Use of a Competitor's Mark In Keyword-Triggered Ads - Legal Summary As We Begin 2009

[bholus10]

In the last four years or so, cases involving keyword-triggered ads have been hotly litigated. As we begin 2009, it's a good time to look back to see if the law has settled a bit.

The stakes regarding keyword-triggered ads are high-both for trademark owners and their competitors alike, and also for search engines. Companies spend significant sums on Internet advertising -- sums that routinely surpass even optimistic projections.

Google Modifies Keyword Policy in 2004

In 2004, Google modified its policy to allow advertisers to bid on any keyword, even keywords that are trademarks of a competitor. Not long after this change of policy, the pace of litigation involving keyword-triggered ads increased rapidly.

For purposes of this article, we'll consider keyword ads that work in 2 ways (either way, the intended effect is to provide the competitor of a trademark owner a competitive advantage):

* by triggering a pop-up ad, and
* by arrangement and prioritizing search engine results.

Let's see what happens if a competitor of Nike purchases "Nike" as a keyword for a search engine.

If a user searches for "Nike", ads are placed on the search results pages that are triggered by the search term. In this example, the competitor would receive favorable treatment with the results.

The searcher may then click on the ad or link expecting to visit a website that is affiliated with Nike. Or, the searcher may be drawn away to the competitor's website.

Regardless of whether the searcher realizes that the competitor's site is unrelated to Nike's, the competitor is benefited by diverting a potential customer from Nike's site to the competitor's site.

Legal issues arise when a competitor purchases a trademark as a keyword. The Lanham Act (Federal Trademark Act) prohibits any "use in commerce" of a registered mark or imitation thereof, that "is likely to cause confusion... ." In order to prevail, a plaintiff must satisfy these two elements:

* "use in commerce", and
* "likelihood of confusion".

The 2nd Circuit Rules in The 1-800 Contracts Case

In 2005, the 2nd Circuit Court of Appeals (comprising Connecticut, New York, and Vermont) issued a significant ruling in the case of 1-800 Contracts v. WhenU.com, Inc. Reversing a lower court decision, the 2nd Circuit held that WhenU's use of the plaintiff's trademark to trigger pop-up ads of a competitor was not a "use in commerce" of the plaintiff's mark because the internal use of the mark did not communicate its use to the public.

The 1-800 Contracts decision is significant for two reasons:

* it established for the 2nd Circuit (Connecticut, New York, and Vermont) that use of a trademark in keyword-triggered ads, provided the trademark is internal and not visible, does not amount to "use in commerce", which is required for a plaintiff to make a case, and

* subsequently, this ruling has been followed routinely by district courts in the 2nd Circuit.

By contrast, courts in other parts of the country have routinely held just the opposite -- that keyword-triggered ads do satisfy the "use in commerce" element.

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[bholus10]

The Likelihood of Confusion Element

Even if a plaintiff succeeds in establishing the "use in commerce" element, the plaintiff must also show a likelihood of confusion.

In many of the cases dealing with keyword-triggered ads, there is little probability that a consumer would be confused regarding the source of the products or services of the competitors.

Most users would likely discover a mistake relatively quickly, even if misdirected to a competitor's site. With Web browsers, the user can quickly navigate back to the desired page.

Nevertheless, some courts have found that the initial confusion as to the source of a product or service, however slight, may be enough to satisfy the "likelihood of confusion" element. This is generally referred to as "initial interest confusion".

Courts have shown little consistency regarding the likelihood of confusion element. Here's a few examples regarding this element:

* the 4th Circuit (comprising West Virginia, Maryland, Virginia, North Carolina, and South Carolina) looks at many factors in determining likelihood of confusion, including the nature of the ad and the explanatory text, thereby making it relatively difficult to prove;

* the 9th Circuit (comprising Alaska, Arizona, California, and Hawaii) applies the "initial interest confusion" doctrine broadly, thereby making it relatively easy to prove, and

* the 3rd Circuit (comprising Delaware, New Jersey, and Pennsylvania) applies the "initial interest doctrine" narrowly, thereby making it relatively difficult to prove.

Conclusion - More Confusion And a Split Among The Circuits

So, where are we now regarding keyword-triggered ads?

In summary, there's a significant split among the Circuits. For this reason confusion remains; there's no uniformity of the rules and little predictability as to the outcome of any particular case. For example, you may form these conclusions:

* plaintiffs are in better shape filing in the 9th Circuit;

* defendants may be better able to defend in the 2nd Circuit;

* for plaintiffs relying on the "initial interest doctrine", the 3rd and 4th Circuits are less helpful; and


* in any other Circuit, it's a **** shoot as to which rules the court will follow.

This lack of consistency is not a good thing for ecommerce. Where there is a split among the Circuits, the U.S. Supreme Court often enters the fray to settle the issues once and for all. Hopefully, this will occur in 2009 -- and the sooner the better.