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Marketers Need to Beware of Adware

March 2, 2007
Andrew Lustigman
DMNews

Source: DMNEWS

The New York attorney general recently announced separate settlements with three major online advertisers for deceptively promoting products and services online through adware, advertising that is integrated into software and installed on a consumer's computer by a third party, often without the consumer's knowledge or consent. 

The settlements with Priceline, Travelocity and Cingular Wireless mark the first time an attorney general has held advertisers responsible for ads displayed through adware. They impose new obligations on advertisers to independently confirm on an ongoing basis that advertising is being delivered properly. The three settlements grew out of the attorney general's investigation of online publisher DirectRevenue. In an April 2006 lawsuit, the attorney general alleged that DirectRevenue installed adware programs onto millions of computers that delivered a steady stream of advertisements, monitored which Web sites were visited by consumers, and collected data that the users submitted, without adequate notice or consent.

The attorney general further alleged that the adware programs were difficult to remove and consumers who had previously downloaded the company's programs, known as "legacy users," continued to receive Priceline, Travelocity and Cingular Wireless ads through those programs. The attorney general claimed that Priceline, Travelocity and Cingular, among others, spent hundreds of thousands of dollars delivering its ads via DirectRevenue software.

The settlement agreements require that each advertiser deliver online ads only through publishers that provide consumers the name of the applicable adware program and any bundled software, brand each advertisement, describe the adware and obtain consumer consent to download and run it, make it practical for consumers to remove the adware, obtain consent to continue serving ads to legacy users and require the advertiser's affiliates to meet these same requirements. Priceline, Travelocity and Cingular Wireless will pay $35,000, $30,000 and $35,000, respectively, to the State of New York. On a prospective basis, the advertisers are required to undertake additional due diligence to confirm that their ads are being properly displayed.

These settlements highlight the need for all advertisers to take their due diligence obligations one step further.

Prior to contracting with a company to deliver their ads, the advertisers are required to investigate how ads will be delivered. The companies must immediately cease using adware programs that violate the settlement agreements or their own adware policies. The advertisers are required to update their investigation of each ad publisher quarterly. Even a broad indemnity agreement will not shield an advertiser from liability if a regulator challenges the business practice of a third- party publisher.

Andrew B. Lustigman

Reach Mr. Lustigman at alustigman@olshanlaw.com

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