• by Wendy Davis  @wendyndavis, March 4, 2009

Congressional concerns about privacy helped drive behavioral targeting company Adzilla to shutter its U.S. operations last year. But not even closing down was enough to end the company's problems. Now, it's facing a lawsuit for allegedly violating the privacy of Web users by tracking their online activity.

In a complaint filed late last week in federal court, Richmond, Va.-resident Susan Simon alleges that Adzilla, her Internet service provider Continental Visinet Broadband, and other companies acted together to violate a host of laws, including the federal wiretap law. Simon, who is seeking class-action status, brought the case in the northern district of California.

Simon says in the lawsuit that she first noticed Adzilla in June 2007, when she realized that her Internet service provider was assigning her different IP addresses from those it used previously. Simon investigated and determined that the new addresses belonged to Adzilla, which was now tracking her online. "An outside entity, one with which plaintiff was entirely unfamiliar, was accessing and searching plaintiff's web log activities," she alleged in her lawsuit.

The lawsuit does not allege that Adzilla served her any ads, only that it tracked her. Simon said in her complaint that she was never notified about the tracking and didn't consent to it.

Adzilla, like rival NebuAd, intended to purchase information about people's Web histories from their Internet service providers and then use that information to serve them targeted ads. NebuAd tested its platform with six companies, but eventually retreated from its plan after lawmakers said they believed this type of ad targeting should not occur unless consumers expressly consent to it.

Adzilla stopped operating in the U.S. last year, but the former CEO told The New York Times that the company intended to partner with Internet service providers in Asia.

It's not clear whether Adzilla ever tested the ad-serving part of its platform in the U.S., but complaints that the company was tracking people began bubbling up on BroadbandReports.com in the summer of 2007, said Robb Topolski, chief technologist for the Open Technology Initiative, a project of the think tank New America Foundation.

"This is not about the ads," Topolski said. "The ads are not the evil thing here." Rather, he said, the problem was using deep packet inspection technology to track people.

Topolski also said that Simon's experience appears to have been similar to that of other Web users. "It's all very consistent with the way that Adzilla operates," he said.

Cyberlaw expert Bennet Kelley, based in Santa Monica, Calif., said the case could "send tremors throughout the industry" if it goes forward. But, he said, if Adzilla and the other defendants can dismiss the case before trial, "it would be a major win for the industry and could shut the door on future cases."

"Either way," he said, "the suit may encourage state or federal regulators to take a closer look at this issue."

NebuAd, along with six other Internet service providers, also faces a privacy lawsuit, brought by the same law firms that sued Adzilla--KamberEdelson and the Law Office of Joseph H. Malley. The Internet service providers sued there argue that the case against them should be dismissed because they were merely passive participants in the enterprise.

The lawsuit against Adzilla also named Conducive Media as a defendant. Conducive purchased Adzilla in May of 2006, but sold it that August. The following year, Adzilla reportedly raised $10 million.