Businesses engaged in web-based advertising should pay careful attention to two recent actions by the Federal Trade Commission indicating the Commission is closely scrutinizing online marketing practices.

One action involved Lumos Labs, Inc., the owner of the online “brain game” portal Lumosity; the other involved Stratford Career Institute, an online school purporting to offer high school equivalent degrees. In both cases, the FTC considered not only whether the businesses made allegedly false claims directly to consumers through advertising, but also whether internet search terms purchased by the businesses accurately reflected the goods or services being offered.

On January 5, the FTC announced its settlement agreement with the owners of Lumosity. The agreement was reached following an FTC investigation into Lumosity’s claims that its online “brain training” would help users improve at school and work and protect against memory loss due to age or health conditions, such as Alzheimer’s disease.

In the complaint charging the company with deceptive trade practices, the FTC described Lumosity’s advertising campaign. The FTC described not only the Lumosity’s television, online, and radio ads, but also described the search terms Lumosity had purchased to direct people to its website.

The complaint states: “Defendants have employed an extensive search engine campaign, including through Google AdWords, and have purchased hundreds of keywords, including many variations of words related to memory, attention, intelligence, brain, cognition, dementia, and Alzheimer’s disease.” The FTC alleged that the use of these keywords was a deceptive trade practice.

Similarly, the FTC cited search terms in its complaint filed February 18 against Stratford, a for-profit web-based school offering degrees to students seeking high school diplomas.

The FTC alleged that Stratford violated the FTC Act by making representations about its high school degree program that were false or misleading. The FTC asserted that Stratford advertised its high school diploma program by claiming that completing the program would help students with career advancement and enable them to apply to college. According to the FTC, in reality, many colleges and jobs did not accept the Stratford diploma as the equivalent of a high school degree. The complaint noted that Stratford students complete less course units than many states require for a valid high school diploma; in addition many states require courses which Stratford does not offer.

Just as in the Luminosity case, the FTC mentioned not only the Stratford website, brochures, commercials, and letters to prospective applicants, but also Stratford’s Bing and Google keywords, as examples of allegedly false advertising. According to the complaint, Stratford purchased keyword search terms from search engines, such as “official high school diploma,” “high school diploma equivalent,” and “real high school diploma online,” in order to direct potential students to the Stratford website.

The Luminosity and Stratford cases indicate that, when investigating businesses for unfair and deceptive trade practices, the FTC will scrutinize not only direct advertising, but also “indirect” advertising through search terms.

Given these decisions, it is particularly important for businesses engaged in internet marketing to carefully consider the search terms they use to drive customers to their websites. If words purporting to describe a product or service would not be accurate when stated directly to consumers through traditional advertising, then businesses should not use those words to describe their goods or services through keywords.

Search term phrases have also given rise to a number of trademark claims between companies.  For a discussion of those issues we refer you to this article by Troutman Sanders attorney Sofia Jeong.

Members of Troutman Sanders’ Regulatory Compliance and Investigations Group have experience providing compliance advice and defending businesses engaged in online and mobile marketing.