Keyword Advertising and Trademark Infringement Update

Keyword Advertising Basics

Generally speaking, when a user enters a query into a search engine, the site displays both “organic” search results listing links in order of objective relevance to the inputted search terms, and “sponsored” ads located above and alongside the organic results consisting of a combination of brief advertising text and a link to the advertiser's website.

Under Google's AdWords program, for example, an automobile dealer might bid on keywords that would trigger a paid sponsored ad when a user enters a generic term (e.g., “sports cars”), the advertiser's own trademark (e.g., “Bill's Used Cars”) or its competitor's trademark (e.g., “Larry's Autos”).

When bidding on a keyword, an advertiser may specify whether keywords should be applied as a “broad match,” “phrase match,” “exact match,” or “negative match.” These terms were covered in detail in our May issue (see, “The Dangers of Dynamic Keyword Insertion,” at http://bit.ly/rregcm), but briefly, a broad match will appear anytime a search is conducted for that keyword, its plural forms and synonyms, or similar phrases. A phrase match will appear when a user searches for a particular phrase, even if the user includes other terms before or after the phrase. An exact match will appear only when the exact keyword is searched. And when an advertiser designates a keyword as a negative match, its link will not appear when certain terms are searched.

For the most part, an advertiser pays on a cost-per-click basis, which means that it is only charged if a user clicks on the sponsored link.

Ultimately, one way an advertiser can gauge the success of an online campaign is by comparing the number of impressions (i.e., the number of times the sponsored ad appears on users' screens) with the number of clicks, and then calculating the “conversion rate,” that is, how many clicks result in a sale.

The industry standard in the United States for search engines is to allow advertisers to buy their competitor's trademark as a keyword, but, in most cases, the advertiser is not permitted to include the trademarked term in the text of the sponsored ads.

However, advertisers are generally permitted to use a trademarked term in ad text if it is used in a nominative manner, such as by resellers of trademarked goods, websites that sell component or replacement parts corresponding to a trademark, and by non-competitive, informational sites. (See, e.g., Montana Camo Inc. v. Cabela's Inc., 2011 WL 744771 (D. Mont. Feb. 23, 2011) (clothing manufacturer that bought keywords containing its fabric supplier's trademark not liable under Lanham Act). But see, Storus v. Aroa Marketing Inc., 2008 WL 449835 (N.D. Cal. Feb. 15, 2008) (company's purchase of its competitor's trademark as a keyword and its use of the mark in the text of a sponsored advertisement constitutes initial interest confusion prohibited by the Lanham Act).)

Mixed Results

While keyword advertising remains a vital method to reach users, it has produced a fair amount of litigation brought by businesses seeking to deter competitors from bidding on their trademarks, and, in trademark owners' views, deceiving consumers and unfairly siphoning traffic away from their own sites in violation of the Lanham Act.

While court decisions in the last several years have established that the purchase of a trademark as a keyword is a “use in commerce” under the Lanham Act, it remains an unsettled question whether the purchase of another's trademark as a keyword, without any subsequent use of the mark in the text of the sponsored ad, creates a likelihood of consumer confusion ' a prerequisite for infringement liability.

Beyond the legal issues, there is the question of the cost effectiveness of bringing a competitor to court to prevent what may not be a significant loss of traffic or sales due to a competitor's purchase of the owner's trademark as a keyword.

Recent federal court opinions have yielded mixed results, though this past March, the Ninth U.S. Circuit Court of Appeals issued a breakthrough opinion that seemingly reframed the debate.

1-800 Contacts

Last year, in 1-800 Contacts Inc. v. Lens.Com Inc., 755 F.Supp.2d 1151 (2010) (available at http://bit.ly/n0auD3), a district court in Utah held that the purchase of variations of the plaintiff's trademark for keyword advertising may be a use in commerce under the Lanham Act, but because a consumer cannot see a keyword, nor tell what keyword generated an ad, the mere purchase of one cannot result in consumer confusion when the trademarked term does not appear in the text of the sponsored ad. The court granted the defendant summary judgment, finding no likelihood of confusion.

In this case, the defendant purchased the plaintiff's mark “1800Contacts” as a keyword, which, as a practical matter, would trigger the same sponsored links as if the defendant purchased the generic keywords “contacts” or “contact lens” as a broad match.

The court noted that it was clear that a competitor cannot be held liable for purchasing a generic keyword such as “contact lens” to generate an ad that does not incorporate a holder's mark in any way. As such, the court commented that “if the advertisement remains the same regardless of which search term triggers it, there is no more likelihood of confusion for the advertisement triggered by the trademark ['1800Contacts'] versus the advertisement triggered by the generic phrases ['contact lens'].”

Network Automation

The most significant keyword case so far this year was handed down by the Ninth Circuit in Network Automation Inc. v. Advanced Systems Concepts Inc., 638 F.3d 1137 (available at http://bit.ly/o6tGIg). In that case, the court found that a software company's purchase of a competitor's trademark as a search engine keyword did not likely cause consumer confusion and constitute trademark infringement.

The Ninth Circuit reversed the district court's grant of a preliminary injunction barring Network Automation from using its competitor's trademark as a keyword. The circuit stated that the lower court erred in not flexibly weighing the likelihood of confusion factors and relied too heavily on the “[I]nternet troika” ' three likelihood of confusion factors relied upon by the Ninth Circuit in Brookfield Commc'ns Inc. v. West Coast Entm't Corp., 174 F.3d 1036 (9th Cir. 1999) (available at http://bit.ly/nirtvt): the similarity of the marks; the relatedness of the goods or services; and the simultaneous use of the Internet as a marketing channel.

The court noted that the Internet troika might be instructive for domain name disputes, but was not the correct standard for a keyword advertising case. Indeed, as to the “simultaneous use of the same marketing channel” factor, the court underscored the current business climate: “[I]t would be the rare commercial retailer that did not advertise online, and the shared use of a ubiquitous marketing channel does not shed much light on the likelihood of consumer confusion.”

The Network Automation court notably questioned the lower court's reliance on Brookfield, and expressed some doubt about the vibrancy of the initial interest confusion theory of liability for keyword cases.

Generally speaking, initial interest confusion in the context of the Internet stems from the unauthorized use of trademarks to divert traffic, thereby capitalizing on a trademark holder's goodwill and diverting the consumer to a competitor's own site.

Indeed, since Brookfield, many commentators have opined that the initial interest confusion doctrine had been too liberally applied to online trademark infringement actions, particularly as users have gained familiarity with search engines and advertisers have generally refrained from the use of a competitor's trademark in the text of any sponsored ads.

The court concluded that “it would be wrong to expand the initial interest confusion theory of infringement beyond the realm of the misleading and deceptive to the context of legitimate comparative and contextual advertising,” and stressed that the trademark owner “must demonstrate likely confusion, not mere diversion” to prove an infringement claim, a stand that evinces a further retreat from the Brookfield precedent.

Ultimately, the Network Automation court stated that the most relevant factors in a keyword case were: 1) the strength of the mark; 2) the evidence of actual confusion; 3) the type of goods and degree of care likely to be exercised by the purchaser (recalling that the default degree of consumer care is becoming more heightened as online commerce becomes commonplace); and 4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.

Binder v. Disability Group

However, another recent keyword case resulted in a contrary ruling. In Binder v. Disability Group Inc., 97 U.S.P.Q.2d 1629 (2011) (available at http://bit.ly/oUQMtF), the U.S. District Court for the Central District of California ruled that a law firm's use of a competitor's trademark in keyword advertising constituted trademark infringement based on a finding of likelihood of confusion, namely that: the plaintiffs' mark and that used by the defendants were identical (i.e., “Binder and Binder”); the defendant intentionally chose the plaintiff's mark based on its strength and appeal in the market; and the services provided by the plaintiff and defendant were identical since both firms specialized in disability cases.

Moreover, the court found evidence of actual confusion from prospective clients searching the Web for legal services and alleged misrepresentations by the defendant that it was affiliated with the plaintiff's firm.

Jury Verdicts

The vast majority of keyword cases do not reach trial, but in the last two years, a small number of juries have had a chance to rule on the issue of whether the purchase of keywords creates a likelihood of consumer confusion and infringement liability.

In College Network Inc. v. Moore Educational Publishers Inc., 2010 WL 1923763 (5th Cir. May 12, 2010) (unpublished) (available at http://bit.ly/oqeVmf), the parties were competitors in the educational study guides industry and the plaintiff brought an infringement suit contending that the defendant purchased the plaintiff's mark as a search engine keyword.

The appeals court affirmed a jury verdict of non-infringement that concluded that the defendant's keyword purchases, without more, did not compel a finding of likelihood of confusion and infringement.

Similarly, in Fair Isaac Corp. v. Experian Information Solutions Inc., 2009 WL 4263699 (D. Minn. Nov. 25, 2009) (available at http://bit.ly/o3vuKx), following a jury verdict of non-infringement, the court found that the weight of the evidence adduced at trial did not support a credible inference that the defendant's purchases of the plaintiff's trademarks as keywords were likely to confuse consumers. (See also, Consumerinfo.com Inc., v. One Techs., LP, No. 09-3783 (C.D. Cal. Jury Verdict Jan. 12, 2011) (jury found no infringement based on keyword purchases, but found the defendant liable for cybersquatting based upon the registration of typosquatting domain name variants of the plaintiff's domain names).)

Licensing Considerations

A trademark license between the parties can render moot any discussion of likelihood of confusion and trademark infringement caused by keyword advertising. The purpose of a broad trademark license is to authorize the licensee to use the mark in a manner that otherwise might be an infringement.

For example, in Video Professor Inc. v. Amazon.com Inc., 2010 WL 1644630 (D. Colo. April 21, 2010) (available at http://bit.ly/paz4Tb), the plaintiff was a vendor that sold products on Amazon.com and as such, was required to sign a Vendor Manual, which contained trademark license provisions in favor of the defendant.

The trademark license provided: “[Plaintiff] hereby grants to Amazon.com a non-exclusive, worldwide, perpetual, and royalty-free license to ' (c) use all trademarks and trade names included in the Product Information,” terms that survived “the termination of any or all of this Vendor Manual.”

Amazon.com subsequently bid on and purchased the plaintiff's trademark, “Video Professor,” as a search engine keyword and ran sponsored ads that allegedly directed users to a landing page offering not only the plaintiff's goods for sale, but also competitors' products, sometimes displayed in a more prominent manner.

The plaintiff advanced a host of trademark infringement claims. The court granted the defendant summary judgment on all trademark claims, ruling that the defendant's use of the plaintiff's mark as a sponsored link and its alleged portrayal of the plaintiff's products along with competing products on Amazon.com's landing page are both authorized under the terms of the trademark license in the Vendor Manual.

The court rejected the plaintiff's arguments that the license should be limited to the defendant's use of the trademark to advertise and sell only the plaintiff's products. The court concluded that the plain, unambiguous language of the trademark license did not preclude the defendant from using the plaintiff's trademark to promote competitors' products.

This ruling underscores the importance of reading and understanding vendor agreements and licensing provisions and perhaps seeking to renegotiate those provisions that may conflict with a trademark owner's overall marketing and usage strategy.

According to the latest report from Internet World Stats (dated March 2011), there are an estimated 2.1 billion Internet users worldwide ' 272 million in North America alone ' navigating through billions of indexed Web pages. For businesses and advertisers, these numbers mean an enormous pool of potential shoppers and clients, and one of the principal ways to reach them is through advertising on search engines.

Keyword advertising involves the purchase of generic or trademarked keywords to trigger sponsored ads alongside the list of search engine results. This advertising remains an indispensable online marketing tool, but has spawned a raft of litigation pitting trademark holders against their competitors and the search engines that are auctioning trademarks to third-party advertisers for use in paid keyword advertising.

This article reviews keyword advertising generally and discusses recent developments in keyword litigation.

Keyword Advertising Basics

Generally speaking, when a user enters a query into a search engine, the site displays both “organic” search results listing links in order of objective relevance to the inputted search terms, and “sponsored” ads located above and alongside the organic results consisting of a combination of brief advertising text and a link to the advertiser's website.

Under Google's AdWords program, for example, an automobile dealer might bid on keywords that would trigger a paid sponsored ad when a user enters a generic term (e.g., “sports cars”), the advertiser's own trademark (e.g., “Bill's Used Cars”) or its competitor's trademark (e.g., “Larry's Autos”).

When bidding on a keyword, an advertiser may specify whether keywords should be applied as a “broad match,” “phrase match,” “exact match,” or “negative match.” These terms were covered in detail in our May issue (see, “The Dangers of Dynamic Keyword Insertion,” at http://bit.ly/rregcm), but briefly, a broad match will appear anytime a search is conducted for that keyword, its plural forms and synonyms, or similar phrases. A phrase match will appear when a user searches for a particular phrase, even if the user includes other terms before or after the phrase. An exact match will appear only when the exact keyword is searched. And when an advertiser designates a keyword as a negative match, its link will not appear when certain terms are searched.

For the most part, an advertiser pays on a cost-per-click basis, which means that it is only charged if a user clicks on the sponsored link.

Ultimately, one way an advertiser can gauge the success of an online campaign is by comparing the number of impressions (i.e., the number of times the sponsored ad appears on users' screens) with the number of clicks, and then calculating the “conversion rate,” that is, how many clicks result in a sale.

The industry standard in the United States for search engines is to allow advertisers to buy their competitor's trademark as a keyword, but, in most cases, the advertiser is not permitted to include the trademarked term in the text of the sponsored ads.

However, advertisers are generally permitted to use a trademarked term in ad text if it is used in a nominative manner, such as by resellers of trademarked goods, websites that sell component or replacement parts corresponding to a trademark, and by non-competitive, informational sites. (See, e.g., Montana Camo Inc. v. Cabela's Inc., 2011 WL 744771 (D. Mont. Feb. 23, 2011) (clothing manufacturer that bought keywords containing its fabric supplier's trademark not liable under Lanham Act). But see, Storus v. Aroa Marketing Inc., 2008 WL 449835 (N.D. Cal. Feb. 15, 2008) (company's purchase of its competitor's trademark as a keyword and its use of the mark in the text of a sponsored advertisement constitutes initial interest confusion prohibited by the Lanham Act).)

Mixed Results

While keyword advertising remains a vital method to reach users, it has produced a fair amount of litigation brought by businesses seeking to deter competitors from bidding on their trademarks, and, in trademark owners' views, deceiving consumers and unfairly siphoning traffic away from their own sites in violation of the Lanham Act.

While court decisions in the last several years have established that the purchase of a trademark as a keyword is a “use in commerce” under the Lanham Act, it remains an unsettled question whether the purchase of another's trademark as a keyword, without any subsequent use of the mark in the text of the sponsored ad, creates a likelihood of consumer confusion ' a prerequisite for infringement liability.

Beyond the legal issues, there is the question of the cost effectiveness of bringing a competitor to court to prevent what may not be a significant loss of traffic or sales due to a competitor's purchase of the owner's trademark as a keyword.

Recent federal court opinions have yielded mixed results, though this past March, the Ninth U.S. Circuit Court of Appeals issued a breakthrough opinion that seemingly reframed the debate.

1-800 Contacts

Last year, in 1-800 Contacts Inc. v. Lens.Com Inc. , 755 F.Supp.2d 1151 (2010) (available at http://bit.ly/n0auD3 ), a district court in Utah held that the purchase of variations of the plaintiff's trademark for keyword advertising may be a use in commerce under the Lanham Act, but because a consumer cannot see a keyword, nor tell what keyword generated an ad, the mere purchase of one cannot result in consumer confusion when the trademarked term does not appear in the text of the sponsored ad. The court granted the defendant summary judgment, finding no likelihood of confusion.

In this case, the defendant purchased the plaintiff's mark “1800Contacts” as a keyword, which, as a practical matter, would trigger the same sponsored links as if the defendant purchased the generic keywords “contacts” or “contact lens” as a broad match.

The court noted that it was clear that a competitor cannot be held liable for purchasing a generic keyword such as “contact lens” to generate an ad that does not incorporate a holder's mark in any way. As such, the court commented that “if the advertisement remains the same regardless of which search term triggers it, there is no more likelihood of confusion for the advertisement triggered by the trademark ['1800Contacts'] versus the advertisement triggered by the generic phrases ['contact lens'].”

Network Automation

The most significant keyword case so far this year was handed down by the Ninth Circuit in Network Automation Inc. v. Advanced Systems Concepts Inc. , 638 F.3d 1137 (available at http://bit.ly/o6tGIg ). In that case, the court found that a software company's purchase of a competitor's trademark as a search engine keyword did not likely cause consumer confusion and constitute trademark infringement.

The Ninth Circuit reversed the district court's grant of a preliminary injunction barring Network Automation from using its competitor's trademark as a keyword. The circuit stated that the lower court erred in not flexibly weighing the likelihood of confusion factors and relied too heavily on the “[I]nternet troika” ' three likelihood of confusion factors relied upon by the Ninth Circuit in Brookfield Commc'ns Inc. v. West Coast Entm't Corp. , 174 F.3d 1036 (9th Cir. 1999) (available at http://bit.ly/nirtvt ): the similarity of the marks; the relatedness of the goods or services; and the simultaneous use of the Internet as a marketing channel.

The court noted that the Internet troika might be instructive for domain name disputes, but was not the correct standard for a keyword advertising case. Indeed, as to the “simultaneous use of the same marketing channel” factor, the court underscored the current business climate: “[I]t would be the rare commercial retailer that did not advertise online, and the shared use of a ubiquitous marketing channel does not shed much light on the likelihood of consumer confusion.”

The Network Automation court notably questioned the lower court's reliance on Brookfield, and expressed some doubt about the vibrancy of the initial interest confusion theory of liability for keyword cases.

Generally speaking, initial interest confusion in the context of the Internet stems from the unauthorized use of trademarks to divert traffic, thereby capitalizing on a trademark holder's goodwill and diverting the consumer to a competitor's own site.

Indeed, since Brookfield, many commentators have opined that the initial interest confusion doctrine had been too liberally applied to online trademark infringement actions, particularly as users have gained familiarity with search engines and advertisers have generally refrained from the use of a competitor's trademark in the text of any sponsored ads.

The court concluded that “it would be wrong to expand the initial interest confusion theory of infringement beyond the realm of the misleading and deceptive to the context of legitimate comparative and contextual advertising,” and stressed that the trademark owner “must demonstrate likely confusion, not mere diversion” to prove an infringement claim, a stand that evinces a further retreat from the Brookfield precedent.

Ultimately, the Network Automation court stated that the most relevant factors in a keyword case were: 1) the strength of the mark; 2) the evidence of actual confusion; 3) the type of goods and degree of care likely to be exercised by the purchaser (recalling that the default degree of consumer care is becoming more heightened as online commerce becomes commonplace); and 4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.

Binder v. Disability Group

However, another recent keyword case resulted in a contrary ruling. In Binder v. Disability Group Inc. , 97 U.S.P.Q.2d 1629 (2011) (available at http://bit.ly/oUQMtF ), the U.S. District Court for the Central District of California ruled that a law firm's use of a competitor's trademark in keyword advertising constituted trademark infringement based on a finding of likelihood of confusion, namely that: the plaintiffs' mark and that used by the defendants were identical (i.e., “Binder and Binder”); the defendant intentionally chose the plaintiff's mark based on its strength and appeal in the market; and the services provided by the plaintiff and defendant were identical since both firms specialized in disability cases.

Moreover, the court found evidence of actual confusion from prospective clients searching the Web for legal services and alleged misrepresentations by the defendant that it was affiliated with the plaintiff's firm.

Jury Verdicts

The vast majority of keyword cases do not reach trial, but in the last two years, a small number of juries have had a chance to rule on the issue of whether the purchase of keywords creates a likelihood of consumer confusion and infringement liability.

In College Network Inc. v. Moore Educational Publishers Inc., 2010 WL 1923763 (5th Cir. May 12, 2010) (unpublished) (available at http://bit.ly/oqeVmf), the parties were competitors in the educational study guides industry and the plaintiff brought an infringement suit contending that the defendant purchased the plaintiff's mark as a search engine keyword.

The appeals court affirmed a jury verdict of non-infringement that concluded that the defendant's keyword purchases, without more, did not compel a finding of likelihood of confusion and infringement.

Similarly, in Fair Isaac Corp. v. Experian Information Solutions Inc., 2009 WL 4263699 (D. Minn. Nov. 25, 2009) (available at http://bit.ly/o3vuKx), following a jury verdict of non-infringement, the court found that the weight of the evidence adduced at trial did not support a credible inference that the defendant's purchases of the plaintiff's trademarks as keywords were likely to confuse consumers. (See also, Consumerinfo.com Inc., v. One Techs., LP, No. 09-3783 (C.D. Cal. Jury Verdict Jan. 12, 2011) (jury found no infringement based on keyword purchases, but found the defendant liable for cybersquatting based upon the registration of typosquatting domain name variants of the plaintiff's domain names).)

Licensing Considerations

A trademark license between the parties can render moot any discussion of likelihood of confusion and trademark infringement caused by keyword advertising. The purpose of a broad trademark license is to authorize the licensee to use the mark in a manner that otherwise might be an infringement.

For example, in Video Professor Inc. v. Amazon.com Inc., 2010 WL 1644630 (D. Colo. April 21, 2010) (available at http://bit.ly/paz4Tb), the plaintiff was a vendor that sold products on Amazon.com and as such, was required to sign a Vendor Manual, which contained trademark license provisions in favor of the defendant.

The trademark license provided: “[Plaintiff] hereby grants to Amazon.com a non-exclusive, worldwide, perpetual, and royalty-free license to ' (c) use all trademarks and trade names included in the Product Information,” terms that survived “the termination of any or all of this Vendor Manual.”

Amazon.com subsequently bid on and purchased the plaintiff's trademark, “Video Professor,” as a search engine keyword and ran sponsored ads that allegedly directed users to a landing page offering not only the plaintiff's goods for sale, but also competitors' products, sometimes displayed in a more prominent manner.

The plaintiff advanced a host of trademark infringement claims. The court granted the defendant summary judgment on all trademark claims, ruling that the defendant's use of the plaintiff's mark as a sponsored link and its alleged portrayal of the plaintiff's products along with competing products on Amazon.com's landing page are both authorized under the terms of the trademark license in the Vendor Manual.

The court rejected the plaintiff's arguments that the license should be limited to the defendant's use of the trademark to advertise and sell only the plaintiff's products. The court concluded that the plain, unambiguous language of the trademark license did not preclude the defendant from using the plaintiff's trademark to promote competitors' products.

This ruling underscores the importance of reading and understanding vendor agreements and licensing provisions and perhaps seeking to renegotiate those provisions that may conflict with a trademark owner's overall marketing and usage strategy.