Direct Revenue - New York State OAG Lawsuit

New York State OAG Lawsuit

On April 4, 2006, New York state Attorney General Elliot Spitzer filed suit against Direct Revenue in New York County Supreme Court, alleging that the company's software-distribution practices violated New York's General Business Law. In March 2008, Direct Revenue was granted a motion to dismiss all the OAG's allegations and the case was dismissed. In People v. Direct Revenue LLC, No. 401325/06 (N.Y. Sup.Ct., N.Y. Cty., March 12, 2008), a New York trial court dismissed the attorney general's deceptive-and-illegal-business-practices case against Direct Revenue. The AG sought billions of dollars in penalties against Direct Revenue, seeking to assert the rights of millions of consumers across the country who installed the Direct Revenue adware client. The state's undoing was Direct Revenue's end-user license agreement (a click contract) and Direct Revenue's agreement with its distributors (which called for fair and lawful distribution of the Direct Revenue adware client).

29 transactions with Direct Revenue (or its distributors) were alleged. In transactions where the attorney general's investigator dealt directly with Direct Revenue, the installation of the adware client was preceded by a license agreement explaining how the adware client operated and how to uninstall it; the agreement also explained the limitations on Direct Revenue's liability. In each case the investigator clicked "yes" on a button, indicating assent to the agreement. There were problems with some installations that were initiated by Direct Revenue's third-party distributors (for example, the license agreement and uninstall instructions were not always displayed prior to installation). However, the court held that Direct Revenue was protected by its Standard Distribution Agreement, a document that directed the third-party distributors to obtain legally-valid affirmative consent and make all legally-necessary disclosures prior to installation of the adware client. Turning back claims based on the 29 transactions completed by state investigators, the court said there was no basis to entertain the attorney general's claims on behalf of all other individuals who allegedly downloaded the Direct Revenue adware client. Finally, it held, disgorgement of profits would not be an appropriate remedy in this case; Direct Revenue distributed its adware client free of charge and took nothing of value from consumers who downloaded it.

On February 16, 2007, DirectRevenue settled with The Federal Trade Commission without admitting to any wrongdoing and was barred from using affiliates who engage in "drive-by downloads" or what the FTC deems deceptive practices. They were also ordered to pay a settlement of $1.5 million. On June 26, 2007 the FTC issued final approval of the settlement: "No portion of the payment shall be deemed a payment of any fine, penalty, or punitive assessment". Direct Revenue closed several months later, in part due to the settlement.