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One type of software program that some may refer to as spyware is
more accurately described as `adware'. Adware is software that
resides on consumers' computers and serves advertisements to them
based upon their Internet browsing habits. The ads are usually
displayed in the form of pop-up graphical message boxes (or
`windows') separate from the web browser. 3

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What is spyware and adware?
Spyware is a hidden software program that transmits user information
back to a third party without notifying the user.
Adware is a software program (sometimes hidden) which displays
advertising banners while the program is running. In some cases
adware transmits user information back to a third party without
notifying the user.

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Finally, our panel today will help us understand how spyware and
adware programs are distributed in commerce - both legitimate and
fraudulent, the scope of the privacy and security risks posed by this
software, its effects on economic productivity, and the need for
federal legislation.

2005-11-04T15:36:00.000-08:00

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While some would have us define "spyware" with technical
parameters, others believe that it's not the technology "tool" that needs
to be defined and targeted, it's the unscrupulous individual preying on
the consumer through these programs. Clearly, no matter the
definition we create, it is always reprehensible when someone
intentionally downloads secret software onto a personal computer that
is designed to steal information or trick us into opening the door to
their private life.

2005-11-03T21:36:00.000-08:00

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As we speak, spyware and adware software programs are growing at
a rapid rate. According to the computer security firm McAfee, these
software programs have grown in number from around 2 million in
August, 2003 to over 14 million currently. As further proof of the
potential scale of this problem, the National Cybersecurity Alliance
has estimated that over 90% of users had some from of adware or
spyware on their computers, and most were unaware of it.

2005-11-02T15:36:00.000-08:00

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JASON A. CODY is an associate in Oblon, Spivak, McClelland,
Maier & Neustadt's Trademark and Copyright Department. He
focuses on trademark and copyright litigation and Internet law. Before
joining the firm, Mr. Cody staffed the Oregon State Internet
Commission and managed the Oregon State Legislature's House
Commerce Committee.

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Even if Internet users realize before making a transaction that no
affiliation exists, they visit competing websites based on their initial
interest in the well-known trademark. Although one judge was
concerned about continuing to rely on the insupportable initial interest
confusion doctrine to find trademark liability, at least for now, such
confusion remains actionable in the Ninth Circuit.[1]

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Adware presents different problems. Like Spyware, some of the
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2005-10-27T21:36:00.000-07:00

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Adware companies therefore defend their model as no different than
the others--you may remove the adware, but when you do, the free
software with which it was bundled will also be removed. For these
reasons, adware companies argue that software operating as their
programs do should not be prohibited or regulated like spyware.

2005-10-27T15:36:00.000-07:00

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In each of these other models, adware companies claim that
consumers have no control over the content, frequency, or length of
time they are forced to view ads. In addition, they argue that in each
of these other models, consumers face a stark choice: either receive
the free content with the ads, or not at all.

2005-10-27T09:37:00.000-07:00

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Adware companies maintain that these advertising practices are not
only legal and consistent with good software practices, but that they
are also consistent with traditional advertising practices in other
mediums as well. For example, adware companies point out that this
business model of receiving advertisements in return for free content is
similar to many other legal, advertising-supported business models
such as free over-the-air television supported by TV commercials,
free Internet services like online e-mail supported by banner ads, and
free Internet access provided by ISPs that serve advertisements
through a proprietary browser that the user is required to use to
obtain Internet access.

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Additionally, other kinds of advertisement-serving software may
operate in real time and have no need to store or transmit PII that
might be ephemerally collected in the process of serving an
advertisement to a computer.

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Additionally, some adware companies have provided testimony to the
Committee explaining that their programs do not collect PII nor share
any information about a user's computer with third parties. Rather,
they testified, the ad-serving software resident on a computer is used
only to monitor that user's web-browsing patterns in order to request
a highly contextual ad to be served to the computer that is targeted to
that user's known preferences. 4

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Adware is normally bundled with free software that a consumer
downloads to his or her computer. Adware distributors often describe
the adware as pop-up ad or coupon programs that make the free
distribution of the other software economically viable in the first place.
Adware company executives also argue that their companies do not
distribute `spyware' because they provide consumers with clear and
concise notices about the nature of their software and require a
consumer's affirmative consent (i.e., opt-in consent) before any
adware programs are downloaded or installed.

2005-10-26T03:36:00.000-07:00

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Advertising executives typically refer to this more targeted means of
advertising as `contextual advertising' because it is based on an
individual consumer's preferences derived from the context of the
webpages he or she actually views. For example, when a computer
user types a search term into a browser or clicks on a link indicating
some interest in a type of commercial activity, an adware program
will typically cause a pop-up window--containing an advertisement,
coupon, or both--to be displayed on the user's screen until he or she
either acts on it (i.e., by clicking on a link in the ad) or otherwise
closes the pop-up window (if possible). Like telemarketing, this type
of advertising and the methods companies employ to deliver it have
raised privacy concerns for consumers who do not wish to receive
the ads.

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In the best cases, the technology that enables spyware also can serve
as a first line of defense against obscene Internet material by tracking
website activity and filtering out the garbage. Other forms of the
technology, like legitimate adware, are authorized by the consumer
and provide businesses a new and efficient means of reaching
potential customers with less expensive goods and services.

2005-10-21T09:36:00.000-07:00

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In worst cases, the more malicious varieties of spyware can record
keystrokes and compromise personal information, including
passwords and social security numbers. The simple act of
downloading a desired program from the Internet can not only open
the "door" on your personal computer and your most private
information, but also can allow spies to effectively take up residence
in your personal computer- YOUR PERSONAL PROPERTY -
without your knowledge and consent. Then after sneaking into your
computer, some of these malicious spyware programs can act as
snoops-prying into your private life, or thieves-stealing personal
information, or as pornography dealers- exposing your children to
obscene on-line material. If and when you finally discover the "spy"
lurking in your personal computer, the damage usually is already
done.

2005-10-21T03:36:00.000-07:00

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2005-10-20T21:36:00.000-07:00

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A spyware relative, known as adware, enables the computer owner
or user to receive a stream of ads and other marketing information,
usually based on data the software has collected about the user.
Adware or ad-supported software is frequently bundled with "free"
Internet software or "freeware." Legitimate adware allows the user
knowledge and consent about the software and frequently provides
an adware-free version for purchase. More noxious adware versions,
however, can be downloaded without consent or through deceptive
means, essentially making them spyware.

2005-10-20T15:36:00.000-07:00

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Spyware is loosely defined as malicious software, downloaded from
the Internet, that "spies" on the computer owner or user, usually to
provide information to third parties. The Federal Trade Commission
has said that spyware is software "�that aids in gathering information
about a person or organization without their knowledge and that may
send such information to another entity without the consumer's
consent or that assert control over a computer without the consumer's
knowledge."

2005-10-20T09:36:00.000-07:00

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Good morning. I am pleased to welcome all of you to the Commerce,
Trade and Consumer Protection Subcommittee's hearing on spyware.

2005-10-20T03:36:00.000-07:00

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Mr. Cody obtained a Juris Doctorate Cum Laude from George
Mason University School of Law, is admitted to the bars of the
Commonweatlh of Virginia, the United States District Court of the
Eastern District of Virginia, and the United States Court of Appeals of
the Fourth Circuit. He is also a member of the American Intellectual
Property Law Association (Trademark Internet / Cyberspace
Committee) and the Washington Area Lawyers for the Arts.

2005-10-19T21:36:00.000-07:00

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[1] In Judge Berzon�s concurrence, she indicated that the court
should consider abolishing the initial interest confusion doctrine.
Presumably, Judge Berzon�s concurrence signaled that she would not
have found consumer confusion was likely without applying the initial
interest confusion doctrine.

2005-10-18T21:36:00.000-07:00

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Even before the Ninth Circuit issued its decision, Internet search
engine icon Google asked a federal district court in the northern
district of California to declare that its keyword-triggered ad program
(AdWords) does not violate trademark law. The posturing of the
parties must have changed somewhat when the Ninth Circuit decision
came out just two months after Google filed its action.

2005-10-18T15:36:00.000-07:00

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The Ninth Circuit is the first court of appeals to address this realm of
Internet advertising law, and its decision is important for a few
reasons. First, should courts universally accept the Ninth Circuit
decision, Internet search engines could be forced to significantly
change their business models.

2005-10-18T09:36:00.000-07:00

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Four years later, on appeal, the trademark owners experienced
victory. The Ninth Circuit reversed and remanded the decision,
finding that material issues of fact existed and that a likelihood of
(initial interest) confusion precluded summary judgment in favor of the
search engines. To wit, the court found that keying comparative ads
to trademarks would lead Internet users to initially believe there was
an affiliation between search engine advertisers and trademark
owners.

2005-10-17T21:36:00.000-07:00

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In 2000, search engines were temporarily emboldened by a federal
district court decision. Playboy Enterprises brought an action against
Excite and Netscape alleging trademark infringement and dilution.
The search engines were selling to Playboy�s competitors banner
advertisements triggered by the key terms �playboy� and �playmate,�
which are Playboy trademarks. On the search engines� motion for
summary judgment, the District Court for the Central District of
California held that the search engines did not make actionable
trademark use of Playboy�s trademarks�i.e., they did not use the
marks to identify Playboy�s goods or services. Therefore, the court
found that Playboy had no basis on which to allege trademark
infringement and dilution.

2005-10-17T15:36:00.000-07:00

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On the defense, search engines eschew responsibility for policing
which keywords and ad text their advertisers choose to employ in ad
campaigns. Relatedly, the advertisers choosing well-known marks to
trigger their advertisements believe that they are within their rights to
engage in comparative advertising. They argue that using trademarks
in such manner ensures a competitive environment where consumers
receive timely and relevant information useful to making well-informed
purchasing decisions.

2005-10-17T09:37:00.000-07:00

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From the trademark owners� point of view, competitive
advertisements keyed to trademarks steal away potential Internet
customers by redirecting them to competitors� websites. In their
view, competitors essentially get to free ride on the valuable goodwill
that consumers associate with the trademark owners� marks.
Trademark owners obviously want to have a lock on the goodwill that
they have created in the marketplace and to preclude undeserving
interlopers from interfering with it on the Internet.

2005-10-17T03:36:00.000-07:00

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Search Engine Comparative AdWare-tising Under Scrutiny
The future of keyword advertising�and by implication, other forms
of online advertising�was recently put in jeopardy by the Court of
Appeals of the Ninth Circuit. The Ninth Circuit decision, which
reversed the lower court, now permits Playboy to pursue its
trademark law claims against search engines for using software
(adware) to key advertisements to Playboy trademarks without
Playboy�s consent. As there is little authority in this area of law, the
decision served as a menacing warning to Internet advertisers which
will continue to ripple through Internet law waters for some time.

2005-10-16T21:36:00.000-07:00

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Spyware will sit and watch you browse the Internet and report back
to its owner what and where you have gone on the web. Some of
these will actually record logins and passwords. These are rare,
though. But, imagine logging into your bank account on the web and
find that your account is empty? OUCH!! Maybe a piece of
Spyware reported your account and password info back to its
owner.

2005-10-16T09:36:00.000-07:00

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Let�s face it: 99.44% of the free downloads from the web are not
free. They contain programming that will monitor your Internet activity
(Spyware) or cause massive popup problems when you try to use the
Internet (Adware). Both are headaches for the techs. Almost all of
these programs are disguised as �nice-to-have� utilities that will
�Improve Internet speed�, �Prevent Pop-Up Ads�, or �ALERT: Virus
Found�.

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Something simple like �Hotbar� that adds a menu bar to both the
Outlook e-mail client and MS Internet Explorer, can change how you
access the Internet or make web sites no longer accessible. �Hotbar�
blocks access to Time and Attendance System (TAMS) on the
Intranet. You will not be able to log your hours. Worse yet, when you
try to access TAMS and error out, a work order is generated that will
be forwarded to the BIS Helpdesk for resolution. You�re BUSTED!
�Hotbar� became such a large problem, DoTS techs created a script
that runs at most DHS locations, as a part of the DHS Updater
program, which looks for and removes �Hotbar� from the desktop
PC with each login.

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For the support techs with DHS�s Division of Technology Services
(DoTS), Bureau of Information Services, and other departmental
support folks, this creates lots of work and more than a few
headaches. Upwards to 20% of individual tech support work centers
on unauthorized software installs and their subsequent removal.

2005-10-15T15:36:00.000-07:00

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Hey! A web-based Internet Explorer search tool bar! Just what I
need! And it�s simple to download and install."
How many state employees have this thought on a daily basis? I don�t
know, but I can assure you that once someone has downloaded and
installed a �free� program that makes e-mail colorful or animated, or
changes the way you access the web, it seems everyone else has to
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2005-10-15T09:37:00.000-07:00

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[Footnote 5: For example, when browsing a financial website, you
may see ads for mortgage loans. However, the financial website
typically will not serve you ads for herbal medicines (even if you
normally browse medical sites) because the website typically does not
track your viewing habits on webpages not hosted by that financial
website.]

2005-10-15T03:37:00.000-07:00

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Industry observers who support adware-based business models
counter that these issues of competitive fairness should be addressed
in traditional forums, such as the courts, the Federal Trade
Commission and the Department of Justice, and that these developing
business models should not be prohibited preemptively by legislation.

2005-10-14T21:36:00.000-07:00

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Finally, some commercial websites contend that adware programs
have enabled their competitors' pop-over ads to be displayed on top
of their webpages' content, raising concerns of unfair trade practices,
consumer deception, and trademark infringement. Companies
concerned about the competitive fairness of contextual advertising
claim that customers are being confused by the pop-up ads, and that
the adware distributors are unjustly enriching themselves by selling
advertising space to companies on their competitors' websites without
authorization.

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[Footnote] Furthermore, these observers argue that adware practices
raise privacy concerns that are not raised by traditional one-way,
mass market advertising practices, a key difference which justifies
closer scrutiny and regulation by the government.

2005-10-14T09:36:00.000-07:00

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Consumer advocacy groups and privacy experts argue in response,
however, that the other forms of advertising are mass market
advertising, and traditionally do not involve the collection of PII or the
monitoring of users' off-site viewing habits in order to serve ads. 5

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These windows may appear on top of the current webpage a user is
viewing (`pop-over' ads), or underneath a webpage being viewed so
that the user will not see them until they close their browser window
(`pop-under' ads).]

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With the help of our distinguished panel of witnesses, one of our most
important tasks is to try to establish the boundaries of what is clearly
legitimate and what is clearly reprehensible. We then need to explore
the murky area in the middle, where cases aren't so stark and clear-
cut - especially in cases where consumers are duped with lengthy and
confusing license agreements, website trickery, and exploitation of
weak personal computer security. The ultimate challenge, therefore, is
to investigate ways industry, consumers, and the Congress can work
together to rid our on-line marketplace of the bad apples while
preserving legitimate uses for this software technology.

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To try to address this egregious Internet activity, Ms. Bono has
introduced legislation to enhance spyware disclosures, root out the
deceptive and fraudulent, and create accountability. Ms. Bono's bill
will require that computer users receive clear and conspicuous notice
prior to downloading spyware, and that all third parties provide their
identity. I commend her for her leadership on this issue. It is my hope
that we can reach bipartisan consensus on legislation that will protect
consumers from unwittingly being spied on.

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Good morning. I am pleased to welcome all of you to the Commerce,
Trade and Consumer Protection Subcommittee's hearing on spyware.

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Finally, at least according to Circuit Judge Berzon, the initial interest
confusion doctrine may have outlived its theoretical cyberlaw utility.
Initially, the doctrine was viewed as a panacea for finding trademark
liability where courts could not otherwise determine how to hold
individuals accountable for their Internet activities. Now, however,
the Internet is not so novel, Internet activities are not so obscure, and
the doctrine, perhaps, is not so useful as the courts once believed.
While the full effect of the Ninth Circuit decision has yet to be
realized, it may stall some online advertising practices of Internet
search engines, and other Internet advertisers, if left unchecked.

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Second, the Ninth Circuit decision will impact related Internet
advertising activities. For example, other courts will soon be hearing
pop-up advertising cases on appeal. They will surely look to the
Ninth Circuit�s decision for some guidance. Whether they come to
the same conclusion is another matter; but, for the foreseeable future,
the Ninth Circuit decision will be the standard by which all future
Internet advertising disputes will be measured.

2005-10-05T03:36:00.000-07:00