WASHINGTON, DC — In testimony before the Senate Committee on Commerce, Science, and Transportation yesterday, Federal Trade Commission Chairman Deborah Platt Majoras and other representatives of the FTC outlined the major enforcement activities and priorities of the FTC during 2007 and detailed the Commission’s budget requests for 2008.Among the areas highlighted in the testimony were remarks about the growing threat to consumers presented by spyware, including Commissioner William Kovacic’s call for creators and distributors of spyware to serve jail time, instead of just paying fines for their malfeasance.

Kovacic told the Senate committee that the FTC had partnered both with other U.S. agencies and with foreign governments in an attempt to jail authors of spyware and other forms of malware and said that the threat of jail time must be clear if the FTC is to have any impact on the problem.

“Until we have success as a law enforcement community in placing them in prison,” said Kovacic, “I don’t think we’ll ultimately have the deterrent influence we need.”

In her prepared remarks, Platt-Majoras noted that in the past two years, the FTC has initiated 11 spyware enforcement actions, reinforcing three “key principles.”

“First, a consumer’s computer belongs to him or her, not the software distributor,” said Platt-Majoras. “Second, buried disclosures do not work, just as they have never worked in more traditional areas of commerce. And third, if a distributor puts a program on a consumer’s computer that the consumer does not want, the consumer must be able to uninstall or disable it.”

Platt-Majoras cited specifically the FTC’s recent settlement with DirectRevenue, an adware distributor, as an example of a successful FTC action brought against distributors of malware.

According to the FTC’s complaint against the company, “DirectRevenue, directly and through its affiliates, offered consumers free content and software, such as screen savers, games, and utilities, without disclosing adequately that downloading these items would result in the installation of adware…. [The] adware monitored the online behavior of consumers and then used the results of this monitoring to display a substantial number of pop-up ads on their computers…. it was almost impossible for consumers to identify, locate, and remove this unwanted adware.”

In its complaint the FTC further alleged that “Direct Revenue used deception to induce the installation of the adware and that it was unfair for the company to make it unreasonably difficult to uninstall the adware.”

In her prepared remarks yesterday, Platt-Majoras noted that in order to resolve the allegations in the FTC complaint, “DirectRevenue has agreed to provide clear and prominent disclosures of what it is installing, obtain express consent prior to installation, clearly label its ads, provide a reasonable means of uninstalling software, and monitor its affiliates to assure that they (and their own affiliates) comply with the FTC’s order.”

“In addition,” Platt-Majoras continued, “Direct Revenue has agreed to disgorge $1.5 million to the U.S. Treasury. The Commission will continue to bring law enforcement actions in this area.”

Interestingly, when the DirectRevenue settlement was proposed, the lone dissenting Commissioner, Jon Leibowitz, argued that the penalties imposed on the company were not nearly severe enough.

“I cannot support a consent agreement that requires the respondents… the officers and owners of DirectRevenue – to pay a total of only $1.5 million,” Leibowitz stated in his dissent published in February. “Venture capitalists poured more than $20 million into DirectRevenue, and between the companies’ ad revenues and the venture capital money, millions of dollars flowed into the owners’ pockets.”

“Settlement always involves compromise, and staff must weigh the advantages of a settlement with the risks and costs of litigation,” Leibowitz conceded. “But in cases like this, I would rather go to trial and risk losing than settle for a compromise that makes an FTC action just a cost of doing business.”

In her remarks yesterday, Platt-Majoras called on Congress to provide the FTC with greater power to levy civil penalties.

“We believe the Commission’s ability to protect consumers from unfair or deceptive acts or practices would be substantially improved by legislation, all of which is currently under consideration by Congress, to provide the Commission with civil penalty authority in the areas of data security, telephone pretexting and spyware,” Platt-Majoras said. “Civil penalties are important in these areas where our traditional equitable remedies, including consumer restitution and disgorgement, may be impracticable or not optimally effective in deterring unlawful acts.”

The FTC head also told the Senate committee that the FTC has been closely monitoring “media violence” and the marketing of “violent entertainment to children,” and actively encouraging “industry self-regulation.”

Platt-Majoras testified that since 1999, the FTC has issued fiver reports on the marketing of “violent entertainment products,” and will issue another such report this month.

“In April 2007, the Commission will issue its sixth report on the entertainment industries’ self-regulatory programs,” Platt-Majoras said. “In addition to updating the current state of industry practices, the report will include the results of a nationwide telephone survey of parents and children regarding their familiarity, use, and perceptions of the video game rating system. The report will also include the results of another nationwide undercover mystery shop of movie, game, and music retailers.”

For more information on the FTC testimony to the Senate Committee on Commerce, Science, and Transportation, see the full transcript of Platt-Majoras’ comments on the FTC website, available here: http://ftc.gov/os/testimony/P040101FY2008BudgetandOngoingConsumerProtectionandCompetitionProgramsTestimonySenate04102007.pdf