Wednesday, December 10, 2003

Small company fights with FTC on Internet ads

By Ted Bridis
The Associated Press

WASHINGTON - Those flashy pop-up ads that annoy millions of Internet users each day are getting a legal test, thanks to a pair of 20-year-old college students who are challenging the government's effort to regulate the advertisements.

The Federal Trade Commission accuses the students' small California 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. Ironically - and a key factor in the government's case - the students' pop-ups tout software designed to block such ads.

The company, D-Squared Solutions LLC of San Diego, has countered that the government's allegations go too far and that its ads are "no more harmful than roadway speed bumps or television commercials."

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-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 in an important dispute that could have broad effects on the future of Internet advertising.

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

The D-Squared messages advertised the company's software that can block such ads.

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, however, 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 in 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 more pop-up ads.

Their lawyer says the students are unlikely players in a court 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."

Comair, supplier changed way we fly
Convention center loses recently hired sales exec
Fed keeps key interest rate steady
Fiorini files for bankruptcy
Kroger labor dispute drags earnings down
Tristate Summary
Business Digest
Instant message could lead to an instant mate
Bank One fires 2 more execs
Boston looks to Canada for Rx drugs
Ohio foreclosure rate highest in U.S.
Pepper resurfaces as Yale's finance VP
Shareholders back Yellow buy of Roadway trucking
US Airways yanks tickets off Expedia
Small company fights with FTC on Internet ads