The FTC alleged that the company didn't bake in proper security measures to protect its users. To demonstrate the flaw, hackers posted live feeds of nearly 700 cameras in January 2012. The feeds were available for anyone to view online.
"The feeds displayed babies asleep in their cribs, young children playing, and adults going about their daily lives," the FTC said in a post on its web site.
In a statement, TRENDnet said that as soon as learned of the problem last year, the company "immediately initiated every effort to respond to and resolve the hack." TRENDnet added that the company "updated its software to fix the glitch and alerted customers."
As part of the settlement with TRENDnet, the FTC demanded the company build "a comprehensive information security program," that would address these type of problems. The FTC also said that TRENDnet was "prohibited from misrepresenting the security of its cameras or the security, privacy, confidentiality, or integrity of the information that its cameras or other devices transmit."
It's the first time the FTC has turned its attention to a growing trend, often referred to as the "Internet of Things." In an increasingly connected world, people are able to link up many devices to the Internet. You can unlock a door via smartphone or monitor your child from afar, for example. But as more companies push for connected devices, security researchers say proper safety mechanisms are sometimes overlooked.
"The Internet of Things holds great promise for innovative consumer products and services. But consumer privacy and security must remain a priority as companies develop more devices that connect to the Internet," FTC Chairwoman Edith Ramirez said.
TRENDnet's camera is far from the first connected device under scrutiny. Recently, security researchers from Trustwave showed CNNMoney how they could unlock doors, shut off lights, and turn a child's toy into a spy camera because of flaws in connected devices.
Researchers from IOActive also showed CNNMoney how they could access an Internet connected vehicle to do everything from controlling the steering wheel to making the car suddenly accelerate.
"All the computers talk to each other. They trust each other. Once you're on their network, you can really impersonate any piece of equipment on the car to a certain extent," IOActive Director of Security Intelligence Chris Valasek told CNNMoney.
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