A Briefing On Public Policy Issues Affecting Civil Liberties Online from The Center For Democracy and Technology
(1) FTC Adware Settlement a Landmark for Downloadable Software
(2) CDT Urges Aggressive Enforcement of Settlement Terms
(3) Downloadable Market Improving With Better Enforcement, Coordination
Earlier this month, the Federal Trade Commission reached a landmark settlement with Bellevue, Wash.-based adware developer Zango Inc. One of the largest distributors of adware in the country, Zango has for many years been associated with a range of highly suspect practices used to install the Zango software on millions of users' computers. The settlement not only required Zango to cut its ties to many consumers who may have received the software surreptitiously, it also helped to clarify what constitutes acceptable behavior in the downloadable software space. If properly enforced, the settlement has the potential to be a landmark for consumers and software distributors alike.
In January, the Center for Democracy & Technology (CDT) filed a lengthy complaint with the FTC against Zango, which was formerly known as 180solutions. In the complaint, CDT identified many of the unfair and deceptive practices Zango and its affiliates employed in distributing its adware to millions of people over a period of two years.
The complaint raised concerns that Zango's business model, which encouraged a network of loosely monitored affiliates to install the Zango software on as many computers as possible, was perpetuating a continuous barrage of unfair practices involving Zango software. The terms of the FTC settlement go to the heart of issues raised in CDT's original complaint.
More important than the $3 million payment called for under the settlement, is a requirement that Zango cease communications with Internet users who downloaded the Zango/180solutions software before Jan. 1, 2006. Not only does this provide relief for many unwitting Zango "users," it also sends a message that companies will not be permitted to retain customer bases built on patterns of unfair practices.
Two other aspects of the settlement could have far-reaching positive implications for the downloadable software market.
First, the complaint requires that Zango not install software on users' computers without first obtaining "express consent." As defined in the settlement, express consent must be clear, contain all relevant disclosures, and perhaps most importantly, be obtained separate from the end-user license agreement (EULA). Distributors of unwanted software often hide their disclosures in EULAs in hopes that users will simply click through them without reading.
Second, the settlement makes clear that Zango is responsible for the actions of its affiliates. Too many downloadable software companies, Zango included, have attempted to disavow bad practices undertaken by their affiliates on their behalf. This settlement makes clear that these companies can no longer sit back and claim ignorance as their affiliates violate the trust of Internet users.
The conditions of the settlement should send a clear message to adware developers that they must obtain real consent before installing software on users' computers, and that they cannot turn a blind eye to the activities of their affiliates. The key now is ensuring that Zango, which has struggled before with efforts to reform its practices, actually lives up to its obligations under the settlement.
A few weeks after the FTC announced its proposed settlement with Zango, CDT filed comments as part of a public comment period preceding the commission's final approval of the settlement agreement. In the comments, CDT praised the commission for its work on the landmark adware settlement, but also raised concerns that Zango -- despite its public statements to the contrary -- is still engaging in some of the same practices that necessitated the settlement in the first place.
CDT argued that permitting Zango to openly flout the settlement's terms could undermine its value. CDT further urged the commission to make clear that it expects Zango to follow the legally binding settlement to the letter, or face serious consequences.
In a press release issued on November 3, 2006, Zango claimed that it "has met or exceeded the key notice and consent standards detailed in the FTC consent order since at least January 1, 2006." In its comments to the FTC, CDT provided substantial evidence that that is simply not the case. In particular, CDT documented instances in which Zango failed to properly identify the source of its advertisements as recently as November 10.
Ben Edelman and Eric Howes, two well-known anti-spyware investigators also filed comments. Edelman and Howes documented evidence from after the settlement showing even more pervasive compliance failures.
CDT has personal direct experience with Zango that begs the question of whether the company is truly willing -- or even able -- to truly reform its distribution practices under its current business structure. For nearly two years CDT held consultations with Zango, alerting the company to deceptive installation practices by its affiliates. Although Zango was willing to cut ties with bad affiliates after the fact, the company repeatedly demonstrated an unwillingness to change the fundamental aspects of its business model that led to repeated violations.
Although CDT is hopeful that Zango is serious about living up to its obligations under the FTC settlement, the commission may have to take a strict, hands-on approach to ensure the settlement's conditions are met.
Although many forms of unwanted software continue to tarnish the Internet experience for millions of users around the world, improved enforcement, education and technical coordination are helping to create a safer, more understandable market for downloadable software. Enforcement actions by the FTC and technology-savvy state attorneys general, coupled with the coordination and educational efforts of groups like the Anti-Spyware Coalition and StopBadware.org, have helped consumers to better protect themselves from threats and have helped software distributors understand their obligations to users.
For years, many distributors of unwanted adware relied on the newness of the downloadable software market to exploit the gray areas of acceptable practices. As anti-spyware companies have worked together to provide clear definitions of the behaviors associated with unwanted software, and law enforcers have punished companies that step over the line, those gray areas have begun to evaporate. Although there will likely always be adware and spyware scammers who brazenly violate the law to exploit consumers, it is getting harder and harder for companies to engage in deceptive activities while still retaining a sheen of legitimacy. This represents a victory for those allied in the fight against unwanted adware and spyware.
A critical element of creating a safer, more understandable market for downloadable software lies in educating legitimate advertisers about ethical behavior in the adware space. CDT's "Following the Money" series of reports found that many legitimate, national companies advertised through Zango even while it was engaged in deceptive practices. So long as companies that engage in unethical behaviors continue to be funded by major national brands, they are likely to continue those behaviors.
The FTC is now poised to take a huge step toward addressing that problem. At the commission's recent "Tech-ade" hearings, commissioner Jon Leibowitz announced that the FTC would be contacting advertisers who had worked with Zango to inform them of the terms of the settlement. As these advertisers begin to understand some of the practices undertaken in order to market their brands, hopefully it will prompt them to take a closer look at their relationships with adware companies and their affiliates.