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Zango settles with FTC over adware practices

Online company Zango Inc., formerly 180solutions Inc., on Nov. 3 agreed to settle Federal Trade Commission charges that its adware practices were inadequately disclosed to users and its install and uninstall practices were unfair.

The settlement requires the Bellevue, WA-based company to pay a $3 million fine to the FTC. It bars Zango from exploiting security vulnerabilities to download software and requires that it give clear and prominent disclosures as well as get consumers’ consent before downloading software.

“As we’ve grown in our business we’ve learned a lot,” said Zango CEO Keith Smith. “It was truly a painful lesson on who to trust.”

Mr. Smith said that it was his company’s “heavy reliance” on affiliates that “allowed deceptive third-parties to exploit our system to the detriment of consumers, our advertisers and our publishing partners.”

The FTC initiated its investigation of Zango in September 2005. In the complaint the FTC alleged Zango’s third party affiliates “frequently offered consumers free content and software, games, and utilities, without disclosing that downloading them would result in installation of the adware.” It also alleged Zango deliberately made it difficult to identify to locate and remove Adware once it was installed.

The complaint named the company and two of its principals, Mr. Smith and Daniel Todd. Attorney Christine A. Varney, a partner with Hogan & Hartson and an FTC commissioner from 1994 to 1997, represented Zango.

Ms. Varney said that the ruling was not an admission of wrongdoing but a settlement. She said that Zango had been “not only cooperative but supportive” in dealing with the FTC.

The FTC on Nov. 3 found that Zango has met or exceeded the key notice and consent standards detailed in its consent order since at least Jan. 1 of this year.

The biggest change in Zango’s business practices since January 2006 is the elimination of all third-party affiliates. All new business partners have a direct contractual agreement with Zango.

As of Jan. 1, 2006, Zango retired its past products and required that all its applications include an enhanced version of its proprietary Safe and Secure Search (S3) technology.

This version of S3 features the Closed Loop System (CLS), a built-in software enhancement that enables quicker detection of unauthorized attempts to install the company’s desktop advertising software.

Zango has engaged Richard Purcell, CEO of the Corporate Privacy Group, to audit Zango’s compliance against each of the FTC’s requirements as an independent party. The former chief privacy officer at Microsoft and current chairman of the board for Truste, will report his findings within a month.

“We see the FTC’s ruling as a milestone in establishing a much needed set of guidelines for online advertising practices,’ Mr. Smith said.

In response to the settlement on Nov. 3, Truste, San Francisco, announced the Trusted Download Program to certify consumer downloadable software programs. It is accepting applications for certification.

A white list of the certified applications that adhere to new standards is expected to be publicly available in December. The program’s sponsors, such as Microsoft, AOL, CA, CNET Networks, Verizon and Yahoo, will use this white list to help make business decisions about advertising, partnering or distributing software products.

The complete set of program requirements is available on the Trusted Download Web site at www.trusteddownload.com.

“All business should embrace these standards set out by the FTC, just as Zango has done,” Ms. Varney said.

There are currently 200,000 daily downloads of Zango software, according to the company. It has a security team that monitors in real-time the actions of the software. The company planned for a monetary fine from the FTC and will pay the fine in three million-dollar installments every six months, starting later this quarter.

“Since January our business has more than doubled which I think is a testament to the growing customer interest in ad-supported and contextually targeted free media content on the Web,” Mr. Smith said.

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