This article appeared in Incontestable - March/April 2011 Issue.
ABSTRACT
Defendants purchased the names of various federal
homeowner-assistance programs and their associated domain names as
search-engine keywords. When consumers clicked on defendants'
ads, the resulting websites solicited personal and financial
information, which defendants then sold as marketing leads.
The FTC sued for "deceptive acts and practices" in
violation of § 5(a) of the Federal Trade Commission Act,
alleging that defendants' use of the terms in his sponsored ads
misrepresented an affiliation with the federal programs. In
denying the motion to dismiss filed by one of the defendants, the
court rejected the arguments that defendants were not liable
because consumers understood that they were clicking on ads and
that defendants' advertised websites did not resemble the
official government websites.
CASE SUMMARY
FACTSThe federal government provided a number of homeowner-relief and financial-stability programs, which it promoted through websites located at domain names such as financialstability.gov and makinghomeaffordable.gov. Defendant Scot Lady purchased the names of these federal programs and their associated domain names as search-engine keywords so that sponsored ads for his own services appeared on the search-results page when consumers searched for information on the programs. When clicked, Lady's ads directed consumers to websites that solicited their personal and financial information, which Lady then sold as marketing leads to private mortgage-loan-modification or foreclosure-relief services. The FTC sued Lady and others for "deceptive acts and practices" in violation of § 5(a) of the Federal Trade Commission Act (the "FTC Act") and obtained a preliminary injunction enjoining defendants from placing ads using the government's makinghomeaffordable.gov and financialstability.gov domains, or "otherwise misrepresent[ing] an affiliation with a federal homeowner relief or financial stability program." Defendant Lady later moved to dismiss the FTC's complaint.
ANALYSIS
The district court denied Lady's motion to dismiss. To
prove a deceptive act or practice in violation of
§ 5(a) of the FTC Act, the FTC must show (1) a representation,
omission, or practice that (2) is likely to mislead consumers
acting reasonably under the circumstances, and that (3) the
representation, omission, or practice is material. It does
not need to show intent to deceive or proof of actual consumer
deception. The court first addressed Lady's argument that
bidding on search-engine keywords is an insufficient basis for
liability under § 5. Although the FTC acknowledged that
an allegation of bidding on particular keywords per se would not be
a deceptive act or practice, the FTC did not merely allege that
Lady bid on keywords. Rather, the FTC also alleged that
Lady's sponsored ads triggered by the keywords contained
deceptive titles and links that were likely to mislead
consumers. Lady also argued that the FTC's complaint
should be dismissed because it acknowledged that Lady's
sponsored ads were differentiated from the organic results on a
search-results page. According to Lady, reasonable consumers
would know that they were connecting to the website of a paid
advertiser when they clicked on a sponsored ad. The court
disagreed, stating that the FTC was not alleging that Lady misled
consumers into thinking that his sponsored ads were organic search
results. Rather, the court noted that the alleged deception
was that Lady's sponsored ads misled consumers into thinking
that they were clicking on government-sponsored links. The
FTC's designation of Lady's sponsored ads as
"advertisements" was thus irrelevant to the issue of
whether the content of the ads was deceptive.
The court also rejected Lady's argument that the FTC's claims failed because his websites were not designed to look like the official federal-program websites. The court reasoned that
Finally, based on the same reasoning, the fact that the FTC acknowledged that Lady's services were different from those offered by the federal programs did not bar the FTC's claims. According to the court, "[t]here is no reason to expect a consumer to know the precise services offered by the federal program until he or she actually reaches the program's website and obtains information about those services." In sum, the court held that the issue of whether Lady's ads and websites were likely to mislead reasonable consumers was a factual question that could not be resolved at the motion-to-dismiss stage.
CONCLUSION
This case is of interest because it appears to be the first
decision involving claims that keyword purchases and use in
sponsored ads may violate the FTC Act. The decision is also
notable for the court's statement that the purchase of
search-engine keywords alone does not violate the FTC Act.
Like many keyword cases based on trademark infringement claims
under the Lanham Act, the court held that the content of the
corresponding sponsored ads and the associated websites are
critical to determining whether consumers are likely to be
deceived.
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