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WSJ: Protecting Kids From Adult Spam

Shielding children from spam electronic mail promoting pornography, alcohol and other adults-only products is a growing problem as spam now accounts for close to 70% of all e-mail messages according to Mx Logic, a leader in the art of e-mail defense. According to the article Protecting Kids from Adult Spam written by David Kesmodel and published in the January 12, 2006 edition of The Wall Street Journal, lawmakers in Utah and Michigan have moved aggressively by creating registries of kids’ email addresses and barring businesses, located in state or note, from sending inappropriate sales pitches to minors.

However, these laws face mounting opposition from a number of groups including a legal challenge from a trade group representing the adult-entertainment industry. The article explains “states let parents and schools register any email address accessible to a child, at no cost. Each month, companies must pay to have a designated third party examine their marketing lists for addresses that appear on the registries. The cost for a business can total thousands of dollars, and violators face stiff fines. An array of organizations has lined up against the registries, which other states have begun exploring. The critics question the effectiveness of such lists, since some of the most offensive email often comes from overseas companies or shadowy U.S. groups that already ignore laws. Critics also argue that the expenses incurred by legitimate marketers are too high, and some worry about online predators gaining access to the lists of kids' addresses. Last month, the Federal Trade Commission said such registries pose serious ‘security and privacy risks.’

The Utah registry took effect in July and Michigan’s went into effect in November 2005. According to the article, “The laws bar email messages that advertise alcohol, tobacco, porn, gambling, firearms and illegal drugs. The registries were modeled after do-not-call lists designed to block telemarketers. In both states, a small company, Unspam Technologies Inc., won the contract to manage the registries. The laws allow parents to bring civil suits against violators, and provide for damages of $1,000 per message in Utah and $5,000 per message in Michigan. Violators could also face criminal charges in each state, in addition to state fines. Few email addresses have been placed on the state registries so far. Earlier this week, Utah's registry had 1,992 addresses, and 62 schools had registered their domain names to block emails to student accounts. About 160 companies had submitted their email lists for screening. In Michigan, 3,658 email addresses have been registered, along with 41 school domains. About 170 marketers had applied for screening. The states keep the addresses on their registries for two or three years, at which time they must be renewed.”

The Business Intelligence technology that Toomre Capital Markets LLC employs flagged this article for the phrase entitled “Complex Compliance,” which is the subtitle of the last section of this WSJ article. That portion of the article states “officials representing several trade groups said the laws create unfair financial burdens and logistical challenges for legitimate marketers, and fear the burdens could rise if more states adopt them. Sometimes, marketers don't know the physical locations of email recipients, so they must pay to submit their entire marketing lists to Michigan and Utah. Businesses are charged $7 for every 1,000 email addresses examined each month in Michigan, and $5 per 1,000 in Utah. Companies must have their lists examined once a month. A company with a list of 100,000 emails would pay $14,400 annually to have its list examined by both states. Unspam Technologies Inc. receives the majority of the revenue to administer the registry, and the rest goes to the state.”

“Compliance is ‘very expensive and very cumbersome’ for some companies, said Jerry Cerasale, senior vice president for government affairs for the Direct Marketing Association, a trade group representing more than 5,000 companies. Beverage Solutions, a Lake Forest, Ill., company that runs the Beer Across America and Cigar Affair mail-order clubs, must scrub lists totaling ‘a couple hundred thousand’ addresses with each state, said Louis Amoroso, a partner in the company. He said it has been ‘very uncommon’ to have a match appear on the lists. ‘We don't even do business in the state of Utah,’ he said. But due to the way the law is written, the company worries it may face liability if, for example, a minor living in Utah signed up for its email newsletter. The Utah and Michigan laws do not exempt companies from liability even if a minor signed up to receive their emails.

At first blush, Toomre Capital Markets would agree that these laws create unfair financial burdens and logistical challenges for all legitimate businesses that utilize electronic mail as part of their client communication and marketing efforts. How do you feel about topic and its complex compliance issues? Your thoughts and comments are welcome.