Second Circuit Finds No Trademark Infringement in Targeted Internet Advertising Case

On June 27, 2005, the Second Circuit overturned a lower court's determination that an Internet advertising company's delivery of targeted, contextually relevant pop-up ads constituted trademark infringement. The plaintiff, 1-800 Contacts, Inc. (“1-800″), sued WhenU.com (“WhenU”) for trademark infringement as well as multiple other federal copyright, state infringement, and common law claims. The Second Circuit limited its review of the case to the plaintiff's Lanham Act claim, remanding the rest of 1-800's claims back to the district court.

Plaintiff 1-800 is a distributor of contact lenses and has a Web site located at www.1800contacts.com, as well as registered service marks for “1-800CONTACTS.” Defendant WhenU is an Internet advertising company that, by means of proprietary software, monitors a computer user's (“C-user”) activity on the Internet and causes pop-up ads related to the C-user's activity to appear on the C-user's desktop. The C-user voluntarily opts to use WhenU's system by downloading WhenU's software to monitor specified browsers.

In addressing the plaintiff's claim of trademark infringement, the Second Circuit first examined whether there was “use” of 1-800's trademarks in commerce in connection with the sale or advertising of goods or services within the meaning of the Lanham Act. The court vacated the district court's preliminary injunction and held that “as a matter of law, WhenU does not 'use' 1-800's trademarks within the meaning of the Lanham Act … when it (1) includes 1-800's website address, which is almost identical to 1-800's trademark, in an unpublished directory of terms that trigger delivery of WhenU's contextually relevant advertising to C-users; or (2) causes separate, branded pop-up ads to appear on a C-user's computer screen. … ”

The Second Circuit explained that once WhenU's software recognizes a search term in the C-user's Internet browser, whether it be a Web site address or a broad category term, such as contact lenses or eyewear, the software randomly selects a relevant advertisement to “pop up” at roughly the same time as the search result appears on screen. The pop-up ads appear in a separate window, either above, below, or along the bottom edge of the search result. The pop-ups are labeled “A WhenU offer ' click ? for info.” If the C-user clicks on this window, a new window containing information about WhenU and its ads appears that explains that the “offers shown … are not affiliated with the site you are visiting.”

Looking to precedent, the Court of Appeals cited Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp. 2d 734 (E.D. Mich. 2003) and U-Haul International, Inc. v. WhenU.com, Inc., 279 F. Supp. 2d 723 (E.D. Va. 2003). Both of these district courts found that WhenU does not “use” the plaintiffs' trademarks for purposes of the Lanham Act by including Web site addresses in a “proprietary directory of keywords” that served a “pure machine-linking function.”

In the instant case, the Second Circuit concurred, explaining that WhenU does not place plaintiff's trademark on any goods or services so as to confuse consumers into believing they emanated from the plaintiff. Instead, WhenU's software uploads plaintiff's Web site address, but not its trademark “precisely because it is a website address, rather than because it bears any resemblance to 1-800's trademark.” The court noted that the Web site address is similar, but not identical to the trademark. It held that the differences between the trademark and Web site address (the addition of “www.” and “.com” and the omission of a hyphen and a space) were “significant because they transform 1-800's trademark ' which is entitled to protection under the Lanham Act ' into a word combination that functions more or less like a public key to 1-800's Web site.”

The court commented that the “contemporaneous display of the ads and trademarks is the result of the happenstance that 1-800 chose to use a mark similar to its trademark as the address to its web page and to place its trademark on its website.” The court also pointed out that the pop-up ads are not triggered solely by use of 1-800's Web site address, but also by C-users' broad search terms such as “contact lenses.”

The Second Circuit was not swayed by plaintiff's argument that the pop-ups appear on screen at the same time as plaintiff's Web site. “WhenU does not need 1-800's authorization to display a separate window containing an ad any more than Corel would need authorization from Microsoft to display its WordPerfect word-processor in a window contemporaneously with a Word word-processing window.” Furthermore, the pop-ups are conspicuously branded as property of WhenU.

The court also noted that the public cannot access and see how plaintiff's Web site address appears in the directory. The court specifically refused to express a view on whether use of a trademark in WhenU's directory would rise to a “use” under the Lanham Act.

The Second Circuit distinguished WhenU from the Internet search engine Google, referring repeatedly to Geico v. Google, Inc., 330 F. Supp. 2d 700 (E.D. Va. 2004). Unlike Google, WhenU does not disclose its software directory content to advertisers. Furthermore, WhenU “does not 'sell' keyword trademarks to its consumers or otherwise manipulate which category-related advertisement will pop up” in response to a C-user search. The pop-up ads that appear based on a C-user's search are randomly delivered to the desktop. The court distinguished 1-800's own pop-up and banner ads delivered on Gator and Yahoo! to C-users in response to their input of particular Web site addresses and keywords that 1-800 had chosen.

The court concluded: “A company's internal utilization of a trademark in a way that does not communicate it to the public is analogous to an individual's private thoughts about a trademark. Such conduct simply does not violate the Lanham Act, which is concerned with the use of trademarks in connection with the sale of goods or services in a manner likely to lead to consumer confusion as to the source of such goods or services.” WhenU has not altered the plaintiff's Web site or impacted the C-user's ability to do business with the plaintiff.

Since there was no finding of a use under the Lanham Act, the Second Circuit did not address the issue of likelihood of confusion. Nonetheless, the court noted that the claim was “incredulous” given C-users' broad familiarity with pop-up ads in various contexts for many products when using the WhenU browser.

WhenU, on its Web site, heralds the case as a “landmark” decision, declaring that “the consumer owns the desktop.” This case has broad implications for Internet browsers such as Google and Yahoo!. Their policies of allowing advertisers to buy keywords to manipulate pop-up advertising and their use of trademarks within software directories may come under harsher judicial scrutiny in the future. Although the Second Circuit did not rule on how these policies would fare under the Lanham Act, the WhenU decision implies that these policies may be problematic. A future ruling of this nature could change the entire landscape of Internet advertising.

On June 27, 2005, the Second Circuit overturned a lower court's determination that an Internet advertising company's delivery of targeted, contextually relevant pop-up ads constituted trademark infringement. The plaintiff, 1-800 Contacts, Inc. (“1-800″), sued WhenU.com (“WhenU”) for trademark infringement as well as multiple other federal copyright, state infringement, and common law claims. The Second Circuit limited its review of the case to the plaintiff's Lanham Act claim, remanding the rest of 1-800's claims back to the district court.

Plaintiff 1-800 is a distributor of contact lenses and has a Web site located at www.1800contacts.com, as well as registered service marks for “1-800CONTACTS.” Defendant WhenU is an Internet advertising company that, by means of proprietary software, monitors a computer user's (“C-user”) activity on the Internet and causes pop-up ads related to the C-user's activity to appear on the C-user's desktop. The C-user voluntarily opts to use WhenU's system by downloading WhenU's software to monitor specified browsers.

In addressing the plaintiff's claim of trademark infringement, the Second Circuit first examined whether there was “use” of 1-800's trademarks in commerce in connection with the sale or advertising of goods or services within the meaning of the Lanham Act. The court vacated the district court's preliminary injunction and held that “as a matter of law, WhenU does not 'use' 1-800's trademarks within the meaning of the Lanham Act … when it (1) includes 1-800's website address, which is almost identical to 1-800's trademark, in an unpublished directory of terms that trigger delivery of WhenU's contextually relevant advertising to C-users; or (2) causes separate, branded pop-up ads to appear on a C-user's computer screen. … ”

The Second Circuit explained that once WhenU's software recognizes a search term in the C-user's Internet browser, whether it be a Web site address or a broad category term, such as contact lenses or eyewear, the software randomly selects a relevant advertisement to “pop up” at roughly the same time as the search result appears on screen. The pop-up ads appear in a separate window, either above, below, or along the bottom edge of the search result. The pop-ups are labeled “A WhenU offer ' click ? for info.” If the C-user clicks on this window, a new window containing information about WhenU and its ads appears that explains that the “offers shown … are not affiliated with the site you are visiting.”

Looking to precedent, the Court of Appeals cited Wells Fargo & Co. v. WhenU.com , Inc., 293 F. Supp. 2d 734 (E.D. Mich. 2003) and U-Haul International, Inc. v. WhenU.com, Inc., 279 F. Supp. 2d 723 (E.D. Va. 2003). Both of these district courts found that WhenU does not “use” the plaintiffs' trademarks for purposes of the Lanham Act by including Web site addresses in a “proprietary directory of keywords” that served a “pure machine-linking function.”

In the instant case, the Second Circuit concurred, explaining that WhenU does not place plaintiff's trademark on any goods or services so as to confuse consumers into believing they emanated from the plaintiff. Instead, WhenU's software uploads plaintiff's Web site address, but not its trademark “precisely because it is a website address, rather than because it bears any resemblance to 1-800's trademark.” The court noted that the Web site address is similar, but not identical to the trademark. It held that the differences between the trademark and Web site address (the addition of “www.” and “.com” and the omission of a hyphen and a space) were “significant because they transform 1-800's trademark ' which is entitled to protection under the Lanham Act ' into a word combination that functions more or less like a public key to 1-800's Web site.”

The court commented that the “contemporaneous display of the ads and trademarks is the result of the happenstance that 1-800 chose to use a mark similar to its trademark as the address to its web page and to place its trademark on its website.” The court also pointed out that the pop-up ads are not triggered solely by use of 1-800's Web site address, but also by C-users' broad search terms such as “contact lenses.”

The Second Circuit was not swayed by plaintiff's argument that the pop-ups appear on screen at the same time as plaintiff's Web site. “WhenU does not need 1-800's authorization to display a separate window containing an ad any more than Corel would need authorization from Microsoft to display its WordPerfect word-processor in a window contemporaneously with a Word word-processing window.” Furthermore, the pop-ups are conspicuously branded as property of WhenU.

The court also noted that the public cannot access and see how plaintiff's Web site address appears in the directory. The court specifically refused to express a view on whether use of a trademark in WhenU's directory would rise to a “use” under the Lanham Act.

The Second Circuit distinguished WhenU from the Internet search engine Google, referring repeatedly to Geico v. Google, Inc., 330 F. Supp. 2d 700 (E.D. Va. 2004). Unlike Google, WhenU does not disclose its software directory content to advertisers. Furthermore, WhenU “does not 'sell' keyword trademarks to its consumers or otherwise manipulate which category-related advertisement will pop up” in response to a C-user search. The pop-up ads that appear based on a C-user's search are randomly delivered to the desktop. The court distinguished 1-800's own pop-up and banner ads delivered on Gator and Yahoo! to C-users in response to their input of particular Web site addresses and keywords that 1-800 had chosen.

The court concluded: “A company's internal utilization of a trademark in a way that does not communicate it to the public is analogous to an individual's private thoughts about a trademark. Such conduct simply does not violate the Lanham Act, which is concerned with the use of trademarks in connection with the sale of goods or services in a manner likely to lead to consumer confusion as to the source of such goods or services.” WhenU has not altered the plaintiff's Web site or impacted the C-user's ability to do business with the plaintiff.

Since there was no finding of a use under the Lanham Act, the Second Circuit did not address the issue of likelihood of confusion. Nonetheless, the court noted that the claim was “incredulous” given C-users' broad familiarity with pop-up ads in various contexts for many products when using the WhenU browser.

WhenU, on its Web site, heralds the case as a “landmark” decision, declaring that “the consumer owns the desktop.” This case has broad implications for Internet browsers such as Google and Yahoo!. Their policies of allowing advertisers to buy keywords to manipulate pop-up advertising and their use of trademarks within software directories may come under harsher judicial scrutiny in the future. Although the Second Circuit did not rule on how these policies would fare under the Lanham Act, the WhenU decision implies that these policies may be problematic. A future ruling of this nature could change the entire landscape of Internet advertising.