BY DAVID SPEAKMAN

When it comes to fighting unsolicited commercial e-mail, an increasing number of companies are forced to use an expensive option — relying on an ill-equipped legal system to staunch the ever-growing spam flood.

Anti-spam lobbying groups are pressing state and federal lawmakers to solve the problem that costs consumers and businesses billions each year.

Critics say that unlike mass marketers’ postal junk mail or telemarketing calls, consumers bear the financial burden of spam through increased Internet access fees. For instance, America Online (AOL) estimates each subscriber’s monthly bill is 15 percent higher because of spam-related expenses.

The Coalition Against Unsolicited Commercial Email (CAUCE) says it’s like paying postage for unwanted junk mail or being billed for unwanted telemarketing calls.

Business costs of dealing with spam, including information technology expenses, increased bandwidth charges and lost productivity, will tally $10 billion in 2003, according to government and industry estimates. That’s enough money to rebuild the World Trade Center 20 times.

At the forefront of the legal battles are Internet service providers, the largest private suppliers of consumer e-mail addresses.

“We consider ourselves pioneers in the war against spam,” says Karen Cashion, an Atlanta-based assistant general counsel for EarthLink Inc. “On the legal front, we have been very aggressive and have filed dozens of lawsuits over the years to stop the actions of spammers.”

However, EarthLink has no clear federal law on its side.

“When it comes to anti-spam laws on the federal level, it’s easy to summarize: There is nothing,” says Ray Everett-Church, legal counsel for CAUCE.

CAUCE is an all-volunteer, Internet-based tech industry lobbying group with leadership ties to companies such as Microsoft Corp. and America Online Inc.

“I expect to see some legislation introduced in Congress within the next few months,” says Everett-Church from Fremont office.

He’s working with the staff of several U.S. representatives, including Zoe Lofgren, D-San Jose, and Anna Eshoo, D-Palo Alto. Meanwhile EarthLink, Microsoft, AOL Time Warner Inc. and others are applying a crazy quilt of existing laws in attempts to stop spam.

The legal patchwork includes federal racketeering laws, the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act and federal trademark laws. But like using a butter knife as a screwdriver, it gets some jobs done but doesn’t work every time.

“Most of the big service providers are still using creative legal methods of existing laws É [which] have been somewhat effective,” Everett-Church says. “But each time you go before a judge with one of those creative approaches, you risk a judge saying, ‘No, no, no. I’m not as creative as you.'”

So far, EarthLink has had the most visible successes, including a $25 million July 2002 federal judgment against Tennessee spammer Kahn C. Smith. But, most judgments are much smaller and cost prohibitive.

“I know an attorney in Palo Alto who has worked with a number of companies to fight spam and they get awarded a $50,000 judgment and legal bills of a quarter million dollars,” says Everett-Church. “You’ve got to have money to burn to go after spammers.”

EarthLink loses money fighting spam.

“It’s certainly not a money-making enterprise for us — or even break even,” says Cashion. “We do it to make the Internet a better place for our customers.”

EarthLink has a bottom line reason, too. It’s fighting spam to keep customers. Studies show the top reason customers stick with an ISP is because their e-mail address is not portable. But, when that address is targeted by spammers, users are likely to change e-mail accounts — and service providers.

Local law enforcement agencies say they have no effective spam weapon.

California has two spam-related laws from the 1990s, but neither allows consumers to block spam or recoup monetary damages. The law states commercial e-mail must be marked with the text such as “ADV” (for advertisement) in the subject line so spam filters can catch them with a maximum $50 penalty for non-conforming e-mail.

Local prosecutors say they won’t waste tax dollars enforcing current laws because they cannot stop spam.

“I would guess that it would be unlikely that we would take on one of these cases on our own, especially in the light the statute isn’t all that great,” says Al Bender, supervising deputy district attorney for Santa Clara County. “We need a ban on spam. Once we get that, it certainly will make an enforcement action more effective in the long run.”

Current state law is so unworkable that its author, state Sen. Debra Bowen, D-Redondo Beach, has introduced Senate Bill 12, which will rewrite California spam laws and allow courts to fine companies $500 for each spam violation.

That bill is in a Senate committee chaired by state Sen. Liz Figueroa, D-Fremont. She scheduled a March 24 committee vote to determine if the bill will be sent to the full Senate.

“We’ve been advocating federal legislation because state law is inherently bounded by state borders,” says Everett-Church. “A federal approach covers all states and gives you the same rights everywhere.”

Hormel Foods Corp. of Austin, Minn., disavows any relation between Spam brand luncheon meat and junk e-mail. Instead, the blame for naming unsolicited commercial e-mail as “spam” can be traced to two sources: early Internet users and the British comedy troupe Monty Python, according to its Spam.com Web site.

In the mid-1980s, a bulletin board system called Usenet was popular. One of the easiest ways to annoy users of Usenet groups was to file needlessly cross-posted articles, opinions and seemingly random thoughts.

In the mid-1980s, the TV show “Monty Python’s Flying Circus” reruns were popular on cable’s MTV. One skit of the show involves a group of Vikings loudly singing, “spam spam spam,” which drowned out all other conversation in the room.

Internet users quickly noticed a similarity between annoying news-group messages and those fictional, annoying, incessantly chanting Vikings. The spam moniker was born.

Some venture capitalists dispute Fenwick & West report, which predicts VC pricing will slide this year

BY DAVID SPEAKMAN

A controversial new report by a major Silicon Valley law firm signals that entrepreneurs are giving up more equity to venture capitalists, while those investors are earning less on their venture investments.

The report by Fenwick & West LLP of Palo Alto is disputed by some venture capitalists.

Tracking 81 venture-backed technology companies, the Fenwick & West report says second-round venture capital pricing declined throughout last year and is expected to continue to track downward this quarter.

Fenwick & West partner Barry Kramer says the twin trends could be a warning sign that post dot-com companies are in worse shape than generally predicted.

The report shows 20 percent of fourth-quarter fundings were second-round infusions (also called “B” rounds), and half of those financings were down rounds, meaning the companies were valued less than they were in the previous round. In the third quarter last year, only 33 percent were down rounds.

“The dot-com era was a pricing party and you should expect a pullback,” says Kramer. “But companies in round B now were in A rounds a year ago. They got their initial funding in the post dot-com.”

He says companies funded after the dot-com bubble burst were thought to be funded at more reasonable levels, which means second-round funding should have gone up.

Venture capitalists see the numbers differently.

“We’ve seen stabilization in pricing,” says Jeanne Metzger, a vice president with the National Venture Capital Association (NVCA) in Arlington, Va.

Metzger says she doesn’t know about the 81 companies in the report, but the nationwide trend her organization has seen in technology is an emergence from the bloodbath of 2001 with a more realistic industry.

“It’s complicated out there,” says Kate Mitchell, managing partner at BA Venture Partners in Foster City. Unlike Kramer, she thinks the down rounds in 2002 were expected.

“Even in 2001 and part of 2002, we were still seeing pricing that was inflated,” Mitchell says. “But things aren’t getting any worse. I think we’re skirting the bottom.”

NVCA’s Metzger agrees.

“VCs don’t expect any quick turn around. Most recognize it will get better over the next couple of years,” she says.

She says part of the reason 2002 saw a drop in funding for new companies is that existing venture capital firms were busy propping up troubled companies already in their portfolio.

“VCs have two jobs: to find new investment opportunities and to work with portfolio companies to help build sustainable business models,” Metzger says.

Many venture capitalists were too busy doing triage and providing intensive care services to existing portfolio investments to spare time on scouting new investments in recent months.

Saying the “triage process is almost complete,” Metzger believes venture capitalists have learned to take the time to do adequate due diligence on prospective investments.

Fenwick & West’s Kramer admits his numbers could be skewed by the threats of war and terrorism and their dampening effect on the market in 2002, but
that trend doesn’t seem to be getting any better.

“Sure, the numbers are a few months old,” he says. “But the stock market isn’t doing any better, so I wouldn’t think these funding rounds would be better either.”

To gauge whether the downward trend is continuing, Fenwick & West expects to release venture capital funding results from this year’s first quarter by mid-May.

Mid-life assessment prods Ron Fick to ensure his family’s place in local history – again

BY DAVID SPEAKMAN

If Ron Fick had lived during California’s gold rush, as his great-grandfather did, his passion for hunting and fishing may have lured him to the life of a mountain man. Instead this banking scion followed a path blazed by an earlier generation.

Twenty years ago after mid-life reassessment, Fick honored an obligation to family legacy by founding Borel Private Bank & Trust Co. in San Mateo with his brother, Harold Fick, and cousin, Miller Ream. In 2001, Massachusetts-based Boston Private Financial Holdings Inc. bought the $360 million asset bank for $113.3 million, a price tag that made the rich family wealthier.

But Fick says money wasn’t the motivation for establishing a new family-run bank in 1980.

“Back then, when my brother and I were working at different financial institutions, it became apparent, in our judgment, that we were just cogs in a bigger wheel,” says Fick. “Not only didn’t we have the ability to control our own destiny, but we wanted to put into practice a better way to serve bank clients.”

His turning point was nurtured by a family history that dates back to the tail of the gold rush when in 1855 Swiss immigrant Alfred Borel came to the Bay Area to start A. Borel & Co., a private bank that processed the assets and wealth of local residents and managed real estate and other Bay Area investments for clients from Switzerland. In 1862 Alfred Borel returned to Switzerland and his brother, Antoine, took over running the bank.

The Fick brothers are Antonie Borel’s great-grandsons on their mother’s side. The first Borel bank dissolved shortly after the deaths of its founding partners in the early 1900s. What was left was partly absorbed by Wells Fargo & Co. of San Francisco.

The first Borel bankers’ fortune grew by helping start the Union Oil Co. of California (Unical), buying San Francisco’s California Street cable-car line and becoming principal owners of the Spring Valley Water Co. One of Antoine Borel’s real estate deals was the purchase of Napa’s Rancho Petaluma.

Despite the family fortune, “we had a pretty solid middle-class upbringing,” Fick says. “Most of my relatives went to Stanford [University], but I didn’t.”

Bucking family tradition, Fick attended San Jose State College were he channeled a passion for California’s past into a history degree. Graduating in 1963, he edited and published “San Francisco Is No More,” a collection of letters written by Antoine Borel Jr. during the era of the 1906 earthquake.

After college, Fick entered
financial services and for 20 years learned banking at Wells Fargo & Co. Meanwhile, his brother, Harold, worked for local, independent banks.

In the late 1970s — when contemporaries were either suffering mid-life crises or making the most of the disco era — Fick’s mind was on other, more entrepreneurial matters. He decided to strike out with two of his relatives to re-establish the family banking legacy.

“We made a conscious decision to change and try to do something that we felt was better,” he says.

He says many of Borel’s attitudes today can be traced to the business practices, such as personalized, hands-on client services and community involvement, that made his great-grandfather a success.

“I think there is a lot of similarity to that,” Fick says. “Back in those days there was no such thing as FDIC insurance or anything else. An institution was only as successful as the faith the clients had in a banker’s honesty and abilities.”

Those abilities also extend to the community.

“He is someone that has set the example by doing things,” says Linda Asbury, president and CEO of the San Mateo Chamber of Commerce. “Through Borel Bank, he has fostered community involvement. His leadership by example has encouraged and allowed others to give back to the community.”

An avid reader of history, Fick is active with the San Mateo Historical Society and has volunteered on committees for the San Mateo Community College District and for his nearby home community, Atherton.

In business, Fick says another theme that has found it’s way to the 21st century from the original Borel bank is a focus on continuity.

“Because I have a lot of the historical records of the original Borel bank, there were a lot of clients stayed with the bank for very long periods of time,” he says. “That was an important aspect in their success and it certainly has been in ours.”

Fick says Borel Private Bank & Trust was sold to finance growth and minimize job reductions. Unlike other suitors, Boston Private wanted to keep the Borel name and the management team. With the strength of a larger corporation behind it, Borel
recently expanded to Palo Alto and has designs to ring the Bay Area with branches in select communities.

“There are still clients, I swear, that don’t know we were acquired,” he says as a point of pride.

Learning from history, Fick says unlike the original, the current Borel bank will not enter the dustbin of history after its founders retire.

“There is a personal satisfaction in that, unquestionably,” he says. “If we had sold to a number of other institutions [beside Boston Private], the name would have disappeared.”

BY DAVID SPEAKMAN

Even though their products scream to get your attention, the companies behind the estimated
6 billion spam e-mails sent each day worldwide shy from media scrutiny. No wonder. Despite general consumer and business hatred for unsolicited e-mail spam, it is a booming business.

Minneapolis-based e-mail security software company MessageLabs Inc. says spam now comprises about 30 percent of all e-mail messages. Its volume is expected to rise to 50 percent by July. Spam is expected to cost businesses worldwide $10 billion in bandwidth, personnel and IT expenses this year, according to a study by the European Union.

The Registry of Known Spam Operations, a list kept by the London spam-fighter Spamhaus Project (www.spamhaus.org), says 169 companies and individuals are responsible for more than 90 percent of all the current spam on the Internet.

Biz Ink contacted 20 spamming operations on the list, and none would comment for this story, including Lightspeed Marketing, TheAdStop.com, CyberISPWorld.com, bitpushers.com, Saverealbig.com, thedotnetwork.com, Monsterhut/Beaverhome and Shagmail.

“The problem is that every time a spammer has stuck his head up and said, ‘Yes, I’m a spammer and I’m proud,’ they have immediately gotten hammered,” says John Mozena, a board member of Internet-based anti-spam group Coalition Against Unsolicited Commercial Email (CAUCE).

Mozena says once individuals are identified as spammers, they are a target of the legal system and anti-spam vigilantes.

The last prominent spammer to talk to the news media was Alan Ralsky, who admitted using dozens of different dot-com domains to send millions of spam e-mails a day. He lives in a mini-mansion in the upscale Detroit suburb of West Bloomfield, Mich. The Detroit Free Press called it “the house that spam built” during an interview with Ralsky last November.

“I’ll never quit,” Ralsky told the paper. “I like what I do. This is the greatest business in the world.”

In a bizarre karmic twist, within days of that article, anti-spam activists posted Ralsky’s postal address on the Internet.

“They’ve signed me up for every advertising campaign and mailing list there is,” Ralsky told the paper in December. “These people are out of their minds. They are harassing me.”

The lure of a quick buck earned by spamming continues to charm more businesses. Surprisingly, in a technology hub like the Bay Area, the local companies making a living from spam are predominantly organizations fighting spam.

But there is money to be made in sending, not fighting junk e-mail. Analysts say about $2 billion will be spent on spam marketing in 2003. According to Gartner Inc. of Stamford, Conn., there are four distinct businesses involved in spam: the spammers, e-mail harvesters that create the databases spammers use, spamware software makers and unethical marketers who pay the spammers.

Spammers, like Ralsky, are the folks who hit the “send” button, physically sending e-mails to computer e-mail in-boxes.

Like the name suggests, e-mail harvesters are individuals or companies with software that scours the public domain of the Internet and automatically collects e-mail addresses from Web sites and Usenet news groups. Spammers either buy the software and collect e-mail addresses themselves or buy CD-ROMs of e-mail addresses from harvesters.

Spamware software makers create automated e-mail programs capable of sending 250 million e-mails an hour and often with the ability to disguise who sent the message.

Spamhaus has identified Lightspeed Marketing of Centerville, Va., as a maker of both spamware and e-mail harvesting products, labeling the company and its owner Dave Patton, “one of the slimier spammers in the stealth spamware business, selling products specifically designed to commit theft and fraud.”

Patton did not return repeated Biz Ink telephone calls.

Finally, there is what Gartner calls the “unethical marketer,” which has a product or service for sale and uses spam to market it.

The spam business is fairly straight forward.

“The spammer purchases e-mail harvesting software, purchases the spamware software then makes a deal with the unethical marketer,” says Gartner analyst Maurene Grey. “Either the unethical marketer will pay the spammer a set fee or, based on hit rates, the spammer will give back money to the marketer based on commission.”

She says only one-quarter of 1 percent of e-mail spam is successful, resulting in a sale.

“That is a tremendous amount of hits if, in fact, the spammers really are generating 250 million e-mails an hour,” she says.

Despite the success rate, CAUCE’s Mozena says spam is a bad business model.

“Part of it has to do with the fact people hate getting e-mail,” he says. “Legitimate companies don’t want to be painted with the same broad brush as porn sites and Nigerian scammers.”