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Zango Denies Claim That It's Flouting FTC Agreement

Spyware researcher Ben Edelman charges that Zango, the adware company formerly known as 180solutions Inc., is distributing deceptive software without adequate consent or disclosure.

Zango, the adware company formerly known as 180solutions Inc., is distributing deceptive software without adequate consent or disclosure, as required under the terms of its agreement with the Federal Trade Commission, according to spyware researcher Ben Edelman.

"In my hands-on testing, Zango continues numerous practices likely to confuse, deceive, or otherwise harm typical users as well as practices specifically contrary to Zango's obligations under its November 2006 settlement with the FTC," Edelman said in a report released Tuesday.

Zango last year settled Federal Trade Commission charges that it "used unfair and deceptive methods to download adware and obstruct consumers from removing it, in violation of federal law."

The FTC alleged that Zango used third-party affiliates to install adware on consumers' computers to display pop-up ads without adequate notice, sometimes through security exploits. In addition, the FTC claimed that Zango deliberately made its software difficulty to find and remove.

Zango emphatically denies Edelman's charges and insists that it remains in full compliance with its FTC agreement. "It's an absolutely unfair characterization of what's going on," said Ken McGraw, Zango's EVP, general counsel and chief compliance officer. "Zango is 100% in full compliance with the FTC consent order. While we haven't had a chance to look at his allegations in detail, all of them appear to be unfounded, inaccurate, or misleading."

The issue is that some of the software Edelman analyzes is not covered by the consent order, said McGraw. And for applications that are covered, McGraw contends Edelman manipulates the screenshots "to make it appear as something that doesn't really exist in the real world."

"One has to wonder what the purpose is to saying there's non-compliance with something that isn't subject to the compliance order," asks Richard Purcell, CEO of the Corporate Privacy Group and a consultant who certified Zango's consent order compliance to the FTC.

The software covered under the agreement is Zango's Search Assistant and Toolbar software, Purcell said. Edelman "is talking about Hotbar here and in fact the Hotbar installation is specifically called out as not being part of the settlement," said Purcell.

In a November, 2006 interview with InformationWeek following the announcement of the FTC settlement, Zango CEO Keith Smith sounded contrite. He acknowledged that pop-up ads -- at least "traditional" ones, which may be distinct in his mind from the ones Zango delivers -- are problematic and distanced his company from the actions of its affiliates. "The traditional pop-up is typically a terrible experience for consumers," he said.

Yet, Zango continues to deliver that experience to consumers, according to Edelman, who points to "ongoing Zango-designed installation sequences which install Zango pop-up ad software without any on-screen disclosure of material terms" and other pop-up ads that violate the FTC settlement requirements.

Zango also camouflages adware to look like Windows dialog boxes, Edelman charges. "The Zango popup substantially matches the fonts, background color, 'attention' icon, and button labeling and placement of standard Windows MsgBox() dialog boxes," Edelman said in his report. "As a result, many users are likely to mistakenly conclude that this window comes from software already installed on their computers -- without realizing, at least initially, that the window is actually an advertisement from a company with which the user has no preexisting relationship."

Expert users may be able to distinguish genuine Windows dialog boxes from Zango's fake ones, but hurried and novice users could easily be duped, Edelman said.

Federal Trade Commission spokesperson Claudia Bourne Farrell said that agency investigations were not public and declined to comment on Zango's compliance with its settlement agreement. She did state however that, "the agency enforces its orders."

Zango's response in the past to Edelman's allegations has been to impugn the motives of the messenger. "There are people, and I won't identify anyone specifically, but if you look at the loud detractors of us in particular -- not of the space, because spyware is a problem -- but the loud detractors of Zango, most of them, if not all of them, have a direct financial benefit to continue to churn out fear about us and about this space," said Smith in November. "Whether they're selling software or consulting services, they have a direct financial incentive to make us look bad."

And that remains the company's position. "Ben does have a financial incentive here," said McGraw. "He purports to be an independent academic but he does benefit commercial from reports like this. It's not unnoticed by us that as a paid consultant in litigation against Zango, he uses this in order to garner extra fees from his client base."

Zango too has a financial incentive here, as can be inferred from its decision to sue security company PC Tools Limited, which makes a program called Spyware Doctor that uninstalls Zango's software.

In June, Zango lost the first round in that case when the judge denied Zango's application for a temporary restraining order. The judge said it was unlikely Zango would prevail in its allegations of tortious interference, trade libel, or violations of the Washington Consumers Protection Act. The judge considered PC Tools classification of Zango's software as something to be removed to be reasonable "given Zango's past conduct" and other companies' assessment of Zango's software.

Zango paid $3 million as part of its FTC settlement. The company has taken in at least $40 million in venture capital, not to mention revenue from the 6.9 billion ads the FTC said last November that Zango had served.

Some at the FTC see such fines as insufficient. In a letter of dissent to a $1.5 million settlement the FTC reached with another adware company, DirectRevenue LLC, FTC commissioner Jon Leibowitz lamented the inadequacy of the penalty. "[T]he $1.5 million in monetary relief that the Commission obtained as part of the consent order is a disappointment because it apparently leaves DirectRevenue's owners lining their pockets with more than $20 million from a business model based on deceit," he said.

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