FTC, WA Attorney General File Pop-Up, Spyware Suits

The Federal Trade Commission filed a complaint in U.S. District Court seeking to halt an operation accused of downloading software that barrages consumers with pop-ups demanding payment to make the pop-ups go away, the FTC said yesterday.

The Washington state attorney general also has filed suit against the operators.

The FTC complaint, filed Aug. 8 in U.S. court in the Central District of California, asks the court to order the defendants to provide for consumer redress. A U.S. district judge denied an FTC request to issue a temporary restraining order. Trial of the case will be scheduled for a later time.

The FTC complaint names Digital Enterprises Inc., doing business as Movieland.com, a California corporation; Triumphant Videos Inc., a California corporation; Pacificon International Inc., doing business as Vitalix, a California corporation; Alchemy Communications Inc., a California corporation; Accessmedia Networks Inc., a Delaware corporation; Innovative Networks Inc., a California corporation; Film Web Inc., a Wyoming corporation; Binary Source Inc., doing business as Moviepass.TV, a California corporation; Mediacaster Inc., doing business as Mediacaster.Net, a Delaware corporation; and CS Hotline Inc., a California corporation.

Two company officials also are charged: Digital Enterprises’ Easton A. Herd and Alchemy’s Andrew M. Garroni. Both men live in Los Angeles.

Court papers allege that the defendants downloaded software that repeatedly pelted consumers’ computers with pop-ups, accompanied by music that lasted nearly a minute and could not be closed or minimized. These pop-ups demanded that consumers pay the defendants $29.95 to end the recurring pop-up cycle, claiming that consumers had signed up for a three-day “free trial” of the defendants’ Movieland Internet download services and did not cancel their “membership” before the trial period ended. Hundreds of consumers complained to the FTC. Most claimed they never signed up for the free trial, never used Movieland’s services and never heard of Movieland until they got their first demand for payment.

The FTC also alleges that the defendants made it difficult for consumers to uninstall the software. Consumers trying to remove it through the Windows Control Panel Add/Remove function were redirected to a Web page telling them that they had to pay the $29.95 fee to stop the pop-ups. Many consumers regained control of their computers only by paying the defendants to stop the pop-ups or paying a computer technician to help them.

The FTC charged that the scheme is unfair and deceptive and violates federal law. The agency’s complaint alleges that demanding payment to fix the problem that the defendants created, and installing disruptive software that cannot be removed through reasonable means, is an unfair practice.

In addition, the complaint alleges that the defendants made numerous false statements to try to collect payments from consumers, including that: The computer owner or someone else consented to receive the pop-up payment demands until they paid; the owner of any computer that receives the pop-ups legally is obligated to pay Movieland; and the owner is obligated to satisfy any contract that any other person entered into while using the computer.

Washington state filed its suit Aug. 14 in King County Superior Court in Seattle following a seven-month investigation by the Attorney General’s Consumer Protection High-Tech Unit. It is Washington’s second lawsuit under the state’s Computer Spyware Act, which prohibits, among other things, taking control of a user’s computer; modifying security settings and interfering with a user’s ability to identify and remove the spyware.

If found liable, each defendant could be fined $100,000 per violation of the Computer Spyware Act and $2,000 per violation under the Consumer Protection Act. They also may be required to pay restitution to affected consumers.

Attorney General Rob McKenna said the defendants’ claim that users are legally obligated to pay for their service lacks merit because consumers did not provide knowing consent to the installation of the pop-up demands. In addition, computer owners are not responsible to satisfy contracts that other people, including minors, entered into while using a computer.

Mr. McKenna added that thousands of consumers nationwide have complained to his office, the FTC, the Better Business Bureau and others about the defendants’ practices.

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