Spitzer Sues Company Over Spyware, Pop-Ups

The lawsuit against Direct Revenue (DR) seeks a court order barring the company from secretly installing spyware or sending ads through spyware already installed. The complaint also asks the court to force the company to provide an accounting of its revenue and to impose appropriate monetary penalties. “These applications are deceptive and unfair to consumers, bad for businesses that rely on efficient networks to do their jobs, and bad for online retailers that need consumers to trust and enjoy their online experience,” Spitzer said.

DR said the complaint is “a baseless attempt” to “rewrite the rules of the adware business.” The suit focuses exclusively on the firm’s past practices -- practices DR and similar businesses changed long ago. DR said it’s “proud of our products and the value they bring” to advertisers by delivering positive, measurable results for ad dollars, and for consumers, by offering free content in exchange for viewing a few targeted ads per day.

The suit follows an investigation in which Spitzer’s office said it documented DR’s practice of installing ad software on PCs without proper notice. In many cases, the spyware installations were instigated when DR or one of its distributors offered free applications like games or browser enhancement software without mentioning spyware that would accompany any download, the AG said. Once consumers downloaded the files, surreptitious code placed on their computers caused DR’s servers to install its spyware, without notice to consumers, the complaint alleged.

The AG also recorded several instances in which DR’s spyware was installed through stealthy “drive-by downloads” - - installations with no notice. The office documented 21 websites through which the practice, known as bundling, occurred. DR programs named VX2, Aurora and OfferOptimizer tracked consumers’ Web behavior and delivered pop-up ads to them, the complaint said. The probe revealed that DR and its officers “deliberately designed spyware that, once downloaded, was extremely difficult for users to detect and remove.” In many cases, the spyware reinstalled itself after removal, the suit alleged.

Defendant Josh Abram, then DR’s CEO, boasted in an April 2005 e-mail to a distributor that his company could provide “a very stealthy version of our adware product which we're happy to give u… Don’t worry. If we do a deal -- a build together -- these will not be caught.” The company’s CTO observed last year that users “don’t know how they got our software” and said users “say that they are getting so many ads that it is annoying them,” according to Spitzer’s office. The suit names and seeks relief from the company’s founders and officers, Joshua Abram, Alan Murray, Daniel Kaufman and Rodney Hook. They have owned a majority of the company’s stock since its creation, the AG said.

But DR maintained that its software adheres to principles including: (1) Getting user explicit approval before installation. (2) Offering easy software removal through a link directly from every ad to a consumer opt-out process and by being listed in PCs’ add/remove programs list. (3) Collecting no personally identifiable information about its users. (4) Barring 3rd-party affiliates from distributing DR’s software. DR ended the use of 3rd-party affiliate networks to distribute its software in Sept. when Jean Maheu became CEO. Taking control of distribution was crucial for DR “to ensure full and consistent disclosure to users, and allow us to move forward as a leading provider of behavioral marketing services,” Maheu said.

“Mislabeling our products as ’spyware’ does a disservice not only to our company, but also to the public by creating an atmosphere of hysteria, confusion and inaccuracy,” DR said. The firm is a member of the Network Advertising Initiative, has pledged to adhere to TRUSTe’s proposed adware guidelines and already adheres to HR-2929, though it hasn’t been enacted, DR said. The bill, sponsored by Reps. Bono (R- Cal.) and Towns (D-N.Y.), cleared the House with only one “no” vote and awaits action by the Senate.

DR attorney Andrew Celli said his clients believe all of the contested practices were legal but has made a good faith effort to settle the matter with the AG. The defendants offered Spitzer a resolution, which would provide a blueprint for other adware companies to comply with the AG’s view of the law and afford the broadest possible protection to consumers, Celli said. Spitzer’s office refused. “We will defend our conduct vigorously and we are confident that the courts will bring clarity and a satisfactory conclusion to our case,” Celli said. Celli was N.Y.’s Civil Rights Bureau Chief under Spitzer 1999-2003.

The Center for Democracy & Technology (CDT) lauded Spitzer’s suit. “The practice of forcing consumers into downloading software they neither want nor need has threatened the essential trust that lies at the heart of Internet communication,” CDT Deputy Dir. Ari Schwartz said: “Aggressive law enforcement is an essential component in the ongoing fight to stem the tide of unwanted spyware.” He said Spitzer’s complaint gets at the problem’s source and sends the message that “years of illegal behavior will not go unanswered.”

DR recently settled an Ill. class action lawsuit by agreeing to continue certain consumer practices regarding distribution, branding and consumer notification, some of which were started after the suit was filed in U.S. Dist. Court, Chicago, in March 2005. In addition to paying $300,000 in attorney’s fees and costs, DR promised to start new practices, including the creation of an 800 number that provides uninstall instructions, live phone customer support and labeling its promotions as “advertisements” rather than “offers.”

Despite high-profile criticism of DR’s practices, some well known companies continue to buy ads from the firm, said Harvard U. spyware analyst Ben Edelman. Citi, Netflix, T- Mobile, United Airlines and Vonage advertise through DR, he said. Despite a new Interactive Travel Services Assn. policy on adware, Edelman also flagged ads from several members -- including Cheap Tickets and Travelocity.