• by Wendy Davis  @wendyndavis, April 5, 2006

New York State Attorney General Eliot Spitzer has sued adware company Direct Revenue, claiming that its prior installation practices were illegal. Spitzer is seeking an injunction prohibiting the New York-based Direct Revenue from installing ad-serving programs in the future--as well as monetary damages from the company and four of its officers.

Adding to Direct Revenue's troubles, J.P. Maheu--who came on board as CEO last May--resigned last month, OnlineMediaDaily has learned. Maheu, former CEO of ad agency Razorfish (now owned by aQuantive), had taken steps to improve Direct Revenue's reputation, including putting an end to the company's most controversial distribution practices.

The lawsuit alleges that Direct Revenue installed ad-serving software without consumers' consent through at least September of 2005. Furthermore, the papers allege that Direct Revenue still profits from those installations by continuing to serve ads to those consumers.

In court papers, Spitzer's office also identified several large advertisers that had used Direct Revenue, including Priceline, Cingular, Monster.com, JPMorgan Chase, and United Airlines. (Spitzer did not allege that those companies violated any laws.)

Direct Revenue's lawyer, Andrew G. Celli, Jr., denied that the company had acted unlawfully. "We believe that the past practices were legal at the time, and are legal, and are certainly consistent with what every major adware company was doing in the industry," Celli said.

The documents filed by Spitzer's office against Direct Revenue railed against the company's prior installation practices in unusually strong language. "Respondents repeatedly and persistently have engaged in fraudulent, deceptive and illegal acts in the distribution and installation of its spyware programs. They are responsible for saddling millions of unsuspecting consumers, including children, with untold amounts of spyware," stated an affirmation of Assistant Attorney General Justin Bookman. "Such practices not only harass, annoy and intrude upon users, they damage the very integrity of the internet and e-commerce: such harassment and confusion repels consumers from even using their computers."

Bookman's affirmation also details examples of "drive-by" installations at numerous Web destinations, including Jennifer Lopez and Britney Spears fan sites; Direct Revenue allegedly installed its pop-up-serving software on the hard drives of consumers who went to those sites without first obtaining their consent. In some cases, investigators were served notices asking whether they wanted the software and replied "no," but the programs self-installed anyway.

The papers also shed light on Direct Revenue's efforts to avoid detection by consumers, including its pattern of renaming its programs. Direct Revenue allegedly had a department named "Dark Arts" --which, according to the lawsuit, "was tasked to 'increase stealth' for Direct Revenue's spyware components."

Although Direct Revenue maintains that its prior installation practices were consistent with those of other adware companies, some industry observers disagreed.

"Direct Revenue was a pioneer in the use of aggressive, deceptive, unfair advertising and installation practices," said Eric Howes, director of malware research at Sunbelt Software.

Also, said Howes, Direct Revenue distributed its most notorious ad-serving program, Aurora, from around April through August of 2005--a time when other adware companies such as WhenU and Claria were attempting to prevent unlawful installations of their software. "By the time Aurora came out, they were not doing what everybody else was doing," Howes said. "Their practices were so offensive and objectionable--so outrageous--that they were really in a class by themselves."

Ari Schwartz, deputy director of the consumer advocate group Center for Democracy and Technology, added that the case against Direct Revenue should proceed even though the company stopped using many of the installation practices complained about last. "If you engaged in illegal practices in the past, you have to be held accountable for that," he said.

Recently, Direct Revenue agreed to settle a class-action lawsuit stemming from its prior installation practices.