Beware of Social Networking Schemes

Originally posted October 2, 2013 on the Social Media Law Brief by Samuel Jo and Tiffany Ferris

On September 25th, Facebook was awarded millions in damages and granted a permanent injunction against Power Ventures, Inc. and its founder. This order comes five years after the social giant filed a complaint against Power Ventures.

Power Ventures is the company behind Power.com, which integrated multiple social media accounts into a single platform experience for users.

Power Ventures ran a promotion offering current users the chance to win a $100 prize if they invited and signed up the greatest number of new users to Power.com. Users could choose Facebook friends who would then receive the invitation to join Power.com.  Power Ventures’ software emailed the selected friends from a “@facebookmail.com” email address, and the “From” line indicated that the message was from “The Facebook Team.”

The court found that, due to the email address displayed, Power Ventures violated the CAN-SPAM Act. The message was materially misleading in that it failed to provide recipients with an ability to identify, locate, or respond to the true sender: Power Ventures.

The court also found that Power Ventures violated the Computer Fraud and Abuse Act. Power Ventures’ users had to supply their Facebook login information to take advantage of the Power.com’s features. Power Ventures used this information to “scrape” Facebook’s propriety material and display it on Power.com.

The costs of these violations are steep. Facebook was awarded $3 million, in addition to an undisclosed amount of compensatory damages. After careful consideration, the court declined to treble the damages, though such a measure is allowable under the CAN-SPAM Act where a violation is committed, as was found here, knowingly and willfully.

Additionally, Power Ventures’ founder, Steve Vachani, was held personally liable for the damages because he was a “guiding spirit” in his company’s unauthorized access to and use of Facebook. It was his idea to run the promotional campaign; he was the director responsible for developing the technology that Power Ventures’ used; and he controlled and directed his company’s activities as they related to Facebook.

He is now on the hook for the $3 million judgment as much as his company is, regardless of the fact that he was never the sole owner, or controlling shareholder or board member, of the company.

The growing popularity of multiple social media websites means that social network aggregation services are in high demand. The executives who pioneer such services, that are effective and user-friendly, could be near heroes to shareholders and users everywhere.

Yet, as this case emphasizes, aggregation services can go too far and be subject to potential lawsuits from other social media platforms. The costs of violations are high—both in dollars and in the injunctions that effectively destroy the business model pioneered. The Power.com site has been deactivated. Moreover, violators hoping to hide behind principles of limited personal liability might not be able to avail themselves to the liability shields offered by corporate entities when such individuals “guide” the acts giving rise to the violations.

About Samuel Jo

Sam Jo is an associate in the Intellectual Property Practice Group, where he focuses on structuring, negotiating and advising clients on a wide range of outsourcing, technology, and intellectual property-related transactions. He may be reached at sam.jo@haynesboone.com or 214.651.5397. Connect with Sam on LinkedIn.

View all posts by Samuel Jo RSS feed iconFollow Me

About Coauthor Tiffany Ferris

Tiffany Ferris is an associate in the Intellectual Property Practice Group in the Dallas office of Haynes and Boone, LLP. She may be reached at tiffany.ferris@haynesboone.com or 214.651.5152.