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180Solutions/Zango to Pay $3M to Settle FTC Suit

Zango, the company that makes the 180Search Assistant and Zango family of pop-up ad-serving and Web tracking software, has agreed to pay $3 million to settle a suit brought by the Federal Trade Commission. The suit charged that unfair and deceptive practices were used to install the company's software on personal computers and to prevent consumers from uninstalling it.

According to the FTC, Bellevue, Wash.-based Zango's "distributors - third-party affiliates who often contracted with numerous sub-affiliates - frequently offered consumers free content and software, such as screensavers, peer-to-peer file sharing software, games, and utilities, without disclosing that downloading them would result in installation of the adware. In other instances, Zango's third-party distributors exploited security vulnerabilities in Web browsers to install the adware via "drive-by" downloads. As a result, millions of consumers received pop-up ads without knowing why, and had their Internet use monitored without their knowledge."

In a story I wrote for The Washington Post Magazine early this year, I profiled a young man who was using botnets -- networks of home computers that he had compromised -- to serve as an install base for adware made by 180Solutions and other similar companies. The kid was making hundreds -- if not thousands -- of dollars a month as a distributor for 180Solutions (180Solutions changed its name this summer to Zango). As early as the end of 2005, 180Solutions claimed its software was installed on approximately 20 million PCs worldwide.

Perhaps what's most significant about the settlement is that Zango will now be prohibited from displaying ads through its software on computers that received the installation prior to Jan 1, 2006. According to Zango, the FTC investigation began in Sept. 2005. In January 2006, the Center for Democracy and Technology filed a complaint with the FTC about the company.

Zango within the past year has taken steps to rein in "rogue" affiliates and to make the un-installation of its software easier. Zango has always claimed that the majority of its install base was established with the clear consent of its users, and that it does not want to have its software installed on computers if users don't know about it or want it. This portion of the settlement should help put the company's words to the test on that front.

In its settlement, the FTC also appears to be setting a precedent that all adware makers are going to need to heed, establishing in extraordinarily explicit terms what sorts of informed consent would be considered acceptable and which types of installation practices will earn adware makers sharp scrutiny from federal regulators.

"It's important that this limits the ability of Zango to profit off of a great many people who had this software on their systems without their knowledge, and that's potentially millions of people, churn notwithstanding," said David McGuire, CDT's director of communications (and a former washingtonpost.com technology reporter). "But the way this settlement was written, I think it sends a really clear message to companies that build their business on deceptive practices that in the Internet space, you are going to be under a microscope if your business is built on disregarding what users actually want and profiting off of their activities online without their consent."

In a statement issued today, Christine Varney, a former FTC commissioner who represented Zango in the case, agreed that this was an important settlement for the adware industry.

"The industry now has standards for the downloading of software and applications over the Internet, which it should adopt," Varney said. She is currently a partner in the Washington office of Hogan & Hartson.

Keith Smith, the Zango chief executive who I interviewed last year, used the opportunity to apologize.

"Early in our business, and as we've acknowledged, we relied too heavily on our affiliates to enforce our consumer notice and consent policies," he said in a statement. "Unfortunately, this allowed deceptive third parties to exploit our system to the detriment of consumers, our advertisers and our publishing partners. We deeply regret and apologize for the resulting negative impact."

By Brian Krebs  |  November 3, 2006; 4:55 PM ET
Categories:  Fraud  
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