- Pop-Up Advertiser Fights FTC's Request For Court Injunction
- December 31, 2003
- Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
In early December 2003, two twenty-year-old creators of pop-up ads filed an aggressive response to the lawsuit filed against them by the Federal Trade Commission, and they succeeded, at least for now. On October 30, 2003, the FTC alleged in its complaint that Anish Dhinga and Jeffrey Davis, executives of D Squared Solutions, caused substantial injury to consumers by repeatedly sending unsolicited pop-up ads, and that D Squared unfairly used the Windows Message Service. The U.S. District Court in Maryland promptly issued a temporary restraining order against D Squared and its executives, barring them from sending unsolicited pop-up advertising to consumers' computer screens. Instead of negotiating a settlement with the FTC, D Squared responded by filing an answer to the complaint. On Monday, December 15, the court agreed with the college students that there was insufficient evidence for granting a preliminary injunction. This means the pop-up ads may continue until a decision is reached at trial. The trial date is set for March 8, 2004.
D Squared is in the business of selling software designed to block pop-up ads. Its executives promoted this pop-up blocker software by taking advantage of a flaw in the Messenger network system embodied in newer Microsoft Windows operating systems and repeatedly sending pop-up advertising to consumers' computer screens. Some consumers received the ads at 10- to 30-minute intervals, regardless of whether or not they were logged on to the Internet.
In its complaint, the FTC claimed D Squared "engaged in an unfair practice by interfering with consumers' use of their computers, specifically by causing a stream of multiple unwanted Windows Messenger Service pop-ups to appear on the computer screens." The complaint also charged that the defendants were "unfairly attempting to coerce consumers into buying their pop-up blocking software." Howard Beales, Director of the FTC's Bureau of Consumer Protection, stated, "This is nothing more than a high-tech version of a classic scam. The defendants created the problem that they proposed to solve -- for a fee. Their pop-up spam wasted computer users' time and caused them needless frustration."
In its motion, D Squared responded that "[t]he FTC abuses its substantial government resources trying to stop a small business from alerting consumers to a security flaw lurking hidden in their personal computers. The FTC should not be allowed to fulfill its peculiar, and misguided, desire to legislate commercial activity by fiat." D Squared argued that its tactics are meant to inform consumers of the flaws inherent in the Messenger program. The FTC responded that "the defendants' marketing techniques cannot be reconciled with their claims of consumer protection."
Significance: The FTC's decision to take court action against D Squared raises concerns for several reasons. D Squared's activities, while annoying to many, may not justify the commencement of a lawsuit calculated to prevent it from advertising its wares in a manner that is clever but not necessarily illegal. According to the FTC's complaint, the damage caused to consumers was "wasted computer users' time" and "needless frustration." However, in refusing to grant a preliminary injunction stopping the pop-up ads, the court agreed with the defendants that the FTC failed to show irreparable harm to consumers who received them. Moreover, the FTC's decision to take legal action in a questionable case essentially preempted a less costly business resolution among Microsoft, the makers of the Windows Messenger Service, and D Squared. As the FTC pointed out, Microsoft could have simply advised its users to "stop the pop-ups by changing the default setting on their Windows operating system." Advertisers should carefully watch whether this case is an aberration or represents part of a larger trend in which the FTC initiates legal actions in response to advertising that it deems irritating and exasperating but not necessarily deceptive and misleading.