This is relevant because US ChessLive uses Value Click and Value Click is a partially owned subsidiary of DoubleClick. DoubleClick has two seats on the board of ValueClick.
DoubleClick convinced me that what they do is legal. They have survived investigations by the FTC and the Attorney Generals of numerous states. They also have a "Chief Privacy Officer" named Jules Polonetsky who is a former consumer affairs commissioner for New York City.
However, based on what they said at the stockholder's meeting, Games Parlor, US ChessLive and the United States Chess Federation would not survive a similar investigation. I believe that the only reason that Games Parlor and US ChessLive are still in existence is that they are small with only 90,000 USCF members and only 13,000 who have looked at US ChessLive. Being so small, they have not attracted the attention of federal and state investigators.
Here is one item from the literature distributed at the DoubleClick meeting. It is also on the Internet at: ITEM 3. LEGAL PROCEEDINGS
We are a defendant in 20 lawsuits concerning Internet user privacy and our data collection and other business practices. These lawsuits were filed throughout 2000. 18 of these actions are styled as class actions, one action is brought on behalf of the general public of the State of California and one is brought against us and ClearStation, Inc. on behalf of the State of Illinois by the State's Attorney of Cook County, Illinois. The actions seek, among other things, injunctive relief, civil penalties and unspecified damages.
Five of the actions were filed in California state court, 13 in federal court, one in Texas state court and one in Illinois state court. On March 31, 2000, the plaintiff in one of the California state court proceedings filed a petition, ordered by the court on May 11, 2000, to coordinate the four actions then pending in the California state courts. The Judicial Panel on Multidistrict Litigation has granted our motions to transfer, coordinate and consolidate all thirteen federal actions before Judge Buchwald in the Southern District of New York. We believe that these lawsuits are without merit and we intend to vigorously defend ourselves against them.
Additionally, we received a letter from the Federal Trade Commission ('FTC'), dated February 8, 2000, in which the FTC notified us that they were conducting an inquiry into our business practices to determine whether, in collecting and maintaining information concerning Internet users, we have engaged in unfair or deceptive practices. In January 2001, the Federal Trade Commission closed its inquiry into our ad serving and data collection practices without recommending any further action.
Our ad serving and data collection practices are also the subject of inquiries by the attorneys general of several states. We are cooperating fully with all such inquiries. We may receive additional regulatory inquiries and intend to cooperate fully.
NOTE 3 -- INVESTMENT IN VALUECLICK, INC
Effective February 28, 2000, DoubleClick acquired an approximately 33% interest in ValueClick, Inc. ('ValueClick') as well a warrant to purchase ValueClick common stock for 732,860 shares of DoubleClick common stock and $10.0 million in cash. DoubleClick's equity investment in ValueClick was recorded based on the fair value of the consideration paid (approximately $94.2 million), less approximately $27.7 million of treasury stock that represents its proportionate share of the DoubleClick stock held by ValueClick. In addition to approximately $41.3 million of goodwill, DoubleClick's investment in ValueClick also included an amount of approximately $18.7 million which represented the estimated fair value of the warrant on February 28, 2000. This investment is being accounted for under the equity method, with a 90-day lag in reporting DoubleClick's share of the results of ValueClick.
In March 2000, ValueClick completed its initial public offering of common stock, issuing 4,000,000 shares at a price of $19 per share, which raised net proceeds of approximately $69.5 million. As a result, DoubleClick's ownership interest in ValueClick was reduced to approximately 28% and the value of its proportionate share of ValueClick's net assets increased. DoubleClick recorded an increase in the value of its investment of approximately $12.9 million, reduced the carrying amount of treasury stock to approximately $23.8 million and recognized a gain of approximately $8.9 million. This gain is included in 'Gain on equity transactions of affiliates, net' in the consolidated statement of operations.
In the third quarter of 2000, DoubleClick recorded an increase in the value of its investment in ValueClick of approximately $2.9 million as the result of ValueClick selling a portion of the DoubleClick shares it owned to third parties. Also as a result of this sale, DoubleClick recognized a reduction in its treasury stock of approximately $5.3 million and a $2.4 million reduction of additional paid-in capital, which represented the difference between the treasury shares' original basis and the cash proceeds from the sale.
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