Three Lousy Bucks for Being Labeled as Spam

CHICAGO (CN) - After successfully suing a nonprofit that put it on a spam list, a defunct online marketing company can recoup just $3 in damages - a far cry from the millions it sought and from the $27,000 awarded by a federal judge, the 7th Circuit ruled.

Before it shuttered, e360 used email to market products on behalf of other businesses. The Wheeling, Ill., company filed suit when it was marked as a junk-mailer by Spamhaus, a U.K. nonprofit that maintains a list of the IP addresses of known spam distributors.

Spamhaus initially opted not to defend itself against the suit but changed course after e360 received a default judgment of $11.7 million in damages.

A federal judge refused to let Spamhaus set aside the award and challenge the court's jurisdiction, but the 7th Circuit ordered the trial court to make a "more extensive inquiry into the damages to which e360 is entitled."

Judge Richard Posner admonished e360's counsel at the time, saying: "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.'"

A bench trial on the damages resulted in a final award of $27,000. Both sides appealed, sending the case back to the 7th Circuit, where it met further antipathy.

The appellate panel noted that e360 bumbled through trial, failing to cooperate with discovery and incurring sanctions. The company then attempted to add 16 witnesses and increase its damages estimate to $35 million.

"In this case, the District Court acted reasonably - and with more restraint than necessary - by imposing severe sanctions short of dismissal," Judge David Hamilton wrote for the panel on Friday.

"There is no way that e360 could have believed in good faith that its last-minute disclosure of so many new witnesses and a radically inflated damages estimate was even remotely appropriate, especially as part of its belated effort to comply with a court order compelling discovery."

Hamilton ultimately ordered the District Court to enter a $3 judgment for e360.

"All e360 needed to do was provide a reasonable estimate of the harm it suffered from Spamhaus's conduct," he wrote. "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."

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