What should the law do about manufacturers or distributors of “dual-use” goods or services, which can be used both in harmful and legitimate ways by end users? This question arises as to guns, knives, videocassette records, alcohol, books about how to commit contract murder, chemistry textbooks, publication of the names of certain crime witnesses, and more. It’s sometimes answered directly by legislatures; consider much alcohol regulation, the bans on machine guns and other weapons, and the refusal to ban most kinds of ordinary guns (which is also partly dictated by constitutional provisions). And it’s sometimes answered by courts applying either purely common-law rules — observe the lawsuits against gun manufacturers, now largely preempted by federal law — and sometimes by courts’ making judgments under broadly worded statutes (consider, for instance, Sony Corp. of America v. Universal Studios (1984), which rejected a copyright claim against VCR manufacturers).
The latest instance of this debate is FTC v. Neovi, Inc. (9th Cir. May 14), which held that an online service that “delivered unverified checks at the direction of registered users” and that had been “extensively abused” by “fraudsters and con artists” could be enjoined, and ordered to disgorge profits:
§ 5 of the [FTC] Act … empowers the FTC to prevent the use of ‘unfair methods of competition in or affecting commerce ….’ The key issue on appeal is whether Qchex is liable for causing substantial injury to consumers that is not reasonably avoidable or outweighed by countervailing benefits. The district court granted summary judgment in favor of the FTC, finding that Qchex’s profound lack of diligence, coupled with the affirmative acts of creating and delivering hundreds of thousands of unverified checks — over 150,000 of which were from accounts later frozen for fraud — warranted liability under the Act. Qchex was ordered to disgorge $535,358 in revenue and permanently enjoined from operating any similar business without taking appropriate, specified measures to protect consumers. We affirm.
An interesting decision, and worth reading in its entirety, if you’re interested in the dual-use product/service problem.