NY AG Sues Gratis Internet; Damages Could Top $100 Million

In what he claims is the biggest privacy breach ever online, Eliot Spitzer has filed a lawsuit against e-mail lead generation firm Gratis Internet, the New York attorney general announced Thursday.

Moreover, Spitzer’s office is investigating at least five other companies for possible breaches of their e-mail privacy policies, according to Ken Dreifach, chief of Spitzer’s Internet bureau.

Spitzer’s office claimed that Gratis promised consumers on multiple Web sites that it wouldn’t sell or rent their names, but did so anyway.

Gratis called Spitzer’s allegations “completely untrue.”

“The companies acted on Gratis’ behalf to send promotional e-mail to its own users, and at no time ever engaged in the sale or purchase of data,” Gratis said in a statement. “At all times, Gratis has maintained control and ownership of its user information and never, not once, profited from any sale of data. Gratis at no time in its history ever sold its list to anyone or allowed a company to purchase consumer data, nor has it ever considered doing so, nor will it ever in the future.”

The suit is asking for $2,000 per defendant and $500 for each New York address that received e-mail in conflict with a Gratis’ privacy policy.

Depending on the number of New Yorkers’ addresses in the files, potential damages could be in the hundreds of millions of dollars. Spitzer spokesman Brad Maione declined to estimate how many New Yorkers’ addresses were in the files.

New York’s attorney general claims that Gratis sold the names of more than 7 million of its users to three e-mail marketing firms—Datran Media, JDR Media and Jumpstart Technologies—which subsequently sent millions of unsolicited commercial e-mails to the addresses.

Gratis also falsely represented to each of the marketers that it had received users’ permission to share the data, according to the suit.

Privacy auditor TRUSTe yanked its seal from Gratis in 2005 after TRUSTe claimed Gratis violated its privacy program requirements.

Named in the suit against Gratis are Peter Martin and Robert Jewell who own 99% of the company according to Spitzer’s office.

Gratis did not return a call for comment by deadline.

Gratis’ revenue in 2004 was about $20 million, of which Martin and Jewell took between $1.5 million and $3 million, Spitzer’s suit claims.

The suit follows on the heels of an announcement last week that the New York AG had reached a settlement agreement with online marketing services provider Datran Media, under which the company will pay $1.1 million to end an investigation into Datran’s e-mail marketing to Gratis’ files and that of other Internet firms (Direct Newsline, March 14).

Spitzer’s office claims the Datran sent e-mail to consumers contrary to the privacy policies of the companies that provided Datran with the names.

Gratis collects e-mail names by offering free products, such as iPods, to consumers who are willing to participate in at least one of a wide range of promotions from third-party advertisers, such as free-trial magazine subscriptions.

Gratis also requires participating consumers to refer friends in order to get the free product. The number of referrals required varies according to the product.

Spitzer’s suit claims third-party advertisers paid Gratis between $20 and $70 for each participating consumer.

The suit was filed in New York Supreme Court in Manhattan.