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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

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Federal Trade Commission v. Seismic Entertainment Productions, Inc., et al.

2004 U.S. Dist. Lexis 227788 (D.N.H., October 21, 2004)

Downloading Spyware, Adware And Exploit Code Without Consumers' Knowledge Or Consent Likely Violates Federal Trade Commission Act

Court holds that the FTC is likely to prevail on its claims that defendants violated the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 45(a)(1).  Defendants were charged with downloading to consumers' computers, without their knowledge or consent, both spyware and adware that delivered pop-up advertisements for anti-spyware software, as well as "exploit code" which altered consumers' home pages, and redirected their browsers to websites selected by defendants.  Apparently, this occurred when consumers visited defendants' websites.  The Court found that this conduct likely ran afoul of the FTCA's prohibition against the use of "unfair or deceptive acts or practices" in commerce.  The Court accordingly issued 'temporary injunctive relief' requiring defendants to remove from their websites the software script that allowed defendants to download this software to consumers' computers without their knowledge.

Defendants Download Without Consumers' Knowledge 

Exploiting certain security vulnerabilities in Microsoft's Internet Explorer browser, defendants downloaded spyware, adware and "exploit code" to the computers of consumers who visited websites defendants operated.  Defendants' "exploit code" changed a consumer's designated home page (the website displayed when the consumer first opens his/her browser) and redirected their browsers to websites selected by defendants.  Defendants used the downloaded adware to deliver pop-up ads for spyware removal programs, which could allegedly be used to combat the very spyware defendants downloaded in the first place.  These activities were all undertaken without the knowledge or consent of the affected consumers.

Numerous consumers and others complained that they were damaged by these activities, which caused their computers to work slowly, freeze, lose data and/or crash.  Consumers also complained of the extensive efforts they had to undertake to remove the offending software downloaded by defendants, and return their computers to their preexisting condition.

Unfair Or Deceptive Acts

As a result, the FTC commenced this suit, charging that defendants' conduct ran afoul of 15 U.S.C. § 45(a)(1) of the FTCA, which makes unlawful the use of "unfair methods of competition" and "unfair or deceptive acts or practices" "in affecting commerce."  According to the Court, an "unfair or deceptive act" within the meaning of the Act, includes the dissemination of "any false advertisement . . . for the purpose of inducing . . . the purchase of . . . devices [or] services." 15 U.S.C. § 52(a).  To establish a violation of the FTCA, the FTC must show both the use of an unfair or deceptive act or practice, and that "the act or practice must be likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or competition."  15 U.S.C. § 45(n).

To be entitled to temporary injunctive relief, the FTC must show both a likelihood that it will succeed on these claims and that the balance of the equities favors issuance of injunctive relief.

The Court held that "the FTC is likely to succeed in showing that the defendants' activities are unfair and deceptive practices within the meaning of the FCTA."  Said the Court:

The defendants' activities in the new arena of internet advertising do not necessarily fit easily into the traditional concepts of unfair and deceptive acts and practices under the FTCA.  Nevertheless, the declarations of the computer users who have been affected by the defendants' activities amply support the likelihood that the FTC will be able to prove violations of the FTCA and that consumers have experienced substantial injury without countervailing benefits.  The declarants' experiences include unauthorized changes of their home pages, difficulty using their computers, and infusions of pop-up ads, including pornographic ads and ads for anti-spyware software.  The affected users were not notified of the defendants' activities and did not know what had caused the problems with their computers, making the defendants' activities both deceptive and unfair.

The Court reached this result notwithstanding the fact that consumers were unaware of defendants' activities and therefore unlikely to be deceived by them.

Court Issues Temporary Injunctive Relief

The Court held that the balance of the equities favored the issuance of injunctive relief, as the public's interest in avoiding the harm caused by defendants' activities outweighed defendants' interest in preserving the revenue they derived therefrom.

As a result, the Court issued temporary injunctive relief, requiring defendants to remove the code from their websites which allowed them to download spyware, adware and "exploit code" to the computers of unsuspecting consumers.

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