• by Wendy Davis  @wendyndavis, June 2, 2009

Lawyers for behavioral targeting company NebuAd recently told a federal court that the company is out of business. But attorneys who are suing the controversial company alleged this week that NebuAd is only engaging in a "shell game" in order to avoid liability for allegedly violating Web users' privacy.

In papers filed with the federal district court in San Francisco, consumers' lawyers allege that former NebuAd executives formed a new UK company, InsightReady, as part of a strategy to avoid damages in the lawsuit. "NebuAd has long known exactly what it would do to escape this lawsuit," the plaintiffs' lawyers allege. "From setting up the new corporate entity, to moving it to a new country, to staffing it with the same loyal executives who have been with it all along ... these are well-trod paths for the principal actors."

Last November, two days after 15 consumers sued NebuAd for allegedly violating their privacy by purchasing information about their Web activity from Internet service providers, NebuAd allegedly registered a domain name in the U.K. for a new company, InsightReady.com. The business model of InsightReady remains unclear.

The lawyers now suing NebuAd also allege that the company was itself founded by former executives of adware company Claria (formerly called Gator) -- which, they argue, shows a pattern of name and identity changes. But Claria and NebuAd were separate companies. Claria had layoffs in 2006, but continued in business as a subsidiary of the company JellyCloud until last year.

For now, the lawyers suing NebuAd are objecting to a motion by the company's attorneys to be relieved from the case. They argue that granting the motion will delay the case.

But they also appear to be setting the groundwork to argue that assets of InsightReady and/or of NebuAd's former executives, should also be available to plaintiffs in the privacy lawsuit.

If NebuAd is out of money, the plaintiffs won't be able to recover much from the corporation even if they win the lawsuit -- unless they can hold former executives personally liable, or recover assets from an entity like InsightReady. Cyberlaw expert Venkat Balasubramani says the new papers indicate that the plaintiffs' lawyers intend to try to do so. "These facts that they're laying out could lay the foundation for that type of argument," he says.

Last year, NebuAd's controversial behavioral targeting platform sparked hearings in Congress. The company purchased information about people's Web activity from their Internet service providers and then used that data to send targeted ads.

Consumer advocates and some lawmakers said that NebuAd's Internet service provider-based platform presented a more significant privacy threat than older forms of targeting because broadband companies have access to users' entire clickstream histories -- including search queries and activity at non-commercial sites. Older behavioral targeting companies only track users at a limited number of sites within a network.

NebuAd consistently argued that it didn't pose a threat because it did not know users' names, phone numbers or addresses, and did not retain copies of their IP addresses. Still, Internet service providers abandoned plans to work with the company in light of lawmakers' concerns -- and last summer, NebuAd had laid off much of its staff. At the time, the company said it intended to regroup as a more conventional behavioral targeting company, but it appears to have simply shut down operations in the U.S. instead.