Win, Lose, or Draw?

One of the longer running and largest legal proceedings came to a conclusion. Were you to have read the adjective laden accounts of the outcome in the popular and trade press, you would think the case involved a real monster and not the founder of probably the largest privately held performance marketing network. For better or worse, in this case better for writers, worse for the person referenced, he makes for an easy target – accessible, composed, and no stranger to the press or legal activities, surely to the chagrin of his lawyers. With this latest judgment, though, this almost-celebrity of the performance marketing world will probably avoid the headlines for a while, at least in any negative connotation, this time to the chagrin of the purest who find any form of online advertising offensive and look for someone to blame. While, MySpace does not qualify as a company that eschews advertising, see the NY Times article "MySpace Might Have Friends, but It Wants Ad Money", a year and a half ago they looked for someone to blame for of the commercial messages appearing on the site. They found no other than Scott Richter, and on January 22, 2007, they issued a release reading, "MySpace.com, the world’s leading lifestyle portal, announced today that it filed suit against Scott Richter."

The MySpace release went on to say, "MySpace alleges in the suit that between July and December 2006, Richter and his associates arranged for millions of spam "bulletins" to be sent from MySpace users’ accounts without their knowledge. According to the lawsuit, Richter either phished MySpace accounts himself or acquired a list of phished accounts to launch spam campaigns." For those that know Richter, I can hear them chuckling for the sheer unlikelihood that he phished the accounts himself or even that he would acquire such a list. That said, a user, getting unwanted ads absolutely detracts from using a site, causes you to lose faith, and in the right frequency will lead to no longer using a service. With a site like MySpace, losing a user doesn’t just represent that person but the network of people in their lives. People join in flocks, but they can also leave in flocks. Phishing is far more worrisome both from a user and site perspective, and it is necessary for a site like MySpace to take an aggressive stance, in which their allegations against Richter tried to show. Said Hemanshu Nigam, Chief Security Officer for MySpace, in their January 2007 release, "If it takes filing a federal suit to stop someone who violates the law and damages our members’ experience, then that’s what we’ll do."

A year and a half later, the case has reached a conclusion. Who won, so to speak, depends on the interpretation of the arbitrators ruling. The Los Angeles Times, home to MySpace and parent Fox Interactive Media, proclaims, "MySpace wins spam claim against marketer Media Breakaway" whereas the industry publication Adotas leads with, "Arbitrator Ends Media Breakaway, MySpace Dispute." The home-court advantage often beneficial in sports doesn’t seem to have helped Media Breakaway, though, as the ABC affiliate Denver’s Channel 7 has on their site, "MySpace Wins Verdict Against Alleged Colo. Spammer." Statements from each side also naturally highlight different elements of the ruling. A MySpace statement offers, "This award reflects MySpace’s continued momentum and holistic approach to ridding the site of spammers and phishers," and that they "will continue to do our part in cleansing the Internet of this invasive onslaught of spam." Whereas the press release issued by Media Breakway looks to put the amount in perspective, i.e. "Arbitrator’s Award is 95% Less Than Demanded by MySpace." My two favorite statements perhaps pull no punches. One reads, "Life after the CAN-SPAM Act hasn’t worked out the way self-proclaimed ‘Spam King’ Scott Richter might have liked it to," while the other shows impressive fact checking, saying "Phishing is a method familiar to Richter who is already a notorious spammer." As we wrote earlier, not all articles are concerned about the story just the eyeballs they can attract to it.

So, what was the outcome? MySpace was awarded $6 million, $4.8 million in damages and $1.2 million in attorney’s fees. MySpace chose to have this case litigated as opposed to try and work a settlement, but not for monetary reasons. This case was never about the money. They wanted to make a show of their toughness, and negotiating with the "bad guy" doesn’t show their toughness. Unlike their recent verdict against Sanford Wallace which they won, this money they will at least collect. Prior to entering arbitration, MySpace most likely would have predicted a higher dollar figure awarded in their favor. The arbitrator, though, found that MySpace’s demands were "so disproportionate to proven actual damages, or Media Breakaway profits" especially in consideration of Media Breakaway’s investments in compliance, both in people and process, over the two years since the activities in question took place. As Media Breakaway’s General Counsel Steven Richter noted in the company’s release, their "goal is to continuously enhance our compliance programs and exceed what is required by law and industry best practices." Had the arbitrator felt that statement just lip service, the outcome would have turned out vastly different.

Whether we like it our not, the performance marketing arena will only become increasingly litigated, which makes this not a story about Media Breakaway but anyone in the changing marketing landscape. Those in the performance marketing space, especially those who empower affiliates, cannot control their affiliates, but this case shows companies are expected to play an increasing role in an ongoing compliance process. Social networking will not be the last new frontier for marketing, and companies that want to stay competitive for the long-term won’t wait for the law to try and figure it out but will do what they know to be right, and it means holding everyone accountable.