California: the Sue Me State. Don't stop reading this if you don't live in California. If you have a Web-based business, you almost certainly do business in California and are subject to the state's laws. The topic is Section 17200 of the California Business and Professions Code, California's Unfair Competition Law. Taking a look at this law is a good exercise, wherever you are.
The California Unfair Competition Law begins with what seems like a harmless definition: "Unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice." However, if you analyze it a little more closely, it is more than just a little dangerous. Anyone who is injured by an act of unfair competition can bring an action to enjoin it and try to collect restitution.
An example of how that works is found in Vivid's recent suit against PornoTube.com. The allegation is that PornoTube.com does not comply with 2257. Vivid claims that it's an illegal business practice that gives PornoTube.com an unfair competitive advantage over Vivid because Vivid complies with 2257. And, because 2257 violations are illegal, it is a line-item violation of the Unfair Competition Law.
Usually, criminal laws can only be enforced by the government. Other than this, individuals can't sue for violation of statutes unless the plaintiff is a member of the class of people the statute is designed to protect and is a victim of the type of harm the statute is designed to prevent. 2257 is not designed to protect competitors, and the harm it aims to prevent is exploitation of children, not harm to competition. And, yes, "illegal" under the Unfair Competition Law includes violations of federal laws like 2257, as well as city ordinances, state and federal regulations, and so on.
So the Unfair Competition Law converts all of your competitors into vigilantes. It does the same for victims. For example, let's say an employer incorrectly classifies an employee as an independent contractor and fails to pay overtime as required by law. The employee can bring an Unfair Competition Law action for an injunction and restitution, the latter being for uncompensated overtime and for restitution owed because the employer did not withhold unemployment or Social Security, thus depriving the employee of the benefits of those programs.
So far, however, this has only touched on the "illegal" component of the statute. Another seemingly harmless part of the definition is the term "fraudulent." A lawsuit for fraud requires not only a misrepresentation of fact, but also that it be material and that the plaintiff relied upon the misrepresentation and was damaged as a result of that reliance. The Unfair Competition Law requires nothing more than a misrepresentation.
But here's the real kicker: "unfair." What is an unfair business practice is limited only by the imagination. Literally anything can be considered unfair if a plaintiff can persuade a court that it is.
There is more on the remedies. Under Section 17203-04 of the California Business and Professions Code, an injured private party, local government and prosecutors' offices, and the attorney general's office can sue for an injunction against further Unfair Competition Law violations. Injured parties can recover restitution, which is fairly broadly defined to include, for example, unpaid wages, although not damages such as pain and suffering or emotional distress. But here's the bomb: A suit brought by government can obtain an order for the defendant to pay up to $2,500 per day in civil penalties, according to Section 17206 of the California Business and Professions Code.
Let's apply all of this to your Internet-based business. If you do business with people in California, you are subject to the Unfair Competition Law, both in suits from California competitors and possibly from customers or government.
The moral of the story is twofold: Get some legal advice about your site, and don't try to screw your customers.
(Clyde DeWitt is an attorney whose practice in Los Angeles and Las Vegas has focused on adult entertainment since 1980. He can be reached through AVN Online's offices or at [email protected]. This column does not constitute legal advice but, rather, serves to inform readers of legal news, developments in cases and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.)
This article initially appeared in the June 2008 edition of AVN Online. To subscribe, visit AVNMediaNetwork.com/subscriptions.
