• by Ross Fadner , May 19, 2004

Overstock.com on Wednesday became the first online publisher to file a omplaint under Utah's Spyware Control Act, which was passed into law on May 3. The Salt Lake City, Utah-based company filed its complaint in Utah's Third District Court against SmartBargains, Inc., an online retailer from Massachusetts. The complaint alleges that SmartBargains ads delivered by the Claria Corp.'s GAIN Network over Overstock.com's Web site violate the newly enacted law.

Since the law's passage, delivery of competitors' pop-up ads over Web publishers' sites has been deemed "spyware" in the state of Utah. If SmartBargains is found guilty of violating the law, Overstock.com will be entitled to collect damages. According to a company statement, Overstock seeks "injunctive relief, damages, attorney's fees, and other costs arising from SmartBargain's actions."

Spyware is software that is downloaded onto consumers' computers unbeknownst to them while they visit content sites. The downloaded programs collect data about consumers' web-surfing habits, enabling spyware companies to serve users targeted pop-up advertisements. Spyware is also often bundled with "free" software programs such as games, file-sharing software, email programs, and alternate Web browsers.

By contrast, adware is associated free software programs that are downloaded by users in exchange for agreeing to receive targeted advertisements. Adware programs must include clear disclosure policies and offer end-user license agreements that consumers are asked to opt-in to.

Often, adware companies deploy their ad-serving programs at controversial times--such as when consumers are about to purchase certain products--and adware companies, noting this, serve discounted promotions or coupons from competitors. This has drawn the ire of Web publishers, who claim that such practices represent unfair competition.

Such actions have resulted in the Utah Spyware Control Act, which aims to protect Web publishers from such practices, which it deems unfair competition. Under Utah's new law, adware companies that employ such practices fall under the umbrella of "spyware."

It remains to be seen how other states will respond to Utah's actions, and whether proposed federal legislation on spyware will eventually trump state legislation. Adware providers WhenU and Claria generate millions in ad revenue, and help drive sales for their clients.

In response to Overstock.com's filing against it, SmartBargains President and CEO Carl Rosendorf said in a statement: "The Gator Advertising and Information Network [Claria's GAIN network] that is utilized by SmartBargains is a program that consumers download in order to comparison shop on a real time basis."

The statement continued: "Several federal court decisions, in fact, have strongly supported the consumers right to access this form of advertising," Rosendorf said, adding: "We believe that Overstock.com's intention is to avoid and restrict competition by impeding consumers from comparison shopping on the Internet."

"Pop-up ads have been to Web browsing what spam is to email," Overstock.com President Patrick Byrne said in a press statement. "Within the world of affiliate marketing, such software is often called 'parasiteware' on the grounds that the companies which distribute such code and those who advertise through it are parasitic to legitimate commerce."

"Spyware hijacks not only consumer spending, but the commissions that would otherwise be paid to the legitimate affiliate community. Several years ago we decided on principle to cease any advertising with such firms, and have encouraged members of the vast affiliate marketing community to respect the position we have taken by refusing to act as affiliates for sites that avail themselves of 'parasiteware,'" Overstock.com's Byrne continued.

A representative from Overstock.com did not respond by press time to a request for further comment.