June 15, 2005, 12:00 AM

Intermix reaches agreement in adware suit

Intermix Media Inc. says it has reached an agreement in principle with New York Attorney General Eliot Spitzer under which it would pay $7.5 million to resolve a lawsuit that charges the company with deceptive marketing practices.

Intermix Media Inc. reports it has reached an agreement in principle with New York Attorney General Eliot Spitzer under which it will pay $7.5 million over three years to resolve a lawsuit that charges the company with deceptive marketing practices.

A spokesperson for Spitzer’s office declines to comment on the Intermix announcement.

In a suit filed against Intermix in May, Spitzer alleges that the company violates state laws prohibiting false advertising, deceptive marketing practices, and trespass in the operation of several sites. Intermix-which operates a number of sites, including mycoolscreen.com, cursorzone.com and flowgo.com-denies the charges.

The Intermix sites in question advertised free software available for download, including screensavers, screen cursors and games. The lawsuit alleges that along with these programs, Intermix secretly downloaded a number of ad-delivery programs, including redirecting web addresses to Intermix’s proprietary search engine and placing advertising toolbars on users’ screens.

Spitzer is seeking an injunction to prevent Intermix from secretly installing spyware. He also wants an accounting of all revenues made on those products and a payment of penalties.

In a statement issued Tuesday, Intermix says it will permanently discontinue distribution of its adware, redirect and toolbar programs, all of which it has previously and voluntarily ceased distributing.

Since the initial inquiry from the attorney general, Intermix has created the position of chief privacy officer and joined the Network Advertising Initiative, the company says. NAI has worked with the Federal Trade Commission and the U.S. Department of Commerce to develop a self-regulatory regimen to protect the Internet consumer.

The company also has set aside a $6.9 million reserve in connection with the lawsuit, according to its fiscal fourth quarter earnings report released yesterday. Intermix posted a fourth-quarter net loss of $409,000, compared to a net loss of $13.1 million a year earlier. Revenues rose 67% to $24.1 million in the fourth quarter, up from $14.4 million a year ago.

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