FTC Sues Alleged Spyware Distributors

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The U.S. Federal Trade Commission last week filed a legal complaint against two companies that allegedly infected computers with spyware and pop-up advertising, then tried to sell their owners spyware-blocking software.

The FTC filed a complaint in U.S. District Court in New Hampshire asking for an injunction against Sanford Wallace, owner or president of Seismic Entertainment Products, based in Rochester, New Hampshire, and SmartBot.Net, based in Richboro, Pennsylvania.

The FTC complaint, alleging the companies have used unfair business practices, accuses both businesses of marketing "purported" antispyware software called Spy Wiper and Spy Deleter to Internet users through pop-up ads on Web sites controlled by Seismic Entertainment.

Exploiting IE

The FTC complaint accuses the defendants of inducing computer users to pay $30 for the antispyware software by exploiting holes in the Microsoft Internet Explorer Web browser to download various spyware programs to users' computers, causing "an incessant stream of pop-up ads to be displayed."

The unauthorized downloads, which started when computer users went to a Web site controlled by the companies, could also change the browser's home page to affiliated sites and change its search functionality, according to the FTC. In some cases, the unauthorized downloads, which started in about November 2003, caused computers to crash and lose data, according to the complaint.

Wallace, in a message on his Default-homepage-network.com Web site, accused the FTC of overstepping its bounds. "We believe the U.S. government is attempting to enforce federal laws that have yet to be enacted," the Web site says. "We feel this is a political move and it is being made at the expense of legal business operations. I am not surprised at all that my companies and I, Sanford Wallace, were picked as the 'poster boy.' I find the timing and target of this action to be extremely convenient and painfully obvious. We deny any wrongdoings and plan to pursue all legal protections, remedies and freedoms."

There was no listed telephone number for Seismic Entertainment in Rochester, New Hampshire. There is no listed telephone number for SmartBot.Net in Richboro, Pennsylvania, or in Barrington, New Hampshire, identified as its principle place of business in the FTC complaint.

Legislation on the Way?

Last week, the U.S. House of Representatives passed the SPY ACT (Securely Protect Yourself Against Cyber Trespass), which outlaws computer technology that downloads programs onto users' computers without their permission. The spyware legislation is not yet law.

The FTC complaint asks for an injunction against Wallace and his businesses and asks the judge to consider ordering restitution for "ill-gotten gains." A spokesperson for the FTC, which has scheduled a press conference for this week in a spyware-related matter, didn't immediately return a phone call asking for comment on the complaint.

The Center for Democracy and Technology, a civil liberties group, filed a complaint with the FTC against Wallace and his companies in February. The CDT complaint noted "numerous" consumer complaints against Spy Wiper, advertised in pop-up ads that said, "You DESPERATELY need to rid your system of spyware pop-up IMMEDIATELY!"

"It is especially important that the [FTC] act in this case because there is evidence that a variety of other companies claiming to market 'anti-spyware' software may have begun deploying advertising strategies similar to that used to advertise Spy Wiper," the CDT wrote in its complaint. "The potential of the Internet will be substantially harmed if users come to believe that they cannot use the World Wide Web without being subjected to deceptive advertising or be at risk of having the settings on their computers repeatedly changed by the sites they visit."

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