The Federal Trade Commission recently issued updated guidance for online search companies to ensure that consumers can distinguish natural online search results from paid search result advertising. Although the guidance is addressed to search engines, it could impact a wide variety of mobile apps and other online services that provide consumers with information about third-party products and services.

On June 25, 2013, the FTC announced that it had sent letters to 24 online search engines updating its 2002 guidance on the display of paid search result advertising.1 The FTC is concerned that search engines may be blurring the lines between natural (commonly referred to as “organic”) search results—results that are generated and ranked because of their relevance to a user’s search—and paid advertisements designed to resemble natural search results. Search engines commonly accompany natural results with links along the top or side of the browser window that third-party advertisers pay to have displayed when users search for certain criteria in certain locations. The FTC regards those links as a form of advertising and believes that consumers may not understand which results are natural and which are advertisements. To address that concern, the letters provide various suggestions of how companies can display paid search results to adequately distinguish them from natural results.

The recent letters state that failure to “clearly and prominently” distinguish natural results from paid results is a deceptive trade practice in violation of Section 5 of the Federal Trade Commission Act.2 These letters are part of the Commission’s broader push to ensure that consumers can recognize and understand online advertisements, particularly in the constrained space of mobile devices.

Why Should Companies Care?

The FTC has sent the letters to seven “general purpose” search engines—AOL, Ask.com, Bing, Blekko, DuckDuckGo, Google, and Yahoo!—as well as 17 of the most popular specialized search tools for shopping, travel, and local businesses. But while the letters are addressed to “search engines,” the FTC seemingly intends their influence to extend well beyond what is commonly thought of as a search engine. The letters acknowledge that companies are continually developing new tools to help consumers find and organize information about products and services, and they state that regardless of the form that search tools take in the future, companies must abide by the long-standing (and pre-Internet) principle that consumers must be able to recognize paid advertising as such.

Companies offering online tools to help consumers gather and organize information about products and services—even if those tools would not commonly be referred to as a “search engine”—should carefully review the way they display third-party advertisements alongside natural results. The concept of organizing information—whether it be restaurant reviews, subway directions or product rankings—has become a major tool for consumers to filter through the massive amounts of data available on the Internet. Those companies that provide these self-selection products should ensure that they are complying with three sets of FTC guidance: the FTC’s 2002 guidance, the recent letters to search engines and the Commission’s recently updated .Com Disclosures Guide.

Summary of the FTC's 3-Segmented Guidance

  1. The 2002 Letters

In 2002, the FTC sent a letter to various search engines advising them that the Commission was responding to a complaint by the advocacy group Consumer Alert about search engines’ failure to adequately disclose when search results were displayed based on payments from advertisers.3 The FTC found that search engines were inadequately disclosing their display of results based on “paid placement”—the prominent ranking of research results based on payments from advertisers—and “paid inclusion”—inclusion of an entry in search results based on payment. To address its concerns, the Commission made several recommendations:

  • Paid placement results should be distinguished from natural results via “clear and conspicuous” disclosures.
  • The use of paid inclusion results should be clearly and conspicuously disclosed, and search engines should provide a readily available explanation for how results are included.
  • Search engines should not make any affirmative statements that might mislead consumers about how results are generated.

The 2002 letter declined to state whether the search engines’ current practices were violations of Section 5 of the FTC Act.

  1. The Recent Letters

The FTC’s 2013 letters take a different approach than the 2002 letters. Rather than distinguishing between paid placement and paid inclusion, the recent letters state the broad principle that including or ranking a search result based on third-party payments is a form of advertising, and that consumers must be able to meaningfully distinguish between natural search results and ads. Also unlike the 2002 letters, the recent letters explicitly state that failure to “clearly and prominently” distinguish paid results from natural results is a violation of Section 5 of the FTC Act.

The letters observe that although the search industry readily adopted the Commission's 2002 guidance, compliance has waned in recent years as search engines have it made increasingly difficult to differentiate between paid search results and natural results. The letters also note that some search engines are offering more specialized search options (for example, options that allow users to narrow their search by category), which display results based on advertising payments.

While stating that search engines may use any method of distinguishing between paid and natural results that is “noticeable and understandable to consumers,” the letters recommend two general methods:

  • Visual Cues: The letters note that while search engines have typically employed some form of shading or other visual set-off to distinguish paid results, the prominence of such visual cues has diminished over time. The Commission recommends using more prominent shading or a clear border to offset paid results.
  • Text Labels: In addition to visual cues, the FTC recommends that search engines use text labels that “explicitly and unambiguously” state that the paid results are advertising and are easily noticed by consumers nearby the paid results; the FTC also recommends that uses the same label for all types of advertising to avoid confusion.

The letters acknowledge that flexibility may be needed when applying these guidelines to technologies other than a standard web browser. The letters recommend that, where searches are performed using a voice interface, search engines provide an audio disclosure about the presence of paid results. Additionally, in recognizing that visual cues designed for display on computers may be difficult to display on mobile devices, the Commission recommends that search engines provide visual cues specifically designed to display prominently on mobile devices.4

  1. .Com Disclosures

The FTC first released its guide titled .Com Disclosures: How to Make Effective Disclosures in Digital Advertising in 2000 to provide guidance on how to apply advertising disclosure rules to internet advertising. The FTC updated its guide in March 2013 to account for the prominence of smartphones and social media advertising.5 The guide provides various recommendations on how to provide “clear and conspicuous” advertising disclosures from the perspective of a reasonable consumer in order to avoid running afoul of the FTC Act’s prohibition on deceptive advertising. The 2013 updates include numerous examples of adequate and inadequate disclosures for mobile and social media ads.

Analysis

Although the recent letters are addressed to “search engines,” any online service that provides consumers with information about products and services—including those that do not consider themselves to be search engines—should carefully review how they display paid information alongside naturally generated information.

In addition to the seven “general purpose” search engines, the FTC also announced that it sent its recent letters to “17 of the most heavily-trafficked search engines that specialize in the areas of shopping, travel, and local business, and that display advertisements to consumers.” Although the Commission did not disclose those recipients, the FTC’s core concern—that consumers are confusing paid and natural search results—is broad enough that it could apply to online sites and mobile apps which provide consumers with listings of local business based on user ratings, proximity, or other non-paid criteria. The guidance could also readily apply to online retailers which allow consumers to search for and sort products based on various criteria.

Additionally, the FTC letters make clear that businesses should continue to apply its core principle of distinguishing paid results from natural results to emerging search technologies, regardless of the form that those technologies take. The letters cite as an example a social network that provides restaurant recommendations based on a user’s friends’ activity. If that service also provided paid search results for restaurants, it would need to adequately differentiate between the paid and unpaid results.

In general, any online service that purports to display information about products and services for consumers based on non-paid criteria should review the FTC’s guidance. Even where those services do not require a user to input search terms (for example, a mobile app that displays the location of local food trucks), businesses could find themselves in violation of Section 5 where they fail to distinguish between paid advertising and information provided based on non-paid criteria.

How Should Companies Respond?

The current FTC guidance provides several key actions that online services must take to avoid violating Section 5:

  • Determine whether a reasonable consumer could mistake paid advertising for the service’s natural search results (or other naturally displayed information).
  • Implement visual cues and/or text labels to ensure that a reasonable consumer could readily distinguish paid results from natural results.
  • Verify that any visual cues or text tables are readily viewable and understandable to consumers using mobile browsers and mobile apps.
  • Provide readily available disclosures and explanations if any results are provided based on third-party payments (i.e. “paid inclusion”).

Conclusion

The FTC’s recent letters to search engines serve as a reminder that the Commission continues to focus on the deceptive potential of displaying paid search results alongside natural results. Online services, including mobile applications, that provide both paid and natural results, including those that do not consider themselves to be “search engines” in the typical sense, must treat paid results as advertising. Companies providing filtering or prioritization of online content should consider how their services display that information to a reasonable consumer.