Keyword Advertising - “Use In Commerce”- A Defense Finally Eliminated?

September 29, 2009

Search engines often argued the sale of another company’s trademark to a third party for search term/advertising purposes does not constitute use of that trademark under the Lanham Act. This argument may continue to persist in the future; however, the odds are now clearly stacked against search engines on this line of defense. This year the Second Circuit, in Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. 2009), fell in line with most other courts that have considered this issue, finding that Google’s keyword advertising program does in fact involve a “use in commerce” of trademarks.

Of course, the ultimate question of legal liability remains unanswered; namely, is there a “likelihood of confusion” from the use? Unfortunately for many plaintiffs, this next level of analysis will likely prove daunting.

I. A Bit on Keyword Advertising

Keyword advertising programs are offered by search engines as a means of capturing significant internet advertising revenue. These programs allow internet advertisers to “buy” the keywords that people use when performing searches on the search engine’s website. Google’s keyword program is called AdWords. So, when someone searches for a word that has been bought from Google by an internet advertiser, Google displays two sets of results: the actual search results (based on its website ranking algorithms and the Sponsored Links (based in part on AdWords). As shown below, the Sponsored Links are located at the top of the page and set against a pastel yellow background and often at the side of the page. Advertisers often pay based on clicks on their “sponsored” links/advertisements.

Other major search engines, such as Yahoo! and Microsoft’s provide similar keyword advertising programs (called Yahoo! Search Marketing and Microsoft Advertising, respectively). Deception is the oft-cited concern trademark owners have with these keyword advertising programs. Discovering that search engines actually sell their trademarks to third parties is often the last straw that pushes trademark owners to take their concerns to litigation. To date, most claims have focused on whether keyword advertising programs constitute trademark infringement.

II. Pre-Rescuecom Analysis

For a federally registered mark, infringement exists, pursuant to 15 U.S.C. § 1114, where: (a) the underlying trademark is valid, (b) the defendant has “used” the trademark in commerce without permission; and (c) the defendant’s use is likely to cause confusion regarding the source or origin of the goods or services. So far, of the three keyword advertising cases, the most often challenged and discussed element has been whether the defendant’s activities constitute a “use” of the trademark under the Lanham Act.

Courts have formed two different tests for evaluating whether the sale of trademarks as keywords constitutes a “use.” The first examines whether the defendant’s activities constitute “use” as “general commercial use of the mark.” See Buying for the Home, LLC v. Humble Abode, LLC, 459 F. Supp. 2d 672, 677 (N.D. Ill. 2006). The second camp, on the other hand, examines whether the use is a “use in commerce” as defined in the Lanham Act. See Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393, 403 (N.D.N.Y. 2006).

1. General Commercial Use

This first approach is broader than the second and generally leads to a finding that the defendant’s keyword advertising activities constitute “use” within the meaning of the Lanham Act. For instance, in Buying for the Home v. Humble Abode, a plaintiff online furniture store sued its competitor, alleging that Humble Abode bought its trademark “Total Bedroom” from Google’s AdWords program. Buying for the Home, 459 F. Supp. 2d at 315. The court held that this constituted “use” of the trademark because Humble Abode bid on the keyword as a form of commercial advertising. Similarly, Geico sued Google for selling its “Geico” and “Geico Direct” trademarks through AdWords. Gov’t Employees Ins. Co. v. Google, Inc., 330 F. Supp. 2d 700, 704 (E.D. Va. 2004). The Geico court held that Google had sold advertising space within its search results, which is a general commercial use of the trademark. See alsoPlayboy Enterprises, Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020 (9th Cir. 2004); Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10th Cir. 2006).

Under this line of reasoning, trademark use is a broad concept, encompassing almost any commercial activity relating to the trademark. This approach was the majority rule whose only major opposition was the Second Circuit’s 1-800 Contacts discussed below.

2. Use in Commerce

In 1-800 Contacts, Inc., the Second Circuit adopted the Lanham Act’s statutory definition of “use in commerce,” creating a more narrow scope of infringing activity. 1-800 Contacts, Inc. v., Inc., 414 F.3d 400 (2d Cir. 2005). The Lanham Act states that “use in commerce” occurs where a trademark “is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale. . . .” 15 U.S.C. § 1127. In this case, the Second Circuit held that the use of another business’s trademarks on a website to trigger pop-up ads is not “use in commerce.” 1-800 Contacts, 414 F.3d at 406. The Second Circuit reasoned that the defendant “does not ‘use’ 1-800’s trademark in the manner ordinarily at issue in an infringement claim: it does not ‘place’ 1-800 trademarks on any goods or services in order to pass them off as emanating from or authorized by 1-800.” Id. at 408. Rather, the defendant, the court concluded, was merely internally utilizing the trademarks to display the competitor advertisements. Id.

District court decisions in the Second Circuit subsequently applied the strict test set forth in 1-800 Contacts. In one such case, Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393, 403 (N.D.N.Y. 2006), a computer services franchise claimed ownership of the registered trademark of its corporate name. It discovered that Google was allowing its competitors to bid on its trademark through AdWords and that Google had even suggested the trademark as a keyword through its Keyword Suggestion Tool. Adopting the Lanham Act’s definition of “use in commerce” and the Second Circuit’s strict adherence to that text in 1-800 Contacts, the district court found that there was no infringement unless the defendant placed the trademark “on any goods, containers, displays, or advertisements, or that its internal use is visible to the public. Rescuecom, 456 F. Supp. 2d at 403. Rescuecom appealed the decision to the Second Circuit.

III. Rescuecom and the Second Circuit

One year after hearing arguments, the Second Circuit issued its opinion, reversing the lower court’s decision. Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. 2009).The Second Circuit held that “Google’s recommendation and sale of Rescuecom’s mark to its advertising customers are not [mere] internal uses” and that Google had “used” the trademark in a way that the Lanham Act prohibits. 130-31. The court, however, was forced to wrestle this case away from the 1-800 Contacts legacy. Unfortunately, in lieu of simply adopting the more general definition of “use” under the majority rule, the Second Circuit employed a fact intensive analysis in an attempt to distinguish the facts between the two cases.

In 1-800 Contacts, the defendant created pop-up advertisements when the computer user searched for trademark terms, but the defendant did not allow the advertising clients to bid on the trademark keywords or even inform them of the keywords that triggered their pop-up advertisement. 1-800 Contacts, 414 F.3d at 406-07. In Rescuecom, on the other hand, it was alleged that Google recommended and sold Rescuecom’s trademarks to bidders. Even though these activities never resulted in the external publication of Rescuecom’s trademark by the competitor, the Second Circuit found that these facts demonstrated an active, external use of the Rescuecom’s trademark. Rescuecom, 562 F.3d at 130-31. Unfortunately, the Second Circuit failed to clearly set forth why these were distinctions of significance. Regardless, faced with the conflict between the “spirit of the law” and the 1-800 Contacts “letter of the law” approaches, the Second Circuit opted for the former and seemed to backpedal away from their own precedent: “If we were to adopt Google and its amici’s argument, the operators of search engines would be free to use trademarks in ways designed to deceive and cause consumer confusion.” 130.

Having dealt with the “use in commerce” question, the Second Circuit briefly turned to the next prong in trademark infringement analysis – whether the activities were likely to cause confusion. Here the court rejected the analogy advanced by Google that its use of the Rescuecom's trademark fit the mold of product placement by retail vendors – i.e., where a generic product is placed next to a trademark product:

From the fact that proper, non-deceptive product placement does not result in liability under the Lanham Act, it does not follow that the label “product placement” is a magic shield against liability, so that even a deceptive plan of product placement designed to confuse consumers would similarly escape liability. It is not by reason of absence of a use of a mark in commerce that benign product placement escapes liability; it escapes liability because it is a benign practice which does not cause a likelihood of consumer confusion. In contrast, if a retail seller were to be paid by an off-brand purveyor to arrange product display and delivery in such a way that customers seeking to purchase a famous brand would receive the off-brand, believing they had gotten the brand they were seeking, we see no reason to believe the practice would escape liability merely because it could claim the mantle of “product placement.” The practices attributed to Google by the Complaint, which at this stage we must accept as true [for 12(b)(6) purposes], are significantly different from benign product placement that does not violate the Act.

Ultimately, and some would say unfortunately, the Second Circuit did not specifically overrule the 1-800 Contacts analysis. However, practitioners and commentators agree that Rescuecom seems to encompass the entire range of search engine activities and is now the seminal case for the Second Circuit in this area—putting to rest the question of whether keyword advertising (outside of “pop-ups”) is a “use in commerce.”

IV. Post Rescuecom –What Now?

As noted above, pre-Rescuecom litigation was primarily focused on the threshold issue of “use in commerce.” With that issue presumably put to rest in the context of AdWords, a number of new cases against Google have followed. In addition, at least one case (not involving Google) may provide a good framework for evaluating the next stage of analysis on likelihood of confusion – to the extent true, this likely is bad news for plaintiffs.

1. Pending Cases of Interest

(a) Flowbee International, Inc. v. Google, Inc., 2:09-cv-00199 (S.D Tex., filed Aug. 13, 2009), which includes the following allegation: “A statistically significant number of consumers are likely to believe falsely that it was Flowbee who ‘sponsored’ the links that appear above or alongside the PageRank search engine results.”

(b) FPX, LLC v. Google, Inc., 2:2009cv00142 (E.D. Tex., filed May 11, 2009), a class action trademark infringement lawsuit based on AdWords.

(c) Google, Inc v. John Beck Amazing Profits, LLC, C09 03459 (N.D. Cal. July 27, 2009), a declaratory judgment action seeking a ruling that AdWords does not infringe defendant’s trademark, and including a breach of contract claim that defendant’s previously filed, but apparently unserved, putative class action lawsuit against Google (John Beck Amazing Profits, LLC v. Google Inc., 2:2009cv00151 (E.D. Tex., filed May 14, 2009) breached a contractual provision requiring any AdWords-related lawsuit be brought in California.

(d) Soaring Helmet Corp. v. Bill Me Inc. and Google, Inc., 2:2009cv00789 (W.D. Wash., filed June 9, 2009), alleging Bill Me purchased the plaintiff’s trademark from Google and falsely advertised that it sold plaintiff’s goods when, in fact, it did not.

(e) Hearts on Fire Co. v. Blue Nile, Inc., No. 08cv11053-NG (D. Mass., filed March 27, 2009), see below for discussion.

2. Likelihood of Confusion – Initial Interest Doctrine

The next (and perhaps final) battleground for trademark infringement claims based on keyword advertising is the element of confusion. In traditional trademark infringement cases, assessing “likelihood of confusion” is a fact-intensive inquiry involving, among other things, evaluation of the similarity of the marks, the similarity in trade channels, the strength of the plaintiff’s mark, and any evidence of actual consumer confusion. See Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492, 495 (2d Cir. 1961). But traditional infringement analysis, however, appears ill-fitted to keyword advertising, primarily because most cases do not involve allegations that consumers were actually confused as to who they were buying a product from or the nature/origin of the product purchased. Enter what has been termed the “initial interest” or “pre-sale” confusion doctrine.

In general, initial interest confusion refers to a potential purchaser's temporary confusion about the actual source of goods or services, even if that confusion is eventually cleared up prior to an actual sale taking place. See Mobil Oil Corp v. Pegasus Petroleum Corp., 818 F.2d 254 (2d Cir. 1987). Conceptually rooted in “bait-and-switch” type advertising, the doctrine was first applied to online activities in a case where a plaintiff complained that the defendant’s use of “MovieBuff” in a website’s metatag infringed on its “Moviebuff” trademark. Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir. 1999). In an often-criticized analogy and summation of the initial interest confusion doctrine, the court in Brookfield Communications reasoned:

Suppose West Coast’s competitor (let’s call it “Blockbuster”) puts up a billboard on a highway reading—“West Coast Video: 2 miles ahead at Exit 7”—where West Coast is really located at Exit 8 but Blockbuster is located at Exit 7. Customers looking for West Coast’s store will pull off at Exit 7 and drive around looking for it. Unable to locate West Coast, but seeing the Blockbuster store right by the highway entrance, they may simply rent there. 1064. The court held that this highway-driving scenario mimicked the diversions that take place via use of website metatags and found infringement.

This doctrine has now reared its head in the context of keyword advertising. In Hearts on Fire Co. v. Blue Nile, Inc., No. 08cv11053-NG (D. Mass., filed March 27, 2009), the diamond manufacturer plaintiff discovered that the defendant, an internet jewelry retailer, had bought its company name as a keyword for internet advertising purposes. The manufacturer brought claims alleging, among other things, trademark infringement by defendant. At the outset, the court recognized that the traditional infringement analysis does not fit within the context of keyword advertising: “At this stage in the case, there is no suggestion that diverted consumers inadvertently believed they were purchasing Hearts on Fire diamonds at Blue Nile’s website. No diamonds appearing on the website purport to be Hearts on Fire diamonds.” Id. at 11-12.

The court quickly turned its focus to trademark infringement based on the doctrine of initial interest confusion. In assessing the viability of the doctrine, the court held:

A somewhat ill-defined concept, initial interest confusion refers to a type of pre-sale confusion . . . . Generally speaking, pre-sale confusion refers to a potential purchaser's temporary confusion about the actual source of goods or services under consideration, even where that confusion is resolved by the actual moment of sale. There is no question that this type of confusion falls squarely within the scope of trademark violations contemplated by the Lanham Act. In fact, the 1962 amendments to the Act explicitly brought pre-sale confusion within the Act, § 32(1)(a), as amended, 15 U.S.C. § 1114(1)(a); Oct. 9, 1962, Pub. L. 87-772, § 17, 76 Stat. 773 (removing the term "purchasers" to expand trademark protection to situations involving pre-sale as well as point-of-sale and post-sale confusion). 12.

Even so, the court found highway sign analogy in keyword advertising cases somewhat wanting and overly simplistic, concluding that “mere diversion, without any hint of confusion is not enough” to support a trademark infringement claim. Id. at 16. Offering an analogy of its own, the court found that keyword advertising is more like “a menu—one that offers a variety of distinct products, all keyed to the consumer’s initial search.” 15. In this way, it offers consumers “a simple choice between products, each of which is as easily accessible as the next” through a search results list “that includes links to both the trademarked product’s website and a competitor’s website.” Id.

Hearts on Fire seems to include a healthy dose of underlying skepticism regarding the likelihood of trademark infringement resulting from typical keyword advertising cases. But, in the context of a Rule 12(b)(6) motion to dismiss, it was unwilling to rule out the possibility of a viable trademark infringement claim under its “menu” analogy. Indeed, it acknowledged that:

sponsored links appearing on a search-results page will not always be a menu of readily distinguished alternatives. With the intense competition for internet users’ attention and mouse-clicks, online merchants may well be tempted to blur these distinctions, hoping to create and capitalize on initial consumer confusion. Such conduct undoubtedly begins to sound in trademark infringement. Thus, where a plaintiff has plausibly alleged some consumer confusion, even at an initial stage of his product search, the question is a far closer one. 17. Nevertheless, to prevail on grounds on initial interest confusion, a plaintiff must eventually prove that “‘an appreciable number of reasonably prudent consumers’ would likely be confused about the source of the marketed goods or services at some point during the pre-sale process.” Id. at 13 (quoting Keds Corp. v. ReneeIntern. Trading Corp., 888 F.2d 215, 222-23 (1st Cir. 1989)).

In denying defendant’s motion to dismiss, the Hearts on Fire court made clear that “the likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context.” 22-23. For this court, confusion will be based on the traditional factors (i.e., similarity of marks, trade channels, etc.), as well as at least the following seven factors:

(a) The overall mechanics of web-browsing and internet navigation, in which a consumer can easily reverse course;

(b) The mechanics of the specific consumer search at issue;

(c) The content of the search results webpage that was displayed, including the content of the sponsored link itself;

(d) Downstream content on the Defendant's linked website likely to compound any confusion;

(e) The web-savvy and sophistication of the Plaintiff's potential customers;

(f) The specific context of a consumer who has deliberately searched for trademarked diamonds only to find a sponsored link to a diamond retailer; and, in light of the foregoing factors; and

(g) The duration of any resulting confusion.

Id. at 23.

If Hearts on Fire is indicative of the fact-intensive analysis courts intend apply in evaluating trademark infringement based on keyword advertising, it would appear plaintiffs are in for a real challenge.

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