e360 Insight, Inc. v. The Spamhaus Project, 10-3538 & 10-3539 (7th Cir. Sept. 2, 2011)

The lawsuit between e360 and Spamhaus was a long-running, tortured affair, and it looks like it finally came to a close. With e360 being awarded a whopping $3 in damages against Spamhaus. (Here’s a link to Ars Technica’s recap of the oral argument, where Judge Posner blasted e360’s counsel: “This is just totally irresponsible litigation ... You can’t just come into a court with a fly-by-night, nothing company and say ‘I’ve lost $130 million.’”)

Background: e360 sued Spamhaus, a UK entity, for damages allegedly resulting from being identified as a “known spammer.” It sued Spamhaus for tortious interference and defamation. Spamhaus removed to federal court and asserted lack of personal jurisdiction. It then withdrew its answer and decided that it did not wish to defend against e360’s claims. e360 sought and obtained a default judgment, and the district court granted e360’s request for damages and awarded e360 $11,715,000 in damages. Spamhaus moved to set aside the judgment, and when this request was refused, appealed to the Seventh Circuit. The Seventh Circuit affirmed the default judgment but remanded for a proper determination of damages.

Back at the district court, e360 was left with the task of proving up its damages, but it suffered a slew of discovery foibles. e360’s principal failed to appear for his deposition as scheduled and failed to respond to Spamhaus’s interrogatory requests. Spamhaus moved to dismiss on the basis of e360’s discovery failures, and the trial court gave e360 another opportunity to address the discovery issues. e360 supplemented its previous responses but added a slew of new witnesses. It also increased its damages estimate from $11.7 million to a “whopping $135 million.” It also sought to reopen discovery. The trial court said no dice and struck the new witnesses listed by e360 and struck e360’s requested damage award to the extent it exceeded the initial $11.7 million request. After a bench trial on damages, the trial court awarded e360 “a mere $27,002, a far cry from the millions of dollars that e360 sought.” Both parties appealed.

Discussion: The Seventh Circuit affirmed the district court’s sanction (of striking the new request for damages and the newly listed witnesses), finding that the district court exercised its discretion “with considerable restraint.” It also affirmed the district court’s exclusion of a spreadsheet prepared by e360’s principal which listed e360’s damages at $135,173,577. (The week before trial e360 revised this number to $122,271,346.) The Seventh Circuit also affirmed the district court’s exclusion of the bulk of the testimony on e360’s behalf:

The district court gave Linhardt’s testimony no weight because he was not credible.

Finally, the court gets to the actual damage award of $27,000. The district court cited to Linhardt’s testimony regarding contracts with three customers who collectively paid e360 $27,000 per month for services performed. As a result of Spamhaus’s actions, the district court found that e360 lost these contracts. Spamhaus argued on appeal that it was not appropriate for the district court to award the entire contract amounts as this amount represented revenue rather than profit. The Seventh Circuit agreed, saying that although Linhardt may have adduced credible testimony as to these three contracts, e360’s failure to put forth any evidence on what portion constituted profits versus overhead was fatal to the damage award.

Ultimately the court ends up awarding nominal damages as to the three claims raised by e360, for a whopping award of three dollars:

By failing to comply with its basic discovery obligations, a party can snatch defeat from the jaws of certain victory. After our earlier remand, all e360 needed to do was provide a reasonable estimate of the harm it suffered from Spamhaus’s conduct. Rather than do so, however, e360 engaged in a pattern of delay that ultimately cost it the testimony of all but one witness with any personal knowledge of its damages. That lone witness lost all credibility when he painted a wildly unrealistic picture of e360’s losses. Having squandered its opportunity to present its case, e360 must content itself with nominal damages on each of its claims, and nothing more.

Ouch.

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Spamhaus ended up traveling the long road and ultimately defeating e360, but it’s nice to see it prevail. As the Holomaxx v. Yahoo and Microsoft cases indicate, lawsuits brought by emailers against ISPs or filtering services face a long and uphill road, which should lead to a dead end. (”Bulk Emailers (Mostly) Lose Three 47 USC 230(c)(2) Rulings—Holomaxx v. Microsoft/Yahoo & Smith v. TRUSTe;” “Court Affirms Robust ISP Protection For Blocking Bulk Emails—Holomaxx v. Microsoft/Yahoo.”)