FTC sues N.H. man, his 2 companies over use of Internet spyware

Action viewed as part of awareness of potential threat to online commerce

October 13, 2004|By Tricia Bishop | Tricia Bishop,SUN STAFF

The Federal Trade Commission has taken aim at spyware, filing a lawsuit against a New Hampshire man and his two companies whose Internet marketing has "seized control of consumers' computers," the agency said.

The commission charged Sanford Wallace of Barrington, N.H., and his two companies, Seismic Entertainment Productions Inc. and SmartBot.Net Inc., with violating the Federal Trade Commission Act, which outlaws "unfair or deceptive acts or practices in or affecting commerce." The agency contends that the companies lured people to several Web sites and surreptitiously installed software on their machines that altered consumers' home pages.

The change triggered an onslaught of unstoppable advertisements, and caused users' CD-ROM trays to pop open - an action that would be followed by an advertisement offering to sell a solution.

"We're putting purveyors of spyware on notice," Lydia Parnes, acting director of the FTC's Bureau of Consumer Protection, said yesterday during a news conference in Washington announcing the action. "This may be our first case, but it won't be our last. "

Wallace could not be reached for comment. The FTC's court filing said Seismic Entertainment Productions and Smart- Bot are described as Web marketing companies, advertising various products - including anti-spyware software - on behalf of others.

Yesterday's FTC announcement is part of a growing recognition that spyware is a potential threat to Internet commerce.

The term typically describes software that people unknowingly load on their computers, sometimes by accessing a program that seemed innocent but wasn't. Spyware can detect a user's keystrokes to uncover a credit card number while someone is shopping online or to steal passwords used in accessing financial accounts.

Two bills before the U.S. Senate would give the Justice Department $10 million to fight spyware and allow fines of up to $3 million and jail time of up to five years for those who use the software to cheat consumers. Last week, the House passed both bills. This month, Bill Gates announced that Microsoft Corp. would develop software to combat spyware, which has attacked his home computers.

The FTC cannot levy civil penalties against offenders, although it can seek monetary relief for victims. In the Wallace case, the FTC has asked the judge for an unspecified amount to cover the cost of bringing the lawsuit and any injury people suffered from the spyware.

Spyware in itself is not necessarily illegal. It can be used by law enforcement agencies as well as lawful marketers to advertise wares and collect demographic information. But to avoid being labeled "unfair or deceptive" under the FTC Act, businesses must announce the spyware presence before installing any such software. To get around this, companies often bury the announcement in lengthy license agreements.

In a report this spring, FTC Commissioner Mozelle W. Thompson called spyware "a new and rapidly growing practice that poses a risk of serious harm to consumers." But data are hard to come by.

"The market analysts haven't come out with a lot of reports kind of sizing the market," said Jerry Grasso, a spokesman for EarthLink, an Atlanta-based Internet service provider. It began tracking the problem this year after complaints started about two years ago. Since January, EarthLink has logged more than 83 million instances of spyware.

Dell Inc., the world's top-selling direct-sale computer vendor, reports that about 12 percent of customer support calls are from consumers bothered by spyware, the FTC said.

Microsoft, the world's largest software company, said spyware accounts for at least one third and as many as half of its computer crashes.

"Stopping the spread of spyware and other unwanted software is one of Microsoft's highest priorities," company spokeswoman Tina Austinson said yesterday.

Signs that a computer has been infected with spyware include instances when a Web browser suddenly redirects the user to another site or a slew of uncontrollable pop-up ads. In an analysis of more than 3 million computers, Webroot Software, which works with EarthLink to track spyware, found an average of 26 spyware programs on each machine, spokeswoman Ashley Cox said.

People often end up downloading the software to their computers unwittingly, by installing programs from untrustworthy sites or by clicking on links in certain pop-up ads or spam. The material can render computers useless or lie in wait, tracking a user's movements and keystrokes in an effort to steal the consumer's identity.

Various companies offer software to combat it. EarthLink's version won't uninstall the spyware, because it's often bundled with desirable programs, but it can turn the spyware off and lead users to it.

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