• Scope of the New Law
  • Opt-Out Provisions
  • False or Misleading E-Mail
  • Criminal Provisions
  • Do-Not-E-Mail Registry
  • E-Mail Sent to Wireless Phones
  • Compliance Obligations
  • What Does CAN-SPAM Mean for Franchising?

On January 1, 2004, the CAN-SPAM Act of 2003 took effect. The new law followed more than five years of debate on the issue of "spam" and was the product of a Congressional agreement reached at the close of the First Session of the 108th Congress. Spam—unsolicited commercial e-mail—has become so prevalent that Congress found that it accounted for more than 50 percent of all e-mail traffic in 2001; other estimates are even higher. The CAN-SPAM Act may have a significant impact on all businesses – including franchise companies – who use e-mail to communicate with (or advertise to) customers.


The CAN-SPAM Act sets a national standard for the regulation of commercial electronic mail. In doing so, Congress preempts more than 30 state anti-spam laws, although the federal law leaves intact those state laws that address falsified spam and other fraudulent activity (such as Virginia’s law, which has been successfully invoked in combating deceptive spam). In particular, Congress had its eye on an anti-spam law passed in California, set to take effect in January 2004, which would have set an "opt-in" standard for commercial e-mail. That anti-spam law was preempted by the new federal standard, which adopts a nationwide requirement that allows recipients to "opt out" of receiving additional e-mails from a sender.

The new law also gives government very powerful enforcement tools. Some of the provisions of the new law were written specifically to target some of the more egregious tactics used by spammers. The Federal Trade Commission, U.S. Department of Justice, state attorneys general, and Internet service providers were given enforcement rights. The Act also provides criminal sanctions, which can only be enforced by the DOJ.

Scope of the New Law

The CAN-SPAM Act applies to all commercial electronic mail, defined as any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service. The law therefore applies more broadly than legislative proposals that would have covered the more narrow category of unsolicited e-mail communications.

"Transaction and relationship messages" are specifically excluded from the law’s requirements (except those requirements that ban deceptive e-mail techniques). The term "transaction and relationship messages" is defined to include e-mails sent with billing statements, e-mails needed to complete a transaction, warranty information, account balance, and similar information.

Opt-Out Provisions

The law requires that all commercial e-mail messages include: (1) text that describes how the recipient can ask to "opt out" of receiving future e-mails from the sender; (2) the sender’s physical address; and (3) an indication that the e-mail is a solicitation. The Federal Trade Commission was authorized to start a rulemaking to require special labeling for sexually oriented e-mails and, on January 29, 2004, the FTC took the first step in that process by publishing a notice of proposed rulemaking. However, the CAN-SPAM Act limits the FTC’s authority; the commission is precluded from requiring other specific labeling of commercial e-mail.

False or Misleading E-Mail

The law bans the use of false or misleading header, sender, or subject line information in a commercial e-mail message for the purpose of disguising its origin. Additionally, the law prohibits sending commercial e-mail that includes an originating e-mail address, domain name, or Internet address that was obtained by means of false pretenses or representations. Similarly, it will prohibit the use of deceptive subject headings.

Criminal Provisions

The law makes it a federal crime to hack into another person’s computer and send "multiple" spam from that computer. ("Multiple" is defined to mean 100 or more e-mails in a 24- hour period, 1,000 e-mails in a 30-day period, or 10,000 e-mails in a year.) Additionally, the criminal provisions cover transmitting multiple e-mails with "materially false header information." The criminal provisions also address the practice of deceptively obtaining five or more e-mail accounts (or two or more domain names) to transmit multiple e-mails.

Do-Not-E-Mail Registry

A Do-Not-E-Mail registry provision, following the concept of the Do Not Call Registry, was added to the new law. The law requires the FTC – before the end of June 2004 – to report to Congress on a plan and timetable for establishing a nationwide Do-Not-E-Mail registry, including an explanation of whether the registry is technically feasible and whether the FTC has any other concerns about such a registry. The FTC is also asked to report on how it would apply such a registry with respect to e-mail accounts held by children. While Congress required the FTC to come up with this plan and issue a report, the FTC is authorized, but not required, to implement the registry.

E-mail Sent to Wireless Phones

By September 30, 2004, the Federal Communications Commission is required to issue rules to protect mobile phone users from receiving unwanted text messages. The FCC is required to consider whether to allow consumers the right to opt out of all unsolicited commercial text messages, and the FCC is also required to consider how to implement such a rule, and particularly whether it is possible for a sender to reasonably know that an e-mail message is being sent to a mobile device (instead of a traditional e-mail sent to a computer). As PDAs, cell phones, and wireless e-mail devices converge into one hand-held appliance, this factor will become an even more significant consideration.

Compliance Obligations

The new law imposes six principal obligations on persons or companies sending e-mails. In sum, these are:

  • The sender must provide a clear and conspicuous notice that the e-mail is a commercial solicitation.
  • A commercial e-mail must include the sender’s valid physical postal address.
  • The sender must provide a clear and conspicuous notice as to how the recipient can opt out of further commercial e-mail from the sender. The method for providing this notice can be a functioning e-mail address (or another technique, such as a hot link to an opt-out website) that a recipient can use to opt out of future communications; the method must remain operational for 30 days after the e-mail is sent.
  • Senders have ten business days within which to start honoring opt-out requests.
  • Commercial e-mails cannot contain false header information or false subject line information.
  • Senders cannot transfer to third parties the e-mail addresses of individuals who have opted out.

What Does CAN-SPAM Mean for Franchising?

Because the law applies to all senders of e-mail, franchisors and franchisees are obviously included. However, application of the law to a franchise system is a more complicated matter, since e-mails may be sent to the same recipient by multiple players in the same franchise system.

For this purpose, consider one possible scenario. A consumer who receives a commercial e-mail from a franchisor decides that she would like to opt out of receiving additional e-mails from the franchisor. The consumer sends an e-mail notifying the franchisor of her election, which the franchisor honors within the required ten business days. Without knowing of the consumer’s opt-out, a franchisee sends a commercial e-mail to the same person.

Although it’s likely that the franchisor and franchisee – separate companies – will be legally recognized for what they are – that is, separate entities – the legal alignment of companies may be of little consequence to the consumer, who believed that she had opted out of receiving messages from a company representing the brand. As far as that customer may be concerned, her opt-out was ignored. At the very least, she may take her business elsewhere.

There is language in the CAN-SPAM Act that might bear on the example noted above. For example, the Act includes a clause recognizing the distinction between separate lines of business or divisions within a larger company. As a result, a line of business (or a division) will be considered separate from its parent and other lines of business if it sends an e-mail that addresses only its particular business. (For example, if a recipient opts out after receiving an e-mail from Hanes® touting its new line of socks and underwear, that opt-out won’t preclude another Sara Lee company from sending an e-mail to the same recipient with a $1-off coupon advertising its Ball Park® brand hot dogs, as long as there is no mention of the Hanes brand).

Although it seems clear that a franchisor is a different sender than a franchisee, and that one franchisee is a different sender than yet another franchisee, the law is new and has not yet been interpreted by the courts. Whether prosecutors and courts will try to apply the "separate lines of business" provision to franchise systems – either to expand coverage (that is, to cover the franchisee when the franchisor has received an opt-out) or to narrow coverage (that is, to deem a franchisor and each of its franchisees separate lines of business) – is also unclear.

Other federal laws – such as the Gramm-Leach-Bliley Act (GLB) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) – also impose obligations on companies with respect to the treatment of consumer information. GLB covers financial data and HIPAA covers medical and related information. Franchise systems whose business operations fall within the coverage of either or both of these laws need to develop and implement a coordinated strategy for handling data in a manner that not only meets the requirements of law but also satisfies consumers’ justifiable expectations. Additionally, franchisors and franchisees need to be mindful of the new Fair and Accurate Credit Transactions Act of 2003 (known as the FACT Act), which imposes important new federal standards on all businesses for safeguarding consumers’ data (such as credit card numbers) with an eye toward combating the growing problem of identity theft.

No matter what legal distinctions may be drawn, consumers are likely to consider as one all of the different entities representing most brands – e.g., franchisors and franchisees. That prospect suggests that franchise systems have no choice but to carefully consider, develop, and implement a unified and consistent approach to data management and direct marketing in order to avoid running afoul of the law – as well as running afoul of consumer expectations – when it comes to commercial e-mail, privacy, and use of consumer information.

This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.