Saper Law attorneys publish article in ISBA Intellectual Property Newsletter

Daliah Saper, and Saper Law Associate, Dominka Szreder, recently published an article in the Illinois State Bar Association Intellectual Property Newsletter. The full article is posted here. You may read the newsletter by clicking here: “LITIGATING KEYWORDS LIKE IT’S 1999.”

LITIGATING KEYWORDS LIKE IT’S 1999:

An Overview of Recent (Non)Developments in the Law Applicable to Keyword Advertising

Let’s say your ten year anniversary is tomorrow. If you are like most attorneys, the only preparation you have undertaken is to calendar the event in your Blackberry. In hopes of finding those special last minute tickets, you jump on Google and run a search on “Ticketmaster.” While the first few search results link directly to Ticketmaster’s homepage, you notice two “sponsored links” immediately to the right of those Ticketmaster links. One of these links, TicketLiquidator.com, promises to beat everyone’s prices. Not one to miss a good deal, you click directly on TicketLiquidator’s sponsored link. Two Celine Dion tickets later, Ticketmaster is out one customer but you and your significant other are in for a magical time. This scenario invites the question: is TicketLiquidator.com lawfully competing with Ticketmaster, or is this a case of trademark infringement in the Internet era?

This article first provides a brief overview of keyword advertising on search engines and the potential implication of infringement when those keywords are a competitors’ trademark, like Ticketmaster. The article then outlines the divisive split among federal courts over whether keyword advertising that utilizes a competitor’s trademark constitutes trademark infringement. The absence of an identifiable legal framework, or even a clear trend in the courts, is not a problem unique to our domestic jurisprudence. As this article discusses, the national court systems in the European Union are faced with bodies of law equally as disjointed as our own, with the exception that recent developments in France’s high court may finally result in a more settled legal landscape.

What is Keyword Advertising Anyway?

In late 1999, Google was one of the first search engines to try out a new business model based on linking search terms to paid advertising. Nearly a decade later, this provocative business model has become the gold standard for all major search engines, generating billions of dollars in advertising revenue. In 2007 alone, Google generated $16.4 billion through Adwords, which has quickly become its flagship product and primary source of revenue. Through Google’s current AdWords program, advertisers may bid on or purchase keywords, effectively paying for the right to a “sponsored link” each time an Internet user enters the purchased keyword as a search term. Stated differently, in response to a search, Google not only provides a list of links to relevant sites, but also provides links to those advertisers that purchased keywords through AdWords. Thus, advertisers that purchase keywords pay for the rights to have their website displayed in the “sponsored links” section on the right hand side of the screen whenever an Internet user searches those words. Google charges the advertiser a fee each time an Internet user clicks on the sponsored link.

Keywords – as used in AdWords — are different from metatags. Metatags are HTML or XHTML elements that are used to provide structured metadata for a Web page. These elements are placed as tags in the head section of HTML or XHTML documents. There are three types of metatags: (1) those describing the content of a Web page; (2) those used by search engines to determine whether a particular web page is relevant to a search term; and (3) those indicating which web pages are not relevant. The metatags contain active words used by the search engine to generate a search result list. Like the keywords used in AdWords, metatags are not ordinarily visible to users. Accordingly, trademark litigation stemming from the use of keywords – in either the AdWords or metatags context – involves “invisible” trademark use.

Although AdWords has garnered much praise for its business ingenuity, Google has been criticized and increasingly sued for permitting advertisers to bid on trademarked keywords, particularly those belonging to advertisers’ competitors. Businesses have been battling with their competitors over trademark disputes ever since Google’s AdWords program began.[1] Often, one business will pay to use its competitor’s trademark as an AdWord keyword. Competitors often argue that this constitutes trademark infringement because it is intended to confuse and eventually divert consumers. One might think that throughout the course of the past near-decade AdWords has been around, courts would have delineated an intelligible legal framework identifying the trademark implications of keyword advertising. One might think wrong. The unsettled state of keyword advertising and trademark law is even more questionable and pervasive today than it was in late 1999, and a string of recent contradicting cases and failed legislation are testament to that uncertainty.

Establishing Trademark Infringement

To prevail on an infringement claim under §32(1) of the Lanham Act, a plaintiff must demonstrate that he/she owns a valid trademark entitled to protection under the statute that defendant used in commerce, without consent, and in connection with the sale or advertising of goods or services. [2] The plaintiff must then demonstrate that defendant’s use of the trademark “is likely to cause consumers confusion as to the origin or sponsorship of the defendant’s goods.”[3] Thus, to be infringing, the questionable conduct must be considered use under the Lanham Act, and it must be likely to cause confusion among consumers as to the source of the goods or services. Whether keyword advertising constitutes trademark infringement is sharply divided among the federal courts. For example, Second Circuit district courts have generally found that use of a keyword to create a “sponsored link” alongside actual search results does not amount to use in commerce as articulated under the Lanham Act.[4] Conversely, the Ninth Circuit has consistently held that keyword advertising plainly constitutes use in commerce.[5]

Use in Commerce

Courts still disagree as to whether use of a trademarked keyword constitutes use in commerce under the Lanham Act. On the one hand, district courts in the Second Circuit, which covers Vermont, New York, and Connecticut, have found that Adword and metatag usage does not constitute use in commerce.[6] As such, both keyword purchasers and search engines like Google have not been held liable for trademark infringement. On the other hand, federal district courts in Illinois, Minnesota, Pennsylvania, and Arizona have held that Adword and/or metatag usage constitutes use in commerce that may lead to trademark infringement under the Lanham Act.[7] A court in the Southern District of Ohio has even gone so far as to hold metatag usage as per se trademark infringement, meaning that simply using a trademark as a metatag is infringement, even if there is no likelihood of consumer confusion.[8]

Just this past year in Hysitron, Inc. v. MTS Systems Corp., a Minnesota court denied defendant’s motion for partial summary judgment on the issue of trademark infringement, finding that the use of plaintiff’s trademark as a keyword constituted use in commerce under the Lanham Act.[9] The defendant, a direct competitor of plaintiff in the nanomechanical test equipment industry, purchased plaintiff’s trademark as a keyword. The sponsored link associated with the keyword purchase did not visibly include plaintiff’s trademark. Nonetheless, plaintiff sued for both trademark infringement and unfair competition, and in response defendant filed a motion for partial summary judgment on the trademark claim. Relying on the logic of Second Circuit line of cases, defendant argued that the use in commerce requirement was not satisfied by keyword advertising. The court disagreed, noting that under the “plain meaning” of the Lanham Act, use of a competitor’s trademark to create a sponsored link qualifies as use in commerce. Because there remained a question of material fact as to the likelihood of confusion, the court denied defendant’s motion.

In contrast to the Hysitron holding, the court in Tiffany and Co. v. eBay, Inc. held that the nominative fair use doctrine protected defendant’s purchase of the plaintiff’s trademark as a keyword.[10] Sellers on eBay’s marketplace would frequently offer counterfeit as well as genuine Tiffany jewelry for sale. In turn, eBay advertised the availability of authentic Tiffany products on its website and also purchased “tiffany” as a keyword. Tiffany sued eBay for trademark infringement along with a slew of other claims relating to the counterfeit Tiffany products on eBay’s website. While discussing keyword advertising and infringement, the court analyzed whether eBay’s keyword purchases qualified as use in commerce. Because the keyword ads used by eBay actually displayed Tiffany’s trademarks to the Internet user, the court noted that the use was not “entirely internal.” Notwithstanding, the court held that the keyword purchase constituted nominative fair use, since eBay’s use of “tiffany” in the “sponsored links” was identical to its use of “tiffany” on its website, which the court found to be permissible.

Consumer Confusion

Even when a court decides that keyword usage constitutes use in commerce under the Lanham Act, there is a lack of consensus as to whether the use is likely to cause consumer confusion. The focus of the analysis is whether consumers mistake the source of the advertised products/services. In the case of keyword advertising, this centers on whether consumers confuse the advertiser’s sponsored link with the actual trademark owner. If consumers access the sponsored link, do they believe they are on the trademark owner’s site? While advertisers and Google argue that there is no consumer confusion, trademark owners increasingly disagree, claiming that such use of their marks creates “initial interest confusion.”

The idea of “initial interest confusion” arose in Brookfield Communications, Inc. v. West Coast Entertainment Corp.[11] The dispute involved West Coast Video’s use of another video store’s trademark, “MovieBuff” as a metatag. The Court of Appeals for the Ninth Circuit found that the use of another’s trademark as a metatag resulted in what they referred to as “initial interest confusion.” Initial interest confusion can be explained as a ‘bait and switch’ luring away of a trademark owner’s potential consumers by initially passing off goods as those of the owner, even if the consumer’s confusion later goes away. For example, even though the results that popped up after searching “moviebuff” on Google included both businesses’ websites, the fact that some consumers might end up on West Coast Video’s website instead was problematic. Because West Coast’s website was so similar to MovieBuff’s, many consumers might initially be confused and not realize they are on the wrong website, or might realize but decide to go ahead with the new video store, essentially luring MovieBuff’s consumers away.

Recently in Storus Corp. v. Aroa Marketing, Inc., a California district court granted summary judgment to plaintiff, finding that the use of a competitor’s trademark as a keyword and in the text of ad copy resulted in impermissible “initial interest confusion.”[12] As a money clip retailer, defendant sold its own line of products on its website, as well as plaintiff’s Smart Money Clip. In an effort to promote its business, defendant purchased the phrase “smart money clip” as a keyword. Each time an Internet user entered the keyword, defendant’s ad copy displayed the phrase “Smart Money Clip” in its heading as a sponsored link on the search results page. The court found that defendant’s use of plaintiff’s trademark as a keyword and as part of ad copy created a likelihood of “initial interest confusion.” Although Internet users may not be confused as to product source once they reached defendant’s website, the court held that under “initial interest confusion, source confusion need not occur; rather . . . the wrongful act is the defendant’s use of plaintiff’s mark to divert consumers to a website that consumers know is not plaintiff’s website.” Because the defendant failed to prove that confusion factors weighed against a finding of a likelihood of confusion, summary judgment was granted for the plaintiff.

In stark contrast to Aroa Marketing, the court in Designer Skin, LLC v. S&L Vitamins, Inc., granted summary judgment in favor of defendant, finding that “initial interest confusion” does not exist where there is no evidence of any attempt by defendant to actually deceive consumers.[13] Defendant, a reseller of various products including those of plaintiff, purchased plaintiff’s trademarks as keywords. Plaintiff sued for trademark infringement, arguing among other things that defendant’s use of its trademarks as keywords resulted in “initial interest confusion”. The court rejected this argument, stating that “initial interest confusion” should only be employed to address deceptive “bait and switch” scenarios, where trademarks are used to take away customers from a competitor’s website to another site that only sells competing products. In this case, plaintiff’s products were offered for sale on defendant’s website, and there was no evidence of intention to deceive Internet users.

In a middle-of-the-road decision, the court in T.D.I. International, Inc. v. Golf Preservations, Inc., solidified every trademark attorney’s frustrations with this area of law.[14] Denying defendant’s motion to dismiss, the court in Golf Preservations held that “in light of the uncertain state of the law on the [keyword purchase] issue presented in this case” plaintiff stated a claim for relief that was “plausible on its face.” The defendant company, founded by a former employee of plaintiff’s company, purchased plaintiff’s trademark as a keyword. Relying on decisions from both the Sixth and Second Circuits, the defendant argued that keyword advertising did not constitute trademark use because Internet users do not see plaintiff’s trademark associated in any way with defendants’ website. After considering cases presented by both the plaintiff and defendant, the court simply noted the uncertainty in the law without providing any guidance one way or the other and denied the motion to dismiss.

The Short Story of the Failed Utah “Trademark Protection Act”

In March 2007, the Utah legislature enacted the short-lived Senate Bill 236, also known as the “Trademark Protection Act.” This new law allowed businesses to register trademarks as “electronic registration marks.” In the event anyone other than the trademark owner used the electronic registration mark to trigger keyword advertising, the Utah statute imposed civil liability on both the advertiser who purchased the keyword and the search engine operator which sold the keyword. Even before the ink was dry on the newly enacted law, powerhouses like Microsoft and Google began aggressively lobbying for a rewrite. In response to the mounting criticism, the Utah legislature quietly amended the bill in March of 2008, effectively removing the provisions of the law that prohibited keyword advertising.[15]

State of the European Union

Much like the United States, courts in the European Union have also faced difficulty in defining the parameters of trademark law for keyword advertising. National courts of member states in the European Union have taken different approaches in determining whether trademark owners have the right to prevent both advertisers from purchasing their trademark as a keyword and search engines from selling the right to that keyword.

France

Although decisions in France have found search engines liable for selling trademarks as keywords, the legal basis for these decisions ranges from trademark infringement to misleading advertising. Infringement has been found where the sponsored link websites are accessible in France, irrespective of what the top level domain extension may be. One of the leading decisions on the issue, Overture v. Accor, held that search engine operators should be liable for trademark infringement based on the plain language of French trademark law.[16] In Accor, Yahoo!’s keyword advertising provider Overture had offered Accor’s trademarks to advertisers that were direct competitors of Accor. The court reasoned that since under French trademark law, one may not reproduce, use or affix another’s trademark to goods/services without permission, Overture infringed Accor’s trademark.[17] Nonetheless, the Paris High Court has recently departed from Accor’s precedent in Laurent v. Google France[18]. In Laurent, the court reasoned that Google simply offered a keyword to an advertiser, which in and of itself didn’t infringe on any trademark rights. Likening the transaction to more traditional advertising services, the court refused to find any infringement (though Google was still held liable for its failure to investigate whether the requested keywords were being used to “favour” trademark infringement).

United Kingdom

Unlike French courts, UK courts have been much more hesitant to find trademark infringement in cases involving keyword advertising. The English High Court recently held that a search engine selling trademarked keywords does not “use” the trademarks at question; rather, it is the Internet user who employs use of such trademarks in order to conduct a search.[19] In the UK, the sale of trademarked keywords to advertisers does not “affect the owner’s interests as proprietor of the mark,” particularly when search results do not visibly refer to the trademark owner’s business in the first place.[20] Given the clear trend of the law in the UK, in 2008 Google changed its AdWords policies in the UK. Google no longer monitors or restricts keyword sales to users in the UK (and Ireland).

Germany

Much like the UK, recent German court decisions are also reluctant to find trademark infringement. In February of this year, the Higher Regional Court of Frankfurt ruled that an advertiser using another’s trademark as a keyword on Google does not infringe on trademark rights, so long as the keyword ad is separate and apart from the actual search results.[21] Use of trademarks in keyword advertising does not amount to actionable trademark use, as Internet users can readily identify the ads as originating from competitors.

Italy

In Italy, the first and only case on keyword advertising distinguished Google’s AdWord program from actionable trademark infringement. According to the court, keyword advertising does not inherently encroach upon the function of trademarks, which is to signal the source of products/services.[22] Both Google and advertisers who purchase keywords do not use the trademarks to signal source of products/services. However, the Italian courts did recognize a cause of action for unfair competition by the advertiser in these circumstances.

European Court of Justice Preliminary Ruling

In response to the unpredictable legal standards arising throughout the European Union, the French Supreme Court requested a preliminary ruling from the European Court of Justice (“ECJ”) for three different Google cases centered on keyword advertising (Google v. Cnrhh; Google v. Viaticum Ltd; Google v. Louis Vuitton Malletier). Specifically, the Supreme Court wants the ECJ to rule on the cases based on the EU Trademark Directive and Community Trademark Regulation. A ruling from the ECJ will establish whether trademark owners can prevent advertisers and search engines from using their trademarks as keywords, and whether search engines can be held liable for not preventing unlawful trademark use of keywords.

A Lesson From Our European Counterparts

Given the global nature of commerce and increasing interest in protecting trademark portfolios, the call for uniformity in trademark laws is not only favorable – it’s necessary. While the European Union awaits the ECJ preliminary ruling on the legality of keyword advertising, the US courts should finally start to make sense of the mess that has recently been made of trademark jurisprudence. Be it through a Supreme Court ruling, federal legislation, or synergy between the circuit courts, the legal uncertainty surrounding keyword advertising must be addressed for the sake of facilitating business across both state and international lines.

In the Meantime…

While there is no clear answer at the moment, there is some hope for the trademark attorney trying to advise his/her clients. The law surrounding use of a competitor’s trademark in the text of a Google AdWords advertisement appears to be established. In general, using a competitor’s trademark directly in the text of your own sponsored link advertisement inevitably constitutes use in commerce under the Lanham Act, and also is likely to confuse consumers as to the source of the goods or services being advertised.

For those advertisers interested in utilizing Google’s AdWords program, a word of caution is necessary. As a result of the differing interpretations by the federal courts, businesses that purchase the trademarks of a competitor as keywords have liability exposure for trademark infringement. Further confusing matters, liability may depend on the jurisdiction in which suit is brought and the laws applied in that suit. However, there are a few steps that any business owner thinking about purchasing a Google AdWord can take to minimize potential liability under current trademark law.

1. Consider purchasing a general or descriptive term instead of the exact trademark of your competitor. For example, purchasing “athletic shoes” or “sneakers” as keywords is less likely to infringe someone’s trademark than the purchase of “NIKE” or “CONVERSE.”

2. Perform a trademark search before purchasing the term. To the extent the competitor has not used or registered the mark, the risk that the competitor will launch a lawsuit may be lower than if the competitor has registered its trademarks.

3. Do not use the competitor’s trademark in the text of any advertisement. Courts generally find this practice infringes on the plaintiff’s trademark.