Does AskJeeves Have a Spyware/Adware Problem? Diller Says No. I Say…

Ben Edelman leveled two charges at AskJeeves on Monday. First, Ben asserts that AskJeeves targets kids for toolbar downloads. Second, Ben asserts that an AskJeeves distributor exploits security holes to install the toolbar without consent. This follows on the heels of Spitzer’s action against Intermix.

Yesterday in the InterActiveCorp Earnings Conference Call, an analyst asked the following question: “I was curious about whether the Spitzer or how you saw the Spitzer probe on spyware affecting generally search or maybe profitability in search.” Diller responded:

“As far as the issues on spyware and ad ware that have recently been raised, to the attorney general has dove into, we are confident that askjeeves doesn’t have an issue with either spyware or adware, full stop. It is an issue, obviously, but it is not our issue. And that’s that. Next question, please?”

Certainly nothing equivocal about that! But is Diller right or wrong? Let me explain both perspectives.

Why Diller is Right

AskJeeves has a toolbar that provides some minor benefits to users. I have not seen an assertion, by Ben or otherwise, that the toolbar constitutes either spyware or adware. So on that basis alone, Diller is technically correct.

However, the toolbar is distributed using the “bundling” method, where it is combined with some other application that acts as the “carrot” to get the user to download the bundle. Again, there is nothing inherently wrong or illegal about bundling. For example, when a person buys a computer, the pricing often includes a bunch of software that will be pre-installed before the user takes possession of the computer. Bundling? Yes. Harmful? No; in fact, usually, just the opposite.

Let’s assume that Ben is correct that some distributors distribute the AskJeeves toolbar in a bundle using security exploits that bypass user consent. Let’s further assume that loading software onto a computer using those exploits violates the law. (Probably a fair assumption, but this is not necessarily a simple analysis).

At the moment, there is no legal doctrine that automatically makes AskJeeves liable for its distributors’ actions. Assuming the distributor is a separate legal entity, the basic (and venerable) legal rule is that one corporation is not liable for another corporation’s actions.

There are, of course, many exceptions to this rule. For example, if the distributor is the legal “agent” of AskJeeves, then AskJeeves will be automatically (“vicariously”) liable for the distributor’s actions. But legal agency requires a significant legal interrelationship between the companies. I would be extremely surprised if AskJeeves has an “agency” relationship with its distributors (this is far from the norm). There are other theories beyond agency where AskJeeves would have the liability, but my point remains—such liability is the exception, not the rule; we would need to find the requisite facts to establish that liability; and those facts would normally contemplate a relationship far more involved than a standard manufacturer/distributor relationship.

Thus, if Diller was trying to say that AskJeeves is not legally responsible for its distributors’ actions, he is probably correct.

Why Diller is Wrong

Anti-spyware zealots have a rather unsophisticated but nevertheless understandable view of the world: software vendors are guilty by their association with shady distributors. Thus, the zealots hold the vendors “responsible” for the distributors’ actions—regardless of what the law says, the level of control the vendor actually had over the vendor, or any other facts that would be germane.

We do see this type of “guilt by association” in some contexts. For example, with franchises, our view of the franchise’s brand is affected by the behavior of any individual franchisee. Have a lousy Big Mac? You might think less of the entire McDonalds’ franchise in a way that reduces your future desire for visiting other McDonalds—even if the lousy experience was attributable to idiosyncratic problems with one individual franchisee. So as a matter of “business reality,” software vendors may very well take the branding hit for what their distributors do.

There may also be legal consequences. Although the software-vendor-liable-for-distributor-behavior syllogism is currently an unproven legal theory, it’s being tested in at least two cases right now (the Direct Revenue lawsuit and the Spitzer action against Intermix). More importantly, legislators may be tempted to create this type of liability statutorily. We’ve already seen this in the spam context; in CAN-SPAM, an advertiser is liable for the behavior of spam distributors in certain contexts. I think it’s highly likely that legislators will create some legal relationship between vendors and distributors; but even if they don’t, courts may be willing to massage the common law to create such liability regardless of the black letter law.

Finally, as AskJeeves acknwoledges in its 10-K, the adware/spyware paranoia is causing a shrinkage in the overall channels of distribution for desktop software applications generally. (See, e.g., Download.com’s announcement that it will not distribute software that has adware bundled with it). This means fewer channels and more pricing competition. Although this is not a legal issue per se, there’s no doubt that AskJeeves will feel the impact of the legal developments with adware/spyware.

Conclusion

Therefore, I think Diller’s brusque and unequivocal response was absolutely wrong. AskJeeves will be liable for its distributors’ actions in the court of popular opinion. And legally, when the legislators finish with their anti-spyware frenzy, I’m pretty confident that AskJeeves will have to change its business practices to comply with the law. So where AskJeeves says the adware/spyware problem is not “our issue,” I disagree—and I predict that any intransigence on this topic will ultimately be punished severely in the marketplace and perhaps in the courts.

I’m not saying this is a good outcome—if public opinion and the legal system overreact, we may lose the ability to get the software we really want, or we may have to fight through a blizzard of unwanted disclosures to get it. But putting aside my preferences, objectively the current environment is pointing in that direction, for better or worse. As the saying goes, “be careful what you wish for.”