Judge Halts Utah Spyware Law

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Lawyers for adware maker WhenU.com won a temporary injunction this week that prevents Utah from enforcing its broadly worded anti-spyware law, the first of its kind in the nation.


Judge Joseph Fratto of the Third Judicial Court in Salt Lake City granted WhenU's request after the company argued that Utah's Spyware Control Act amounted to an unconstitutional regulation of interstate commerce. The law, signed by Gov. Olene Walker this spring, bans software that delivers ads based on a user's Internet behavior.


Adware makers like WhenU and Claria bundle their ad-serving software with popular programs like file-sharing services. They then serve users pop-up offers based on their Internet behavior. WhenU claims that 30 million computers have its software installed; Claria has 43 million users. WhenU and Claria said the law would keep them from operating in Utah.


The software has been controversial. Web site owners have sued WhenU and Claria, alleging trademark and copyright infringement, for serving ads to their site visitors. Both companies say their ads are consented to by consumers and served on their desktops.


WhenU filed suit in April to stop the Utah law, which targets adware and spyware, which is software that burrows on computers and can record passwords and credit card information.


WhenU argued that the law went beyond targeting spyware to affect legitimate ad-supported software in order to protect Salt Lake City-based 1-800 Contacts from competition. Overstock.com filed the first suit under the law in May against Smart Bargains for contracting with Claria to serve pop-up offers to users visiting Overstock.com.


The restraining order does not quash the law. WhenU and the state will proceed with a trial to resolve the matter. No trial date has been set.


In a statement, WhenU CEO Avi Naider called the ruling "an important decision for Internet advertising."


WhenU was not alone in its uneasiness with the Utah bill. A coalition of 32 tech companies and industry groups including Google, eBay and Microsoft sent Walker a letter urging her to veto the bill because it could harm important applications like virus-detection software.


Utah is not the only state looking to regulate spyware. California and New York are considering laws to address the problem. Last week, the U.S. House of Representatives moved closer to enacting a federal law. A House subcommittee approved the Securely Protect Yourself Against Cyber Trespass Act, or SPY Act, sending it to the Energy and Commerce Committee. It could get a House vote before the November election.


The bill, sponsored by Rep. Mary Bono, R-CA, calls for fines of up to $3 million for distributing software that collects personal information without consent, records passwords or serves pop-up ads that cannot be closed.


Despite the controversies over its business model, adware has been a hit with advertisers, lured by 20 response rates that WhenU boasts for its pop-up coupon offers. Advertiser interest in adware was shown by Claria's recent regulatory filing that last year it made $34.8 million on $90.5 million in sales.


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