Small Company Fights Government Claims Over Ad-Blocking Software

WASHINGTON (AP) -- A small California company targeted by regulators for delivering unwanted pop-up Internet advertisements is mounting an aggressive defense against the Federal Trade Commission in court.

The FTC accuses the company of committing "high-tech extortion" by using a feature inside popular Windows software to generate pop-up ads as frequently as every 10 minutes. A key factor in the government's case is that the pop-ups promote software designed to block such intrusive ads.

The company, D-Squared Solutions LLC of San Diego, has countered that the government's allegations go too far, and its ads are "no more harmful than roadway speed bumps or television commercials." The company is run by a pair of 20-year-old college students.

Federal regulators brought the enforcement lawsuit in hopes it would quickly dampen one of the most irritating practices of Internet advertisers. Instead, the company's founders have mounted a spirited defense over whether such pop-up ads are protected free speech.

"It's very unusual for a company to aggressively fight an FTC enforcement action," said Mark Rasch, an expert on technology law. Most companies in high-profile FTC lawsuits quickly settle, typically paying a fine and pledging to stop the disputed business practice. Rasch said the FTC's legal arguments and the company's business practices were "right on the margins," ripe for challenge.

The FTC accused D-Squared last month of unlawfully exploiting the Messenger network technology built into most new versions of Microsoft's Windows operating system. Unlike Web-based pop-up ads, D-Squared's unwanted advertisements can appear even when a computer user is not surfing the Web.

The company contends that it wasn't illegal to transmit its ads, that the ads weren't damaging, and that its software genuinely blocks such ads. It noted that the Messenger technology is now widely considered a serious security threat for home computer users and said its ads helped warn consumers their computers were at risk.

"While it may be annoying, if you get a pop-up on your screen it may cause you to address this problem," said Anthony J. Dain, one of D-Squared's lawyers. He described intrusive advertisements as "annoyances you have to deal with in a free society."

The FTC compared D-Squared to vandals throwing bricks through windows to sell home-security systems. It said the company's founders "desperately try to recast themselves as innocent public servants who merely hope to warn consumers about a security flaw."

D-Squared's owners, Anish Dhingra and Jeffrey Davis, are students at the University of California, San Diego. Both were expected to testify in federal court next week and urge a judge to lift an order barring D-Squared from delivering pop-up ads.

Their lawyer says the students are unlikely players in a courtroom drama.

"They've never been in any kind of trouble before. They're good kids, nice individuals," Dain said. "Obviously they're scared, anxious, nervous, but they're also angry. They don't think they've done anything wrong."

The affected Messenger service, unrelated to Microsoft's own instant-messaging software that uses the same name, permits network administrators to display messages on a user's computer screen, such as a warning that a company's Internet connection is having problems.

Earlier this year, Microsoft warned customers about a security vulnerability in its Messenger technology that could allow hackers to seize control of a computer. It urged users to download and install a free repair patch from its Web site and to consider disabling the Messenger service if it is unneeded.