UNITED STATES DISTRICT COURT FOR THE 

DISTRICT OF NEW HAMPSHIRE

Federal Trade Commission

v. Civil No. 04-377-JD

Seismic Entertainment

Productions, Inc.,

SmartBot.Net, Inc., and

Sanford Wallace

O R D E R

The Federal Trade Commission (“FTC”) brings an action

against Sanford Wallace, Seismic Entertainment Productions, Inc.,

and SmartBot.Net, Inc., under the Federal Trade Commission Act,

seeking an injunction to stop the defendants from engaging in

certain internet marketing practices. The FTC contends that the

defendants’ marketing practices are unfair practices affecting

commerce and seeks injunctive and related relief under the

Federal Trade Commission Act (“FTCA”). Currently before the

court is the FTC’s motion for a temporary restraining order

(“TRO”) and other equitable relief. 

The defendants were served with and filed an objection to

the TRO motion. A non-evidentiary hearing was held on the motion

on October 15, 2004. At the end of the hearing, the court

directed counsel to come to an agreement on expedited discovery

to precede the preliminary injunction hearing. The court also

Case 1:04-cv-00377-JD Document 12 Filed 10/21/04 Page 1 of 14
The proposed order is more narrowly drawn than the 1

temporary relief originally requested by the FTC.

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asked the FTC to draft narrower language for its proposed TRO and

invited the defendants’ counsel to participate in the process of

narrowing the proposed TRO. Counsel drafted and filed a

discovery stipulation, and the FTC filed a revised proposed TRO. 

Counsel for the defendants chose not to participate in the

drafting process for the revised proposed TRO. The defendants

filed their objection to the FTC’s revised proposed TRO within

the time allowed.

Background

The FTC seeks temporary injunctive relief to restrict the

defendants’ activities pending resolution of their request for a

preliminary injunction. Specifically, the FTC asks that the

defendants, along with individuals acting with them or on their

behalf, be required to remove software script that exploits the

web browser security vulnerabilities referenced in Microsoft

Bulletins MS03-032 and MS03040 or any other web browser security

vulnerabilities that allow the defendants to install, download,

or deposit any software code, program, or content onto a computer

without the computer user’s knowledge or authorization. The 1

defendants received notice of the FTC’s request, have filed

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objections, and participated through counsel in the hearing held

on October 15, 2004. 

In support of their motion, the FTC represents that the

defendants have reconfigured consumers’ computers by installing a

software code, without the consumers’ knowledge or authorization,

that gives the defendants access to those computers for purposes

of advertising. The FTC has submitted a declaration by Steven D.

Gribble, Ph.D., an assistant professor of Computer Science and

Engineering at the University of Washington, who tested and

evaluated the effects of the defendants’ activities. The FTC has

also submitted the declarations of Sallie S. Schools, an

investigator in Bureau of Consumer Protection of the FTC, and of

individuals who have been affected by the defendants’ actions and

practices.

Dr. Gribble explains that “spyware” is software that gathers

information about a computer’s use and transmits that information

to someone else, appropriates the computer’s resources, or alters

the functions of existing applications on the computer, all

without the computer user’s knowledge or consent. A type of

“spyware” that uses collected information to display targeted

advertisements is called “adware.” Dr. Gribble found that the

defendants exploit known security vulnerabilities in certain web

browsers to gain access to computers, without their users’

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The only evidence the defendants offer to support their 2

claim that their activities are widely-accepted internet

advertising practices is a copy of an article from news.com that

discusses internet advertisers’ use of pop-up advertising. Even

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knowledge or consent, through web sites controlled by the

defendants. The defendants’ web sites instruct vulnerable web

browsers to display pop-up advertisements and content from other

pages of the network of web sites. The web sites use “exploit

code” to change the computer user’s homepage, override search

functions on the browser, and download and install spyware and

other programs. These activities are all done without the

computer user’s knowledge or authorization.

The defendants use the pop-up advertisements to market their

own “anti-spyware” products along with others’ products. The

defendants’ actions have caused affected computers to slow,

malfunction, or crash completely. Consumers whose computers have

been affected by the defendants’ activities have spent

considerable time, and in some cases money, to fix the problems

caused by the defendants. 

The defendants do not deny that they engage in the

activities described by the FTC. Instead, they object to the

FTC’s negative characterization of their activities. The

defendants argue that at least some of their activities are

widely accepted internet practices and should not be prohibited.2

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if the article were adequate support, the argument that “everyone

is doing it” is not persuasive. 

The court notes that the issues presented here apparently

raise a matter of first impression. Similar activities, however,

have not been seen as acceptable practices by affected consumers. 

See Brown v. Erie Ins. Exch., 2004 WL 318888 (Cal. Ct. App. Feb.

20, 2004) (discussing class action against similar activities in

context of insurance coverage dispute). 

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The defendants also do not contest that their activities have

generated substantial revenue, through sales of their own

products and advertising commissions on sales made by others. 

Discussion 

The Federal Trade Commission Act provides: “Unfair methods

of competition in or affecting commerce, and unfair or deceptive

acts or practices in or affecting commerce, are hereby declared

unlawful.” 15 U.S.C. § 45(a)(1). The Act also provides that it

is unlawful “for any person, partnership, or corporation to

disseminate or cause to be disseminated, any false advertisement

. . . having an effect upon commerce, by any means, for the

purpose of inducing, or which is likely to induce, directly or

indirectly the purchase of . . . devices, [or] services.” Id. §

52(a). “The dissemination or the causing to be disseminated of

any false advertisement within the provisions of subsection (a)

of [§ 52 is] an unfair or deceptive act or practice in or

affecting commerce within the meaning of section 45.” Id. §

52(b). To be actionable, the act or practice must be “likely to

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cause substantial injury to consumers which is not reasonably

avoidable by consumers themselves and not outweighed by

countervailing benefits to consumers or competition.” Id. §

45(n). 

The FTC is authorized to prevent persons, other than those

excluded in the statute, from engaging in unfair and deceptive

acts or practices. § 45(a)(2). The FTC may bring suit in

federal court to obtain a TRO or preliminary injunction pending

the initiation of administrative action. Id. § 53(b). 

Alternatively, the FTC may proceed entirely in federal court,

seeking a permanent injunction and ancillary relief, including

temporary or preliminary injunctive relief. Id.; F.T.C. v. Gem

Merch. Corp., 87 F.3d 466, 468-69 (11th Cir. 1996); F.T.C. v.

World Travel Vacation Brokers, Inc.; 861 F.2d 1020, 1026 (7th

Cir. 1988); F.T.C. v. Think Achievement Corp., 144 F. Supp. 2d

1013, 1015 (N.D. Ind. 2000); F.T.C. v. Commonwealth Mktg. Group,

Inc., 72 F. Supp. 2d 530, 535 (W.D. Pa. 1999); F.T.C. v. Gill, 71

F. Supp. 2d 1030, 1047 (C.D. Cal. 1999).

When, as here, the FTC seeks temporary injunctive relief

pending further proceedings on the complaint for a permanent

injunction, the court does not use the traditional TRO standard

but instead applies the more lenient “public interest” standard. 

World Travel, 861 F.2d at 1029. Under the public interest

standard, the FTC need not prove irreparable harm, but instead

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the court considers the likelihood that the FTC will succeed on

the merits and balances the equities implicated by the challenged

activities. Id.; F.T.C. v. Phoenix Avatar, LLC, 2004 WL 1746698,

at *8 (N.D. Ill. July 30, 2004); In re Nat’l Credit Mgt. Group,

L.L.C., 21 F. Supp. 2d 424, 439-40 (D.N.J. 1998). Although the

court may consider the private concerns raised by the proposed

relief in balancing the equities, the public interest is 

entitled to greater weight. World Travel, 861 F.2d at 1029.

A. Likelihood of Success

To show a likelihood of success, the FTC must demonstrate

that the defendants’ activities are unfair or deceptive within

the meaning of the FTCA. 15 U.S.C. § 45(a). “In order to

establish that an act or practice is deceptive, the FTC must

establish that the representations, omissions, or practices

likely would mislead consumers, acting reasonably, to their

detriment.” World Travel, 861 F.2d at 1029; see also, e.g.,

F.T.C. v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir. 1994)

(using FTC’s standard from Cliffdale Assocs., 103 F.T.C. 110)

(1984)); F.T.C. v. 1263523 Ontario, Inc., 205 F. Supp. 2d 218,

221-22 (S.D.N.Y 2002); F.T.C. v. Verity Int’l, LTD, 124 F. Supp.

193, 200 (S.D.N.Y. 2000). The FTC must also show that the

defendants’ activities are “likely to cause substantial injury to

consumers which is not reasonably avoidable by consumers

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themselves and not outweighed by countervailing benefits to

consumers or competition.” 15 U.S.C. § 45(n). 

The defendants’ activities in the new arena of internet

advertising do not necessarily fit easily into the traditional

concepts of unfair and deceptive acts and practices under the

FTCA. Nevertheless, the declarations of the computer users who

have been affected by the defendants’ activities amply support

the likelihood that the FTC will be able to prove violations of

the FTCA and that consumers have experienced substantial injury

without countervailing benefits. The declarants’ experiences

include unauthorized changes of their home pages, difficulty

using their computers, and infusions of pop-up ads, including

pornographic ads and ads for anti-spyware software. The affected

users were not notified of the defendants’ activities and did not

know what had caused the problems with their computers, making

the defendants’ activities both deceptive and unfair.

One declaration states that 200 computers in the Atlanta

office of a national company were affected by the defendants’

practices for a period of two weeks. During that time, the

computers did not function properly, worked slowly, froze, lost

data, and crashed. The problems required a significant amount of

time by technical specialists to remove the defendants’ programs

and software from the affected computers. 

The vice president of an internet advertising company

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The references in the defendants’ objection to two web 3

sites that teach “Javascript” did not provide persuasive support

for the defendants’ position.

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discovered that advertising from defendant Seismic Entertainment

Productions caused problems with the company’s computers and that

a supposedly revised and clean version of the ad also generated

similar problems and complaints and was then cancelled. A school

district in Michigan had affected computers that required a

significant amount of time by the computer specialist to clear

the problems created by the defendants. 

Individual users report that they bought the anti-spyware

offered for sale by the defendants to “fix” the problems the

defendants had caused. They also attempted to solve the problems

by resetting their computers, exiting and rebooting, running

anti-virus software, and getting help from experts. One user

said that she was unable to fix her computer, even with help from

computer science graduate students, and after two and half weeks

the hard drive failed, requiring her to buy a new computer. All

of the users who submitted declarations experienced significant

interruptions in their computer use. 

The defendants have offered no contrary evidence or

explanations of any kind and do not dispute that they engage in

the activities charged by the FTC. Instead, counsel for the 3

defendants argues that at least some of their activities are

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accepted marketing practices used by reputable companies. 

Although the defendants insist that they need time to investigate

the FTC’s charges, they have not offered any explanation of their

activities to counter the FTC’s well-supported claims. 

Based on the present record, the FTC is likely to succeed in

showing that the defendants’ activities are unfair and deceptive

practices within the meaning of the FTCA. Those activities cause

and will continue to cause substantial injury to consumers by

negatively affecting the performance of their computers and

requiring significant time and expense to remedy the problems the

defendants cause. Consumers are not able to avoid these problems

because the defendants access their computers, install software

and programs, and make changes without the user’s knowledge or

consent. The defendants have offered no countervailing benefit

from their activities to consumers or competition, and the court

perceives no such benefits from the present record. Therefore,

at this early stage, the FTC appears to be likely to succeed on

the merits of the claim that the defendants are violating, and

continue to violate, the FTCA.

B. Balance of the Equities

For similar reasons, the balance of the equities favors

granting temporary injunctive relief. When, as here, the FTC

demonstrates a likelihood of success, a showing of private

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In their objection, the defendants argue that a law passed 4

in Utah, regulating internet advertising, was similarly overbroad

and vague, which caused the court to enjoin its enforcement, and

appends a copy of an excerpt from that proceeding. Contrary to

the defendants’ representation, however, the Utah court did not

find any part of the challenged law overbroad or vague. Instead,

the court concluded that the plaintiff was not likely to succeed

on its constitutional challenge to that part of the law which

prohibits unauthorized installations of software on computers but

that the prohibition against all pop-up ads and a protocol for

authorization and consent would likely violate the Commerce

Clause. The court granted preliminary injunctive relief pending

further litigation of the constitutional issues.

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concerns implicated by the proposed injunction is not enough to

deny injunctive relief. Phoenix Avatar, LLC, 2004 WL 1746698, at

*9 (citing FTC v. Weyerhaeuser Co., 665 F.2d 1072, 1083 (D.C.

Cir. 1981)). Private concerns are to be given greater

consideration in weighing the merits and harms of the proposed

injunction when the defendants can show that granting the

injunction would cause them irreparable harm. Id.

In this case, the defendants challenge the proposed TRO’s

prohibition against using “web browser security vulnerabilities”

to download software or other “content.” They argue that because

those terms are not defined, the prohibition could include

legitimate and accepted marketing practices. Defendants further 4

argue that the issues raised by the FTC’s proposed TRO are

complex and cannot be adequately addressed on the present

schedule. 

The defendants do not offer a narrower or more precisely

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The court urged defendants’ counsel to meet with counsel 5

for the FTC to work out an agreement for interim relief while the

FTC was drafting a more narrow proposed TRO. Defendants’ counsel

chose not to participate in that process.

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drawn version of the TRO language that might permit them to carry

on advertising activities, which they contend are legitimate. 

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Their explanations that commonly-used advertising practices would

be prohibited are not supported by affidavits or declarations. 

Nor do they convincingly explain the difference between their

“accepted” activities and other activities. In fact, the

defendants themselves, who presumably have considerable expertise

about the matters at issue, are notably silent. Although

defendants’ counsel has argued that the proposed injunctive

relief would harm the defendants’ business, the defendants have

not provided any support for that argument. 

The defendants also object to the references in the proposed

TRO to two Microsoft Bulletins, which describe certain web

browser security vulnerabilities. The defendants contend that

the bulletins are not competent evidence to support the FTC’s

claims against them. The court construes the references to the

Microsoft Bulletins to merely describe certain kinds of security

vulnerabilities rather than as evidence of the defendants’

harmful techniques. The defendants’ objection to the scope of

the prohibition is not persuasive. 

As the defendants point out, the FTC’s investigation was

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initiated in response to consumer complaints about their

activities. The Center for Democracy and Technology filed a

complaint with the FTC on February 11, 2004, alleging the same

activities that form the basis of the FTC’s action here, arising

from complaints the Center had received from computer users. The

public interest in curtailing the defendants’ unauthorized access

to consumers’ computers is amply demonstrated.

The defendants’ asserted but unsupported individual

interests in preserving their business activities and profit are

of little weight. The public’s interest in avoiding the problems

described in the declarations submitted by computer users who

have been affected by the defendants’ activities is of greater

concern. Therefore, the balance of the equities favors granting

the protection requested in the proposed TRO. 

C. Objections to Proposed Order

 The defendants are correct that because the parties have

stipulated to certain discovery that will occur prior to the

preliminary injunction hearing, there is no need for that part of

the TRO which addresses discovery. In addition, the defendants

agree to preserve all records relevant to their internet

activities and do not object to that part of the requested TRO. 

The court notes that paragraph VI of the proposed order raises

matters that should be addressed through a separate motion, the

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scheduling order in this case, or further discovery.

Although the FTC refers to Federal Rule of Civil Procedure

65 and describes the relief it seeks as a temporary restraining

order, this is not a request for an ex parte TRO. The defendants

have had notice and have had the opportunity to be heard. 

Therefore, the relief requested is more appropriately described

as temporary injunctive relief, rather than a TRO. Temporary

injunctive relief is granted as set forth in the accompanying

order.

Conclusion

For the foregoing reasons, the FTC’s motion for a temporary

restraining order (document no. 3) is granted in part as is set

forth in the accompanying order. The remainder of that motion is

construed as a motion for a preliminary injunction. An

evidentiary hearing will be held before the magistrate judge on

the motion for a preliminary injunction on November 9 and 10,

2004, beginning each day at 9:30 a.m.

SO ORDERED.

Joseph A. DiClerico, Jr.

United States District Judge

October 21, 2004

cc: T. David Plourde, Esquire

Laura M. Sullivan, Esquire

Ralph A. Jacobs, Esquire

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