Washington Settles With Software Firm, New York Sues Second Company

SoftwareOnline.com Inc. will refund consumers and pay $190,000 to resolve allegations that it misrepresented the extent to which its software is necessary for security, bombarded potential customers with pop-up ads and used deceptive billing practices, according to a settlement announced this month by the Washington state Attorney General's Office.

Meanwhile, New York Attorney General Eliot Spitzer's office sued Internet firm Direct Revenue this month, alleging that it surreptitiously installed millions of pop-up ad programs on consumers' computers.

The SoftwareOnline.com settlement was filed April 11 in King County (WA) Superior Court. The Sammamish, WA, company develops and sells products including InternetShield and Registry Cleaner.

InternetShield is marketed as a security and privacy program that protects users from attacks by dangerous Web sites. Registry Cleaner is marketed as cleaning a computer's registry to protect it from crashes, freezes and slow performance.

To market its products, the company used pop-up ads and unsolicited e-mails that offered a “free scan” of the computer, according to the settlement. If a user elected to have the scan performed, a software program downloaded, installed and executed on the user's computer.

Katherine Tassi, assistant attorney general and lead attorney on the case, said SoftwareOnline misrepresented the extent to which the two products are needed to prevent attacks from malicious Web sites and computer crashes. She also said that billing practices aimed to sell the products without a buyer's explicit consent.

“Consumers have the right to control their computers and not be subjected to alarmist deceptive advertising,” she said in a statement.

By agreeing to the settlement, SoftwareOnline.com and its chief technology officer, David W. Plummer of Redmond, WA, admit multiple violations of the state Consumer Protection Act. Specifically:

Inducing computer users to download and buy its products by making false claims that their computer is at risk.

Transmitting software that generates multiple ads.

Offering an uninstall option that did not remove all the software.

Engaging in “negative option billing,” resulting in consumers being billed for items they did not affirmatively request.

The defendants agreed to pay $400,000 in civil penalties, with $250,000 suspended on condition of compliance with all terms in the settlement. They also must refund consumers who have filed complaints and pay $40,000 in attorneys' costs and fees. The settlement also prohibits them from engaging in practices such as:

Marketing InternetShield by means of a “free scan.”

Using “buttons” in their ads that do not function as the user would expect.

Installing software on a user's computer that causes multiple pop-up ads when the user tries to close out of ads.

Failing to provide a functional uninstall option for removing all software files.

Failing to obtain a consumer's explicit consent to buy a product or service.

The settlement resulted from a four-month investigation by the state Consumer Protection Division's High-Tech Fraud Unit. Ms. Tassi said SoftwareOnline began changing its business practices as soon as the company was alerted to concerns by the attorney general's office.

According to a statement by SoftwareOnline's board of directors, the company entered into the stipulated judgment and order “for the purpose of avoiding the costs of unnecessary litigation in a manner that promptly, completely and definitively resolves the issues of concern to the Attorney General, which were first brought to our attention only two weeks ago.”

When the board learned of the concerns, “we immediately requested a meeting with the Attorney General's office to discuss the issues they have raised and possible ways to resolve them,” the statement said. “As a result of these discussions we have taken a number of steps to address those issues and have made over a dozen changes to the way we market our products, including elimination of the trial version of InternetShield.”

The attorney general “did not express concern over the efficacy or value of our products: They can and do work,” the statement said.

The New York attorney general's lawsuit against Direct Revenue seeks a court order blocking the firm from secretly installing spyware or sending ads through already installed spyware. The suit also asks the court to compel the company to provide an accounting of its revenue and to impose appropriate monetary penalties.

Mr. Spitzer's office claims documentation of Direct Revenue installing advertising software on computers without proper notice. Such installations often were instigated when Direct Revenue or one of its distributors advertised “free” applications such as games or browser “enhancement” software, omitting reference to the other software that would accompany any downloaded application, the attorney general's office said.

Among the programs that Direct Revenue is alleged to have downloaded are “VX2,” “Aurora” and “OfferOptimizer,” each of which tracks consumers' Web behavior and then delivers sequential pop-up ads.

Mr. Spitzer's office also said it recorded several instances in which Direct Revenue software was installed through silent “drive-by downloads,” downloads that occur with no notice to consumers.

The attorney general's office also alleged that Direct Revenue and its officers designed spyware that, once downloaded, was extremely difficult for users to detect and remove, often reinstalling itself after removal by users. The lawsuit further alleges that Direct Revenue and certain executives knowingly frustrated consumers' attempts to remove the downloaded software by requiring them to go to a separate Web site, turn off their firewalls and download additional “uninstall” software.

The suit names and seeks relief and penalties from company founders and chief officers Joshua Abram, Alan Murray, Daniel Kaufman and Rodney Hook.

Direct Revenue disputed the New York attorney general's charges in an April 4 statement: “This lawsuit is a baseless attempt by the Office of the Attorney General to rewrite the rules of the adware business. 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.”

The statement continued: “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.”

In a separate case, Direct Revenue said that it settled a federal lawsuit by agreeing to continue certain consumer practices regarding distribution, branding and consumer notification, some of which were implemented after the lawsuit was filed in March 2005, and also implement new practices. Final approval of the settlement in Sotelo v. Direct Revenue will be considered today in U.S. District Court in Chicago.

Direct Revenue commits to policies regarding consumer notice and consent, most of which represent a continuation of current Direct Revenue practices. Broadly speaking, the agreement addresses the areas of consumer consent, privacy and the provision of an intuitive opt-out option for consumers who do not wish to view ads. Direct Revenue also agrees to pay $300,000 In attorneys' fees and costs.

Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters

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