New York Sues Marketing Company For Spyware DistributionNew York Sues Marketing Company For Spyware Distribution

New York Attorney General Eliot Spitzer sued Internet marketing company Intermix Media Inc. on Thursday for being a source of spyware and adware that degrades the performance of computers.

"Spyware and adware are more than an annoyance," Spitzer said in a statement. "These fraudulent programs foul machines, undermine productivity, and in many cases frustrate consumers' efforts to remove them from their computers. These issues can serve to be a hindrance to the growth of E-commerce."

The lawsuit may hinder Intermix's growth. As of 2:51 p.m. EST, shares of the company (AMEX:MIX) had fallen to $3.75, a loss of almost 22%.

Christopher Lipp, senior VP and general counsel for Intermix, denied that the company promotes spyware. "Intermix does not promote or condone spyware and remains committed to putting this legacy issue behind it as soon as practicable," Lipp said in a statement. "We expect to continue our discussions with the New York Attorney General's Office and are still hopeful of reaching an appropriate and amicable resolution. Many of the practices being challenged were instituted under prior leadership, and Intermix has been voluntarily and proactively improving these applications and related consumer disclosure and functionality for some time."

Intermix ceased distributing the applications in question earlier this month, Lipp said, adding that the company "remains committed to instituting and promoting best practices on the Internet."

The civil suit is the culmination of a six-month investigation. It accuses Intermix of false advertising and deceptive business practices under New York's general business law and trespass under the state's common law. Spitzer said that 3.7 million New Yorkers had downloaded the software in question without proper notice.

The investigation found that Intermix secretly included a number of ad-delivery programs with screensavers, screen cursors, and games available from the company's various Web sites, which include mycoolscreen.com, cursorzone.com, and flowgo.com. One program, KeenValue, delivered pop-up ads. Another, IncrediFind, redirected Web addresses to a search engine run by Intermix.

Concern about spyware has prompted a flurry of legislative activity on both the state and federal levels. Since Jan. 1, at least 43 bills that mention spyware have been introduced in 27 states. In Washington, House bill H.R. 29 (The Spy Act) and Senate bill S.687 (The Spy Block Act) are under consideration.

But the passage of new laws may not change the advertising practices that Spitzer condemns. Critics of California's SB 1436, signed last year by Gov. Arnold Schwarzenegger, note that the legislation mysteriously lost its teeth on its way to the governor's desk. Spyware researcher Benjamin Edelman writes in his online analysis of the law, "Unfortunately, SB 1436's initial comprehensive approach somehow got lost between the February draft and the August revisions."