Plaintiffs provide California traffic school courses in physical classrooms, for home study, and online; they also market and sell third-party driver’s ed courses for other states to online consumers. Defendants own dmv.org, which carries a lot of driver-related information and ads; they make money when consumers buy driver’s ed courses they discover on the dmv.org site. Plaintiffs sued for false advertising under California state law and the Lanham Act.
Defendants argued that plaintiffs lacked standing. Under the Lanham Act, standing requires a competitive injury. In particular, the parties must compete in that they must “‘vie for the same dollars from the same consumer group,’” and the misrepresentation must “at least theoretically” divert business from plaintiff to defendant, though likelihood of injury rather than actual injury suffices. False statements that could theoretically draw business away from competitors justify granting those competitors standing. Plaintiffs had Lanham Act standing: they get revenue from advertising third-party non-California courses and (their currently dominant business model) they sell non-California courses on their own sites that are then taught by third-party providers, earning hundreds of thousands of dollars in partner/referral revenues from 2002 to 2007. Defendants argued that they make their money through receiving referral fees, rather than from collecting money and then splitting it with third-party providers. The court found the distinction unpersuasive: both plaintiffs and defendants make money “by connecting consumers with third-party traffic school or driver’s education providers.”
The consumer is indifferent to the compensation mechanism. Indeed, one consumer testified that she bought a course by clicking on an ad “recommended” on dmv.org, and that if she’d known the course was recommended by a private party instead of her own state’s DMV she probably would have looked elsewhere and would have considered plaintiff’s site. Likewise, one of defendant’s executives admitted that customers would probably choose between the parties’ sites to find a traffic school provider. Even if most of plaintiffs’ business is California-based and involves directly providing traffic school services, there is standing when competition exists even over a small part of a plaintiff’s business.
Defendants also argued that plaintiffs lacked standing because their claim was really one for false affiliation, and other cases have refused to allow Lanham Act claims over false implications of FDA approval. This isn’t actually a standing objection, but anyway the court disagreed: the claim was that (1) defendants portray themselves as an official motor vehicle agency, and then (2) explicitly recommend particular providers. This isn’t analogous to the FDA cases. “Moreover, many courts have found that false advertising claims can be based on actual or implied approval by an agency or third party.”
Plaintiffs did not, however, have standing under California law, which requires “injury in fact” and “lost money or property.” Plaintiffs had no evidence of actual injury or lost money. They showed that one consumer was confused and that the confusion influenced her purchasing decision, but she didn’t testify that she definitely would have used plaintiffs’ site had it not been for the false advertising; rather, she “probably” would have looked elsewhere and considered other providers, including plaintiffs. Plaintiffs also showed evidence of decreased business in several states, despite a stable/increased marketing budget. However, they didn’t show a causal link between the decrease and defendants’ conduct.
The key liability issue was whether “dmv.org” was impliedly false. There was significant anecdotal evidence of confusion. Between 70-80% of consumers arrived at dmv.org through search engine listings. If you googled “dmv” in late 2006, the first sponsored result would be titled “California DMV,” linking to www.ca.dmv.org, described as “CA Dept. Motor Vehicles Guide, Guide to DMV, License, Registration.” The actual link for the California state DMV, www.dmv.ca.gov, was the first natural listing on the left. Dmv.org appeared again as the second natural listing, with the description “DMV Motor Vehicles Guide. Nationwide DMV Information. Drivers License, Vehicle Registration, DMV Forms, Locations, Vehicle History, ....” A search for “drivers ed” would have triggered the sponsored listing “California DMV Drivers Ed” at california.dmv.org, described as “CA recommended drivers ed Course for obtaining a Learners Permit.” (Here’s a version from archive.org.)
At the dmv.org homepage (archive.org), there was a big license plate logo and a header: “No need to stand IN LINE. Your DMV Guide is now ONLINE!” Consumers were invited to choose their state; ones who chose California would then see a big header, “Your Online Guide to the CALIFORNIA DMV,” a California state flag, and a license plate logo that added “California” above “DMV.ORG.” There were links “about how to complete DMV-related transactions,” with titles like “Drivers License,” “Vehicle Registration,” “Locations & Hours,” and “DMV forms.” “Traffic Schools” took consumers to a page stating “We recommend [one of their referral partners] as your best choice for California traffic school online.” Similar “we recommend” statements appeared for other services.
A tiny disclaimer appeared on the bottom of each page, below the copyright notice. (Ooh, snap.) If one were to print out the page on standard paper, the disclaimer would be on the bottom of the second or third page; the court concluded that the disclaimer would not be visible on a typical screen without scrolling down.
One consumer testified that she believed that dmv.org was an official California site and, based on the site’s recommendation, which she believed to be official, enrolled in its partner’s course. Another person, who ran an online traffic school, also testified to confusion. In fact, hundreds of emails in the record evidenced confusion. Many consumers sought information about where their tags were, the status of tickets, the validity of their licenses, etc., providing detailed personal and vehicle information in an attempt to resolve problems—sometimes criminal problems—they were having with their actual DMVs. Law enforcement personnel were confused, seeking investigative information from dmv.org (one email began, “Dear Oregon DMV …”). Even actual DMV personnel were confused.
Non-email evidence also showed confusion. Cities in California provided links on their sites that purported to go to the California DMV, but actually went to dmv.org; other sites made similar mistakes; so did a number of newspapers.
Defendants admitted receiving confused emails on a daily basis, even after the lawsuit was filed. Though the site receives millions of visits a month, there’s no way to tell how many of the non-emailers were also confused, making even a small percentage of visitors who actually demonstrate confusion persuasive evidence. As the court pointed out, the consumer who testified about her confusion didn’t learn her mistake for nearly a year, and she never emailed dmv.org.
After the lawsuit was filed, defendants changed some of their site content, for example changing “California DMV” to “California DMV Info” in their sponsored search results and “CA recommended drivers ed” to “Recommended Drivers Ed Course.” They attempted to include “unofficial” in some of their headers and sponsored listings, though in practice “unofficial” is often not included in sponsored listings. They also added a small disclaimer below the logo: “Privately owned comprehensive guide to the DMV since 1999” and then “DMV.ORG is not associated with any government agency.” “Unofficial Guide to the DMV” now appears in small type below DMV.ORG in the license plate logo. None of these changes have affected consumer confusion as evidenced by the emails.
The parties both submitted surveys; the court found both flawed, though not excludable. Plaintiffs’ first survey was internet-based; it asked consumers to suppose they were searching for an online traffic school, then shown a Google result for “online traffic schools” and asked about the DMV.ORG result: “Whose website do you think this link directs you to?” They were then asked about endorsement or affiliation. “57.6% of respondents thought the search result linked to a Department of Motor Vehicles website, and … just over half thought the search result was linked to a website endorsed by a government agency.” A second survey showed respondents screenshots of dmv.org and asked “Whose website do you think this is?” 56% answered “the DMV.” In response to an endorsement/sponsorship question, “47% felt it was endorsed, and 43.8% felt it was sponsored,” by a government agency.
Defendants’ expert criticized the survey for lacking a control, failing to instruct respondents not to guess, and using leading stimuli. Respondents weren’t allowed to see the full dmv.org webpage so they could scroll down and see the disclaimer if they desired to do so. The court agreed that the lack of a control and the unavailability of the full webpage were significant problems (even though the court had already, and wisely, concluded that consumers were unlikely to see the disclaimer).
Defendants’ rebuttal survey also showed respondents pages from dmv.org and modified versions with car.org in the same places. The court found the core survey question unintelligible: “If you have an opinion, do you think that any of the entities shown on these four pages is affiliated with anyone else or that none of them are affiliated with anyone else?” Nor did the survey ask respondents who owned dmv.org—the question was broad enough to include answers about advertisers on the site, not just the owner/operator. Moreover, the survey used respondents from California, which uses “DMV” as an abbreviation, and from four other states which don’t, yet combined all the data. Under the circumstances, plaintiffs’ survey was more credible.
In sum, dmv.org had “the tendency to deceive a substantial segment of its audience.”
There was also ample evidence of materiality, including direct consumer testimony. Plaintiffs’ survey also found that 67% of consumers consider “recommended by the DMV” to be an important factor. People who buy traffic school courses want to get rid of points on their record; this requires that their school be approved by their state’s DMV. Thus, consumers might be confused into thinking that “recommended” schools are DMV-approved to mask points.
Defendants argued that their deception was not material because their conversion rate—sales to visitors—was lower than plaintiffs’ conversion rate. The court was not impressed. Defendants’ figures include confused visitors seeking official DMV information, who thus are unlikely to become customers, but defendants didn’t separate out people who arrived on the site from searches for traffic school or driver’s ed.
Moreover, defendants’ deception was willful. The California DMV asked dmv.org to stop in 2004 because its site was causing confusion and oppsed defendants’ attempts to register dmv.org. Defendants admitted “longstanding” awareness of public confusion; the director of customer service responds to many confused emails and voiced concern to others in the company. He suggested adding a pop-up screen to tell consumers that dmv.org is a private site and they shouldn’t send credit card numbers, social security numbers, or other sensitive information, but this suggestion was never implemented.
Defendants have registered other misleading names, including lasuperiorcourts.org, ustreasury.org, and usdepartmentofhomelandsecurity.org, all of which redirect consumers to other sites, including dmv.org.
Defendants argued that plaintiffs were guilty of unclean hands. Unclean hands can bar relief in Lanham Act cases when the plaintiff has engaged in precisely the same type of conduct of which it complains, though the public interest still remains important.
Plaintiffs registered domain names using dmv, including dmvlicenserenewal.com, dmvregistrationrenewal.com, dmvrenewals.com, internetdmv.com, online-dmv.org, internet-dmv.org, cadmvtrafficschool.com, and dmvi.com, and used some to redirect traffic to their site. The court found that those names are confusing in precisely the same way. Moreover, plaintiffs tried to advertise on dmv.org, running test ads on the site and negotiating with defendants for a partnership at precisely the same time as they were also internally planning a campaign of notifying DMVs that dmv.org was causing confusion. Thus, plaintiffs were complicit in the false advertising.
Unclean hands don’t necessarily preclude injunctive relief. McCarthy argues that injunctions protect the public, and it’s better to remedy one wrong than leave two wrongs unaddressed; the defendant should counterclaim instead of escaping condemnation. Given that people are emailing “extremely sensitive information” to defendants in the believe that they are a state agency, the wrong here justifies remedy. The harm goes beyond consumers simply being duped out of their money—which wouldn’t be enough, given plaintiffs’ unclean hands—to the disclosure of sensitive information “to unintended recipients through insecure communication channels.”
The evidence was that “an appreciable percentage” of consumers were confused by the search engine marketing and non-sponsored natural listings, including the domain name. Any remedy must therefore target the confusion that develops even before consumers show up at the site. (Incidentally, this case is great for Eric Goldman’s arguments about the lack of differentiation consumers make between left-side and right-side search results.) Moreover, the remedy must eliminate confusion from “all members of the public,” not just plaintiffs’ likely consumers, to solve the public interest/privacy harm. And it must be sufficient to inform likely consumers, many of whom are probably teenagers looking to get a learner’s permit.
Thus, the court ordered defendants to use an acknowledgement page communicating to all visitors to all “entry pages” that the site is privately owned and not a government site. The page must contain an affirmative click-through, and also have links to official state agencies. The court analogized to prior remedies required in cases involving telephone numbers where consumers might have reached the wrong party as a result of confusion.
The court, however, rejected plaintiffs’ request for disgorgement of defendants’ profits. Given plaintiffs’ unclean hands, disgorgement was inappropriate, especially because plaintiffs hadn’t shown a causal connection to any injury of their own.Incidentally, this post marks this blog's five-year anniversary--I'm a day late, but school started yesterday, so posting volume may be off for a while.