Commercial Alert files complaint against search engines for deceptive ads

[Gary Ruskin]

Commercial Alert					July 16, 2001

Commercial Alert filed a deceptive advertising complaint today with the
Federal Trade Commission against eight search engines, for placing ads
in search engine results without clear disclosure that the ads are ads.
The complaint states that such listings "look like information from an
objective database selected by an objective algorithm.  But really they
are paid ads in disguise." 

Companies named in the complaint include AltaVista Co., AOL Time Warner
Inc., Direct Hit Technologies, iWon Inc., LookSmart Ltd., Microsoft
Corp. and Terra Lycos S.A.

"These search engines have chosen crass commercialism over editorial
integrity," said Gary Ruskin, executive director of Commercial Alert. 

"We are asking the FTC to make sure that no one is tricked by the search
engines' descent into commercial deception," Ruskin said. "If they are
going to stuff ads into search results, they should be required to say
that the ads are ads."

"This is just the latest example of how advertising is creeping into
every nook and cranny of our lives and culture," Ruskin said. 
"Americans are tired of it, and the backlash is growing."

The text of the complaint follows.

http://www.commercialalert.org/searchengines/searchengines.html

July 16, 2001

Mr. Donald Clark
Secretary of the Commission
Federal Trade Commission				
600 Pennsylvania Ave. NW, Room #172
Washington, D.C. 20580

RE:  Deceptive advertising complaint against AltaVista Co., AOL Time
Warner Inc., Direct Hit Technologies, iWon Inc., LookSmart Ltd.,
Microsoft Corp. and Terra Lycos S.A.

Dear Mr. Clark:

This letter constitutes a formal complaint against AltaVista Co., AOL
Time Warner Inc., Direct Hit Technologies, iWon Inc., LookSmart Ltd.,
Microsoft Corp. and Terra Lycos S.A., and a request that the Federal
Trade Commission (FTC) investigate whether these companies are violating
federal prohibitions against deceptive acts or practices (1) by
inserting advertisements in search engine results without clear and
conspicuous disclosure that the ads are ads.  This concealment may
mislead search engine users to believe that search results are based on
relevancy alone, not marketing ploys. 

When search engine companies first unveiled their engines, they did not
put ads in the search results.  Results were displayed based on
objective criteria of relevancy tallied by algorithms.  

During the last year, however, some search engines sacrificed editorial
integrity for higher profits, and began placing ads prominently in the
results, but without clear disclosure of this practice.  Advertisers pay
the search engine companies to have their products and services listed
"high" in or near the search results.  Thus the listings look like
information from an objective database selected by an objective
algorithm.  But really they are paid ads in disguise.


A:  Some Search Engine Practices May Constitute Deceptive Advertising 

For years, search engine companies have incorporated advertising into
their websites in ways that do not affect search results, such as banner
ads.  But some search engines have recently adopted three advertising
practices which may affect search results: paid placement, inclusion and
submission.  Paid placement is advertising that is outside of the
editorial content of the search results, sometimes above or below the
editorial content, or in a sidebar.  Paid inclusion is advertising
within the editorial content of the search results, though it does not
necessarily guarantee a certain position within the results.  Paid
submission is the practice of requiring payment to speed up the
processing of a listing, though it rarely guarantees that a site will in
fact be listed by the search engine.  This complaint concerns the
practices of paid placement and paid inclusion without clear and
conspicuous disclosure that the ads are, in fact, ads.

In some search engines, disclosure of paid placement or inclusion in
some search engines is either non-existent or obfuscatory. (2)

Search Engine	Paid Placement	Paid Inclusion
iWon.com	"Featured Listings"	No paid inclusion
Lycos	"Featured Listings"	No paid inclusion
MSN.com	"Featured Sites"	"Web Directory Sites"
Netscape	"Partner Search Results"	No paid inclusion
Altavista	"Featured Sites"	"Results"
Direct Hit	"Partner Search Results"	No paid inclusion
HotBot	"Products & Services" and "Featured Listings" 	---------------
LookSmart	"Featured Listings"	"Reviewed Web Sites"


News accounts suggest this deception is growing worse following the
so-called "dot com crash" and the reduction in banner ad sales.  For
example, Verne Kopytoff of the San Francisco Chronicle reported that:

"Once relatively objective, search engines are increasingly becoming
commercial. In an effort to survive the online industry's financial
struggles, they are providing links based not just on relevancy, but on
who pays for top billing."

"Over the past several months, most of the Internet's biggest portals
have added these so-called pay-for-placement search engines to their
repertoire. Yet in some cases, users are not explicitly told that the
top links provided to them are really advertisements in disguise." (3)  

Not all search engine companies have adopted deceptive advertising
practices.  For example, Google clearly notes that its paid placements
are "Sponsored Links," and it will not put paid ads within its search
results. "We have no plans for a paid inclusion program," Google
spokesperson Cindy McCaffrey told SearchEngineWatch.com. "[O]ur search
results represent our editorial integrity, and we have no plans to alter
our automated process, which works very well in gathering information
and delivering highly relevant results,"(4)  she said.

  
B:  The FTC Has Repeatedly Sought to Stop Companies From Concealing That
Their Ads Are Ads

By concealing the key fact that their ads are ads, search engines appear
to be violating the federal prohibition against deceptive acts or
practices. This omission falls within a line of deceptive advertising
cases in which the FTC sought sanctions against companies that have hid
that their ads were ads.  

The FTC has brought many cases against producers of "infomercials,"
charging that "the infomercials were deceptive in that they purported to
be independent programming rather than paid ads." (5)  For example, the
consent decree in Michael S. Levey forbids Mr. Levey from disseminating
any "advertisement that misrepresents, directly or by implication, that
it is not a paid advertisement." (6)


C: Paid Placement and Inclusion is Likely to Deceive Many Users of
Search Engines

Without clear disclosure of the inclusion of ads within search engine
results, even well-informed search engine users may not know whether a
listing is an ad. "It's getting very difficult to tell whether a site
paid to be listed or not," Danny Sullivan, editor of SearchEngineWatch,
told The New York Times. (7)  If experts like Mr. Sullivan cannot easily
figure this out, it is unlikely that other search engine users can tell
whether any particular search engine result was a paid ad or not.

The deception is, of course, intentional. "You don't want users to come
to your site thinking the information is being weighted by whoever pays
the highest price tag,'' (8) explained Christopher Todd, an analyst at
Forrester Research.
 
The likelihood of deception is enhanced by the lack of sophistication of
many of search engine users.  Search engines are now a commonplace part
of the quest for information and knowledge; almost every segment of
society uses them.  Many search engine users are children and teenagers
who may have limited cognitive abilities and an incomplete understanding
of the purpose of advertising.  They especially are likely to be
deceived by the failure to disclose that listings are paid ads.

The failure to disclose that an ad is an ad is material because it can
ultimately affect consumers' purchasing decisions, by diverting their
attention to the advertisers.  This is, of course, the purpose of the
ad, and there is no question that the search listing ads in fact do
this.

Because of the earlier editorial integrity in search engine results,
there is an implied representation to search engine users that listings
are not skewed by marketing or commercialism.  Consumers are accustomed
to search engine protocols based on editorial integrity, and have not
been told of the departure from these protocols.  In effect, this is a
high-tech case of "bait and switch." 

This deception is especially important because so many Americans use the
Internet and search engines each day to find facts and information. 
About 167 million Americans have access to the Internet at home,
according to Nielsen/NetRatings.(9)  For many of these Internet users,
search engines have become both filter and gateway to learning and
knowledge.  That is a crucial role in any society.  The FTC should not
allow such a privileged role to become a platform for deception.

We urge the FTC to fully investigate this matter and exercise any and
all of its powers to enjoin the companies listed in this complaint from
disseminating deceptive advertising, and to require them to disclose, in
a clear and conspicuous manner, that ads placed in search engine results
are, in fact, ads. 

Sincerely,

Gary Ruskin
Executive Director


Footnotes

(1) 15 U.S.C. § 45(a)(1).

(2)  Sources for chart: Danny Sullivan, "Buying Your Way in to Search
Engines," Searchenginewatch.com, May 2, 2001,
<http://www.searchenginewatch.com/webmasters/paid.html>.  Saul Hansell,
"Clicks for Sale; Paid Placement Is Catching On in Web Searches."  The
New York Times, June 4, 2001. <http://www.iwon.com/>,
<http://www.lycos.com/>, <http://www.msn.com/>,
<http://www.netscape.com/>, <http://www.altavista.com/>,
<http://www.directhit.com/>, <http://hotbot.lycos.com/>,
<http://www.looksmart.com/>.

(3) Verne Kopytoff, "Searching for Profits; Amid Tech Slump, More
Portals Sell Search Engine Results to the Highest Bidder."  San
Francisco Chronicle, June 18, 2001.  Attachment #1 also includes Saul
Hansell, "Clicks for Sale; Paid Placement Is Catching On in Web
Searches."  The New York Times, June 4, 2001.  Mindy Charski, "The
Virtuous Search Engine," Interactive Week, June 4, 2001,
<http://www.zdnet.com/intweek/stories/news/0,4164,2767661,00.html>. 
Deborah Lohse, "Searches Bringing Up More Pay-for-placement," San Jose
Mercury News, February 16, 2001.  Elizabeth Weise, "Web Sites Pay to
Propel Search Engines; Fees for Detailed Listings Raise Doubts About
Where the Links Are Taking You." USA Today, November 14, 2000.  See
generally Searchenginewatch.com's web page on pay for placement at
<http://searchenginewatch.com/resources/paid-listings.html>. Danny
Sullivan, "Buying Your Way in to Search Engines," Searchenginewatch.com,
May 2, 2001, <http://www.searchenginewatch.com/webmasters/paid.html>.

(4) Danny Sullivan, "The Evolution of Paid Inclusion." 
SearchEngineWatch.com, July 2, 2001,
<http://www.searchenginewatch.com/sereport/01/07-inclusion.html>.  See
Attachment #2.

(5) Michael S. Levey, Docket No. C-3459, Federal Trade Commission, 116
F.T.C. 885,  September 23, 1993.  See e.g. Nutrivida, Inc., and Frank
Huerta, Docket No. C-3826, Federal Trade Commission, September 10,
1998.  Bogdana Corp. and Joseph L. Gruber and Bogda Gruber, Docket No.
C-3820, Federal Trade Commission, July 28, 1998.  Mega Systems
International Inc., Docket No. C-3811,  Federal Trade Commission, June
8, 1998. National Dietary Research Inc., The William H. Morris Co., and
William H. Morris, Docket No. 9263,  Federal Trade Commission, 1995 FTC
LEXIS 324, November 7, 1995.  Olsen Laboratories Inc. et. al., Docket
No. C-3556,  Federal Trade Commission, 119 F.T.C. 161, February 6,
1995.  Wyatt Marketing Corp. Inc., and James R. Wyatt, Docket No.
C-3511, Federal Trade Commission,  118 F.T.C. 117, July 27, 1994. 
Synchronal Corp., Docket No. 9251, Federal Trade Commission, 117 F.T.C.
724, May 13, 1994. Del Dotto Enterprises Inc., David P. Del Dotto, and
Yolanda Del Dotto, Docket No. 9257,  Federal Trade Commission, 117
F.T.C. 446, April 21, 1994.  National Media Corp. and Media Arts
International Inc., Docket No. C-3441, Federal Trade Commission, 116
F.T.C. 549, June 24, 1993. C C Pollen Co. and Bruce R. Brown, Docket No.
C-3419, Federal Trade Commission, 116 F.T.C. 206, March 16, 1993.
Richard Crew, File No. 882 3199,  Federal Trade Commission, 1990 FTC
LEXIS 475, October 16, 1990. Robert Francis, File No. 882 3199,  Federal
Trade Commission, 1990 FTC LEXIS 496, September 27, 1990. Twin Star
Productions Inc, Jerald H. Steer, Allan Singer, Judith Singer, Douglas
Gravink, Peter Claypatch and Steven Singer, Docket No. 882 3199, 
Federal Trade Commission,  1990 FTC LEXIS 87,  March 13, 1990.

(6) 58 Fed. Reg. 38768.

(7) Saul Hansell, "Clicks for Sale; Paid Placement Is Catching On in Web
Searches."  The New York Times, June 4, 2001.

(8) Patricia Riedman, "Advertorial Seeps into Search Sites; Paid
Listings on Results Pages Are Becoming the Norm." Advertising Age,
February 19, 2001.  See Attachment #3.

(9) "Hot Off the Net," Nielsen/NetRatings, May, 2001,
<http://www.nielsen-netratings.com/hot_of_the_net.htm>.  See Attachment
#4.

<-----letter ends here---->

FOR MORE INFORMATION
See Commercial Alert's web page on search engines, at:
<http://www.commercialalert.org/searchengines/index.html>


Ralph Nader founded Commercial Alert in 1998 to keep the commercial
culture within its proper sphere, and to prevent it from exploiting
children and subverting the higher values of family, community,
environmental integrity and democracy. 

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Gary Ruskin | gary@essential.org 
Commercial Alert | Congressional Accountability Project
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