Stephen L. Cohen
Mercedes Kelley, VSB # 43525
Federal Trade Commission
600 Pennsylvania Ave., NW
Washington, DC 20580
202-326-3222; 326-3665; 326-3395 (fax)
FEDERAL TRADE COMMISSION, Plaintiff,
d/b/a atariz.com, PremiaNet Corp,
Atari Corp, and piratelynx.com,
W.T.F.R.C. PTY LTD.
d/b/a Kewl Photographies, Kool Images,
and tabooanimals.com, and
individually, and as director and secretary
of W.T.F.R.C. PTY LTD., Defendants.
TABLE OF CONTENTS
II. THE PARTIES
IV. LEGAL ARGUMENT
A. Jurisdiction1. Subject matter 2. Personal 3. Venue This case meets the public interest standard 2. The FTC is likely to succeed on the merits a. Defendants' deceptive acts b. Defendants' unfair acts (1) substantial injury (2) countervailing benefits (3) reasonably avoidable 18 3. The equities weigh in favor of granting relief
TABLE OF AUTHORITIES
American Financial Services v. FTC, 767 F.2d 957, cert. denied, 475 U.S. ,1011 (1986) 16
Audio Communications, Inc., 114 F.T.C. 414 17
Bensusan Restaurant Corp. v. King, 126 F.3d 25 9
Blackwelder Furniture Co. v. Seilig Manufacturing Co., 550 F.2d 189 13
Brookfield Communications, Inc. v. West Coast Entertainment Corp., 1999 U.S.App. LEXIS 7779 15
Cliffdale Associates, 103 F.T.C. 110 14, 15
Compuserve, Inc. v. Patterson, 89 F.3d 1257; 8
Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 8
Donovan v. United States Postal Service, 530 F.Supp. 894 12
FSLIC v. Dixon, 835 F.2d 554 22
FTC v. Amy Travel Services, 875 F.2d 564, cert. denied, 493 U.S. 954 (1989) 11, 21
FTC v. Atlantex Associate, 1987-2 Trade Cas. (CCH) ¶ 67,788, aff'd, 872 F.2d 966 21
FTC v. Gem Merchandising, 87 F.3d 466 12
FTC v. H.N. Singer, Inc., 668 F.2d 1107 2, 10, 11, 12
FTC v. Kitco of Nevada, Inc., 612 F.Supp. 1282 11
FTC v. NCH, Inc., 1995-2 Trade Cases (CCH) ¶ 71,114 at 75,351 20
FTC v. Publishing Clearing House, Inc., 104 F.3d 1168, aff'd, 105 F.3d 407 (9th Cir.1997) 20, 21
FTC v. Security Rare Coin & Bullion Corp., 931 F.2d 1312 11
FTC v. Southwest Sunsites, Inc., 665 F.2d 711, cert. denied, 456 U.S. 973 (1982) 11
FTC v. U.S. Oil & Gas Corp., 748 F.2d 1431 11, 12
FTC v. Virginia Homes Manufacturing Corp., 509 F.Supp. 51, aff'd, 661 F.2d 920 11
FTC v. Warner Communications, Inc., 742 F.2d 1156 19
FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020 11, 12, 14
FTC v. World Wide Factors, 882 F.2d 344 12, 19, 20
Fone Telecommunications, Inc., 116 F.T.C. 426 17
Inset Systems, Inc. v. Instruction Set, Inc., 937 F.Supp. 161 9
Kemp v. Peterson, 940 F.2d 110 12, 13
National Society of Professional Eng'rs v. United States, 435 U.S. 679 20
Niton Corp. v. Radiation Monitoring Services, 27 F.Supp.2d 102 15
Orkin Exterminating Company, Inc. v. FTC, 849 F.2d 1354 reh'g denied, 859 F.2d 928 (11th Cir. 1988), cert. denied, 488 U.S. 1041 (1989) 16
Phone Programs, Inc., 115 F.T.C. 977 17
Rannoch, Inc. v. The Rannoch Corp., C.A. No. 99-403-A, 1999 U.S.Dist. LEXIS 10063 9
Rum Creek Coal Sales, Inc. v. Caperton, 926 F.2d 353, 359 (4th Cir. 1991) 13
SEC v. Management Dynamics, Inc., 515 F.2d 801 13, 20
SEC v. Pinckney, No. 7:95-CV-122-BR-1 1995 U.S.Dist. LEXIS 17915 13
See Porter v. Warner Holding Co., 328 U.S. 395 22
Southwest Sunsites, Inc., 105 F.T.C. 7, aff'd, 785 F.2d 1431 (9th Cir. 1986), cert. denied, 479 U.S. 828 (1986) 14
Teleline, Inc., 114 F.T.C. 399 17
Thompson Medical Co., 104 F.T.C. 648, aff'd, 791 F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987) 14
United Liberty Life Insurance Company v. Ryan, 985 F.2d 1320 8
United States v. Odessa Union Warehouse Co-op, 833 F.2d 172 13, 20
Virginia Carolina Tools, Inc. v. International Tool Supply, Inc., 793 F.Supp. 664, aff'd 984 F.2d 113, cert. denied, 508 U.S. 960 (1983) 13
Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119 8
Minnesota v. Granite Gate Resorts, Inc., 568 N.W.2d 715, aff'd by an equally divided court, 576 N.W.2d 747 9
FTC v. Research Awards Center, Inc., Civil No. S-95-636 14
FTC v. Resort Sales Group. Inc., No.3-97-CV-382-MN 14
FTC v. Taft, C.A. No. 4:97-0532-12 14
FTC v. Voices For Freedom, et al., No. 91-1542-A 14
15 U.S.C. § 41 2
15 U.S.C. § 45(a) 14, 15, 16
15 U.S.C. § 45(n) 16
15 U.S.C. § 53(b) 10
28 U.S.C. §§ 1331, 1337(a), and 1345 7
28 U.S.C. § 1391(d) 10
FRCP 65 10
FRCP 65(b)(2) 3
Fed. R. Civ. P. 1, 26(b), 34(b) 21
S.Rep.No. 130, 103rd Cong., 2d Sess. 15-16, reprinted in 1994 U.S. Code Cong. & Admin. News 1776, 1790-91 11
This case involves startling "technology fraud" on the Internet. The defendants use two technological "dirty tricks" -- "pagejacking" and "mouse trapping" -- to capture unsuspecting Internet surfers, take them to sexually-explicit adult Web sites, and hold them there by disabling the controls on their Internet browsers. Although the defendants are located outside of the United States, they have done business in the United States and have injured both American companies and consumers.
Having caught their prey, defendants then hold consumers hostage using the second element of their scheme, which is a "mouse trap" This technical trick involves manipulating consumers' Internet browsers (such as Netscape or Internet Explorer) to prevent consumers from leaving defendants' adult sites. Defendants disable the usual functioning of the "back" button so that consumers cannot return to the search engine results page. They also alter the functioning of the "close it" ("X") button at the top right corner of the Internet browser. Normally, these features allow consumers to exit a Web site or move on to another Web site immediately. Here, if consumers attempt to use these normal functions, defendants simply serve up more porn. Because of the technology involved here, consumers are incapable of protecting themselves -- short of never again turning on their computers.
II. THE PARTIES
The FTC is an independent agency of the United States Government created by the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 41 et seq. The FTC enforces Section 5(a) of the FTC Act, which prohibits unfair or deceptive acts or practices in or affecting commerce. Section 13(b) of the FTC Act authorizes court proceedings to enjoin violations of the FTC Act and to secure such equitable relief as may be appropriate in each case. FTC v. H.N. Singer, Inc., 668 F.2d 1107, 1110-11 (9th Cir. 1982).
Defendant Carlos Pereira ("Pereira"), doing business as atariz.com, PremiaNet Corp, Atari Corp, and piratelynx.com, is an individual who lists his residence as Apartado 320, Odivelas Loures, 2675 Odivelas, Portugal. [Exh.1 ¶ 11; Exh. 2 ¶ 11; Declaration of Dean Forbes, Attach. B.] (1) He transacts or has transacted business in this District, and throughout the United States.
Defendant W.T.F.R.C. Pty Ltd. ("WTFRC"), doing business as Kewl Photographies, Kool Images, taboosisters.com, taboohardcore.com, and tabooanimals.com, is an Australian corporation with a registered office at 240 Margaret Street, 5th Level, Brisbane, Queensland, 4000, Australia, and a principal place of business at 8 Baracchi Crescent, Giralang, ACT, 2617, Australia. [Exh. 1, Attach. O; Exh. 2 ¶ 10; Forbes Dec., Attach. B.] It transacts or has transacted business in this District and throughout the United States.
Defendant Guiseppe Nirta ("Nirta") is the director and secretary of WTFRC. He resides at 8 Baracchi Crescent, Giralang, ACT, 2617, Australia. [Exh.1, Attach. O.] Acting alone or in conjunction with others, he has formulated, directed, controlled, or participated in the acts and practices of WTFRC, including the acts and practices set forth in the complaint. Nirta transacts or has transacted business in this District and throughout the United States.
III. STATEMENT OF THE CASE
Using technical tricks and thievery, defendant Pereira drives consumers to defendant WTFRC's sexually-explicit, adult-oriented Web sites ("adult sites"). Defendant WTFRC then prevents consumers from leaving its adult sites by manipulating the normal functioning of consumers' Internet browsers. These practices expose consumers, including children, to unwanted, sexually-explicit, adult-oriented content. These practices also cause hardship to employees who unintentionally violate company policies against visiting adult sites on the job. More generally, these practices prevent consumers from locating the Web sites they desire to visit, and impair the growth of the Internet as a commercial medium. See Exh. 5. (2)
A. Defendants' Deceptive Acts
Defendant Pereira has represented, directly or indirectly, that visitors to his Web pages will obtain information about children's songs, children's books, recipes, automobiles, popular movies, gardens, corporate information, and other non-sexually-explicit materials. [Exh. 1 ¶ 4; Exh. 2 ¶ 6; Exh. 4 ¶ 6, Attachs. G, I; Forbes Dec., Attach. C.] In fact, visitors are redirected to Web sites operated by defendants WTFRC and Nirta that contain sexually-explicit, adult-oriented material. [Exh. 1 ¶ 5; Exh. 2 ¶ 6; Exh. 3 ¶ 2; Exh. 4 ¶ 6; Forbes Dec., Attach. F.]
Defendant Pereira subverts the manner in which search engines deliver search results to consumers. Normally, consumers enter a word or phrase into a text box on a search engine's Web site. The search engine returns a "results" page of Web pages and Web sites deemed relevant to the inquiry. The results page typically includes the title of the Web page, a short description of its contents, and a link to the URL for each Web page found.
Defendant Pereira makes unauthorized copies of (or "hijacks") Web pages created by unrelated third parties and posts these copies under his own Web site, usually at www.atariz.com. [Forbes Dec. at 3, Attach. C; Exh. 3 ¶ 2.] These hijacked pages include not only the images and text of the original third-party Web pages, but also their titles and metatags, which contain the Web page's key words and descriptions. [Exh. 1 ¶ 6; Exh. 2 ¶ 8; Exh. 3 , Attach. A; Exh. 4, Attach. B.]
When consumers enter a query on a search engine, their search results include titles and descriptions for both the original and hijacked Web pages. [Compare Forbes Dec., Attach. B to Attach. C; Exh. 1, Attachs. A - E, Tab 1 to Attachs. A - E, Tab 2.] If consumers unwittingly click on the hyperlink for the hijacked page, they do not see the Web page described in their search results. Instead, Pereira's redirect command takes consumers immediately to co-defendant WTFRC's adult sites, most often www.taboosisters.com. [Exh. 1 ¶ 5; Exh. 2 ¶ 6; Exh. 4 ¶ 6, Attach. B; Forbes Dec. at 4.] This has happened to consumers searching for non-sexually-explicit topics such as children's songs and books, recipes, automobiles, popular movies such as "Saving Private Ryan," and other topics. See Exh. 1, Attachs. A - L.
B. Defendants' Unfair Acts
After defendant Pereira has deceived consumers into visiting defendant WTFRC's adult sites, WTFRC compounds the harm by impeding consumers' ability to exit its adult sites, and by redirecting consumers to other adult sites, and by throwing a seemingless unending cascade of sexual images at them. Normally, the "Back" button on an Internet browser returns the user to the previously visited Web page, but defendant WTFRC disables the Back button so that consumers cannot return to the search engine results page and make another selection. [Exh. 1 ¶ 5; Exh. 3 ¶ 2; Forbes Dec. at 3.] Defendant WTFRC further traps consumers by altering the functioning of the "close it" ("X") button located at the top right corner of the Internet browser screen. Normally this feature allows consumers to exit their browsers and leave the Internet entirely. Instead, when consumers attempt to use this button to exit, defendant WTFRC sends them to additional adult sites or serves up additional images forcing consumers to view additional sexually-explicit material and advertisements. [Exh. 1 ¶ 5; Exh. 2 ¶ 7; Exh. 4, Attach. B; Forbes Dec. at 3.] Thus, by manipulating the functioning of these browser commands, defendant WTFRC is able to override consumers' attempts to escape from defendant WTFRC's adult sites, and makes consumers' viewing of defendant WTFRC's adult sites' images and advertisements unavoidable.
It appears that defendant Pereira has hijacked over 25 million Web pages containing information about pies (www.atariz.com/pies.htm); folk music (www.atariz.com/Y03.htm); cars (www.atariz.com/suite.html), (www.atariz.com/TTcoupe.html); movie reviews (www.atariz.com/spCityOfAngels.htm), (www.atariz.com/SavingPrivateRyan.htm); business classifieds (www.atariz.com/pga0051.html); Web businesses (www.atariz.com/grlogin.htm); sports information (www.atariz.com/pol_ind.htm); astronomy (www.atariz.com/stareye.html); non-profit organizations (www.atariz.com/inlgo.html) and many other topics. [Exh. 1 ¶¶ 3, 4.] Defendants have disrupted educational institutions such as the University of Massachusetts at Lowell [Forbes Dec., Attach. A], major financial institutions such as PaineWebber [Exh. 4, Attachs. D, F], community organizations such as the Japanese Friendship Garden [Exh. 2 ¶ 6], and kids' game sites [Exh. 3 ¶ 1].
Operators of adult sites such as those owned by defendants WTFRC and Nirta often pay Web masters and people such as defendant Pereira to direct consumer "traffic" to their adult sites. By leading unsuspecting consumers to their adult sites, and then driving consumers to additional adult sites, defendants most likely derive income from each adult Web page view delivered to consumers, each click by consumers, and each transaction by consumers with defendant' adult sites. Thus, it is inevitable that defendants Pereira, WTFRC, and Nirta generate substantial revenues through their illicit scheme of pagejacking and mouse trapping.
IV. LEGAL ARGUMENT
1. Subject matter
Subject matter jurisdiction is proper pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345. Plaintiff's claim arises in the Eastern District of Virginia.
For actions brought under federal statutes like the FTC Act, a court's exercise of jurisdiction over foreign defendants depends on the existence of minimum contacts with the U.S. as a whole which are sufficient to satisfy due process. United Liberty Life Insurance Company v. Ryan, 985 F.2d 1320, 1330 (6th Cir. 1993). No separate analysis under a state long arm statute is necessary.
A number of courts have examined the issue of personal jurisdiction in the context of Internet activities, making it clear that the traditional tests for jurisdiction still apply: (1) the defendant must "purposefully avail himself of the privilege of conducting activities in the forum, thereby invoking his benefits and protections"; (2) the claim "must be one which arises out of or results from the forum related activities"; and (3) the exercise of jurisdiction must be reasonable. Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 416 (9th Cir. 1997). In applying this test, courts have attempted to distinguish between active and passive uses of the Internet. Generally, courts have found that defendants actively using the Internet to contract and solicit business in a particular jurisdiction have minimum contacts with that jurisdiction. See e.g., Compuserve, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996) (online contracts between the plaintiff and defendant are sufficient to establish jurisdiction); Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119, 1123 (W.D. Pa. 1997) ("[i]f the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper"). Consistent with this reasoning, other courts have refused to find jurisdiction where the defendant's Web sites are passive or merely informational. See, e.g., Bensusan Restaurant Corp. v. King, 126 F.3d 25 (2d Cir. 1997); Cybersell, 130 F.3d at 419-20.
Where a defendant has "purposefully directed" his activities at residents of the forum, and the injuries arise out of those activities, the defendant need not be physically present in the forum. See, Rannoch, Inc. v. The Rannoch Corp., C.A. No. 99-403-A, 1999 U.S. Dist. LEXIS 10063, at *10 (E.D. Va. June 30, 1999) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 85 L. Ed. 2d 528, 105 S. Ct. 2174 (1985)). It has been held that advertising contacts alone can be enough to establish jurisdiction where "unlawful or misleading advertisements are the basis of the plaintiff's claims." Minnesota v. Granite Gate Resorts, Inc., 568 N.W.2d 715 (Minn. Ct. App. 1997), aff'd by an equally divided court, 576 N.W.2d 747 (Minn. 1998). In Granite, the Court noted that another factor in asserting personal jurisdiction was the state's interest in providing a forum to enforce its consumer protection laws. 568 N.W.2d at 721. See also Inset Systems, Inc. v. Instruction Set, Inc., 937 F. Supp. 161, 165 (D. Conn. 1996) (minimum contacts satisfied by an Internet ad and a toll-free number for inquiries).
Under this case law, it is clear here that the defendants are subject to the personal jurisdiction of this Court. The defendants have "purposefully availed" themselves of this forum, and the FTC's claim "arises out of" numerous contacts with the United States and this district in particular. The defendants operate through numerous Web sites registered with Network Solutions in Vienna, Virginia, and as part of their registration agreement, they have consented to jurisdiction in the Eastern District of Virginia to settle any domain-name disputes. [Exh. 1, Attach. R.] More generally, the defendants have pagejacked Web pages from organizations located throughout the U.S., including a Japanese Garden Society in Arizona, Paine Webber in New Jersey, the Harvard Law Review in Massachusetts, and numerous other businesses or institutions. See generally Exhs. 1 - 4; Forbes Dec. The defendants have manipulated search results of AltaVista, one of the largest and most popular search engines in the country, and they have victimized a multitude of U.S. consumers for their own commercial gain. Jurisdiction in this forum is "reasonable," based on these numerous contacts and based on a compelling state interest in enforcing federal consumer protection law.
Each of the defendants has transacted business in the Eastern District of Virginia, and throughout the United States. Section 13(b) of the FTC Act provides that "Any suit may be brought where [a] person, partnership, or corporation resides or transacts business, or wherever venue is proper under section 1391 of title 28." 15 U.S.C. § 53(b). Section 1391(d) provides that "an alien may be sued in any district," and these defendants are "aliens." Accordingly, venue in this district is proper pursuant to both 15 U.S.C. § 53(b) and 28 U.S.C. § 1391(d).
B. This Court Has the Authority to Grant the Requested Relief
This Court has the authority to temporarily and permanently halt defendants' unlawful conduct, and to order expedited discovery and other appropriate relief pursuant to Sections 13(b) of the FTC Act and FRCP 65.
Section 13(b) of the FTC Act, 15 U.S.C. § 53(b) (second proviso), provides that "in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction." The FTC proceeds here, as in FTC v. H.N. Singer, 668 F.2d 1107, 1113 (9th Cir. 1982), under the second proviso of Section 13(b). Injunctive relief sought under this proviso need not follow a prior administrative proceeding. Singer, 668 F.2d at 1111 (routine fraud case may be brought under second proviso, without being conditioned on first proviso requirement that the FTC institute an administrative proceeding); FTC v. U.S. Oil & Gas Corp., 748 F.2d 1431, 1434 (11th Cir. 1984) ("Congress did not limit the court's powers under the [second and] final proviso of Section 13(b).").
Courts routinely hold that it is appropriate to invoke the remedies of Section 13(b) in cases such as this where there is evidence of persistent and ongoing fraud or deception. FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1026-28 (7th Cir. 1988); Singer, 668 F.2d at 1111; FTC v. Kitco of Nevada, Inc., 612 F. Supp. 1282, 1291 (D. Minn. 1985). A "proper case" includes any matter involving a violation of a law that the FTC enforces. Singer, 668 F.2d at 1113; FTC v. Virginia Homes Mfg. Corp., 509 F. Supp. 51, 54 (D. Md.), aff'd, 661 F.2d 920 (4th Cir. 1981). Congress recently observed that Section 13 "authorizes the FTC to file suit to enjoin any violations of the FTC [Act]." S.Rep.No. 130, 103rd Cong., 2d Sess. 15-16, reprinted in 1994 U.S. Code Cong. & Admin. News 1776, 1790-91.
Section 13(b) empowers courts to exercise the full breadth of their equitable authority:
Congress, when it gave the district court authority to grant a permanent injunction against violations of any provisions of law enforced by the Commission, also gave the district court authority to grant any ancillary relief necessary to accomplish complete justice because it did not limit that traditional equitable power explicitly or by necessary and inescapable inference.
FTC. U.S. Oil & Gas, 748 F.2d at 1434 (quoting Singer, 668 F.2d at 1113). Appellate courts repeatedly interpret Section 13(b) to authorize all equitable remedies, both permanent and preliminary. FTC v. Southwest Sunsites, Inc., 665 F.2d 711, 718 (5th Cir.), cert. denied, 456 U.S. 973 (1982); FTC v. Amy Travel Services, 875 F.2d 564, 571-72 (7th Cir.), cert. denied, 493 U.S. 954 (1989); FTC v. Security Rare Coin & Bullion Corp., 931 F.2d 1312, 1314 (8th Cir. 1991); Singer, 668 F.2d at 1111 (9th Cir.). Also, because the public interest is implicated, a Court's equitable powers "assume an even broader and more flexible character." Donovan v. United States Postal Serv., 530 F. Supp. 894, 900 (D.D.C. 1981) (quoting Mitchell v. DeMario Jewelry, 361 U.S. 288, 291 (1960)); see also FTC v. World Wide Factors, 882 F.2d 344, 347 (9th Cir. 1989) and U.S. Oil & Gas, 748 F.2d at 1434. The Fourth Circuit recognizes the general equitable powers of a court to fashion appropriate remedies. Kemp v. Peterson, 940 F.2d 110, 114 (4th Cir. 1991).
Thus, this Court may use its inherent equitable authority under Section 13(b) to grant a temporary restraining order, a preliminary injunction, and additional preliminary relief necessary to preserve the possibility of final effective ultimate relief. Singer, 668 F.2d at 1111-12. This preliminary relief may include, inter alia, an order preventing defendants from continuing these practices, expediting discovery, and taking measures to assure that documents are not destroyed. Id. at 1113; U.S. Oil & Gas, 748 F.2d at 1434; World Wide Factors, Ltd., 882 F.2d at 347-48.
C. The FTC Meets The Public Interest Standard For Granting A Temporary Restraining Order And Preliminary Injunction
1. This case meets the public interest standard
When evaluating a request for preliminary injunctive relief in a Section 13(b) case, courts apply the "public interest" test, which requires courts to: (1) weigh the equities and (2) find that the FTC is likely to succeed on the merits. World Travel, 861 F.2d at 1028-29; World Wide Factors, 882 F.2d at 346. See also FTC v. Gem Merchandising, 87 F.3d 466, 468-69 (11th Cir. 1996). Unlike private actions where the plaintiff must meet a four-prong equity test to obtain preliminary injunctive relief, (3) in the Fourth Circuit (as in many other jurisdictions) a different standard applies where the government seeks relief under a federal statute. "The irreparable harm requirement has been less strictly construed in other areas in which remedies are governed by federal law." Rum Creek, 926 F.2d at 362 n. 12. (4) The Rum Creek court quoted United States v. Odessa Union Warehouse Co-op, 833 F.2d 172, 174-75 (9th Cir. 1987): "the function of a court in deciding to issue an injunction authorized by a statute of the United States . . . is a different one from that of the court when weighing the claims of two private litigants." In Kemp, the Fourth Circuit followed the public interest standard and held that where the government had shown a statutory violation and a reasonable likelihood of recurring violations, a preliminary injunction could issue. 940 F.2d at 113. Kemp cited SEC v. Management Dynamics, Inc., 515 F.2d 801, 808-09 (2d Cir. 1975), which it summarized as holding that "once plaintiffs show a violation of a specific federal statute, the usual balancing of equities is not required prior to enjoining future violations." (5) Courts in this Circuit have followed the public interest standard and granted the FTC's application for a TRO. See FTC v. Resort Sales Group. Inc., No.3-97-CV-382-MN (W.D.N.C. July 9, 1997); FTC v. Taft, C.A. No. 4:97-0532-12 (D.S.C. Mar. 7, 1997); FTC v. Research Awards Center, Inc., Civil No. S-95-636 (D. Md. Mar. 7, 1995); FTC v. Voices For Freedom, et al., No. 91-1542-A (E.D. Va. Oct. 21, 1991).
2. The FTC is likely to succeed on the merits
a. Defendants' deceptive acts
Section 5 of the FTC Act forbids "deceptive acts or practices," 15 U.S.C. § 45(a). An act or practice is deceptive if it is likely to mislead consumers, acting reasonably under the circumstances, about a material fact to their detriment. World Travel Vacation Brokers, 861 F.2d at 1029. If consumers are likely to have chosen differently but for the deception, then a misrepresentation is material. Southwest Sunsites, Inc., 105 F.T.C. 7, 149 (1985), aff'd, 785 F.2d 1431 (9th Cir. 1986), cert. denied, 479 U.S. 828 (1986); Cliffdale Associates, 103 F.T.C. 110, 165 (1984). Express claims or deliberately-made implied claims are presumed to be material. Thompson Medical Co., 104 F.T.C. 648, 816 (1984), aff'd, 791 F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987). The Commission evaluates the net impression on consumers of an advertisement to determine if a misrepresentation has been made. Thompson Medical Co., 104 F.T.C. at 792; Southwest Sunsites, 785 F.2d at 1438.
The evidence demonstrates that in order to induce consumers to go to their adult sites, defendants have expressly misrepresented the true identity of their Web sites. Search engine descriptions for their hijacked Web pages are virtually identical to descriptions of original Web pages created by unrelated third parties. [Forbes Dec. at 3, 4; Exh. 1, Attachs. A-E.] When consumers click on a search result describing a Web page for the movie "Saving Private Ryan" or some other subject, consumers are not carried to a site about movies, World War II or some other innocuous topic. Rather, consumers are redirected to defendants' own graphic adult Web sites. [Exh. 1, Attach. A.] In this way, defendants' pagejacking creates deceptive "door openers" on the Internet. Such "door openers" are deceptive by law, even where the truth is made known prior to a purchase. Federal Trade Commission Policy Statement on Deception, appended to Cliffdale Associates, Inc., 103 F.T.C. at 180, note 37 (citing to Encyclopedia Britannica, 87 F.T.C. 421 (1976), aff'd, 605 P.2d 964 (7th Cir. 1979), cert. denied, 445 U.S. 934 (1980), as modified, 100 F.T.C. 500 (1982)).
The act of redirecting consumers on the Internet is deceptive by itself. In Niton Corp. v. Radiation Monitoring Services, 27 F. Supp. 2d 102 (D. Mass. Nov. 18, 1998), the court granted a preliminary injunction against a company that had deceptively placed false information in their metatags which resulted in consumers being directed to the wrong Web site. See also, Brookfield Communications, Inc. v. West Coast Entertainment Corp., 1999 U.S. App. LEXIS 7779 (9th Cir. Apr. 22, 1999) ("initial interest confusion" is a factor to be weighed when evaluating consumer confusion regarding metatag text).
More generally, defendants' pagejacking is deceptive and material to any reasonable consumer. Consumers act reasonably when they go to a search engine to find information on the Internet. Pagejacking materially undermines consumers' ability to find quality Web sites and can drastically affect where they go when they click on specific search results.
Because defendants have made misrepresentations of material fact, they have violated Section 5 of the FTC Act, 15 U.S.C. § 45(a).
b. Defendants' unfair acts
Section 5 of the FTC Act also forbids "unfair acts or practices," 15 U.S.C. § 45(a). An act or practice is unfair under § 5 of the FTC Act if it causes substantial injury to consumers, if the harm is not outweighed by any countervailing benefits, and if the harm is not reasonably avoidable. 15 U.S.C. § 45(n). See also Orkin Exterminating Company, Inc. v. FTC, 849 F.2d 1354, 1363-64, reh'g denied, 859 F.2d 928 (11th Cir. 1988), cert. denied, 488 U.S. 1041 (1989); American Financial Services v. FTC, 767 F.2d 957, 972-78 (D.C. Cir. 1985), cert. denied, 475 U.S. 1011 (1986).
(1) substantial injury
Consumers are injured by defendants' pagejacking and mouse trapping in a number of ways. One consumer who performed a routine Internet search at work was taken to an adult site as a result of defendants' pagejacking, and then he was trapped there. Accessing adult sites at his place of employment violated his employers' policies and subjected him to possible dismissal. [Exh. 1, Attch. P.] (6) Another consumer owned a business that was targeted by defendants' practices and undermined the value of his Internet company at a time that when he was trying to sell it. [Exh. 3 ¶¶ 2, 3.] (7)
Defendants' pagejacking and mousetrapping has not only affected adults in the workplace, it also has injured children. When one child was searching the Internet for more information about the country of Kosovo, defendants' trapped him in one of their sexually explicit Web sites, and the child's father had to intervene. [Exh. 1, Attach. P.] (8) Unfairly and deceptively marketing to children, who are recognized as a vulnerable group in the marketplace, violates § 5 of the FTC Act. See Audio Communications, Inc., 114 F.T.C. 414 (1991) (consent order); Teleline, Inc., 114 F.T.C. 399 (1991) (consent order); Phone Programs, Inc., 115 F.T.C. 977 (1992) (consent order); Fone Telecommunications, Inc., 116 F.T.C. 426 (1993) (consent order). See also Exh. 3 ¶ 4.
In many cases, the only way to escape from defendants' mouse trap is to immediately shut off one's computer; consequently, defendants' practices also could cause consumers to lose valuable data, or damage their computers or Internet browsers. Finally, defendants' practices prevent consumers from locating the Web sites they desire to visit, thereby diminishing the usefulness of the Internet and impairing the growth of e-commerce as a whole. [Exh. 1, Attach. P.] (9)
(2) countervailing benefits
The practice of trapping consumers at Web sites they never wanted to visit has few if any public benefits -- either economic or otherwise. The only benefits derived from this scheme are to defendants who likely receive revenues for each site visit or click through. Defendants' scheme denigrates the integrity of the Internet and benefits no one except themselves. [Exh. 2 ¶¶ 13, 14.] Indeed, this practice is detrimental to commerce on the Internet. According to PaineWebber, defendants hijacked dozens of the company's sites which resulted in consumers being taken to defendants' sexually-explicit Web sites instead of PaineWebber's financial Web sites. [Exh. 4, Attach. A.] Such practices clearly denigrate consumers' confidence in both providers of the information (here, PaineWebber) and search engines (here, AltaVista).
(3) reasonably avoidable
The injury caused by defendants' mouse trapping is not reasonably avoidable because consumers have no advance warning of what is about to happen to them, [Exh. 2 ¶ 6; Exh. 3 ¶ 2; Exh. 4, Attach. B; Forbes Dec. at 4.], nor can they do anything about it once they learn their browser does not function properly. Once hijacked to defendant WTFRC's adult sites, consumers cannot avoid being trapped in the site. The transfer to defendants' Web sites is practically unseen by consumers. And, because defendants have overridden the normal Internet browser functions, neither the "back" or "X" buttons function in the way in which they were intended. Consumers (including children) are trapped looking at pornography, and trying to escape only makes the problem worse. Therefore, defendants Pereira, WTFRC, and Nirta have engaged in unfair practices in violation of Section 5.
3. The equities weigh in favor of granting relief
Where public and private equities are at issue, as in a case alleging a violation of the FTC Act, the public equities far outweigh the private. World Wide Factors, 882 F.2d at 347. Here the equities weigh heavily in favor of the FTC.
The FTC is seeking to protect the public by preventing the defendants from stealing additional Web pages and preventing them from otherwise making misrepresentations which could cause unwitting consumers to lose their jobs, lose data on their computers, and cause psychological injury by subjecting them to unwanted pornographic images.
The private non-defendant parties within the scope of the TRO will face no significant hardship by its entry. The TRO only requires them to preserve any computer records relating to defendants' activities, and temporarily suspend defendants' domain registrations, thus ensuring that no one will unintentionally be subjected to defendants' practices during the pendency of this matter. This Court is authorized to direct defendants' agents such as Network Solutions to temporarily suspend defendants' domain registrations pursuant to Rule 65(d) of the Fed. R. Civ. Pro. (injunctions are binding on defendants' agents). Indeed, Network Solution's general counsel has acknowledged to counsel for Plaintiff that the company regularly suspends domain registrations but requires a court order to do so, like the TRO proposed here.
Public equities include, but are not limited to, assuring effective final relief for the Commission. FTC v. Warner Communications, Inc., 742 F.2d 1156, 1165 (9th Cir. 1984). (10) Unless the domain name registrars, and other entities in possession of defendants' documents and records are subject to this court's Orders, effective final relief would be impossible.
The Commission is acting to protect the public from further financial and other harm caused by the defendants' actions. The proposed TRO and preliminary injunction would prohibit the defendants from disseminating deceptive statements and would halt activities tied to those statements. Such prohibitions do not work any hardship on the defendants. See World Wide Factors, 882 F.2d at 347 (injunction prohibiting misrepresentations not an oppressive hardship). Without the injunction such conduct will continue unabated. These measures will terminate the fraud, and prevent the destruction of documents pending the disposition of this litigation. Any disruption of the defendants' business activities is a "necessary and . . . unavoidable consequence of the violation." Nat'l Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 697 (1978).
In sum, no private interests will be significantly affected, if they are affected at all, by the granting of the proposed TRO. The equities tip heavily in favor of the FTC and the granting of the proposed TRO.
C. The Individual Defendant Nirta Is Liable for Injunctive Relief
An individual defendant is personally liable for injunctive relief if he either participated directly in a business's violations of Section 5 of the FTC Act or had the authority to control those acts. FTC v. Publishing Clearing House, Inc., 104 F.3d 1168, 1170 (9th Cir. 1997), aff'd, 105 F. 3rd 407 (9th Cir.1997); FTC v. NCH, Inc., 1995-2 Trade Cases (CCH) ¶ 71,114 at 75,351; FTC v. Atlantex Assoc., 1987-2 Trade Cas. (CCH) ¶ 67,788 at 59,254-55 (S.D. Fla. 1987), aff'd, 872 F.2d 966, 968 (11th Cir. 1989). Assuming the duties of a corporate officer establishes authority to control. Publishing Clearing House, 104 F.3d at 1170; FTC v. Amy Travel Service, Inc., 875 F.2d at 573. According to documents obtained from the Australian Corporation Commission, Nirta became WTFRC's secretary and director on July 24, 1998. Since that time, he has signed other corporate documents concerning the sale of shares in WTFRC -- a power he apparently can exercise. See Exh. 1, Attach. O.
An individual may be held liable for injunctive relief under the FTC Act if: (1) the corporate defendant committed misrepresentations or omissions of a kind usually relied on by a reasonably prudent person, resulting in consumer injury, and (2) the individual defendant participated directly in the acts or had authority to control them. FTC v. Publishing Clearing House, Inc., 104 F.3d at 1170.
As demonstrated above, the evidence in this matter clearly establishes that WTFRTC violated the FTC Act and that it is likely that Nirta not only has the authority to control the acts of WTFRC, but does in fact control its acts and practices. Therefore, Nirta may be held liable for injunctive relief.
D. An Order Allowing Expedited Discovery is Appropriate
Finally, the Commission seeks an order granting permission to conduct depositions on three days' notice. District courts are authorized to depart from normal discovery procedures and fashion discovery by order to meet discovery needs in particular cases. Fed. R. Civ. P. 1, 26(b), 34(b). This kind of discovery order reflects the Court's broad and flexible authority in equity to grant preliminary emergency relief in cases involving the public interest. See Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946); FSLIC v. Dixon, 835 F.2d 554, 562 (5th Cir. 1987).
Only this Court can bring an immediate halt to defendants' nefarious dealings. It is clear that defendants have violated the law, and absent injunctive relief will continue to do so. Therefore, plaintiff respectfully requests that this Court issue the attached Temporary Restraining Order and issue an Order to Show Cause Why A Preliminary Injunction Should Not Issue.
Respectfully submitted this 14th day of September, 1999,
|Stephen L. Cohen
Dean C. Forbes
Michael W. Donohue
Counsel for Plaintiff
Federal Trade Commission
VSB # 43525
Federal Trade Commission
1. "Exh." refers to the exhibits filed with this memo. "Attach." refers to attachments to each exhibit. The Declaration of Dean Forbes ("Forbes Dec.") refers to the Certification of Plaintiff's Counsel In Support of Ex Parte Motion for Temporary Restraining Order Pursuant to FRCP 65(b)(2). Where a paragraph (¶ ) is referenced, it refers to a specific place in each exhibit. References to the Forbes Dec. are made by page number.
2. Exhibit 5 is a videotape made by the FTC to illustrate the practices alleged in the complaint. The accompanying Declaration of Don Blumenthal explains how the tape was made.
3. Blackwelder Furniture Co. v. Seilig Mfg. Co., 550 F.2d 189, 194 (4th Cir. 1977); Virginia Carolina Tools, Inc. v. International Tool Supply, Inc., 793 F. Supp. 664, 669 (W.D.N.C. 1992), aff'd. 984 F.2d 113, 119 (4th Cir. 1993), cert. denied, 508 U.S. 960 (1983). The two most important factors under this private litigation standard are the likelihood of irreparable injury to the plaintiff if the injunction is denied, and the likelihood of harm to the defendant if the injunction is granted. Virginia Carolina Tools, 984 F.2d at 119. The Fourth Circuit calls this the "hardship balancing" standard. Id. If the balance tips decidedly in favor of the plaintiff, the plaintiff need not make as strong a showing of likelihood of success on the merits as he would if the balance of the equities tipped away from the plaintiff. Id. at 120, (citing Rum Creek Coal Sales, Inc. v. Caperton, 926 F.2d 353, 359 (4th Cir. 1991), and quoting Blackwelder, 550 F.2d at 195). The final factor is that issuance of the injunction must be in the public interest. Rum Creek, 926 F.2d at 359.
4. See also, SEC v. Pinckney, No. 7:95-CV-122-BR-1 1995 U.S. Dist. Lexis 17915 at *8 (E.D.N.C. 1995) ("because injunctive relief . . . is rooted in statute, rather than equity, the standard against which relief is to be judged is the public interest; irreparable harm and inadequacy of legal remedies need not be shown").
5. While the FTC only must meet the "public interest" standard to obtain preliminary injunctive relief, it also readily meets the four-prong Blackwelder test.
6. "As soon as the picture began to open up across the screen, I closed the internet window, shocked at what I had seen! Because it had already begun to open up, it was logged on my agency's server. That connection shows up on my agency's computer logs as a hit on the internet. It is against the agency's policy for employees to 'hit' pornographic web sites, punishable by termination. I could be facing a reprimand, probation or termination because of this 'hit' caused by what I consider to be false advertising. Is there anything you can do? What if my kid had been at work with me on a Saturday and accidentally pulled it up!? Who can I file a complaint with about the false advertising/false-misleading description of the site without ANY warning that it was pornographic? Who can look into this and provide me with a report of why it happened in case I need it in my review at work? Where do I go for assistance with this matter? To be sure it wasn't caused by my computer at work, I tried the same search from your web page, on this, my home computer and got the same results! Please help me with this. My job may be on the line."
7. "[This] will damage my operation permanently."
8. "My son was looking for new pages about Kosovo and suddenly the following pages appeared: http://mirc-faq-f**k.dailysexgames.com/mirc-faq-f**k/ast0052-17.html. This page promotes porno, especially bestiality. So I had to remove my son from the computer."
9. "I sent a search for +wallpaper +steam +rent +Minnesota to find places to rent wallpaper removal equipment. The result was hundreds of pages of porno sites"; "Can you tell me why there are links to PORN sites when I search for 'chess games' on Alta Vista?" and "While using Alta-Vista as a search engine to try and find a nineteenth century world map on the web, all I could come across were porn sites. Why when I type in 'old maps' are the first ten matches all explicit material instead of material that I am actually looking for?"
10. As noted, the standard for preliminary injunctive relief in a Section 13(b) action is lower than typically applied to private litigants. "[T]he function of a court in deciding to issue an injunction authorized by a statute of the United States to enforce and implement Congressional policy is a different one from that of the court when weighing claims of two private litigants." Odessa, 833 F.2d at 174-75. Because the government seeks to protect the public, "the standards of the public interest not the requirements of private litigation" determine the need for injunctive relief. SEC v. Management Dynamics, Inc., 515 F.2d 801, 808 (2d Cir. 1975) (quoting Hecht Co. v. Bowles, 321 U.S. 321, 331 (1944)).