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Will the adware industry beat Spitzer?

Professor Eric Goldman says New York's crusading attorney general may be left firing blanks. That's because no legal doctrine holds advertisers liable for using adware.

New York Attorney General Elliott Spitzer's recent enforcement action against adware vendor Intermix Media has opened up a new front in the battle against this type of software.

Though Intermix claims to have settled the matter for $7.5 million, any disposition leaves open a number of issues regarding Spitzer's ultimate plan for a possible sweep against the entire adware industry.

In particular, Spitzer has repeatedly threatened advertisers who run ads with adware vendors. These threats have created a conundrum for advertisers. On one hand, adware offers advertisers a cost-effective way to reach consumers who derive value from the advertisements. On the other hand, no advertiser wants to get on Spitzer's hit list. Thus, if Spitzer's threat is real, many advertisers will simply forgo adware advertising.

But amid the commotion, a critical, substantive question remains ignored: What legal doctrine holds advertisers liable for advertising via adware? We have yet to hear a coherent theory from Spitzer--or anyone else--explaining how this liability arises.

In fact, advertiser liability for adware vendors' actions would represent a novel and unprecedented application of current law. In other words, to hold advertisers liable, Spitzer will need to create new law.

Advertiser liability for adware vendors' actions would represent a novel and unprecedented application of current law.

We can better understand the radical nature of these assertions through some analogies to other advertising contexts. Imagine The New York Times runs a libelous story or illegally obtains consumer subscriptions through deceptive trade practices. Or imagine a Yellow Pages vendor illegally trespasses by throwing copies of its book onto homeowners' land.

Are advertisers liable in these circumstances? Generally, the answer is emphatically no. Advertisers have no more responsibility for the media partner's actions than any other customer or vendor. Indeed, such expansive liability might generate First Amendment concerns.

An exception is if an advertiser has sufficient knowledge of, and control over, the media partner's bad practices, which could create liability under venerable agency or conspiracy doctrines. However, the requisite level of knowledge and control is high--far higher than most advertisers ever have.

Indeed, many advertisers use intermediate vendors (such as ad agencies or affiliate marketers) to manage ad placement, meaning that the advertisers themselves are often fairly removed from the media partner's behavior.

In response, Spitzer's office has intimated that advertisers should know that their ad dollars are finding their way to adware vendors, and further should know that adware vendors are acting illegally.

This logic is extremely unpersuasive. In fact, many adware vendors fully or substantially comply with existing law, so advertisers should hardly assume the worst. Further, even if advertisers know who might get their ad dollars, this is a far cry from the knowledge and control necessary to hold the advertiser liable for someone else's actions.

In the spam context, Congress statutorily created a new type of advertiser liability in the 2003 Can-Spam law. Congress or state legislatures could choose to adopt a similar law for adware advertisers.

Until then, adware advertiser liability remains purely speculative. Nevertheless, the specter appears to serve Spitzer's apparent modus operandi of attempting to starve the few truly illegal actors by cutting off their access to customers. Unfortunately, these threats veer disconcertingly close to vigilantism. Using hypothetical law to spook an industry goes far beyond a prosecutor's role of enforcing existing law and verges into the realm normally reserved for our elected legislators.

Meanwhile, there is a collateral cost to this vigilantism. Legitimate advertisers may choose not to use legitimate adware vendors to deliver socially beneficial advertising to consumers. We would not tolerate scare-mongering in other media, like newspapers, radio or television, and we should not tolerate it in the adware context either.

Spitzer's threats against the entire adware industry may garner popular support for him for leading the charge against "spyware," but the threats are based on unprecedented legal theories with broad negative policy implications. We should not allow our current antipathy toward adware to blind us to the radical nature of holding customers liable for what their vendors do.