Federal Court Awards $163 Million Judgment Against “Scareware” Software Company and Founders

The U.S. District Court for the District of Maryland has awarded damages in excess of $163 million in a FTC case against a “scareware” software company,  Innovative Marketing, Inc. and its founders.

The FTC alleged violations of  Sections 5(a) and 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 45(a) and 53(b) for deceptive conduct in the sale of the software.    To market and sell the software, the defendants misrepresented to victims that they had run scans of their computer and found security or privacy issues, including viruses, spyware, system errors and pornography.  Defendants also placed misleading ads for their software on Internet advertising networks, who started receiving complaints about the company.   The security or privacy issues to be found were pre-determined in advance of the scan run, and the software that was sold to fix the “problem” did nothing.  Apparently more than one million consumers were conned by the scheme.

The court found that the defendants had engaged in unfair or deceptive acts or practices affecting commerce, and held the founders as well as the company itself jointly and severally liable for the damage award. The court also issued a permanent injunction against one of the founders from marketing computer security software and software that interferes with consumers’ computer use.

A copy of the opinion is posted here.  The FTC’s press release on the decision is posted here.

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