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  

FACTS  

The 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

Internet users may not know what the real federal program website looks like until they successfully navigate to it. If they are diverted by advertisements bearing the name and web address of the federal program before ever reaching the program’s actual website, reasonable consumers could assume that they have reached their intended destination when, in fact, they have reached a commercial service.

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.