November 3, 2006 9:50 AM PST

Zango reaches settlement with FTC

Adware manufacturer Zango has reached an agreement with the Federal Trade Commission in response to charges that it breached federal law by deceptively installing advertising software on consumers' PCs without a clear means of removal.

According to the terms of the settlement announced Friday, Zango's principals--co-founders Keith Smith and Daniel Todd--must pay $3 million to cover illegally obtained profits. Additionally, the company must adhere to FTC regulations that bar it from loading programs onto customers' computers and monitoring them without their consent. The programs also must include a feature that allows customers to uninstall the software easily.

"If consumers choose to receive pop-up ads, so be it," FTC spokesperson Lydia Barnes said in a statement. "But it violates federal law to secretly install software that forces consumers to get pop-ups that disrupt their computer use."

Zango, which touts itself as "an online media company that fulfills consumers' growing demand for free, sought-after digital content," is the product of a June merger between Bellevue, Wash.-based adware company 180solutions and toolbar software maker Hotbar.

According to the FTC, Zango exploited security vulnerabilities in order to install programs like 180Search Assistant, Zango Search Assistant, N-Case, and Seekmo, often without the computer owner knowing. The software, which primarily generated pop-up advertisements, was often distributed by third parties that promised free content like music, screen savers, and games. Zango has also been criticized for using MySpace as a vehicle for adware installation.

Zango's executives pointed a finger elsewhere, claiming that the federal violations were due to third-party distributors rather than the software manufacturer itself. "We relied too heavily on our affiliates to enforce our customer notice and consent policies," said CEO Keith Smith. "Unfortunately, this allowed deceptive third parties to exploit our system to the detriment of consumers, our advertisers, and our publishing partners." Smith went on to say that Zango would "embrace the new standards" required by the FTC.

The terms of the settlement will be open for public comment for a month; on Dec. 3, the FTC will decide whether or not to make the settlement final.

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