such as "com", "ca" or "org").

7       On August 6, 1998, Nexx entered into a one-year service agreement (the Contract) with Codes to host the plaintiffs' website:  www.beaverhome.com.

8       Beginning January 27, 1999, Nexx began to receive complaints from Internet users concerning the distribution of unsolicited bulk e-mail.  In February 1999 Nexx informed the plaintiff that unsolicited bulk e-mail was not permitted, and that continuation with such activity could lead to the termination of service.  The plaintiffs then retained a third party to send the bulk e-mail on their behalf.  Beginning March 31, 1999, 1267623 through a third party service provider in California began sending out unsolicited bulk commercial e-mail at the rate of 200,000 per day in an attempt to promote their products and encourage potential customers to visit their website.  The bulk e-mail was sent randomly to any Internet users.  Nexx clients were not specifically targeted, but some Nexx clients on a random basis were receiving the unsolicited e-mail.

9       On April 5, 1999, Nexx deactivated the company's web page as a result of the plaintiff's alleged breach of Contract which includes a breach of Netiquette.

10       The plaintiffs claim that the deactivation by Nexx was a breach of the Contract.  They further assert that their entire business is Internet-dependant, and that a mandatory order is required pending the outcome of the litigation to prevent 1267623 from going out of business.

11       Nexx argues that it was in fact the plaintiffs who breached the Contract and the established rules of Netiquette by sending out junk e-mail or "spam".  This activity was endangering Nexx's business, both by irritating its other clients, who began complaining, and by explicitly, violating Nexx's agreement with Exodus Communications Inc. (Exodus), the service provider that provides Nexx with its connection to the Internet.

The Terms of the Contract

12       The plaintiffs allege that Nexx is in breach of the Contract for having disconnected the beaverhome.com website, several months prior to the expiry of the service agreement between the parties.  The full yearly fee of $352.51 had been paid in advance by the plaintiffs.

13       There is a factual dispute as to what was specifically discussed with respect to bulk e-mail prior to the Contract being executed.  The plaintiffs claim to have been told by Nexx before signing the Contract that there were no provisions prohibiting the sending of bulk commercial e-mail.  In sharp contrast, the president of Nexx states:

 Prior to entering into this agreement [the Contract], Damir Zovic, the principal of Codes, specifically discussed with me the proposed distribution of unsolicited commercial e-mail, also known in the industry as "junk mail" or "Spam".  The distribution of such e-mail, usually distributed completely at random and without regard for whether the recipient has any interest in receiving the e-mail, is considered a breach of the code of conduct, or rules of etiquette known as "Netiquette", governing the use of the Internet/World Wide Web system.  I specifically informed Mr. Zoric in August of 1998 that Nexx Online did not, and would not, permit the distribution of unsolicited commercial e-mail on or through its system.  [emphasis added]
 

14       Although several contractual issues were argued, in my view, there are two relevant provisions of the Contract:

 The Account Holder agrees to follow generally accepted "Netiquette" when sending e-mail messages or posting newsgroup messages ...
 
 The undersigned Account Holder agrees to abide by the following provisions of this service contract and may have to agree to additional provisions from Nexx Online covering this agreement and/or any future services added to this agreement.  If Account Holder refuses to accept any future provisions, Account Holder will have the option to cancel service and receive a pro-rated refund of any moneys pre-paid for this agreement.  The pro-rated refund will be calculated after the normal monthly cost for the service has been deducted from any amounts pre-paid by Account Holder.  [emphasis added]
 

Does Unsolicited Bulk E-Mail Offend the Rules of "Netiquette"

15       The governing Contract does not specifically forbid bulk e-mail advertising.  It does provide, however, that the "Account Holder agrees to follow generally accepted "Netiquette" when sending e-mail messages or posting newsgroup messages ...".  It is the position of the defendant that sending out unsolicited bulk e-mail is in breach of established rules of Netiquette, and hence the defendants were entitled to disconnect the plaintiffs' website services without a pro-rata reimbursement of the prepaid balance of the Contract.  The plaintiffs argue the sending out bulk e-mail through a third party is not a breach of "Netiquette".

16       What then are the rules of Netiquette?  It is acknowledged that there is no written Netiquette policy.  It appears that a code is evolving based upon good neighbour principles for the orderly development of the Internet, and to prevent potential Internet abuse.

17       The defendant has provided copies of reports on bulk e-mail advertising that lead to the inevitable conclusion that the sending of unsolicited bulk commercial e-mail is considered an inappropriate and unacceptable use of the Internet by most users and service providers.  Few if any Internet service providers allow unsolicited bulk e-mail.  In the United States several states have prohibited the practice or severely restricted its use.  John Levine, author of The Internet for Dummies, has posted a paper entitled "Why is Spam Bad?" at http://spam.abuse.net/spambad.html, in which he summarizes six important problems with spam advertising and why it is considered unacceptable:

1)  the recipient pays far more, in time and trouble as well as money, than the sender does, unlike advertising through the postal service;
 
2)  the recipient must take the time to request removal from the mailing list, and most spammers claim to remove names on request but rarely do so;
 
3)  many spammers use intermediate systems without authorization to avoid blocks set up to avoid spam;
 
4)  many spam messages are deceptive and partially or entirely fraudulent.
 
5)  spammers often use false return addresses to avoid the cost of receiving responses;
 
6)  some forms of spam are illegal in various jurisdictions in the United States.
 

18       The complaints received by the defendant were included in the motion material.  There is a consistent flavour to the responses.  The complaints received by Nexx regarding the plaintiffs' unsolicited advertising e-mail were often intense and to the point of outrage.  This negative public response from internet users is an indication that unsolicited commercial bulk e-mail advertising is not an accepted internet practice.  Some of the complaints also pointed out apparently forged return addresses and e-mail headers on e-mail sent out by the plaintiffs:  one had the return address "catholic.org", implying the existence of a religious affiliation, but was advertising the beaverhome.com website.

Caselaw Relevant to the Issue of "Netiquette,"

19       Not surprisingly, there are no Canadian cases on point defining rules of "netiquette" or with respect to unsolicited bulk e-mail.  However, several American cases have dealt with disputes over unsolicited bulk e-mail.  None are factually similar to this case.  The issue of "netiquette" was not an issue specifically discussed in the decisions. However, principles relevant to use of the internet are discussed and are helpful.

20       An important case is Cyber Promotions Inc. v. American Online Inc., No. 96-12486/96-5213 (E.D. Pa. Nov. 4, 1996).  The District Court held that the right to freedom of expression under the First Amendment did not give the defendant the right to send unsolicited bulk e-mail over the internet to subscribers of a private online company.  Weiner J. confirms the paucity of rules with respect to internet use at p. 1:

 ... while the Internet provides the opportunity to disseminate vast amounts of information, the Internet does not, at least at the present time, have any means to police the dissemination of that information.
 

21       Cyber Promotions Inc v. American Online Inc. was followed in CompuServe Inc. v. Cyber Promotions Inc., No. C2-96-1070 (S.D. Oh. Feb. 3, 1997).  Again, the defendant, Cyber Promotions Inc., tried to use the First Amendment as a defence to an action for trespass to personal property.  The plaintiff, CompuServe, was a company that provided Internet access to subscribers for a fee.  The defendant was an advertising agency that used bulk e-mail as its method of promoting its clients.  The action arose because the defendant sent unsolicited bulk e-mails to the plaintiff's subscribers, and continued to do so, even after the plaintiff demanded the defendant terminate its practice.  The court granted an injunction prohibiting the defendant from sending bulk unsolicited e-mails to the plaintiff's subscribers.

22       In CompuServe Inc. v. Cyber Promotions Inc., the court concluded that the practice of sending unsolicited e-mails to the plaintiff's subscribers was an unwanted intrusion into the plaintiff's computer systems.  The court found that the defendant's practice commanded the disk space and processing power of the plaintiff's computer equipment, diverting its resources away from paying subscribers.  The value of the equipment was thereby diminished, even though it was not physically damaged.  The court also found the defendant's practice to be harmful to the plaintiff's business reputation and goodwill.  Since subscribers paid according to the amount of time they accessed the Internet, the cost of processing and deleting the e-mails fell on them.  As a result, subscribers threatened to discontinue their accounts. Some actually did terminate their accounts.  The court held that the public interest was advanced by granting the injunction.  The high volumes of e-mail slowed down data transfer between computers connected to the Internet and congested the electronic paths through which they travel.  As well, bulk e-mails caused recipients to spend time and money processing unwanted messages.

23       In another case concerning trespass and bulk e-mailing, Parker v. C.N. Enterprises, No. 97-06273 (Tex. Travis County Dist. Ct. Nov. 10, 1997), the court found that the unauthorized use of Ms. Parker's e-mail address constituted common law nuisance and trespass and granted a permanent injunction against the defendants, C.N. Enterprises.

24       A relevant but distinguishable case is Cyber Promotions, Inc. v. Apex Global Information Services, Inc., No. 97-5931 (E.D. Pa. Sept. 30, 1997).  The plaintiff, Cyber Promotions, was also seeking a preliminary injunction directing the defendant, Apex Global Information Services, to restore the plaintiff's Internet access for 30 days.  The defendant terminated the plaintiff's connection to the Internet without notice due to technical problems known as "pinging".  The governing contract between the parties acknowledged that the plaintiff Cyber was in the business of sending unsolicited bulk e-mails.  It also provided for a minimum period on 30 days notice before termination of internet services.  The defendant provided internet services to various promoters of unsolicited bulk e-mail.  The court granted the injunction on the basis that the plaintiff had a valid claim for breach of contract, and that it would be irreparably harmed by a failure to grant the injunction.  The public interest lay in insuring that parties live up to their legal contracts.  The court does comment, on the unpopularity of commercial bulk e-mail.

 ... it is undisputed that Cyber's business of sending unsolicited bulk e-mail is a controversial one.  Many computer users find the receipt of bulk e-mail annoying and intrusive.
 

25       The Internet is a potent legitimate means of advertising, selling on the Internet benefiting retailers and consumers alike.  The use of the internet is in its relative infancy.  In the words of counsel, it is "an unruly beast". Or so it will certainly become without a foundation of good neighbour commercial principles.  The unrestricted use of unsolicited bulk commercial e-mail appears to undermine the integrity and utility of the Internet system.  Network systems become blocked.  The user expends time and expense reviewing or deleting unwanted messages.  Of fundamental importance is the distortion of the essentially personal nature of an e-mail address.

26       I conclude after reviewing the principles that emerge in the American caselaw, the excerpts from the literature provided, and the reaction of individual internet users that unless a service provider specifically allows in the contract for unsolicited commercial bulk e-mail to be distributed, it appears clear that sending out unsolicited bulk e-mail for commercial advertising purposes is contrary to the emerging principles of "Netiquette".  This conclusion is further reinforced by the admission by the plaintiff that they are unable to find another service provider which will permit bulk e-mail advertising through a third party.

Nexx's Right to Add Provisions to the Contract

27       Although the Contract does not include a specific provision against bulk commercial e-mail, it does permit Nexx to add terms to the Contract with the requirement to reimburse for the balance owing under the Contract if the client is not in agreement with the new term.  There is no dispute between the parties that Nexx informed the plaintiffs that they were not permitted to send bulk e-mail advertising prior to terminating their website.  By the terms, of the Contract, the defendants were entitled to add a term to the Contract prohibiting unsolicited commercial bulk e-mail, upon payment of the prorated balance of the fees that were prepaid for the one year term of the Contract.

The Contract between Nexx and Exodus

28       The contract between the defendant Nexx and Exodus, Nexx's service provider is relevant in assessing irreparable harm and the balance of convenience as between the parties.  The Nexx/Exodus contract specifically precludes the sending of unsolicited bulk advertising e-mail.  The contract includes an "Online Conduct Policy", which begins:

 Customer [here, Nexx] will not, and will not permit any persons using Customer's online facilities (including but not limited to Customer's Web site(s) and transmission capabilities), to do any of the following:
 
 *  Send Spam (unsolicited commercial messages or communications in any form).
 

The Nexx/Exodus contract also includes a clear "Anti-Spamming Policy Statement here reproduced in full:

 As a provider of Internet network services and management, Exodus considers it an obligation to put an end to Spam.  We respect your need for efficient, cost-effective and interruption-free services, and we pride ourselves on offering you one of the most scaleable, reliable and redundant networks available today.  Exodus is committed to a Zero-tolerance, anti-Spamming policy.  Under this policy, we protect you and your customers by prohibiting Spam, or any, unsolicited commercial e-mail, from being sent either:
 
 *  Over the Exodus network, by customers or any other users of the Exodus network (including customers' customers); AND/OR
 
 *  Over ANY network B if the message sent advertises or mentions a site hosted on the Exodus network.
 
 We react quickly and seriously to violations, and we further reserve the right to terminate the network services of any customer willfully disregarding this policy.
 
 If you have any complaints or comments regarding Spam on our network, please direct them via e-mail to abuse@exodus.net.  [emphasis added]
 

29       At the time of disconnection, the plaintiffs did not send out bulk commercial e-mail from their website hosted by Nexx.  Rather they did so through a separate company not a party to this action.  The bulk commercial e-mail did direct recipients to the beaverhome.com website hosted by Nexx, which is in turn hosted by Exodus.  Clearly retaining a third party to send the bulk e-mail is in contravention of the anti-spamming policy enunciated in the Nexx/Exodus contract.

30       Both Nexx and Exodus received multiple complaints about the unsolicited bulk e-mails received from the plaintiff company.  Exodus warned Nexx that the unsolicited bulk e-mail was prohibited by their Anti-Spamming Policy.  Exodus warned Nexx that the Nexx/Exodus contract would be enforced if Nexx did not take timely action to prevent another such occurrence. It is clear that if the injunction requested is granted, Nexx will be in breach of the terms of the Nexx/Exodus contract creating serious business risks including potential termination of services.

Conclusions:

30b       In addressing the questions with respect to the granting of an injunction I conclude as follows:  [The Court did not number this paragraph.  QL has assigned the number 30b.]

1)   Is there a serious question to be tried?

31       For the reasons previously given, I conclude that there is no serious question to be tried.  Firstly, I conclude that sending unsolicited bulk commercial e-mail is in breach of the emerging principles of Netiquette, unless it is specifically permitted in the governing contract.  As the rules of Netiquette govern the parties' Contract, the plaintiff is in breach of its terms justifying disconnection of service.  Secondly, in the alternative, Nexx is permitted to add terms to the Contract precluding a Nexx client sending unsolicited bulk e-mail directly, or through a third party. If the plaintiffs do not concur with the new term, they are entitled to a rebate of the pro-rated balance of the Contract price, and the defendant is entitled to disconnect service. The defendant has agreed to repay the prorated balance owing under the Contract from April 5, 1999 to August 5, 1999.

2)  Will the applicant suffer irreparable harm, which cannot be compensated by an award of damages, if the injunction is not granted?
 

32       The applicant paid the sum of $352.51 for the Contract.  The applicant could simply enter into another agreement with a new web host service provider to end any harm.  If the plaintiff is unable to locate another service provider that will permit commercial bulk e-mail, the conclusion with respect to breach of "Netiquette" is irrefutable.

3)  Which party will suffer the greater harm from granting or refusing the remedy pending a decision on the merits, i.e. where lies the balance of convenience?
 

33       Finally, the balance of convenience lies with the defendant.  Had the plaintiff been permitted to continue sending out unsolicited bulk e-mail directing potential customers to the beaverhome.com website, Nexx would have risked having their Internet access cut off by Exodus. Neither plaintiff nor defendant could have carried on their business.  The ripple effect to the 984 customers of Nexx which have websites hosted by Nexx cannot easily be assessed but is a relevant factor in considering the balance of convenience.

Disposition

34       For the reasons given the request for an injunction is dismissed.  As there are no Canadian cases dealing with Internet issues, and specifically unsolicited bulk commercial e-mail in the context of "netiquette", there should be no order as to costs of this motion.

WILSON J.