1267632 Ontario Inv. v. Nexx Online Inc.
Decision
Between
1267623 Ontario Inc. and Codes Communications Inc.,
plaintiffs, and
Nexx Online, Inc., defendant
[1999] O.J. No. 2246
Court File No. C20546/99
Ontario Superior Court of Justice
Toronto, Ontario
Wilson J.
Heard: April 16, 1999.
Judgment: June 14, 1999.
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.