Adware Company Accused of Violating FTC Pact

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An advertising software maker criticized last year by the U.S. Federal Trade Commission (FTC) is under fire again for allegedly not clearly labeling its software and informing consumers what it does on their PCs.

Zango Inc. was ordered by the FTC last November to give up US$3 million after it found the company's software was difficult to remove and deceived consumers as to its function.

As part of a settlement, the company was ordered to ensure that users saw a second warning screen informing them of what they were downloading. The FTC found that people rarely read the entire End User License Agreement (EULA).

Ben Edelman, a long-time foe of Zango and assistant professor at Harvard Business School, wrote this week that in some instances Zango continues to omit the separate notice outside of the EULA, as well as showing ads without proper labeling.

Zango's software displays targeted pop-up ads to Web surfers based on the sites they search for. In exchange for viewing the ads, users gain access to freebies such as video clips and the ubiquitous graphical "smileys" for e-mail.

Web sites operators that offer downloads of Zango's software are paid every time a visitor downloads it. This offer prompted hackers at one point to figure out ways to get the software installed on computers through security exploits.

On his Web site, Edelman published screenshots of what he alleges are current examples of deceptive downloads that violate Zango's FTC settlement terms.

Ads imploring people to download Zango's software are also showing up through major online ad networks such as FastClick, which specializes in banner ads and Right Media, now part of Yahoo Inc. "The ad networks are just plain running sleazy ads," Edelman said.

Zango contests Edelman's claims, saying it continues to be in compliance with the FTC's agreement. The company charged that Edelman's research involves products not covered by the FTC agreement and also older versions of its Zango product that have been discontinued.

"In short, and upon even initial examination, nothing in the Edelman post supports his allegation that Zango is out of compliance with the FTC consent agreement," Zango said.

Edelman said the FTC could sue Zango over noncompliance with the settlement.

An FTC attorney, who worked on the previous Zango settlement, wrote in an e-mail that the agency could not comment, as it doesn't confirm whether it has an investigation under way.

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