L.A.’s Spyware Lawsuit Disputed

The first attempt by a California regulator to curb spyware has set off a contentious dispute between Los Angeles’ chief legal watchdog and one of the world’s largest media giants.

Los Angeles City Atty. Rocky Delgadillo filed a lawsuit late Thursday against Intermix Media Inc., accusing the company -- which owns MySpace.com and more than 40 websites that offer free screen savers and other entertainment programs -- of saddling consumers with hidden spyware that generates pop-up ads and redirected searches, among other nuisances.

But on Friday, News Corp., which acquired Intermix in September, claimed to have been duped by Delgadillo, who they said reneged on a settlement agreement struck by the two parties this summer.

“We did exactly what the city asked and then they changed their mind,” said Richard L. Stone, an attorney who represents News Corp.

Delgadillo’s lawsuit, which seeks more than $3 million in penalties, follows a similar action brought against Intermix this spring by New York Atty. Gen. Eliot Spitzer. That lawsuit was settled in late October for $7.5 million.

News Corp. officials said Delgadillo’s office had told Intermix that if it settled the New York case with Spitzer, it would bring no action and waive any additional penalties.

To support that claim, News Corp. on Friday produced an Aug. 31 e-mail to Intermix attorney Linda Goldstein from Assistant City Atty. James Colbert. In it, Colbert stated that “the payment of civil penalties is not needed here, provided that Intermix finalize its deal with New York and provided that Intermix does not repeat the practices that led to our concerns in the first place.”

However, Stone said Delgadillo withdrew that offer Sept. 29, one day after Intermix had finalized its settlement with Spitzer and one day before News Corp. completed its all-cash, $580-million acquisition of Intermix.

The city attorney’s office countered Friday that the offer to waive the fee was pulled because Intermix never responded, despite two e-mail reminders Colbert sent to Goldstein on Sept. 13 and Sept. 16.

“They never got back to us,” spokesman Jonathan Diamond said.

News Corp. insists that they did, pointing to an e-mail that Goldstein sent to Colbert on Sept. 16 asking that they meet after the New York settlement was finalized.

“We are very interested in resolving this amicably,” said the e-mail from Goldstein. “We are on the last two days of our negotiations with the NY AG and just trying to finish that up first.”

Later that day, the two attorneys agreed to meet the following week.

But before they did, Colbert sent another e-mail Sept. 27 suggesting that News Corp.’s acquisition offer for Intermix had made Delgadillo’s office aware that its “resources were far more substantial than we had believed.”

The offer was pulled two days later.

The lawsuit filed this week seeks to recover damages on behalf of California consumers. It seeks $2.9 million for the 575,000 deceptive downloads that allegedly occurred in Los Angeles during 2003 and 2004, and a yet-to-be-determined fine for the nearly 5 million alleged downloads elsewhere in the state.

The lawsuit alleges that Intermix’s spyware programs were installed on the computers of unwitting consumers who downloaded free games or screensavers. The suit contends Intermix made money from these programs by charging advertisers and other businesses to whom consumers were redirected.

In a statement Friday, News Corp. said Intermix began scaling back the downloadable applications cited in the city’s complaint in 2004 and suspended them in April 2005.