Both the Federal Trade Commission and the State of Washington have sued Digital Enterprises, the parent company of Movieland, the news and entertainment download company, as well as three other corporate and two individual defendants in the state suit, with the feds targeting 11 companies altogether along with the same two individuals.
The companies named in the Washington State suit besides Movieland include Alchemy Communications, Inc., Accessmedia Networks, Inc. and Innovative Networks, Inc., all California corporations. The federal suit adds defendants Triumphant Videos, Inc. doing business as (d/b/a) Popcorn.net; Pacificon International, Inc. d/b/a Vitalix; Film Web, Inc.; Binary Source, Inc. d/b/a MoviePass.tv; Mediacaster, Inc. d/b/a Mediacaster.net; and CS Hotline, Inc.
In addition, both suits name Easton Herd, identified in the federal suit as "the sole officer and director of Defendants Digital Enterprises and Triumphant Videos," and Andrew Garroni, identified by the FTC as "an officer or director of Defendants Pacificon, Alchemy, Film Web and Binary Source."
Since the allegations in the lawsuits involve interstate commerce, it is unclear at this point what the status of the Washington State suit will be. Although that suit, filed by the Washington Attorney General's Consumer Protection Division, seeks relief under the state's Computer Spyware Act as well as its Unfair Business Practices-Consumer Protection Act, the fact that all of the companies sued by the state are based either in California or Delaware, although the complaint claims that all have done business in Washington, should nonetheless preclude a state court action, since such business would have been conducted over the Internet.
According to the FTC complaint, "Since at least the Fall of 2005, Defendants, individually and in concert, and through the mutual assistance of one another, have engaged in a nationwide scheme to use deception and coercion to extract payments from consumers. Defendants' putative business offers consumers membership to an Internet download service with content such as news, sports, games, and adult entertainment. This service supposedly uses software called a "download manager" that, once installed on a computer, will allow access to Defendants' download service. Defendants purport to market the software and download service with a three-day, free trial offer."
But according to the complaint, the "download manager" isn't all consumers download from the defendants' sites.
"Installation of Defendants' download manager is merely a smokescreen concealing Defendants' true purpose: to install software and other files onto consumers' computers that enable Defendants to launch pop-up windows on consumers' computers demanding payments to Defendants. These pop-up windows, which display both textual and audiovisual payment demands, significantly disrupt consumers' use of their computers. After Defendants cause these pop-up payment demands to display on a particular computer for the first time, they cause them to redisplay again and again with ever-increasing frequency. To get these pop-ups to stop appearing, many consumers give in to Defendants' extortionate tactics and pay the Defendants."
Both the federal and state complaints also charge that, "To ensure that consumers cannot free their computers from the pop-up payment demands, Defendants install programs and computer code that prevent consumers from using reasonable means to uninstall Defendants' software."
The federal complaint reproduces a moviepass.tv "sample ad," which, while offering a "3 Day Free Trial," also contains the following statement: "By clicking on this advertisement and installing the FileGrabber software I affirm that I am at least 18 years of age and wish to participate in the MoviePass 3-Day FREE trial. I understand that if I do not cancel within the trial period that I will be legally obligated to purchase a license for the FileGrabber software for US$99.00. I understand that if I do not cancel or pay within the trial period, I will receive electronic payment reminders until such time that I satisfy my financial obligation. I understand that uninstalling the FileGrabber software will NOT cancel this offer and that the only way to cancel my trial is via the Customer Service link on the MoviePass website. I affirm that I have reviewed and agree to the complete terms of use prior to accepting this offer."
However, what happens after the "3-day free trial offer" expires, according to the suits, is that a pop-up window displaying text and playing music appears on consumers' monitor screens, claiming that the free trial has expired, and offering a button which, if clicked, begins a paid subscription to one of the defendants' websites. Among the problems claimed as to this process is that the pop-up window takes up a large portion of the computer screen and "lacks any obvious way to permit consumers to minimize or close it."
"Consumers who click on the 'Continue' button find their computers launching an audiovisual file that features a woman speaking over background music in front of a display of the words 'Movieland.com,' 'Moviepass.tv,' ' or 'Popcorn.net'," the federal complaint reads. "The woman who speaks about 'Movieland.com' or 'Moviepass.tv' states the following: Hello, I'm Kate, your personal customer representative. I'm glad you enjoyed your free trial and had a chance to experience all that our service has to offer, including full length movies, music, news, sports scores, mature content, and our award-winning entertainment section. Because you did not cancel during your trial period, you are now legally obligated to make your payment as per the terms and conditions you agreed to when you installed our content delivery software. Just choose the payment option that's right for you and continue to enjoy the service as one of our valued customers."
The window, which is similar for popcorn.net, then offers payment options with prices, a "close this window" option and a "continue" button, as well as a button marked "Frequently Asked Questions." If the consumer wishes to subscribe and chooses one of those options, instructions for payment are displayed, but those who click "close this window" are only freed from the pop-ups temporarily.
Interestingly, the moviepass.tv pop-up window, a version of which is reproduced in each complaint, is slightly different in the state complaint. There, the "Close this window" button also contains the phrase, "Remind me later"; a phrase that is missing from what appears to be the same window shown in the federal complaint.
In any case, the "close this window" button is only a temporary respite.
"The sequence of pop-up payment demands soon repeats itself," the complaint alleges. "In fact, as time passes, the pop-up payment demands appear more and more frequently, and they remain impervious to being closed or minimized each time."
The federal complaint claims that the defendants' demands for payment become more frequent and pronounced as time goes on, and include "false statements about consumers' responsibility to pay them on the 'Customer Service' and 'Frequently Asked Questions' sections of their websites."
For example, in response to a consumer's claim that "I never signed up for this service, I would like to cancel," movieland.com's Customer Service section states, in part, "[I]t is your responsibility to satisfy the contract entered into by way of your machine and your IP address. Failure to satisfy your payment obligation may result in an escalation of collection proceedings that could have an adverse effect on your credit status."
But according to a Jan. 22 story on ConsumerAffairs.com, even consumers who say they've never visited the Movieland site or downloaded its software "report that they found the company's pop-up windows on their machines anyway, often after downloading another free utility or screensaver elsewhere."
The only way out, according to movieland.com, is to purchase a software license. Popcorn.net and moviepass.tv make similar claims.
Confronted with this "choice," consumers might try to communicate with the company to resolve the situation, but according to the FTC, such communication is nearly impossible.
"Consumers who attempt to complain about the hijacking of their computers are rarely able to communicate with Defendants' 'customer service' representatives," reads the complaint. "Defendants provide scant contact information on their websites. Consumers frequently get error messages when trying to use Defendants' websites to send text messages to Defendants. Moreover, Defendants seldom respond to any text messages that consumers send to them."
Indeed, ConsumerAffairs.com reader B. Armstrong complained to that site that, "There is no phone to call, no cities listed, no support per se, just every 10 minutes an irritating popup with a video woman that comes on to tell you that you've breached their contract and that [you] owe them money. Once again...nothing was ever downloaded and I wasn't a customer." (The company has disputed Armstrong's claim, and countered that, "It is impossible to receive our payment reminders ... without intentionally downloading our software.")
However, according to the FTC complaint, there is a phone number to call: "Defendants do not include customer service telephone numbers on their websites. The only telephone number that Defendants provide is a (900) number. When consumers call that telephone number, a recorded greeting tells consumers that they will incur a $34.95 charge if they do not hang up within three seconds."
ConsumerAffairs.com lists dozens of complaints against both Movieland and MoviePass. For example, "Christine of Saint Louis" complained, "I never signed up for anything at Moveiland.com [sic] and their pop up ads are blocking my computer. My 8 year old can't do his homework because as soon as we get the ads to go away, they reappear. I have emailed Movieland two times asking for a phone number but they have not responded. At one point I received a message stating that the ads would stop and that I had successfully cancelled, but they started up again."
Similar experiences with both Movieland and MoviePass were shared by several other consumers, some of whom had attempted to use Windows' "uninstall" function to get rid of the "nagware" but were unable to do so.
Notes the federal complaint, "When Defendants install their software on consumers' computers, they also make changes to consumers' Windows operating system registry and prevent consumers from using the Windows Control Panel to uninstall Defendants' software."
According to the FTC, when an uninstall attempt is made, a dialog box appears reading, "Uninstall Warning: You are about to be redirected to a webpage. Are you sure you want to continue? Yes/No."
"Selecting 'No' terminates the uninstall process immediately," notes the complaint. "Selecting 'Yes' launches an Internet browser window that presents the same payment options that Defendants' pop-up payment demands present to consumers. If the consumer chooses not to pay, the uninstall process cannot continue." The FTC claims that some consumers have been so frustrated by the process that they have resorted to reformatting their hard drives in an attempt to rid themselves of the pop-ups.
Much of the foregoing, the FTC claims in its lawsuit, violates Section 5(a) of the FTC Act, 15 U.S.C. §45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. Among the unfair or deceptive practices with which the FTC charges the defendants are misrepresenting consumers' obligations to pay the companies for use of their software and/or sites; unfairly taking control of consumers' computers to extort payments, and unfairly installing software on consumers' computers that consumers cannot easily remove.
The Washington State suit makes similar claims under state law, though generally with more specificity. The state's claims include misrepresenting the companies' programs' uninstallation option "in violation of the Spyware Act and the Consumer Protection Act," as well as "unconscionable business practices"; "threats, harassment and intimidation in billing practices"; "failure to disclose material facts"; and "misrepresentations," all allegedly in violation of the state's Consumer Protection Act.
Within the past week, the FTC has gone into the United States District Court for the Central District of California, Western Division, seeking a Temporary Restraining Order (TRO) to prevent the defendants from placing its programs on consumers' computers, but that motion failed.
"Despite the FTC's attempt to dress this case up as one involving misleading and deceptive marketing," argued Michael L. Mallow, the attorney representing defendant Andrew Garroni, in opposing the TRO, "this case has nothing to do with marketing and advertising, but everything to do with dealing with consumers who download product software, agree to terms related to the use of the software and then decide not to pay for the software. The FTC asserts that Defendants are violating Section 5 of the FTC Act because they represent to computer owners who download software or permit someone access to their computer to download software that such computer owners/operators are obligated to pay for the downloaded software. The FTC also takes issue with the use of pop-up reminders that payment is required; a collection technique the FTC admits in its papers is expressly disclosed to consumers in the terms and conditions consumers agree to before affirmatively downloading software. At its core, the FTC does not approve of the frequency of the pop-up reminders."
The FTC, however, had argued that, "Nowhere do Defendants disclose that 'electronic payment reminders' means a sequence of textual and audiovisual pop-ups that will play on consumers' computers at frequent intervals for more than 40 seconds at a time, effectively causing consumers to lose control of their computers. Nor do they disclose that consumers will be unable to use commonly known means to close the pop-up payment reminders."
Mallow essentially argues that because of the defendants' software download/free trial process, they are required to play hardball – what he describes as "a modern method of reminding consumers who have contracted with Defendants through the Internet" – to collect the fees they claim are due them.
"The FTC admits that Defendants do not have consumers' personal financial information before the expiration of the three day trial period," he argued. "[T]hus the FTC admits that Defendants cannot automatically bill consumers after the free three day trial period, but must submit payment reminders to consumers."
Mallow also states that, "[T]he pop-up boxes can be closed or minimized, and that the software can be uninstalled by consumers individually," but that claim has been disputed on more than one consumer complaint site.
One consumer, who claimed that he wasn't even at home at the time MoviePass said he had installed its software, complained to ConsumerAffairs.com that, "I don't even want to use my computer because every 5 minutes it pops up and it is annoying." Another wrote, of Movieland's software, "Every ten minutes a popup comes up, takes 5 minutes to load and the only option you have is to pay or remind me later."
These claims by consumers are disputed by Kathryn Felice, attorney for defendant Access-Media.
"It's simply not true that the payment reminders 'cripple computers' or 'hijack computers'," Felice told AVN.com. "The payment reminders are a result of a manual download by the consumer, are about 40 seconds long and can only appear while the consumer is on the Internet. The most frequently they could ever run is once per hour while the consumer is on the Internet. So 40 seconds out of an hour can hardly be called 'crippling.' In fact, many companies like Symantec and Microsoft send out pop-up reminders when your license expires, when you need updates or when they suspect you are running counterfeit software – it's very similar."
Moreover, Mallow argues in his response to the FTC's application for a TRO that, "Although the FTC did not contact any of the Defendants prior to filing and serving its ex parte and TRO applications[,] had the FTC engaged in such communication, the FTC would have learned that Defendants have no objection to a preservation of evidence order that applies to both plaintiff and defendants alike; that Defendants are willing to discuss with the FTC and implement a mutually agreeable pop-up frequency pending the litigation of this matter, to decrease the length of the pop-ups or decrease their frequency; and that Defendants will provide access to their documents and facilities pursuant to an appropriate discovery discussed by the parties. These accommodations alone belie any notion that a TRO is needed in this matter."
Mallow and other attorneys made several more arguments in opposition to the TRO, and eventually, the FTC's motion was denied by U.S. District Court judge Christina A. Snyder. The next scheduled hearing will be in November, when the FTC is expected to press for a preliminary injunction against the defendants' use of its "modern method of reminding consumers."
