UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
AMERICA ONLINE, INC.,
Plaintiff,

vs.

OVER THE AIR EQUIPMENT, INC.,and JOE TAJALLE
Defendants

Civil Action No. 97-1547-A

Alexandria, Virginia
October 31, 1997
10:45 a.m.

TRANSCRIPT OF MOTIONS HEARING
BEFORE THE HONORABLE LEONIE M. BRINKEMA
UNITED STATES DISTRICT JUDGE

APPEARANCES:

FOR THE PLAINTIFF:

EVERETT C. JOHNSON, JR., ESQ.
JON L. PRAED, ESQ.
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505

and

RANDALL BOE, ESQ.
America Online, Inc.
22000 AOL Way
Dulles, VA 20166

FOR THE DEFENDANTS:

STUART PARSONS, ESQ.
Quarles & Brady
Milwaukee, WI 53202

and

JOHN S. ANDERSON, ESQ.
KATHLEEN J.L. HOLMES, ESQ.
Richards, McGettigan, Reilly & West
225 Reinekers Lane, Suite 700
Alexandria, VA 22314

(Pages 1 - 37)

COMPUTERIZED TRANSCRIPTION OF STENOGRAPHIC NOTES
OFFICIAL COURT REPORTER:

ANNELIESE J. THOMSON, RMR, CRR
U.S. District Court, Sixth Floor
401 Courthouse Square
Alexandria, VA 22314

(703)299-8595

P R O C E E D I N G S

THE CLERK: Civil Action 97-1547, America Online, Inc., versus Over the Air Equipment, Inc., et al. Counsel, please note your appearances for the record.

MR. PRAED: Good morning, Your Honor. Jon Praed.

THE COURT: I'm sorry, counsel, just one second.

MR. PRAED: Yes, Your Honor.

THE COURT: I'm sorry, can we start over again, please?

MR. PRAED: Certainly. I'm Jon Praed, with the law firm of Latham & Watkins. I'm here today with a partner in my firm, Mr. Everett Johnson, whose admission pro hac vice I'd like to move at this time.

COURT: That motion is granted. Good morning, Mr. Johnson.

MR. JOHNSON: Good morning, Your Honor.

THE COURT: You'll be the main spokesperson for the plaintiff?

MR. JOHNSON: Yes, Your Honor.

THE COURT: All right, that's fine.

MR. BOE: And I'm Randall Boe, Your Honor, associate general counsel for America Online.

THE COURT: All right, good morning. And for the defense?

MS. HOLMES: Good morning, Your Honor. Kathleen Holmes. With me this morning is Mr. Stuart Parsons. He is a member in good standing of the Bar of Wisconsin and has been admitted previously before this Court pro hac vice, and I would like to move his admission on the same terms for this case.

THE COURT: All right, Ms. Holmes, that motion is granted. Good morning, sir. And, Mr. Anderson, you're with the defense as well.

MR. ANDERSON: Yes, your Honor.

THE COURT: All right. This case is before the Court on the plaintiff's motion for preliminary injunction and the defendants' motion for expedited discovery, pretrial disclosures, and trial date. The latter motion, as I understand it, is not opposed by the plaintiff.

MR. JOHNSON: That's correct.

THE COURT: And so what I'm going to do on the latter motion is to ask you all to work between yourselves and come up with a proposed specific discovery schedule that you want.

Now in terms of a trial date, the trial dates for this court are set by the chief judge. What I can do, though, is put you on an early pretrial calendar date. Pretrials are always held the third Thursday of the month. So frankly, I could put you on the November pretrial calendar if you'd like that, and you would then get a trial date within three to eight weeks from that pretrial conference date. I don't know if you had preliminarily talked about that, but -- have you?

MR. JOHNSON: We haven't discussed that specifically, Your Honor. I'd be happy to do that with counsel and suggest that that might be more wisely done after hearing the Court's ruling on the other motions this morning.

THE COURT: That's fine. But if that is how you want to go, then -- that is, if how you want to go is to be put on the November pretrial calendar, you need to just call my chambers, because I'll have to get a time certain for you from Judge Cacheris' chambers, and that's how we would work that, all ?

MR. ANDERSON: We'll do that and probably in the order would change the dates for the disclosures.

THE COURT: Correct.

MR. ANDERSON: Because we wouldn't be doing those at the pretrial conference. It would be afterwards.

THE COURT: All right. So I expect you all to work that out.

MR. ANDERSON: All right. Thank you.

THE COURT: All right. Now you have both significantly briefed what are very interesting issues. I have had a chance to review those. I've also, I will tell you all, looked very carefully at the CompuServe case out of Ohio, which is very much related, it seems to me, to the issues that are raised in this case, and so I don't need to hear any significant repeat of what's in the briefs, but I will be glad to hear any brief highlighting of key issues or any new matters that either side wants to bring to my attention, all right?

MR. JOHNSON: Thank you, Your Honor. And thank you again for the privilege of appearing before the Court this morning. With the Court's permission, I will speak very briefly on just a couple of topics, one an introduction of the technicalissues. With the Court's permission, I'll spend just a couple of minutes with some exhibits that I think illustrate the computer technology which pervades much of what is at issue in this case.

And then if I could, I would like to focus specifically the defendants' contentions with respect to irreparable injury.

THE COURT: All right. Now I don't need -- I mean, 15 I'll give you a minute or two. I don't need a total primer on16 the Internet and e-mail and all of that, but since I am not myself an AOL subscriber, I may not know exactly how you work your system. So I'll give you a little bit of time to do that, okay?

MR. JOHNSON: Thank you, Your Honor. Thank you very much.

America Online, the plaintiff in this case, as Court knows, is a Delaware corporation publicly traded and headquartered in Dulles, Virginia. It is an online provider of computer services. America Online has more than 9 million members worldwide. One of the features of the services that America Online provides is the right to send and e-mail both to other members of AOL and through the Internet.

The defendants in this case are in the cyber-pornography business. They provide services where interested persons may through video teleconferencing at a fee of $5 to $10 a minute view naked women performing simulated sex acts.

As offensive as that may be to many America Online members, that's not the core issue in this case. The core issue in this case is an insidious business practice which they concede they engaged in called spamming.

Spamming is the practice, Your Honor, of sending hundreds of thousands of unsolicited bulk commercial e-mail to America Online's computer servers in Reston, Virginia, and I mean hundreds of thousands every day. Spamming is an crisis. All one has to do is read the newspaper.

Spamming, it is undisputed in this case, is the primary complaint relating to the e-mail system of the 9 million AOL members. Your Honor, the testimony in this case is that we receive hundreds of thousands of complaints every week about spamming.

Spamming, as it is conducted by the defendants in this case in concert with others with whom they contract, is a fraud, and spamming in every circumstance as it's conducted by the defendants in this case is a trespass on that computer system which causes us irreparable injury.

I'll show you two quick things on the board, Judge.

THE COURT: And, counsel, if you can't see, feel free to move around, all right?

MR. JOHNSON: Stuart, what I'll do is I'll angle that a little bit so you can see it.

THE COURT: That's all right, I'll be able to work by the slight angle.

MR. JOHNSON: I hope our computer technology is better than our easel.

Your Honor, just very briefly, here's how it works. When a member signs on to America Online, enters a password that every member has, they get an indication that they have received an e-mail of some sort. It simply appears there.

THE COURT: Counsel, I do use e-mail. I know how it works, unless there's something unique about what AOL does.

MR. JOHNSON: There is not.

THE COURT: All right.

MR. JOHNSON: Your Honor, it works exactly the way the Court is familiar with. You click on the e-mail.

THE COURT: Right.

MR. JOHNSON: You see that. This is an example of the kind of e-mail or spam that the defendants send in this case. This is actually an exhibit attached to our papers, and this is one of their e-mails. They operate this Web site designated as vdofantasy.com. All one needs to do if you receive this e-mail from them is click two times on that, and with the Court's indulgence, this is what you see (indicating).

And the problems, the things that so aggrieves our members, at this point in time, you have clicked the mouse three times on the computer. Whether you're 10 years old, 14 years old, or 40 years old, you get to hear, without ever having been asked to pay any money or without ever having been asked to verify your age, there are warnings that appear, but there is no verification, anyone can get to here with five clicks of the mouse.

Now this is the core problem, Your Honor, and the core problem here is volume. Let me say a word about the volume, because it's what causes the irreparable injury.

At the time of their opposition, at the time of Mr. Tajalle's declaration, the defendants said in this case that they sent 30- to 40,000 e-mails a day to America Online members in an unsolicited fashion. In fact, they even chided us in their opposition, why are we making such a big deal about 30- to 40,000 e-mails a day?

After Mr. Tajalle's declaration but before his deposition yesterday, Mr. Tajalle remembered that he had contracted with an outside party to submit an additional 200,000 e-mails every single day. So as we stand here today, Your Honor, it is undisputed that they send 240,000 unsolicited e-mails to America Online's computer servers and thereafter to our members, who do not want them, every single day. That's 7.2 million a month, 85 million a year.

This injures us, Your Honor, and I'll come back to that, but they've made it even worse, because not only do they send the e-mails; they fully concede that they engage in evasive and deceptive practice to keep us from defending ourselves.

One of the things they do is we could block if they sent from a single domain. If they sent from the same place all the time, we could block it and help ourselves, and we've tried over the months to do that. But as they admit in their answer and as Mr. Tajalle admits in the deposition, for the purpose of evading that, they vary the domains.

THE COURT: Has he specifically said that?

MR. JOHNSON: He has specifically said that. Now let me tell you what he said in his deposition. The answer, Your Honor, says that one of their purposes in varying the domains is to evade America Online's blocking techniques.

Now Mr. Tajalle said yesterday in his deposition that they have stopped doing that, but when questioned, what he says is, oh, no, they haven't stopped varying the domains. They've simply abandoned the purpose of evading. So they're doing exactly the same thing. Nothing has changed at all, but in his heart, I guess he no longer has a purpose to evade.

Another thing they do, Mr. Tajalle says it's not for the purpose of evading, is they vary the user names in a dynamic way. So for example, if you wanted to block at the user level instead of the domain level, you can't. It gets through. You realize it's spam. By the time you block it, they've changed the name to something else.

This is what spammers do. The object of spammers is to get through through trickery or deceit. It does them no good if it doesn't get on the screen of the person who doesn't want it.

The evasive techniques are even more egregious with respect to third parties that they employ. They route it through off-shore corporations. They falsely designate the origin. They simply fabricate senders.

Now Mr. Tajalle says that Over the Air Equipment hasn't engaged in those practices. In fact, he says they condemn those practices and don't support those directly fraudulent practices.

Let me pause at this point, Your Honor, and offer a simple solution on that issue. We have sought five forms of injunctive relief in our proposed order. Paragraphs C and D deal with those evasive and deceptive practices that Over the Air Equipment itself says it does not engage in, and Mr. Tajalle yesterday in his deposition conceded they would not be harmed by an injunction prohibiting those practices.

So with respect to the stuff they say they don't do, as the court said in CompuServe, there is simply no reason not to enjoin that.

Let me move, if I may then, back to the stuff that they say they do do. And I can't emphasize enough it is utterly undisputed, 240,000 e-mails every single day.

How does this injure us? The injury to us is equally undisputed, Your Honor, and the injury occurs in two ways. It occurs at the front end. Every single one of these e-mails comes to a computer server called a front-end server in this example sitting in Reston, Virginia, and when they arrive in this volume all at once, they utterly degrade the system. They slow down what our members expect to be a nearly instantaneous transmission of electronic e-mail messages.

It's just as if they pulled up to a McDonald's and dumped three busloads of people there. That would have the effect of creating a log jam, and if you were just trying to get a meal at McDonald's, you couldn't get it, because you'd be behind 300 busloads of people. That degradation of the quality of service has been recognized by the Fourth Circuit in particular in the Multi-Channel TV case as a form of irreparable injury.

The second and perhaps most insidious form of the irreparable injury is the good will damage it does to our members. They don't want this stuff. They want us to block it. They complain to us at 100,000 on average complaints a day about spam, and they hold America Online accountable for not preventing it, and when we get the messages back, the vast majority of those messages are saying to us, you do something about this, America Online.

Now America Online has tried its level best technically and through pleading and we've threatened to stop this practice, but they have no interest in stopping this practice. They have no interest in the good will of our customers. They have an interest in selling cyber-pornography. So unless the Court enjoins this practice, there is no technical cure, and they are not ever willingly going to stop.

So we're injured in two ways. Our computer system is downgraded, and our customers are infuriated by this. They say, however, that their injury from an injunction would outweigh that injury to us. I say poppycock.

What they would have you believe if you were to enjoin this practice, Your Honor, is that you would put them out of business, but that's just a conclusion that has no factual support at all.

Bear in mind what they're doing. They're advertising. They're shifting the cost of advertising, receiving, sorting, and distributing their direct marketing to us by dumping it on us over our objection, but it's just their advertising.

As the court said in CompuServe, there is simply no reason that you can't advertise in a more legitimate way. Send it to people who want it. Pay to send it to people who want it. Post it on the Web browser. Buy a billboard or do what most businesses of this kind do: Buy an ad in the back of a dirty magazine. There are legitimate ways to advertise this business.

The problem is they have to pay for it. And what they want in this case is advertising for free. Well, what business doesn't? It's not even free, Your Honor. They want advertising that we pay for. It's as if someone beamed commercials to NBC and said, "Air these over your airwaves, please."

The economics, I think, that we learned from Mr. Tajalle yesterday fully support the conclusion that they would not be meaningfully injured at all by this injunction. These are his numbers, so I presume they're undisputed.

He told us that in the first nine months of 1997, they have gross revenues of over $2 million from this pornography business. He told us that they enjoy a profit rate of 15 to 20 percent on that $2 million, astronomical in any industry. He told us that their cost of advertising that they incur is between 2 and 3.5 percent of gross revenues. Can you imagine a direct marketing business that has an advertising budget that low?

But it's no mystery in this case. The cost of advertising isn't that low. America Online is paying it. All we're asking by way of this injunction is not that you put them out of business, but that the Court ask them to bear their cost of advertising their business. That is not only not an irreparable injury to them; that's no injury at all.

Now in conclusion, Your Honor, the Court mentioned the CompuServe case, and we, of course, invite the Court's careful attention to that case. It's directly on point, exactly the same issues, with exactly the same defenses raised.

And the court properly held, in our view, in that case in granting the plaintiff's motion for a preliminary injunction that the injury they complained of was no injury at all, and the court properly found that the act constituted a trespass to chattels and that the injury to the plaintiffs, in that case CompuServe, in this case America Online, is irreparable in the devaluation of their service and the injury to their good will.

THE COURT: Let me ask you one question: In the CompuServe case, the court did look at the substantive Ohio law as it related to conversions and trespass to chattel. I don't believe in your pleadings you actually addressed trespass to chattel in Virginia. I may have missed it. I think you did talk about conversion. But have you looked at that, and is there any significant difference between Virginia substantive law and Ohio substantive law?

MR. JOHNSON: We meant to address that, Your Honor, and I think the bottom line answer to your question is no, except with the possibility that Virginia has a greater sense of private property rights than the State of Ohio does. Both states find the underpinning of their law in the restatement. In Virginia, the Putney case is what comes to mind, although I may be mistaking that, Your Honor, in our brief. I'd be happy to look.

The courts have routinely said that the tort of conversion and the tort of trespass to chattels are essentially sibling torts. The conversion is a total and permanent misappropriation. Trespass to chattel, sometimes called, I think, assumpsit in the old common law of Virginia, rising not quite to the level of conversion, but at the same time having within it an element of misappropriation of use or ownership.

Factually that's undisputed in this case. There is no dispute that the sending of the e-mails actually consumes capacity on our servers. It makes them unavailable to us and unavailable to our members. So in that sense, it is a traditional trespass to chattel.

Now the defendants in this case have tried to suggest that there's something ethereal here, you know, that the Court can't really get behind, that the Internet really doesn't exist anywhere. That's kind of at the wrong level. The problem for us exists at Reston, Virginia, and those computers are quite tangible. We can go out there and kick them. And they are consumed by these e-mails that come in.

So I think the traditional notions of personal property, the Ohio law of trespass to chattel, which is not different from Virginia law of trespass to chattel, are controlling.

THE COURT: Thank you.

MR. JOHNSON: Thank you, Your Honor.

THE COURT: I'll hear from the defense. Mr. Parsons?

MR. PARSONS: May it please the Court.

THE COURT: Yes, sir.

MR. PARSONS: There are some problems here which don't meet the eye at first glance in this case. AOL seeks two different categories of injunctive relief, the first against what we might call allegedly fraudulent or deceptive or evasive practices, ways to end-run blocking or filtering systems.

The second category is an injunction against what America Online calls unsolicited bulk e-mail. I want to direct my remarks to the latter, because that's where the problem in this case is, but let me turn to the former just for a moment.

This is not a case where a defendant has been engaged in activities which it ceases only when hauled into court. That not what happened here. What happened here is that Over the Air contracted with outside, independent entities based in other parts of the country than Nevada to do some e-mailing for Over the Air. One of these was an Internet service provider. And did, apparently did some of these things complained of, complained of, whereupon Over the Air terminated the relationship months ago.

The Court need not enter an injunction where the party sought to be enjoined has already voluntarily and independently terminated the activity complained of, so I want to make that point.

THE COURT: The activity complained of in that respect, as I understand it, is that the, because the source of the bulk mail keeps changing --

MR. PARSONS: Yeah.

THE COURT: -- it has become impossible or very for AOL to use the techniques it has built into its system to ferret out the source of this stuff. And my understanding, unless I misunderstood the plaintiff, is that, in fact, your client is still sending bulk mail into the AOL system.

MR. PARSONS: Let me address that very specifically.

THE COURT: All right.

MR. PARSONS: My client has always used multiple -- I'm going to use the word multiple and distinguish it from the word varying -- multiple domains, meaning smith.com is one domain, jones.com. Okay. Now shifting domains rapidly is evasive or varying domains is evasive. Three new domains every day, it's hard to catch them. You have to sort of catch up to these new domains. That's evasive.

My client is not doing that. My client is limiting its activity to certain domains which have been around for more than a year, domains of -- domains which America Online has identified, domains which America Online subscribers can block.

In the Cyber Promotions case, when the injunction was entered on stipulation -- that case was actually settled -- the agreement that America Online made with Cyber Promotions is limit your mail to five domains, and Over the Air is perfectly willing to limit to five domains, and Over the Air will not shift domains or add new domains in any attempt to evade.

That is, though, Your Honor, the one area in which this is not a third-party's activity. This is Over the Air's activity, and it's a subject which is fair to address. I'd like to move on to the very difficult question of an injunction against unsolicited bulk e-mail. The first question is what is unsolicited bulk e-mail, what is the injunction against.

We had expedited discovery yesterday in this case. Each side produced a witness for deposition, knowledgeable witnesses, and I asked America Online's witness whether if I wanted to send 5,000 e-mails to the people who were at the university I attended while I was there, e-mails protesting the university was doing today, would that be bulk e-mail, and he said yes, it would be. I asked whether or not America Online had any definition of what bulk meant, how bulky does it have to be to be bulk, and we went through the exercise that lawyers usually do: Would 200,000 be bulky? Yes. Would 100,000 be bulky? Yes. And we got down to around 5,000, and the witness said that's where it begins to get iffy. There is no definition, America Online has no definition of what bulk is. Very important point easy to miss, I think: Cyber Promotions, according to America Online's witness yesterday, Cyber Promotions at the time of that case in settlement was mailing 1.8 million e-mail messages a day, 1.8 compared to 240,000. And when America Online settled that case with Cyber Promotions and when Judge Weiner entered the injunction, there was no volume limitation at all. America Online at that time in February '97 thought it was appropriate not to address the volume issue, addressed only these evasive, deceptive tactics.

So the volume issue here is, is maybe a nonissue as far as America Online is concerned. Certainly it's not an issue that they have defined in a way that the Court can rationally address a definition of what it is is sought to be enjoined there, and we should have a record and develop that before the Court enters an injunction that's a precedent for banning my e-mail to my classmates.

This is not an easy problem. The Court should not tread quickly. We should develop a record on an expedited basis come back to the Court and try the case and determine what kind of injunctive relief, if any, is appropriate. We should develop the record so that the Court can analyze the trespass to chattel issue, the conversion issue. We are in an entirely new medium here. This isn't easy.

THE COURT: How do you address the facts of this record that there are customers of America Online who object to receiving your clients' materials, America Online served notice of that objection, and at least according, as I understand it, to some of the material submitted by the plaintiff, that nevertheless those customers were still getting that stuff?

MR. PARSONS: Okay. Two points. The first is that America Online has available to its members devices by which the member can say by typing in a domain name, I do not want any more mail from these people.

The testimony yesterday was that the, quote, vast majority, unquote, of the AOL subscribers do not avail themselves of that blocking mechanism, whether by choice or for some other reason. Who knows?

THE COURT: It wouldn't have worked in your case, because as I understand it, the domain name kept shifting, right?

MR. PARSONS: No.

THE COURT: So if I said I didn't want to hear from luv2cu and the next day you're sending the same stuff from, you know, cutegirls or something, then it would still cut through.

MR. PARSONS: That's true, but I've only mentioned the member blocking device. And remember, over the years, not taking the position that it's appropriate to vary and shift names to evade blocking devices, if people don't want to see this, they shouldn't get it. There's no question about that.

Second important thing the Court needs to understand is that these e-mails give the recipient the ability to simply send it back and say don't send me any of this stuff again back to Over the Air, and the testimony yesterday was that when Over the Air receives that message back, please, in effect, take me off your list, Over the Air takes that member off every domain list. It doesn't turn around and send that member a message on another domain.

Why would they do that? It's not in their business interest to do that. This is a person who said I'm not interested in this stuff. So there's no -- I mean, the economic incentive is exactly the opposite. It's to take that person off the list. Testimony yesterday was that's what they do.

THE COURT: Why should the customer even have to go to that hassle? I mean, why should a person who wants an e-mail system so that he can or she can make immediate communications with people or entities with whom he is interested in communicating and receiving their answers back have to sit and wade through all this stuff that they don't want?

And by the way, I think it is correct to keep this discussion focused on non-content matters, all right? I think that the pornography aspect of this case, you know, it adds, it's a terrible pun, sex appeal to the case, but it's really, wouldn't make any difference if it were, you know, a real estate advertisement or anything else like that. I mean, the real issue in this case, it seems to me the real issue is the concept of the bulk mail, and that's what you've focused on as well.

MR. PARSONS: Sex appeal or non-appeal, as the case may be.

THE COURT: Right.

MR. PARSONS: And let me answer that. We pay a price for free and open communications in our society. I get junk e-mail at home, like regular mail at home, like all of us do, and I don't enjoy having to open up an envelope that's marked personal to see whether it's, you know, junk or not.

I receive telephone calls at home, like we all do, from telemarketers at increasingly inconvenient times.

THE COURT: Right. But usually most of us don't get more than maybe one every week or two. How would you feel if you were getting 10 or 15 a day or if when you went home at night and your mailbox not only was overfilled, but you couldn't get in your front door because there were literally piles of various ads and coupons and things?

MR. PARSONS: Oh, there's an important point here that I, we haven't told you about yet: Yesterday, the America Online witness explained in detail the five or six blocking alternatives that a member has. One of them is to punch a button that says I don't want any e-mail at all except from other AOL subscribers.

A member has other alternatives which will effectively block any commercial bulk e-mail. So there's a way to avoid it.

THE COURT: Well, wait. Let me hear the first one. If I blocked any non-AOL subscribers, what if one of my dear friends is a Clarknet subscriber and wants to send a message? I can't get through?

MR. PARSONS: I didn't understand the --

THE COURT: What if I have a good friend who is not on AOL and they want to send me a message? I can't get it now if I've blocked non-AOL folks?

MR. PARSONS: Mr. Johnson can correct me or one of the people here if I'm wrong, but I think the witness testified yesterday that there is a way just to block e-mail that's in the nature of the bulk e-mail. I understand the question Your Honor is asking. I can't answer it offhand.

THE COURT: Let me just get a quick answer on that from the technologists.

MR. JOHNSON: Your Honor, if you blocked e-mail from all non-AOL subscribers, you would not get an e-mail from anyone except an AOL subscriber.

THE COURT: Okay. All right. Well, while you're on your feet, I'm sorry, to your knowledge, based on again the record that I have before me, I did not see it there, or the record that you all have developed since then, is there at this point any technological way in which an Internet provider, service provider is able to block this spam?

MR. JOHNSON: No, Your Honor.

THE COURT: That's what I understood is the problem.

MR. JOHNSON: The answer is no.

THE COURT: All right. That's my understanding of the technology; it can't be done.

MR. PARSONS: I think that's why we have to develop a record. A witness testified yesterday that technically, technologically it can be done, and indeed, America Online has had a system in effect for a year called the preferred mail system, which the testimony is it discontinued just last week.

The preferred mail system did block external e-mail from commercial sources, because the testimony was that the technology permits the mail to be blocked at at least six different levels by you from users, from domains, and on and on.

This is an interesting subject. It's another reason why we ought to develop a record and try the case before the Court enters any orders.

THE COURT: Well, it's a great issue. I mean, obviously, the issues in this case are fascinating. However, I'm sitting as a court of equity when I'm asked to enter an injunction, and I have to weigh the four factors stated in Blackwelder.

The first two, of course, are the issues of irreparable injury to the plaintiff if the injunction is not given versus the irreparable injury to the defendant if the injunction is granted. Then I need to look at the likelihood of success on the merits, and of course, the last factor is the overall public interest, all right? We always put that last, although sometimes I think as a court of equity, we ought to look at that a little bit more strongly.

But clearly, I mean, the unrepresented parties or, I guess, the parties who are really represented by the plaintiff here are the ultimate subscribers to the service who clearly don't want the stuff, and at least on the record before me, in many cases where the plaintiff attempted to keep their subscribers from having to see it, they were unsuccessful because of activities on your clients' behalf. So clearly the public interest, it seems to me, at this level anyway is in favor of the plaintiff.

In terms of the irreparable injury at this point, AOL has certainly evidence before the Court that it is suffering an invasion to its system. I think that the reasoning in the CompuServe case is extremely clear, extremely careful, extremely pertinent to this case, and the judge in that case went through a very careful analysis of the concept of trespass to chattel.

There is no question the same technology applies in this case as it applied in CompuServe, and that is that the computers, the physical computers of America Online are, in fact, invaded, some time of those computers. It may not in the world of mega numbers that these computers have, it may not be a huge amount, but nevertheless, it is definitely an amount that is taken up with having to work through this stuff.

And therefore, I find that -- furthermore, and I guess here we do have to look at to some degree the nature of what's coming across -- the AOL, the integrity of the AOL system, and I that AOL is one of -- I don't know how many other of these types of providers have this, but AOL, unlike certainly Erols, to my knowledge, and other providers, does, in fact, have some content-orientation in its licensing agreement with its customers or its agreement with its customers that lurid and other types of materials are not something that are going to be going across the lines, and so to the extent that this kind of information is getting through their system, I think that it's also in terms of AOL's reputation and the kind of image that it's trying to promote and the basis upon which many people subscribe to AOL, is being diluted and injured.

I mean, we haven't discussed at this point and I don't think we really need to, it hasn't been highlighted in the arguments, although it's in the briefs, the other issues that are floating around in this case, such as the trademark Lanham Act matters, because I do think this case can be resolved at this point, I mean, this issue resolved at this point on the trespass concept, but I'm definitely convinced on this record, even though it's not a complete record, that there's definitely irreparable that the plaintiff will incur if this activity continues.

Now the defendant makes the argument that it will suffer irreparable injury in that its business will be significantly affected, because it makes its money in this bulk mailing along the e-mail system, but again, as the judge found in CompuServe, there are other ways of doing advertising, and it is extremely, in my opinion, inequitable to, in effect, almost be a on the system that AOL has and on their computers to be able to do this kind of very, very inexpensive bulk mailing that's going on here. So that whatever injury may occur to the defendant I don't think outweighs the overall injury to the plaintiff.

And lastly, in terms of the likelihood of success on the merits, again, based upon not just the CompuServe case, but the case from the Eastern District of Pennsylvania, which again I think that was AOL v. Cyber whatever, that certainly the case law that I see evolving in this area is all favorable to the plaintiff's position, and therefore, I think there's a decent chance of likelihood of success on the merits for the plaintiffs, and going through that quick evaluation of the factors, I'm therefore going to grant the plaintiff's request for a preliminary injunction.

Now did you submit an actual proposed order to me?

MR. JOHNSON: I did, Your Honor.

THE COURT: I think you did, all right.

MR. JOHNSON: I did.

THE COURT: I'm going to look at that again, but I will hear if there's any discussion that defendants want to address to the actual proposed order, and actually, let's see if we can find it. It was filed with the original motion?

MR. JOHNSON: I believe it is appended, Your Honor, behind the certificate of service behind the memorandum.

THE COURT: All right. We'll try to pull it out while you all are talking about that.

MR. PARSONS: Well, here's the problem, and it's the problem I addressed a few moments ago: For years now, America Online has been living with unsolicited bulk e-mail. It did a deal with Cyber Promotions which did not restrict Cyber Promotions' ability to send 1.8 million a day.

And for a year now, Over the Air has been trying to communicate with America Online to see what would be acceptable, would work, how could we time the sending of the messages so to minimize any burden, and they waited a year, did nothing. Finally they started a lawsuit, and now the Court has to decide what to enjoin.

The Court is asked to enjoin, quote, unsolicited bulk e-mail, unquote. There is no definition of what that means. What is bulk?

We submit that you need a record to decide that, but if not, bulk, maybe 100,000 a day is bulk. We could have experts on the Internet here, and you would probably from 10 different experts get 10 different opinions about how much bulk in terms of messages per day it has to have before it's a burden at all. There is simply -- the only record the Court has is the testimony of America Online that it has no definition of bulk. I asked them, and that's what they said.

So the Court has a problem, and I think we ought to have a hearing before the Court enters an injunction on what it means.

THE COURT: Only lawyers have trouble with ordinary English. I don't have any problem. I haven't even looked the word up in the dictionary, but to me, bulk, any ordinary person on the street, if you ask them what do you mean by bulk mail, they're going to say I would think it's any multiple, which means more than one, grouping of pieces of mail to which -- which are not being sent to a specific person or entity within a specific identity. In other words, it's an anonymous sending of more one than item, and that's what it is.

I mean, if I send a letter to counsel, when I send my order out, for example, from this case, I'm going to send it out two or three different entities, all right? That's a multiple , so in some respects, it's bulked, except that it's specific to each one of you, with a specific purpose that I want to communicate something directly to each of you, and I'm making a conscious effort to address each one of you. If I just sent out an order to every lawyer who practices before this Court, without any specific idea in mind, that's a bulk.

MR. PARSONS: Well, that relates it to content, right? I mean, now --

THE COURT: It's a combination of things. But the reality of it is I don't have a problem with the word bulk.

MR. PARSONS: But let -- well --

THE COURT: I mean, I don't -- but anyway --

MR. PARSONS: Judge, let me just, how about if you want to send an e-mail to all the Article III judges in the country talking about, say, pay raises? Now it's unsolicited clearly, and by your definition, it would be bulk, and that's got to give us a pause.

THE COURT: No, it doesn't, because bulk just means I'm bunching them all together. It's multiple mailings. I don't have a problem with that.

MR. PARSONS: All right.

THE COURT: But in any case, the proposed preliminary injunction says, A -- I don't think it uses actually the word bulk.

MR. JOHNSON: It does not, Your Honor. That was my suggestion.

THE COURT: That's right. It says "sending or transmitting any unsolicited electronic mail message or any communication of any kind to AOL or its members without prior written authorization." I guess, therefore, you have some customers from AOL who are using your services, and if they want to continue getting your stuff, my understanding is they would not be barred under this injunction from getting it.

MR. JOHNSON: Well, Your Honor, I think you certainly bar the trespass altogether, but an injunction that would them to mail to people with respect to whom they have prior written authorization to mail in a non-bulk fashion would not be objectionable.

THE COURT: And I think that's covered in here, isn't it? It says "without prior written authorization," and so I would assume that that means that with prior written authorization --

MR. PARSONS: It could be electronic authorization. I mean, written would certainly include somebody who's sent a message to Over the Air that says send me more.

THE COURT: Now, see, it's interesting. I mean, I would think that written includes electronic, right? I mean, obviously, how do you communicate in e-mail? You've got to type.

MR. JOHNSON: We did not mean to exclude electronic from it.

THE COURT: All right.

MR. PARSONS: Question of a bond, Your Honor? We're obviously talking about a big loss of --

THE COURT: We'll get to the bond in a second, but are there any other fine-tunings that either side feels needs to be addressed? Yes, sir.

MR. JOHNSON: Your Honor, I think the language of the order as proposed and as interpreted here by the Court today is sufficient. I do want to make sure that as we leave here today, the defendants don't have the impression that there is a crack in the boardwalk here through which the Court has authorized spamming.

The non-bulk nature is critical to avoiding the injury. So if what the Court means by this language, and we fully subscribe to it, is that they can mail on a piece-by-piece basis to people who want it, that's fine.

THE COURT: That's what I mean. That's not bulk.

MR. JOHNSON: That's not bulk. Thank you, Your Honor.

THE COURT: All right. That should be very clear.

All right, I'm going to enter this order then today, and again, that will give you some parameters in which to think about how you want the discovery schedule set and all of that.

Now apparently some of these cases have settled in the past. If you want to try to work on a settlement, again, I'd recommend you do that as quickly as possible, and any of the magistrate judges or -- my schedule's tight next week, but I'm sure if you want a judge right away, you could get one if you want to settle this, all right?

Anything further?

MR. PARSONS: I take it from the colloquy that the Court will not enter paragraph B of the proposed order, B as in boy.

MR. JOHNSON: No objection to the deletion of that.

THE COURT: All right.

MR. PARSONS: All right. And we, we do ask the Court to determine the appropriate amount of bond.

THE COURT: All right. What bond have you had in other cases? I'm just curious. What was the bond in CompuServe?

MR. JOHNSON: I don't know what the bond in CompuServe was, Your Honor.

THE COURT: I'm sorry, that was not your case.

MR. JOHNSON: In the Cyber Promotions case, since the injunction was entered by consent, there was no bond.

THE COURT: Does AOL have any other similar injunctions right now?

MR. JOHNSON: I'm not aware. If you would allow me to confer with counsel for AOL?

THE COURT: Sure.

MR. JOHNSON: No, Your Honor.

THE COURT: All right. What is the monthly volume of revenue you're getting from this practice right now? It was 2 million -- well, you've just had the deposition of the owner.

MR. JOHNSON: Your Honor, may I offer a suggestion here?

THE COURT: Yes.

MR. JOHNSON: Mr. Tajalle testified that in the month of September, they made a profit of $40,000. I don't know based on what volume, I'm not sure he specifically recalled, but he reasoning from his own distribution testified that they earned $40,000 at that time.

If we're talking about an expedited trial, we're talking about a couple or three months. So a bond on the order magnitude of $100,000, for example, would seem to us to be appropriate.

THE COURT: All right. Do you want to respond to that?

MR. PARSONS: I agree.

THE COURT: All right, I'll enter a bond of $100,000, and that, I assume, can be taken care of at the Clerk's Office.

MR. JOHNSON: Yes, Your Honor.

THE COURT: All right. I'm going to do your order first today, and I will add the injunction language to it. Actually, if you all -- is the November pretrial calendar then when you want to get this case scheduled?

MR. ANDERSON: I think that would be appropriate, Your Honor.

THE COURT: I can then put it all in the same order so I don't have to do two different orders.

MR. JOHNSON: Your Honor, I don't have my calendar in front of me, nor do I know the date of the pretrial conference in November.

MR. ANDERSON: It's the third Thursday in November.

THE COURT: It's the third Thursday in November, and I can tell you what that is in a second.

MR. JOHNSON: I'm willing to bet that's Thanksgiving.

THE COURT: No, it's the 20th.

MR. JOHNSON: I'm glad I didn't bet.

THE COURT: Thursday, November 20th. Is that all right for everybody?

MR. JOHNSON: That's fine, Your Honor.

THE COURT: All right. I'll get a time certain for you all, so that will be in the order, and then as I said, you'll to get among yourselves to get all of your discovery schedules, your rule 26 disclosures and all that.

And I know, Mr. Anderson, you've worked on those types of consent matters before.

MR. ANDERSON: Right. And I'll work with Mr. Johnson.

THE COURT: All right, fine. Anything further on this? If not, we'll recess court until 1:00.

MR. JOHNSON: Thank you.

(Which were all the proceedings had at this time.)

CERTIFICATE OF THE REPORTER

I certify that the foregoing is a correct transcript of the record of proceedings in the above-entitled matter.