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Old Dog New Tricks - misleading or deceptive conduct on the internet

Passing Off and Misleading or Deceptive Conduct On Line – Old dog, new tricks. (Presented to Law Society CLE Seminar on 8 March 2016)

Introduction.

Misleading and deceptive conduct in the course of trade is as old as commerce itself. But new technologies open up new opportunities for skulduggery.

The advent of the digital economy is a case in point. On one level, on-line advertising can be as misleading or deceptive as any other kind of conduct. But the way in which search engines work can also be gamed and this has permitted novel modes of misleading and deceptive conduct.

This paper will look at manifestations of misleading or deceptive conduct (including passing off) on-line. The principal areas of law that will be discussed are s18 of the Australian Consumer Law (ACL) and related provisions; the Trade Marks Act; and the tort of passing off. The On Line Infringement Act will receive an honourable mention. We wilt hen look at how the law applies to actual situation of online misconduct.

How Search Engines Work

All search engines – Google, Yahoo etc – combine search, indexing and retrieval functions. “Web crawlers” comb the internet and record the details of webpages and save them to dedicated data storage. The saved webpages are automatically indexed. When you enter a search query the search engine applies an algorithm – a mathematical kind of check list - to identify the web pages that are most relevant to your query.

The High Court summarised it nicely in ACCC v. Google [2013 HCA 1]:

18. The internet is a global network of networks of computers. Computers connected to the internet communicate with each other – requesting and receiving data – by means of a common language, the Internet Protocol.. The World Wide Web is a vast system of interlinked documents ("web pages") which can be accessed by computers connected to the internet. Each web page has a unique address, or URL[. An internet user who wishes to access a web page at a known address can access that web page by entering the address into the web browser on his or her computer.

19. An internet user who wishes to access a web page but does not know its address, or wishes to locate a selection of web pages relevant to a particular topic, is likely to use an internet search engine, like the Google search engine, in much the same way that a person who does not know the telephone number of a particular business, or wishes to contact a local provider of a particular product or service, might once have been likely to use a telephone directory.

20. The Google search engine allows internet users to search for web pages by entering search terms into a search field and clicking on a button marked "Google Search" ("the search button"). Google keeps and constantly updates an index of billions of web pages which enables it to respond to users' search requests. Google does not control the search terms entered by users of the Google search engine, or the material available on the internet.

21. During the period relevant to these proceedings, if a user of the Google search engine entered search terms into the search field and clicked on the search button, the Google search engine would display two types of search results: "organic search results" and "sponsored links".

22. Organic search results are links to web pages, which are ranked in order of relevance to the search terms entered by the user. The Google search engine always displays organic search results, and organic search results are always displayed free of charge. Google does not sell placement in its organic search results. Instead, the order of relevance of organic search results is determined by a complex proprietary algorithm developed by Google which is a function of many factors, including the content of each web page which Google has indexed, and the number and type of links between each of those web pages.

23. As mentioned above, a sponsored link is a form of advertisement. Each sponsored link is created by, or at the direction of, an advertiser who typically pays Google each time a user of the Google search engine clicks on the sponsored link. Not all search terms entered into the Google search engine result in the display of sponsored links. When the Google search engine does display sponsored links, they are listed separately from organic search results. They appear either above the organic search results in a shaded box marked "Sponsored Links" ("top left sponsored links"), or to the far right of the organic search results in a box marked "Sponsored Links" ("right side sponsored links"). Whether the Google search engine displays sponsored links, and the order and position in which such links appear if they are displayed, is not determined by the algorithm which determines the order of relevance of organic search results, but by the AdWords program….

 

Search Engine Optimisation

Essentially this involves designing a website so it will be ranked highly by the search engine algorithm on a relevant search.

There is an ongoing battle between search engine providers and Search Engine Optimisers. The Googles of the world do not want anyone else gaming their algorithm. This is partly to preserve the integrity of the service they provide but also so as to preserve the attractiveness of their Adword offering (see below).

But it will always be possible to manipulate search engine results by anticipating the variables they utilise to rank web pages.

Keywords and Adwords

A keyword in this context is a search query term. One (but only one) of the variables which search engines use to rank results is the frequency with which the keyword appears in indexed web pages.

“Adwords” is a Google proprietary term and refers to a keyword which an advertiser can pay for so that their link will appear as a “sponsored link” on the first page of any search using that keyword.

Potential Misuse

A lot of energy goes into search engine optimisation whereby an advertiser’s site is designed to rank highly in organic search results. Techniques include “keyword stuffing” and “link spam”. Search engine providers will tell you these techniques do not work “anymore” but that seems questionable based on the case law.

Examples of potential misuse include:

1. Piggy Backing – “buying” a keyword – often a trade mark – that belongs to another trader but linking it to your own web page. When the searcher enters that key word (or something similar) they will see a sponsored advertisement linking to the web site of the person who paid for the keyword. The keyword need not be identical to the trade mark of the rival trader; one kind of misuse in this context is called “typo squatting”.

2. Search Engine Optimisation – incorporating a rival trader’s trade mark or name (or something similar) into your website so as to appear in the organic search results  that use that name. As we will see this is not necessarily actionable misconduct.

3. Domain Squatting – registering a domain name that incorporates a trade mark with established goodwill in the expectation that you will be paid to transfer it.

4. Pirate Sites.

If you search the name of a product you will often be taken to a website selling (or permitting a free download or streaming if the product is digital) of counterfeit or unauthorised versions of that product. Examples include Ali Baba, Coke & Popcorn, Pirate Bay. That website appears in the search because it uses the trade mark of the product in question, usually without permission.

 

So what can your client do about it?

The Competition and Consumer Act 2010 (Cth) Schedule 2 The Australian Consumer Law s18.

The old s 52 of the TPA is now s18 of the ACL. It would be hard to exaggerate the usefulness of this provision. It has had a massive (and perhaps originally, unintended) impact on commercial litigation by virtue of its ability to override contractual provisions and exclusion clauses – subject always to proof of reliance. In this area its impact has been curtailed somewhat by judicial reluctance to accept that arm’s length commercial actors rely on anything except what is in the contract.

But its role in consumer protection and by extension the protection of intellectual property remains undiminished. It is often pleaded in parallel with other causes of action in copyright, trade mark and passing off because of its generous standing rules and flexible remedies. For example, a subsidiary or distributor of a foreign corporation can invoke s18 in circumstances where the foreign corporation lacks standing or would be subject to a disadvantageous security for costs order.

18 Misleading or deceptive conduct

(1)A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Section 4 effectively reverses the onus of proof in relation to representations as to future matters; such representations are deemed to be misleading or deceptive unless the representor had reasonable grounds for making the representation.

A contravention of s18 may result in a fine under ACL (chapter 4); an injunction (s 232) ; a publication order( ss 246 -247); damages (s 236); or remedial orders (ss 237 – 241, 248).

Section 18 does not however apply to representations made by an “information provider” in the course of business other than in an advertisement or information that publicises goods and services provided by the information provider, its related corporation, or pursuant to an agreement with a provider of goods and services (eg advertorial) or the sale of land see s19 ACL. An information provider is a person who carries on a business of providing information (s19(5) ACL). This is an important provision not just for media outlets but also for search engine providers who, as anyone knows who has done an internet search, publish vast quantities of inaccurate information on a daily basis..

Section 209 ACL also provides a defence for information providers who publish misleading or deceptive material without reason to suspect it is infringing.

Trade Marks Act (1995) Cth.

Registration of a trade mark bestows a monopoly in relation to use of that mark in the course of trade to denote the goods or services in respect of which the mark is registered. If a rival trader uses the registered mark without permission or a mark “substantially identical or deceptively similar” to the registered mark then the owner of the mark can restrain that use by injunction and recover damages or account of profit (s126 (1)).

When is a registered trade mark infringed?

 

126 (1) A person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered.

(2) A person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to:

(a) goods of the same description as that of goods ( registered goods ) in respect of which the trade mark is registered; or

(b) services that are closely related to registered goods; or

(c) services of the same description as that of services ( registered services ) in respect of which the trade mark is registered; or

(d) goods that are closely related to registered services.

Proving loss has however always been problematic in trade mark cases given the need to prove profit lost based on lost sales. It can be very difficult to prove how many sales were in fact lost; usually the best that can be done is to identify how many sales were made by the infringer and ask the court to infer loss by multiplying that number by the applicant’s profit per unit. There is no equivalent to the copyright “licence fee test” in trade mark law.

The Trade Marks Act however now (since 2013) also permits ‘additional” damages in certain circumstances.

S126 (2) A court may include an additional amount in an assessment of damages for an infringement of a registered trade mark, if the court considers it appropriate to do so having regard to:

(a)the flagrancy of the infringement; and

(b) the need to deter similar infringements of registered trade marks; and

(c) the conduct of the party that infringed the registered trade mark that occurred:

(i)after the act constituting the infringement; or

(ii)after that party was informed that it had allegedly infringed the registered trade mark; and

(d)any benefit shown to have accrued to that party because of the infringement; and

(e)all other relevant matters.

It can be confidently anticipated that this provision will be applied in a similar manner to s115(4) of the Copyright Act and so as to deliver specific and general deterrence. In Halal Certification Authority Pty Ltd v Scadilone Pty Ltd [2014] FCA 614. The court awarded additional damages of $91,000. In Vertical Leisure Limited & Anor v Skyrunner Pty Ltd & Anor [2014] FCCA 2033), the Federal Circuit Court awarded $300,000 in additional damages; compensatory damages were $44,000.

Directors may be personally liable as joint tort feasors but there is no equivalent to the authorisation concept which is available in copyright law.

The beauty of a registered trade mark is that it can be used without proof of reputation or damage. Now that the Federal circuit court has jurisdiction in trade mark matters enforcement can be relatively cost effective.

Passing Off

The classic definition of passing off is the appropriating the goodwill of a rival trader.  In the Advocaat case Erven Warnink Besloten Vennootschop v J.Townend and Sons (Hull) Ltd (1979) AC 731 Lord Diplock held (at 741-2):

My Lords, A.G. Spalding and Bros v A.W. Gamage Ltd and the later cases make it possible to identify five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation

(2) made by a trader in the course of trade,

(3) to prospective customers of his or ultimate consumers of goods or services supplied by him,

(4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and

(5) which causes actual damage to a business or goodwill of a trader by whom the action is brought or (in a quia timet action) will probably do so."

In this sense ‘goodwill’ means reputation (not the amount someone would pay for the anticipated future profit of a businesss).

To have standing to bring an action in passing off you need to prove reputation in the jurisdiction and the real likelihood of damage by loss of sales. In Con Agra v McCain
(1992) 23 IPR 193, the Full Federal Court held:

.

121. I am of the opinion that it is not necessary in Australia that a plaintiff, in order to maintain a passing off action, must have a place of business or a business presence in Australia; nor is it necessary that his goods are sold here. It is sufficient if his goods have a reputation in this country among persons here, whether residents or otherwise, of a sufficient degree to establish that there is a likelihood of deception among consumers and potential consumers and of damage to his reputation.

 

If at all possible one avoids passing off as a cause of action. Its persistence in pleadings says something for the conservatism of the legal profession. If your client has an unregistered trade mark it becomes relevant. Even so, it is difficult to imagine a case where s18 of the ACL would not provide a more cost effective remedy.

 

Actual cases – Piggy backing

In the Federal Court decision of Nicholas J in Australian Competition and Consumer Commission v Trading Post Australia Pty [2011] FCA 1086), his Honour held that the use by Trading Post Australia Pty Limited (Trading Post) of a competitor’s name as a keyword to trigger their own advertisement on Google searches was misleading or deceptive and in contravention of section 52 of the Trade Practices Act 1974 (Cth) (as it then was).

An example of the advertisement found to be misleading:

KlosterFord
www.tradingpost.com.au New/Used Fords – Search 90,000 + auto ads online. Great finds daily!

J Nicholas found at [at paragraph 130]:

1. the advertisement conveyed that there was an association or affiliation between Klosters Ford and Trading Post, where no such association or affiliation existed;

2. the advertisement conveyed that information related to Klosters Ford could be found at the Trading Post website; where this statement is contrary to fact and

3. the advertisement conveyed that information regarding the sale of cars by Klosters Ford could be found at the Trading Post website, where this statement is contrary to fact.

Not surprisingly, the Trading Post did not defend the proceedings.

What is more interesting is the role of the search engine provider in this conduct. After all, the misleading advertisement was only available by reason of Google displaying it in response to a search for the appropriated key word.

In overseas jurisdictions Google has paid out big money, reputedly up to 90 million dollars in respect of the sale as Adwords of names which are registered trademarks. [citation].

The ACCC took action against Google for this practice, lost at first instance in the Federal court; won in the full court then lost in the High Court ACCC v. Google [2013 HCA 1].

The High Court’s majority reasoning is worth quoting  extensively:

64. The starting point for the ACCC's arguments was that the clickable headline in each of the sponsored links contained the name of a trader (and, in one case, the URL of a trader) different from that of the relevant advertiser. Referring to the keyword insertion facility, the ACCC argued that Google had inserted search terms chosen by users of the Google search engine as headlines in the sponsored links, and was therefore responsible for the collocation of the clickable headline containing the name (and, in one case, the URL) of another trader and the advertiser's URL. The ACCC also emphasised that Google had provided the functionality of the clickable headline (that is, the ability for users of the Google search engine to click on the headline of a sponsored link and be taken to the advertiser's web site). In addition, the ACCC submitted that, by displaying the sponsored links, Google had informed users of the Google search engine that the sponsored links were responsive to the users' search requests.

 

65. Google always admitted that it published or displayed the STA Travel advertisements, the Carsales advertisements, the Ausdog advertisement and the Trading Post advertisement. However, Google contended that the fact that it displayed the sponsored links in response to users' search requests was not sufficient to justify a finding that Google had itself made the misleading representations conveyed by the sponsored links, or otherwise engaged in misleading and deceptive conduct.

66. Google emphasised that each relevant aspect of a sponsored link – the headline, the advertising text, the advertiser's URL, the keywords and the use of keyword insertion – was specified by the advertiser, and that Google merely implemented the advertiser's instructions. Google submitted that the technical facilities it provided through the AdWords program were different in kind, but not in principle, from facilities provided to advertisers by other intermediaries such as publishers and broadcasters. Google further contended that any commercial association or affiliation between an advertiser and another trader was something peculiarly within the knowledge of the advertiser, and was not a matter within Google's expertise. Google also relied on the primary judge's findings that ordinary and reasonable users of the Google search engine would have understood that the sponsored links were advertisements paid for by advertisers to promote their products and businesses, and that Google was merely passing them on for what they were worth.

 

The High Court agreed with Google, finding that its technology did no more than transmit the choices of the advertiser.

 

Further, though it did not have to decide the point the High Court agreed with the first instance judge that Google was an information provider and entitled to the protection of s209 of the ACL.

 

The decision does have its problems. For a start there are plenty of examples of Google actively rejecting certain Adwords – the process is not automated. Anything to do with sex seems to come in for scrutiny.

 

In any event it is clear enough that the trader who seeks to exploit the reputation of a rival trader in a key word by linking it to their web page can be restrained. Damages may be difficult to prove but that is where additional damages come in to their own.

 

Lift Shop Pty Ltd v Easy Living Home Elevators Pty Ltd [2014] FCAFC 75

Easy Living and Lift Shop were trade rivals in the home lift market. Easy Living had its web site “optimised’ so that the words Lift Shop were incorporated into it with the result that searches for that term would also produce a result linking to Easy Living.

Lift shop alleged that the following search result infringed its registered trade mark in “Lift Shop” and also constituted a contravention of s18..

Easy Living Lifts | Home Elevators | Lift Shop Home Elevators ...

www.easy-living.com.au/ ▼

At Easy Living home elevators website you will find details on all of our lifts and home elevators here, which will help you achieve the easy living you deserve.

The first instance judge was persuaded that “Lift Shop” was a generic term and further that the respondents advertisement sufficiently distinguished itself so as to avoid any breach of s18.

The appeal case turned on whether the use by Lift Shop’s trade rival Easy Living Lifts of the words comprising the registered trade mark of Lift Shop was use as a trade mark or was simply descriptive of its (easy Living’s) business.

The Full  Federal Court applied the analysis of the high Court in The Shell Company of Australia Limited v Esso Standard Oil (Australia) Limited [1963] HCA 66; (1963) 109 CLR 407

In that case  Kitto J (at 424-425), with whom Dixon CJ and Taylor and Owen JJ agreed, said:

The crucial question in the present case seems to me to arise at this point. Was the appellant’s use, that is to say its television presentation, of those particular pictures of the oil drop figure which were substantially identical with or deceptively similar to the respondent’s trade marks a use of them “as a trade mark”? With the aid of the definition of “trade mark” in s. 6 of the Act, the adverbial expression may be expanded so that the question becomes whether, in the setting in which the particular pictures referred to were presented, they would have appeared to the television viewer as possessing the character of devices, or brands, which the appellant was using or proposing to use in relation to petrol for the purpose of indicating, or so as to indicate, a connexion in the course of trade between the petrol and the appellant. Did they appear to be thrown on to the screen as being marks for distinguishing Shell petrol from other petrol in the course of trade?

 

The Full Federal Court observed:

 

35. At face value, the words “Lift Shop”, as a compound expression, certainly have descriptive aspects. This does not necessarily mean, however, that those words could not, and in context did not, also function as a trade mark. The position is explained by the following observations of Gummow J (when in this Court) in Johnson & Johnson [1991] FCA 310; (1991) 30 FCR 326 (at 347-348):

 

When the issue is one of infringement, a pivotal question is whether the use complained of is use by the alleged infringer as a trade mark. The answer to that question requires an understanding of the “purpose and nature” of the impugned use: see Shell Company of Australia Ltd v Esso Standard Oil (Australia) Ltd (the Shell case) [1963] HCA 66; (1963) 109 CLR 407 at 426, per Kitto J. As his Honour there points out, … where the issue is one of infringing use by use of a word mark (as in the present case), the fundamental question remains, …whether those to whom the user is directed are being invited to purchase the goods (or services) of the defendants which are to be distinguished from the goods of other traders “partly because” (emphasis supplied) they are described by the words in question.

 

45. In the present case, the relevant question is whether the words “Lift Shop”, as used by the respondent in the title of its web page, functioned to distinguish its goods or services from those of others? Objectively considered, the answer to that question is “no”.

46. Those searching the internet using the search term “lift shop” would have understood, on seeing the displayed results, and in particular the words “Lift Shop” in the title of the respondent’s web page, that the respondent was using those words to convey that its business was one of supplying “lifts” and “home elevators”. Although the use of the words “Lift Shop” was given some prominence because of their use in the title of the respondent’s web page, neither that fact, nor the positioning of those words within the title, imbued them with the character of a trade mark. The use of the words “Lift Shop” as shown in the entries quoted in paragraphs [9]-[11], makes clear that their only functional significance was to describe the character of that business. Their use by the respondent was not to distinguish its business from others. To the contrary, in the larger setting provided by the results pages, the use of those words was to designate, and would have been understood as designating, that the respondent’s business was of the same character as, or at least of a similar character to, other businesses grouped and operating as “lift shops”. Such use is the antithesis of trade mark use.

Domain Squatting

This is the on line version of the venerable practice of “digging a commercial pit’ per Isaacs J in Turner General Motors(Australia) Pty Ltd (1929) 42 CLR 352 .

In Turner v General Motors, an American manufacturer of motor cars, which had a trade reputation in Australia, marketed them here through agents whose operations it controlled by means of a subsidiary. The defendants commenced to carry on business in Sydney as dealers in second hand motor cars under names which resembled both those of the American company and its new company.. Isaacs J. held (at 364):

But on principle the whole contention is fallacious (that is the contention that the appellants had done nothing legally wrong as regards the respondent). In the first place, a man who digs a pit in a path along which he has reason to believe another man will shortly travel, does nothing of which the man can legally complain before he comes to it. But if the latter happens to fall into the hole and suffers injury, does the argument of original freedom from responsibility avail the man who digs the pit? What Ernest Samuel Turner for all the defendants in the suit did was to dig a commercial pit in advance. If there ensued injury, or probability of injury, there is surely a remedy.

 

First, what is a domain name? According to Wikipedia, a domain name :

represents an Internet Protocol (IP) resource, such as a personal computer used to access the Internet, a server computer hosting a web site, or the web site itself or any other service communicated via the Internet.

Domain names are organized in subordinate levels (subdomains) of the DNS root domain, which is nameless. The first-level set of domain names are the top-level domains (TLDs), including the generic top-level domains (gTLDs), such as the prominent domains com, info, net, edu, and org, and the country code top-level domains (ccTLDs). Below these top-level domains in the DNS hierarchy are the second-level and third-level domain names that are typically open for reservation by end-users who wish to connect local area networks to the Internet, create other publicly accessible Internet resources or run web sites. The registration of these domain names is usually administered by domain name registrars who sell their services to the public.

 

This publication is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. The publication reflects the law at the date the publication was written which may differ at the date the publication is being read. No reader should act on the basis of any matter contained in this publication without first obtaining specific professional advice.
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