Sophisticated spammer receives hefty fine
PDF DOWNLOADA recent decision handed down in the Federal Court provides greater clarity about the kinds of issues that Australian courts will consider when setting penalties for breaches of the Spam Act.
The case is the latest in a series of related proceedings brought by the Australian Communications and Media Authority (ACMA) in the Federal Court that revolve around a business known as International Machinery Parts Pty Ltd (IMP) in which Scott Phillips (Phillips) was heavily involved.
The presiding judge, Justice Logan, having previously found that Phillips had contravened both the Spam Act 2003 (Cth) (Spam Act) and the Trade Practices Act 1974 (Cth) (TPA), was in this proceeding faced with the decision as to the appropriate orders to apply.
His Honour ordered that Phillips be restrained for 7 years from using social networking, online dating websites and premium SMS chat services in various ways, and that he pay the Commonwealth a penalty of $ 2 million in respect of his involvement in contraventions of the Spam Act. The $2 million fine brings the total penalties arising from the series of proceedings to $24.25 million.
The case concerned the operation, by Phillips and others, of a deception in which users of dating and social media websites were duped into thinking that they were communicating with real people via such websites when in fact companies controlled by Phillips had set up fake online profiles on those websites as a means of luring legitimate users of the sites into sharing their information, allowing IMP and related companies to obtain the unsuspecting user’s mobile phone numbers. These phone numbers were then used to send unsolicited SMS messages to those numbers in which they were invited to an ‘SMS chat’ via IMP’s ‘Safe Divert’ service. Users who responded to the messages were charged approximately $5 per message.
The judge, having previously decided that Phillips had aided, abetted, counselled, or procured the corporate contraventions, used this proceeding to spell out what the appropriate orders should be and what reasons he saw as being salient in the making of such orders.
Phillips did not dispute a draft of His Honour’s findings as to declarative and injunctive relief under both the Spam Act and the TPA which would stand to bar Phillips from certain activities in relation to the use of social media, dating websites and SMS chat technologies and to declare at large that his actions and those of the companies in which he was involved were contraventions of both Acts.
As to the imposition of a monetary penalty His Honour provided several detailed reasons, outlined below, as to why a $2 million fine was appropriate in this case.
Business was Lucrative
Phillips was physically involved in the companies which carried out the conduct at issue for only 54 days during what was referred to as the business “start up phase” – evidently his involvement was cut short owing to his imprisonment relating to another, unrelated matter. Yet in this short period of time the conduct netted over $140,000 in revenue through many thousands of messages secured by the scam.
Loss and Damage
His Honour, while aware of the small economic loss incurred by those affected by the scam, was attentive to the ‘more subtle loss’ occasioned by the personal slight and embarrassment associated with the deception. This more subtle loss was considered to be more serious in nature than the small amounts lost, as it was likely to cause serious embarrassment and to play with people’s emotions. This was a crucial factor in His Honour’s reasoning.
Conduct was Deliberate
His Honour observed that the entire purpose of the business was to execute this deception. It was to be distinguished from circumstances in which a corporation’s conduct might be considered to be a lapse or aberration from otherwise legal conduct. Phillips’ involvement was at the most senior level and the business’ whole reason for existence was to carry out the deception on those vulnerable to such deception.
Deterrence
The role of setting the penalty at a level that would foster deterrence weighed heavily in His Honour’s reasoning, and indeed the judge considered that Phillips’ conduct interrupted the flow of commerce and social contact on the information superhighway by the establishment of a company which practiced deception on those who used certain websites and potentially diminished the public view of the safety of dating websites generally.
Another factor relevant under the general heading of deterrence was the expense and time spent by ACMA in developing and prosecuting the case. To do so was dependent on ‘considerable investment of public funds and an opportunity cost associated with that investment’. Moreover, the judge was aware of the need, however salutary it might turn out to be, of providing Phillips with a reminder of the seriousness of his conduct.
Totality of Conduct
This proceeding and the eight previous related proceedings presented the Court with a novel situation in terms of setting penalties, as the only other cases prosecuted under the Spam Act were not of any comparative value. Counsel for Phillips argued that his involvement was for only for about 6.7% of the time that the company executed its deception and that Phillips’ penalty ought to reflect this. His Honour was not swayed by the argument, noting that ‘mathematical comparisons are not…an apt way in which to approach sentencing in this case’. Rather, it was Phillips’ ‘acumen and animus’ which led the judge to his final decision.
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