Zango, Inc. v. Pc Tools Pty Ltd.

• Decision Date: 05 June 2007
• Docket Number: No. C07-0797-JCC.,C07-0797-JCC.
• Citation: 494 F.Supp.2d 1189
• Parties: ZANGO, INC., Plaintiff, v. PC TOOLS PTY LTD., Defendant.
• Court: U.S. District Court — Western District of Washington

494 F.Supp.2d 1189

ZANGO, INC., Plaintiff, v. PC TOOLS PTY LTD., Defendant.

No. C07-0797-JCC.

United States District Court, W.D. Washington, At Seattle.

June 5, 2007.

COPYRIGHT MATERIAL OMITTED

Jeffrey I. Tilden, Michael Rosenberger, Gordon Tilden Thomas & Cordell LLP, Seattle, WA, for Plaintiff.

Conor F. Farley, Tarek F. M. Saad, Holland & Hart, Denver, CO, J. Ronald

Sim, Maren Toxanne Norton, Stoel rives, Seattle, WA, for Defendant.

ORDER

COUGHENOUR, District Judge.

I. INTRODUCTION

This matter comes before the Court on Plaintiffs Motion for a Temporary Restraining Order ("TRO") (Dkt. No. 6), Defendant's Opposition thereto, (Dkt. No. 19), and Plaintiffs Reply (Dkt. No. 24).

II. BACKGROUND AND FACTS

The facts are largely undisputed. Plaintiff Zango is an Internet company that "provides consumers free access to a large catalog of online videos, games, music, tools and utilities" sponsored by advertisements. (Pl.'s Mot 3.) Plaintiff Zango also offers a "premium version" of its software that provides the same content without advertisements for a fee.

Defendant PC Tools offers software called "Spyware Doctor," which detects and, in some cases deletes, potentially harmful software ("malware") on its users' computers. Defendant's anti-malware software classifies potentially dangerous or annoying software into various categories. From least risk to greatest, those classifications are: "Potentially Unwanted Applications" ("PUAs"), "low," "medium," "elevated," and "high." (Risk Levels (Dkt. 22-2).)

From 2004 to May 2007, Defendant classified all of Plaintiffs software as malicious with "high" or "elevated" risk. (Def.'s Opp'n 5.) Plaintiff and Defendant had been engaged in ongoing discussions during that time regarding possible reclassification. (Id.)

On March 29, 2007, one version of Defendant's Spyware Doctor software known as Starter Edition was added to Google Pack, which aggregates a number of software applications and offers them for free over the popular Google website. (Pl.'s Mot 4.) Google Pack is widely distributed, and Plaintiff alleges that millions of users have downloaded and installed Defendant's software from Google. (Id.) Plaintiff Zango alleges that Starter Edition of Spyware Doctor interferes with its software in the following ways:

... Starter Edition is disabling Zango installations to the point that existing, consensually installed Zango software already resident on a consumer's computer no longer functions. Further testing revealed that while the Starter Edition software prevents the display of advertisements from Zango on behalf of Zango's advertising partners (which is the primary source of Zango revenue), some existing Zango customers nonetheless are still able to access the content in Zango's catalog (i.e., the movies, games, screensavers, and the like). Starter Edition software damages the Zango application immediately upon installation, without giving any specific notice whatsoever to Zango customers or providing any opportunity for Zango customers to consent or intervene.

(Id.)

On approximately May 14, 2007 and prior to the filing of this lawsuit, Defendant reclassified three of Plaintiffs software programs (Seekmo Search Assistant, Zango Search Assistant, and Hotbar) as "PUAs" — Spyware Doctor's lowest possible classification for potential malware. (Def.'s Opp'n 7.) Around that time, Defendant changed the latest version of its software such that "PUAs" would no longer automatically be removed by its automatic scanning function. (Id.) After this change, these three programs were no longer automatically detected and removed by Defendant's software, though they may still be identified and removed manually. (Def.'s Opp'n 19.) Plaintiff contends' that this change did not provide it with all of the relief it seeks because: (1) prior versions of the software without the new changes are "still available across the Internet, even if not from Google," (2) Plaintiff has recently purchased software called "Cyberhawk" from another company that Spyware Doctor also blocks, (3) the new version of Spyware Doctor prevents an upgrade to the "premium version" of Plaintiffs software, and (4) the mere identification of Plaintiffs software harms its reputation. (Pl.'s Reply 5-6.)

While Plaintiff does not dispute that its previous business practices may have been harmful, it argues that it has substantially revamped its software in the past eighteen months, in part due to a settlement with, and oversight by, the Federal Trade Commission ("FTC"). (Pl.'s Reply 2-3) Plaintiff recently settled a formal complaint with the FTC in which it agreed to pay a $3 million fine. The FTC press release described Plaintiffs alleged previous practices and the current settlement as follows:

... Zango often used third parties to install adware on consumers' computers. The adware, including programs named Zango Search Assistant, 180Search Assistant, Seekmo, and n-CASE, monitors consumers' Internet use in order to display targeted pop-up ads. It has been installed on U.S. consumers' computers more than 70 million times and has displayed more than 6.9 billion pop-up ads. The FTC alleges that Zango's distributors — third-party affiliates who often contracted with numerous sub-affiliates — frequently offered consumers free content and software, such as screensavers, peer-to-peer file sharing software, games, and utilities, without disclosing that downloading them would result in installation of the adware. In other instances, Zango's third-party distributors exploited security vulnerabilities in Web browsers to install the adware via "drive-by" downloads. As a result, millions of consumers received pop-up ads without knowing why, and had their Internet use monitored without their knowledge.

In addition, the agency alleges that Zango deliberately made it difficult to identify, locate, and remove the adware once it was installed. For example, Zango failed to label its pop-up ads to identify their origin, named its adware files with names resembling those of core systems software, provided uninstall tools that failed to uninstall the adware, gave confusing labels to those uninstall tools, and installed code on consumers' computers that would enable the adware to be reinstalled secretly when consumers attempted to remove it.

. . . .

The settlement bars Zango from using its adware to communicate with consumers' computers — either by monitoring consumers' Web surfing activities or delivering pop-up ads — without verifying that consumers consented to installation of the adware. It bars Zango, directly or through others, from exploiting security vulnerabilities to download software, and requires that it give clear and prominent disclosures and obtain consumers' express consent before downloading software onto consumers' computers. It requires that Zango identify its ads and establish, implement, and maintain userfriendly mechanisms consumers can use to complain, stop its pop-ups, and uninstall its adware. It also requires that Zango monitor its third-party distributors to assure that its affiliates and their sub-affiliates comply with the FTC order. Finally, Zango will give up $3 million in ill-gotten gains to settle the charges. The settlement contains standard record keeping provisions to allow the FTC to monitor compliance.

FTC Press Release: Zango, Inc. Settles FTC Charges: Will Give Up $3 Million in Ill-Gotten Gains for Unfair and Deceptive Adware Downloads, November 3, 2006, available at http://www.ftc.gov/opa/2006/ 11/zango.shtm (last visited June 4, 2007).¹

Plaintiff currently seeks "a temporary restraining order, and, ultimately, a preliminary injunction, compelling PC Tools to immediately remove Zango's software programs from the Spyware Doctor detection database." (Pl.'s Mot. 3.)

III. ANALYSIS

The standard to obtain a temporary restraining order is the same as that to obtain a preliminary injunction. See Graham v. Teledyne-Continental Motors, Div. of Teledyne Indus., Inc., 805 F.2d 1386, 1388 (9th Cir.1986). To obtain either form of relief, a plaintiff must satisfy either the "traditional" or, "alternative" test. Under the traditional test, the Court must find that: (1) the moving party will suffer irreparable injury if the relief is denied, (2) the moving party will probably prevail on the merits, (3) the balance of potential harm favors the moving party, and (4) the public interest favors granting relief. Cassim v. Bowen, 824 F.2d 791, 795 (9th Cir. 1987). The alternative test requires the Court to find: (1) a combination of probable success and the possibility of irreparable injury; or (2) that serious questions are raised and the balance of hardships tips sharply in its favor. Id. Under this last part of the alternative test, "even if the balance of hardships tips decidedly in favor of the moving party, it must be shown as an irreducible minimum that there is a fair chance of success on the merits." Johnson v. Cal. St. Bd. of Accountancy, 72 F.3d 1427, 1430 (9th Cir. 1995). The two prongs of the alternative test are not separate inquiries, but rather "extremes of a single continuum." Clear Channel Outdoor, Inc. v. City of Los Angeles, 340 F.3d 810, 813 (9th Cir.2003). "[T]he less certain the district court is of the likelihood of success on the merits, the more plaintiffs must convince the district court that the public interest and balance of hardships tip in their favor." Southwest Voter Registration Educ. Project v. Shelley, 344 F.3d 914, 918 (9th Cir.2003).

A. Likelihood of Personal Jurisdiction

"Where a challenge to jurisdiction is interposed on an application for a preliminary injunction the plaintiff is required to adequately establish that there is at least a reasonable probability of ultimate success upon the question of jurisdiction when the action is tried on the merits." Enterprise Intern., Inc. v. Corporation Estatal Petrolera Ecuatoriana, 762 F.2d 464, 471 (5th Cir.1985) (internal...