DirectRevenue to Pay Back ‘Spyware’ Gains

Adware distributor DirectRevenue today settled Federal Trade Commission (FTC) charges of unfair and deceptive trade practices of installing unwanted and unsolicited spyware unto consumers’ computers.

DirectRevenue, which is also entangled in a spyware lawsuit filed by New York State, agreed to not download its adware without consumers’ consent and to provide effective means for removing DirectRevenue’s software from their computers. It also requires that DirectRevenue monitor its affiliates to ensure that they and their sub-affiliates comply with the FTC order.

In addition, the New York-based company agreed to pay $1.5 million for “ill-gotten gains,” a financial settlement that prompted FTC Commissioner Jon Leibowitz to vote against the deal.

Leibowitz applauded the injunction relief provided in the settlement but noted in a dissent statement, “The $1.5 million in monetary relief that the Commission obtained as part of the consent agreement is a disappointment because it apparently leaves DirectRevenue’s owners lining their pockets with more than $20 million from a business model based on deceit.”

DirectRevenue was unavailable for comment.

According to the FTC, DirectRevenue and its affiliates offered consumers free content and software, such as screensavers, games, and utilities, without disclosing the downloads would come with the installation of the adware that monitors consumers’ Internet use in order to display targeted pop-up ads.

The FTC also charged DirectRevenue with deliberately making it difficult to remove its adware once it was installed, storing the files in rarely accessed locations on a user’s hard drive and failing to list the software in the Windows Add/Remove utility. Moreover, if consumers managed to delete the program, the software re-installed itself.

The FTC charged that DirectRevenue’s failure to disclose that downloading the free content and software would result in installation of the adware was deceptive, and that its use of security exploits to download the adware was an unfair practice.

“DirectRevenue’s adware infected computers worldwide,” FTC Chairman Deborah Platt Majoras said in a statement. “The FTC settlement brings unauthorized software downloads to a halt and stops DirectRevenue from sending pop-up ads to computers affected by prior unlawful downloads.”

The FTC settlement also bars DirectRevenue from delivering ads to any consumer’s computer through adware that was installed on the computer before Oct. 1, 2005, a move hailed by the Center for Democracy and Technology (CDT), which has long campaigned against spyware practices by advertisers.

“Even though the company has changed its practices, they have all those customers who are instill infected,” Alissa Cooper, a policy analyst with the CDT, told “We think the terms of the settlement are really good for consumers on the whole.”

Cooper also praised Liebowitz’s stand against the financial terms of the settlement, although she said the current system makes it problematic for the FTC to win civil settlements. “It is difficult and time consuming. It’s safer for them to get injunctive relief,” she said.

The DirectRevenue deal is the second settlement in four months the FTC has obtained against deceptive adware companies. In November, Bellevue, Washington-based Zango, the former 180Solutions, agreed to pay $3 million to settle unfair and deceptive trade practices charges.

Zango stressed the settlement was not an admission of guilt, noting that company has met or exceeded the notice and consent standards detailed in the FTC consent order since early 2006. The company further blamed much of its problems on unscrupulous affiliates.

DirectRevenue is raising the same defense in the New York lawsuit brought by former New York Attorney General Eliot Spitzer.

“This lawsuit is a baseless attempt by the Office of the Attorney General to rewrite the rules of the adware business,” a company spokesman said in April shortly after the lawsuit was filed. “It focuses exclusively on the company’s past practices — practices we and other industry leaders changed long ago — and says not a word about what we’re doing today.”

In January, Priceline, Travelocity, and Cingular settled with New York Attorney General Andrew Cuomo for promoting products and services on the Internet through programs deceptively installed by DirectRevenue. The settlements grew out of the state’s DirectRevenue investigation.

“Advertisers will now be held responsible when their ads end up on consumers’ computers without full notice and consent,” Cuomo said in January. “Advertisers can no longer insulate themselves from liability by turning a blind eye to how their advertisements are delivered, or by placing ads through intermediaries, such as media buyers.”

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