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Legal issues in internet selling

Legal issues in internet selling

Paul Kallenbach & Caitlin Fankhauser, Minter Ellison 17 July 2009

Paul Kallenbach-MinterEllison lawyers

Despite its borderless nature, the internet is not a lawless zone, and businesses need to consider some emerging legal issues when conducting sales and marketing activities in cyberspace.

Keyword advertising

Keyword advertising, an increasingly popular marketing tool, involves the purchase of a particular search term from a search engine (such as Google or Yahoo!), so that entering that term as part of a search string triggers the appearance of the keyword purchaser’s advertisement on the search results page. Google’s signature keyword advertising sys tem, Google AdWords, is an example of such a system.

In order to increase its search engine advertising exposure, a business will usually purchase commonly-searched keywords. However, these keywords are often trade marks owned by third parties. The practice of ‘buying’ someone’s registered trade mark as a search term has caused consternation among trade mark owners, both in Australia and overseas.

Does keyword advertising (using another’s trade mark) breach the Trade Marks Act?

If the purchased keyword is identical to a registered trade mark, or is substantially identical or deceptively similar to a registered trade mark, and it triggers an advert for a product similar to the product to which the trade mark relates, the trade mark owner may bring an action for infringement under the Trade Marks Act 1995.

However, in Australia at least, it is not clear whether the trade mark owner would succeed in such an action. This is because there is some uncertainty as to whether, in such circumstances, the keyword purchaser is actually using the mark ‘as a trade mark’, that is, as a badge of origin (which is one of the requirements under the Act).

Further, even if the trade mark owner can establish that use in this context is use ‘as a trade mark’, in certain circumstances, there may be a further defence under the Act that such use is unlikely to confuse or deceive the user into associating the advertised product with the trade marked word.

The argument here is that web users are accustomed to seeing advertising on search engines, and will not necessarily associate the triggered advert with the keyword used in the search. This may be especially so if the advert is clearly labelled as distinct from the results themselves, such as in Google AdWords, where adverts appear in a sidebar under the heading ‘Sponsored Links’.

What other actions could a keyword purchaser face? Even if a keyword purchaser can avoid liability under the Trade Marks Act, it may still need to contend with actions brought under the Trade Practices Act 1974 (TPA). In particular, a trade mark owner may attempt to rely on section 52 (which prohibits misleading or deceptive conduct) and section 53 (which provides that a company must not represent that it has a sponsorship, approval or affiliation that it does not have).

Indeed, the ACCC has on several occasions investigated companies that have used a competitor’s name as a keyword in a sponsored link.  In 2005, it wrote to the Trading Post, expressing concern that the Trading Post’s purchase of a competitor’s name, ‘Stickybeek’, as a keyword, was ‘“potentially misleading, as internet users might mistakenly believe that [the Trading Post’s] autotrader website was affiliated with Stickybeek’s business”. Although the Trading Post did not admit that its conduct breached the TPA, it did agree to stop using Stickybeek’s names and trade marks in sponsored links on the internet.

Since then, other companies have raised objections to use of their names by competitors.  In September 2005, Australian online auction company GraysOnline sent a letter to eBay demanding that the latter remove titles such as ‘Grays Online Auction’ from its sponsored link advertisements.  The advertisements, which directed users to eBay web pages, were displayed when users searched for ‘grays online’ and ‘graysonline’ (among others).  eBay subsequently agreed to stop using the disputed keywords.

In 2006 Acer and Toshiba, two computer vendors, claimed that their competitor Dell Computers had registered ‘Acer notebook’ and ‘Toshiba notebook’ as keywords on Google Adwords.  Dell denied the specific allegations, however it acknowledged that it had conducted trial bidding on competitor key terms.  Following the complaint by Acer and Toshiba, Hewlett-Packard, BlackBerry and Palm also expressed concern that Dell had purchased their trade marks as keywords.  The Dell advertisements were subsequently removed from Google.

The most recent Australian example of a company facing action for using a competitor’s mark as a keyword is the Federal Court case instituted by the ACCC against the Trading Post and Google.  The case concerns the Trading Post’s use of ‘Kloster Ford’ and ‘Charlestown Toyota’ as keywords.  The ACCC has alleged that from 2005 when internet users searched for ‘Kloster Ford’ or ‘Charlestown Toyota’ using Google’s search engine, the results page displayed a sponsored link to the Trading Post’s website under the relevant keyword.  Kloster Ford and Charlestown Toyota are car dealerships unrelated to the Trading Post.  The use of their business names as keywords was intended to increase the number of internet users who clicked through to the car sales section of the Trading Post website.

The ACCC alleged that using sponsored links in this way contravened the TPA.  The Trading Post (through its parent company Sensis) conceded that its conduct breached section 52 and 53(d) of the Act.  It settled with the ACCC in April 2008, and gave a court enforceable undertaking that it would refrain from using known business names in its future search engine advertising campaigns.

However, Google has not settled with the ACCC and has signalled its intent to defend the ACCC’s allegation that its presentation of sponsored links breaches the TPA. It rejects the ACCC’s argument that its page layout confuses consumers because it does not distinguish sufficiently between sponsored links and ranked search results.  The matter has not yet been listed for final hearing.

Although Australian courts have yet to rule on this issue, the ACCC’s proceedings against the Trading Post and Google are indicative of its view that purchasing a competitor’s name or trade mark as a keyword may breach the TPA – even in circumstances where the search engine’s results page distinguishes between sponsored and non-sponsored results.

Accordingly, it may be prudent to refrain from purchasing your competitors’ business names or trade marks as search engine keywords, at least until the Federal Court hands down its judgment in the Google case.

Web copyright

The internet has dramatically increased the ease with which digital material can be copied, stored and disseminated. However, this accessibility also means that the copyright implications of seemingly innocuous actions can be easily overlooked. A business may be unaware that its rights in its website content are being infringed or, conversely, that material on its own website infringes a third party’s copyright.

The Copyright Act 1968 provides that copyright subsists in certain works on their creation (and without any additional registration requirement). Works protected under the Copyright Act that are commonly found on the internet include literary works (textual content), artistic works (pictures and logos), sound recordings (music files and podcasts) and cinematographic films (videos). In general, copyright is owned by the creator of the work, who is granted exclusive rights to certain dealings with the work. These include the right to reproduce, adapt, publish and communicate that work to the public.

Copyright is infringed when any person, without the licence or consent of the copyright owner, exercises (or authorises the exercise of) one or more of these exclusive rights in relation to the whole of or a substantial part of the work. For example, by copying some text or a logo from another person’s website and displaying it on its own site, a business is reproducing and communicating the material to the public. If the business does not have a licence from the owner to do this, it may be infringing that person’s copyright.

You should take measures to protect yourself from infringing a third party’s copyright by:

  • ensuring that you obtain the necessary licences to deal with copyright material before it is placed on your website;

  • complying with any terms of use attached to the material; and

  • ensuring that if you hyperlink your website to an external site, you verify the legality of that site and its content, and you comply with its terms and conditions.

You should also take steps to protect your rights in relation to your own website content by:

  • obtaining an assignment or licence of copyright in material created by your website designers so that you can control your website content and future amendments to it;

  • displaying the copyright symbol, the name of the copyright owner and year of publication on your website;

  • placing a set of website terms and conditions on the site (which, among other things, should state that users must obtain permission before copying material from your site); and

ensuring that access to material that is not for general public use is only available to duly authorised persons.

Spam and privacy

The internet facilitates the rapid and widespread dissemination of information, and is therefore an appealing medium for businesses to reach potential customers. Furthermore, information about current and potential customers constitutes invaluable marketing data.

Businesses need to remain aware, however, that legislative regimes exist in Australia which not only regulate the sending of unsolicited electronic messages (spam), but also protect the privacy of individuals about whom certain businesses hold information.

In particular, the Spam Act 2003 prohibits people and companies from sending, or authorising others to send, unsolicited commercial electronic messages (CEMs).  Broadly, a CEM is an email, SMS, MMS  or other electronic message where the purpose (or one of the purposes) of sending the message is to offer to supply, advertise or promote goods, services, land or opportunities of a commercial nature.

The Spam Act proscribes the sending of CEMs to a person who has not consented to receive that message.  A recipient’s consent may be express, or may be inferred from conduct, business and other relationships. In certain circumstances, consent may also be implied from the conspicuous publication of an electronic address.

There are also certain exemptions under the Act where sending unsolicited CEMs is lawful.  This includes where an electronic message contains purely factual information and where a CEM is sent by a government body, political party, religious organisation, charity or educational institution.

The practical effect of the Act is, however, to make it illegal to ‘cold prospect’ by email or other electronic means in most circumstances. The Act also requires that CEMs contain a functional unsubscribe facility, as well as accurate identifying information about the sender.

There are heavy penalties for breaching the Spam Act and the Australian Communications and Media Authority (ACMA), the body that administers and enforces the Spam Act, has recently stepped up its enforcement activity.  In 2006, it successfully prosecuted Perth company Clarity1, and its managing director, Wayne Mansfield, in the Federal Court for multiple breaches of the Act.  Clarity1 had sent over 213 million unsolicited CEMs advertising goods or services under its own name and other business names to email addresses that it had collected using address-harvesting software, or purchased from others who used similar software.

Clarity1 argued that its conduct did not breach the Spam Act as the messages were not unsolicited.  Emails sent prior to the commencement of the Spam Act provided information about how recipients could unsubscribe and Clarity1 contended that any recipient who did not follow the unsubscribe procedures had impliedly consented to receiving the CEMs.  The Court rejected this argument.  It ordered that Clarity1 pay a pecuniary penalty of $4.5m and that its director pay $1m.

More recently, ACMA has issued proceedings in the Federal Court against Mobilegate Ltd, Winning Bid Pty Ltd, Jobspy Pty Ltd and individuals related to these companies.  It alleges that Winning Bid and Mobilegate sent unsolicited CEMs promoting a text relay message service called ‘Safe Divert’ and another service called ‘Maybemeet,’ and that the other parties were knowingly concerned in this conduct.  The CEMs were allegedly sent to mobile telephone numbers that Winning Bid and Mobilegate had collected by registering and using fabricated profiles on dating websites.  ACMA has secured interlocutory orders against Winning Bid that prevent it from creating fictitious profiles on dating or social networking websites and require it to remove existing fictitious profiles.  It has also obtained court enforceable undertakings from some of the parties.  The date for the final hearing has not been set.

ACMA has also taken action outside the Court system for breach of the Spam Act.  In January 2009, it issued Optus with two infringement notices totalling $110,000 after Optus allegedly sent SMS messages to 20,000 Optus mobile customers without accurate sender identification.  The messages promoted OptusZoo and listed the sender as ‘966.’  According to ACMA, Optus assumed that its customers would draw the link between ‘966’ and ‘ZOO’ (966 spells ‘zoo’ on a phone key pad) and could therefore identify the sender.  ACMA considered that this form of identification was insufficient.

ACMA has taken a range of other measures against companies for less serious contraventions of the Spam Act, including:

  • securing court enforceable undertakings with regard to compliance training and financial penalties;

  • issuing formal warnings; and

  • issuing fines and infringement notices.

The potentially serious consequences of breaching the Spam Act require that businesses adopt a cautious approach when sending CEMs.

In addition to the Spam Act, the Privacy Act 1988 regulates the way in which certain businesses collect, store, disclose and use personal information. These obligations are conveyed through the National Privacy Principles.

If you are a small business and meet certain criteria, you may be exempt from the requirements of the Act. However, even if you are exempt, you may wish to consider voluntarily complying with the requirements of the Act, in order to maintain the confidence of your customers in the way you deal with their personal information.

Do Not Call Register

Businesses that operate or rely on telemarketing promotions and sales must also comply with the Do Not Call Register Act 2006.  The Act came into force on 31 May 2006 and allows individuals to opt-out of receiving unsolicited telemarketing calls. It prohibits organisations making, or arranging the making of, unsolicited telemarketing calls to individuals that have registered their home or mobile telephone numbers on the Do Not Call Register (DNCR).

Broadly, a telemarketing call is defined as a voice call to a telephone number where the purpose (or one of the purposes) of the call is to offer to supply, advertise or promote goods, services, land or opportunities of a commercial nature.

The Do Not Call Act provides some exceptions where it is lawful to call numbers on the DNCR even though the individual has not given consent.  Among the exceptions are research calls (opinion polling or standard questionnaire research) and calls by government bodies, religious organisations, charities, political parties or candidates and educational institutions.

Where the exemptions do not apply, there are significant penalties for breaching the Do Not Call Act.  These include formal warnings, civil penalties, injunctions, infringement notices, enforceable undertakings and orders to pay compensation.  In 2008, ACMA fined Dodo Australia Pty Ltd $147,400, and required it to give court enforceable undertakings, for breaching the Act.  According to ACMA, Dodo had employed an offshore call centre to make telemarketing calls on its behalf and the call centre had telephoned numbers on the DNCR.

Component Pricing

Component pricing is a practice whereby companies advertise or display the price of goods or services in several component parts, instead of providing a single figure.  Component pricing is regulated by the TPA and the relevant provisions have recently been strengthened.  As of 25 May 2009, the TPA provides that if a company advertises a component of a price, it must also specify, in a prominent way and as a single figure, the single price for the goods or services.

The single price is the minimum total quantifiable cost of goods or services at the time the representation is made.  It must include all charges and taxes payable by a customer, but not the cost of optional extras, sending charges or components that cannot be quantified.  The single price must be at least as prominent as the most prominent part of the price.  The ACCC has indicated that this will depend on factors such as size, colour, type of font, placement and other considerations relevant to the specific advertising medium used.  The central question is whether the single price is clear, noticeable and stands out to the consumer.

The TPA component pricing provisions apply equally to companies advertising or selling goods and services on the internet.  There are however, limited exceptions where it does not apply, including:

  • representations or advertisements are made exclusively to businesses;

  • where services are supplied under a contract which provides for periodic payments; and

  • where the goods or services are of a kind not ordinarily acquired for personal, domestic or household use or consumption.

Where the component pricing provisions apply however, there are strict penalties for breach.  A company will be subject not only to civil liability, but may also face criminal liability with a maximum fine of $1.1m.

What should you do?

In order to comply with these Acts, you should :

  1. avoid using your competitors’ business names or trade marks in search engine advertising;

  2. only sends CEMs with recipients’ express or inferred consent;

  3. include a functional unsubscribe facility and accurate sender information in all CEMs;

  4. ensure you are not using address harvesting software or harvested address lists for the purposes of sending CEMs;

  5. comply with the requirements of the Do Not Call Register Act in relation to the making of unsolicited telemarketing calls;

  6. comply with the National Privacy Principles in your collection, storage, disclosure and use of personal information (including    by informing individuals of the purposes of collection and to whom information will be disclosed, and by maintaining and abiding by a privacy policy)

  7. comply with the new component pricing regime under the Trade Practices Act.

Paul Kallenbach is a technology law specialist, with a particular focus on strategic sourcing, ecommerce, technology licensing, intellectual property and electronic payment systems. Paul is a partner at Minter Ellsion lawyers and can be reached at: T: +61 3 8608 2622
Caitlin Fankhauser is a technology Lawyer at Minter Ellison an can be reached at: T: +61 3 8608 2290

If you are interested in legal aspects of cloud computing, see: Cloud computing – avoiding the storm

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