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FTC Issues Final Consent Order Against DirectRevenue: An AFP Critiq

On June 28, 2007 the FTC issued their final consent order with regards to DirectRevenue. Since it is a twelve page government document, I realize many will probably not read through it. Since there are some important points in the decree, I’ll highlight them here. The Consent Order applies to DirectRevenue LLC, DirectHoldings LLC, the officers (Joshua Abram, Daniel Kaufman, Alan Murray, and Rodney Hook), their agents, representatives, employees or anyone directly or indirectly under the control of any of these. With regards to the officers of DirectRevenue, it applies to them as individuals and as officers of the company. This is significant in light of the historical past of parties involved with DirectRevenue being involved with other adware ventures. I take this to mean that the above entities can not go out and start up shop again, either collectively or individually, under a new company and engage in violate the following orders.

First Order

They can not use any legacy program (any software owned/controlled by the respondents which was installed on a consumer’s computer on or before Oct 1, 2005) to display advertising or communicate with the consumer’s computer in any other way. I doubt this first bit will have much of an impact as I find it hard to believe there are too many computers that still have DirectRevenue’s software installed from some time before Oct 2005, except for someone like me who keeps it intentionally. However, the part of any type of communication with the end user’s computer may be bit more important for any applications still floating around out there. I know that my installed version stopped displaying ads shortly after the settlement was first reached. However it continued to communicate with the DirectRevenue servers, tracking my web usage. This would seem to be inline with the reports that DirectRevenue was planning to shift their business model to something along the lines of Claria moving to behaviorial advertising on web properties and using the software to collect the behavioral data. So this would not allow them to do such, at least with legacy installations. I’ll have to see if my installed version stops the web usage tracking. DirectRevenue can communicate with legacy users within 30 days for a maximum of three notifications informing of the following:

  • Because of the FTC Order, consumers will no longer be receiving advertisements from DirectRevenue or any other communications
  • How consumers can authorize DirectRevenue to continue to serve ads if the consumer wants such. They later outline what that type of consent must involve
  • How consumers can remove all “vestiges” of the legacy software from their computers.

The removal of all “vestiges” is important with the history of the DirectRevenue software to reinstall itself and thwart attempts of removal by security software. In layman’s terms, it’s been a hard piece of software to completely remove from a computer. At this point, the FTC went a bit further than they have in the past with other cases (at least to my recollection and I think I’d remember this one). DirectRevenue can’t just spin those notifications to the consumer any way they want. The FTC attached the language and format they expect to be used in those notifications. Any other language used must be approved by the FTC. I quote the FTC’s attached notification:

NOTICE: The Federal Trade Commission (“FTC”) recently alleged that DirectRevenue, LLC installed The Best Offers Network (“TBON”) advertising software on consumers’ computers without consumers’ consent. The TBON software sent you pop-up ads based on the websites you visited. To settle this matter, DirectRevenue has stopped sending you ads and the TBON software on your computer is inactive. If you wish to completely uninstall TBON software, click for Removal Instructions. If you wish to receive TBON’s ads again, click Receive Ads. Click here for more information about the FTC Settlement Order.

Maybe the FTC has learned something from past settlements and how those settlements were relayed to consumers by other adware companies. Regardless of how many consumers will actually see such a notification, I take this to be the FTC sending a message to adware companies to a certain degree.

Second Order

DirectRevenue, or anyone associated with them, can not nor assist anyone else in “publishing, disseminating, or distributing” via almost everything connected with the Internet any type of software or scripts that exploits security vulnerabilities to download any type of scripts, code or software. The part that jumped out at me and that I’m not really sure what the FTC means by it was a sniplet stating “in or affecting commerce“. I find that part very interesting and do wonder what it actually means.

Third Order

DirectRevenue, or anyone associated with them, can not nor assist anyone else in downloading and installing software without express consent. The FTC expressly states that this is software programs or applications in connection with

“advertising, promotion, marketing, offering for sale, sale, or provision of any goods or services on or through the Internet, the World Wide Web, or any webpage or website, in or affecting commerce…”

For those out there who still seemed confused about what “adware” really is, it looks to me like the FTC just said what they consider it to be without actually using the word adware. But it seems to me they are being pretty specific about what kind of software they are talking about here. I’ve seen such questions raised most recently in some discussions regarding the CJ class action lawsuits. Again, the FTC includes the “in or affecting commerce“. This time it seems more specifically tied to the behavior, or purpose, of the type of software they are discussing. From my own personal perspective I am very glad to see such wording coming from the FTC. They seem now to at least be acknowledging the impact on commerce and not just the consumer. Of course I’m just a lay person here and in no way an attorney. But some companies that are advertising through adware or have others doing so representing their companies (such as affiliates) may want to get a qualified legal opinion on what the implication of the wording may be.

Fourth Order

DirectRevenue, or anyone associated with them, in connection with all those things I listed above, must:

  • A functioning email address, or other Internet-based way, for consumers to report complaints regarding DirectRevenue’s practices.
  • Clearly and prominently disclose this mechanism on their web sites.
  • Make reasonable efforts to associate each complaint with the software, web site or service that is the subject of the complaint.
  • Respond to the complaints in a timely manner.

For those who read some of the documents posted on Ben Edelman’s site from the lawsuit filed against DirectRevenue by Elliot Spitzer, then Attorney General of NY, you won’t be surprised that the FTC is expecting an improved response by DirectRevenue to consumer complaints than has been exhibited in the past.

Fifth Order

DirectRevenue, or anyone associated with them, in connection with all those things I listed above, must have a comprehensive program to ensure that affiliates obtain express consent before installing their software. No more pointing the accusing finger at an affiliate and placing the blame on them. Hmmmm. Double Hmmmmm. Of course the FTC has taken this same stance with regards to spam. Triple Hmmm. And at least one FTC Commissioner has stated more than once for the record that Advertisers are the ones responsible ultimately if their advertising is displayed through adware. My final Hmmmm. The handwriting seems to be pretty clearly written on the walls here, but from my own personal perspective I sense that many, many merchants still aren’t seeing it. I’m going to bullet what the FTC feels those measures should be, primarily because they mirror what the FTC has stated in other settlements regarding affiliates and CAN-SPAM violations. Just for those who may be having a hard time seeing the handwriting on wall.

  • Have contact information for any prospective affiliate. For individuals, this includes their full name, physical address (that usually means NOT a PO Box), country, telephone number, email address and complete bank account information as to where the payments are being sent. For legal entites (such as corporations, organization, agencies, etc) this includes full name, physical address, country, telephone number, email address for the real person who owns/controls the entity and complete bank account information as to where the payments are being sent.
  • Prior to accepting any affiliate, DirectRevenue has to provide the affiliate with a copy of the FTC settlement, receive a dated and signed statement from the affiliate acknoweldging they received the copy and agree to comply with the FTC Order and provide written notice that failure to comply with the Order will result in immediate terminatation of the affiliate and lose of all monies owed.
  • Each affiliate must provide all the personal/contact information listed in bullet one to DirectRevenue and meet the requirements in bullet two for the following: employees, agents, sub-contracturors and sub-affiliates. (WOW! The FTC certainly seems to be learning.) All this has to happen before an affiliate can be accepted in the program and must be updated whenever they have new employees, agents, sub-affiliates and sub-contractors.
  • Meet all the requirements outlined in the Fourth Order, except in relation to their affiliates.
  • Promptly and completely investigate any complaints they receive regarding their affiliates violating the FTC Order.
  • Immediately following the investigation, terminate any affiliate found in violation, cease payment to the affiliate and discontinue displaying advertising through any software installed by that affiliate.

Arguably the FTC is imposing harsher standards on DirectRevenue since they have violated law in the FTC’s opinion (although no guilt was admitted as is usual with settlements). However, who would want to try and operate marketing efforts under those types of restrictions? And for those Merchants who are saying to themselves “Yes, but all this is for affiliates doing pay-per-installation downloads which is completely different from what we do, online retail.” Yes that is true. However, again these restrictions are along the same lines as imposed with regards to email marketing violations. The FTC does not seem to make a distinction between the advertiser themselves and those who are marketing on their behalf when violations of the Federal Trade Acts have occurred. And for those Merchants who think that it’s just the adware company who can be held accountable and not those whose ads are showing through the adware, you might want to ask PriceLine, Cingular and Travelocity if that is indeed the case. Go ahead, be brave and click the link. To all those merchants who are still actively and with much gusto advertising through Zango….are you 100% completely confident that Zango is fully complying with their recent settlement with the FTC? You know who you are merchants and so do I. To those Merchants, Managers and OPMs who are taking no action whatsoever to monitor for their affiliates using Zango or turning a blind eye to the practice….are you 100% completely confident that Zango is fully complying with their recent settlement with the FTC? What about other adware applications which are ripe for the next round of FTC or AG investigation? Are you or your affiliates advertising with those companies?

Sixth Order

DirectRevenue must with any advertisements displayed in connection their software (and again in or affecting commerce):

  • Identify the software causing the ad display and that the ad is being served by the software
  • Provide a hyperlink to a web page which clearly instructs how to uninstall the software and access the complaint system outlined in the Fourth Order.

Seventh Order

DirectRevenue, or anyone associated with them, in connection with all those things I listed above, can not install or cause to be installed any software unless they provide a reasonable and effective means to uninstall the software. The effective part has certainly been an issue with DirectRevenue’s software in the past. Acceptable means of uninstalling are not having to access a web site, download other software, close or deactivate a firewall, anti-spyware/adware software or virus software, or provide personally identifiable information in order to complete the uninstall. These are techniques I still see more than one application utilize in order to uninstall their software.

Eighth Order

DirectRevenue, or anyone associated with them, must maintain a rather long list of records documenting their compliance with the Order for 5 (five) years.

Ninth Order

DirectRevenue has to pay $1.5 Million to the FTC. They state that the monies shall not be considered fines, penalites or punitive damages. DirectRevenue has 10 (ten) days to pay up via wire transfer or certified check from the final date of the Order, which seems to have been June 28, 2007. If they are late, they start accruing interest. And DirectRevenue can’t come back and try to get their money back. Yes, that’s actually in the decree. Yes the FTC actually gets the monies. They actually outline in the decree how those funds will be used by the FTC. It is to be used to provide relief in regards to DirectRevenue’s practices, administrative costs and notifying the public of deceptive and unfair practices. Any leftover funds go to the Treasury Department. In the case that DirectRevenue files bankruptcy, the funds are not part of the debtor’s estate nor has claim to the money.

Jon Leibowitz issued a Dissenting Statement in the DirectRevenue Settlement. This is along the same lines as the Dissenting Statement he issued in the Zango Settlement with the FTC. He seems in favor of the injunctive reliefs provided to halt unwanted DirectRevenue being unleashed (my words…foist his words) on consumers. His contention is with the $1.5 Million dollars, which is feels is not enough. He feels that considering the DirectRevenue received more than $23 Million through ad revenue and venture capital investments, that in particular Joshua Abram, Daniel Kaufman, Alan Murray and Rodney Hook ended up having their pockets lined just a bit too much considering the grief their software and business practices caused consumers. He lists some rather ironic specific incidents, such as the their software crashing the computer of one of their investors. Although that might be better considered as poetic justice. He also makes an interesting footnote in his Statement. It is worthy of a full quote here because I know some still just aren’t seeing or wanting to see the handwriting on the wall. So I will bother hand typing a quote from a pdf file and hopefully you’ll bother to both read and ponder.

On a separate note, I want to commend the New York Attorney General’s Office for its recent ground-breaking settlement — which included monetary relief — with Priceline, Travelocity, and Cingular Wireless in the context of its litigation against DirectRevenue. Among other things, the settlements require the companies to do due diligence before advertising via adware, and periodically follow up to see how their online ads are being delivered. These settlements are important because advertising dollars fuel the demand side of the nuisance adware problem by giving companies like DirectRevenue and their affiliates and sub-affiliates the incentive to expand their installed base, with or without consumers’ consent.

Bolding added be me. However, his statement should be pretty self evident. Yet another wake-up call.

Tenth Order

DirectRevenue agrees to cooperate with any investigation related to the original complaint or any subsequent investigation and do so without being served a subpoena.

Eleventh Order

A copy of the Order must be delivered to all current and future principals, officers, directors, managers, employees, agents and representatives having responsibilities related to the subject of the Order.

Twelfth Order

The FTC is to be notified within 30 (thirty) days of any changes with either corporation which could affect compliance with the Order. This includes such things as dissolution of the company, sale, merger, emergerence of a successor corporations, bankruptcy or change in company name or address. In other words, the FTC wants to be able to follow them for compliance in the future regardless of what may happen with the currently existing corporate entities.

Thirteenth Order

Lucky thirteen. Joshua Abram, Daniel Kaufman, Alan Murray and Rodney Hook (specifically) have to notify the FTC of any changes in employment over the next 5 (five) years. They are named individually as respondents, so it’s sounding like the Order follows them over the next five years, regardless of where they may set up shop on the Internet. This is a good thing considering their long past history with various adware ventures and associations.

Fourteenth Order

They (including Abram, Kaufman, Murray and Hook individually) have to provide the FTC, within 60 (sixty) days, in writing a report of how and the manner in which they have complied with the order. They also must do this any other times the FTC may require such.

Fifteenth Order

The Order will terminate on June 26, 2027. Cough. Or 20 (twenty) years from the date of the most recent filing of a complaint by the US or FTC alleging a violation of the order. So if DirectRevenue et al violates the order which is caught and charged by the FTC, they start the whole twenty years over again.

Ok, this did turn into a rather long post but not quite as long as the 12 page FTC document. But I took the time to write because I think it is very important to our industry and does have some direct implications. The days of turning a blind eye, sticking our heads in the sand, being apathetic towards certain practices we are connected to, blinding (or knowingly) buying into public relation spin or just being plain uninformed are coming to an end. This should be obvious from not only this settlement but several other recent events on the legal fronts. With each successive settlement, the FTC appears to be taking a tougher stance. And learning how the business practices of these companies. They seem to certainly be able to see what is really going on with many of these adware companies. Why can’t people within our Industry see it? That’s a rhetorical question on my part. But it seems to me that some chickens are starting to come home to roost. As a business would you want to have to carry such a settlement around with you for the next 20 years, where ever your future business ventures might take you?

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