The international skin care and cosmetics company Mary Kay is hitting back against what it is calling a “fraudulent couponing scheme” operated by the online digital coupon marketplace, RetailMeNot. Earlier this month, Mary Kay filed a federal lawsuit against RetailMeNot (RMN) alleging that RMN’s online coupon business violates federal trademark and advertising laws, as well as federal and state unfair competition laws.

Background

At the heart of Mary Kay’s complaint is the company’s direct-sales business model. Since it was founded in 1963, the company has sold its products exclusively through a network of independent contractors known as Independent Beauty Consultants (IBCs), who then sell the products directly to consumers through direct sales channels such as house parties and personal websites. IBCs are not permitted to sell products through retail channels or brick and mortar establishments, and Mary Kay does not sell products directly to consumers.

RMN, on the other hand, describes itself as the “world’s largest digital coupon marketplace,” and essentially functions as the “middle man” between retailers and consumers looking for deals. The site provides an online venue for consumers to search for coupons and sales, as well as for third party retailers to showcase their offers to consumers. In 2013 alone, the site listed more than 600,000 “digital coupons” each month from more than 70,000 retailers and brands. Notably, the site also sets up webpages specifically dedicated to particular brands. Thus, for example, a consumer who searches for “Mary Kay” on RetailMeNot.com is directed to a specific “Mary Kay” page on the site with a list of supposed Mary Kay coupons and sales.

The Complaint

In its complaint, Mary Kay argues that RMN is infringing its trademarks and misleading consumers by suggesting a false affiliation between Mary Kay and RMN. In particular, Mary Kay argues that the coupons RMN makes available on its site are fraudulent because Mary Kay does not offer coupons and discounts directly to consumers. The complaint notes that the company has received complaints from its IBCs who have been pressured by customers to accept or honor false or unauthorized coupons posted on RMN’s site. In addition, Mary Kay argues that the Mary Kay merchant page on RMN leads consumers to mistakenly believe that Mary Kay has authorized the coupons or discounts available on RMN.

Interestingly, Mary Kay is also challenging RMN’s use of the term “Mary Kay” in its Google advertisements. The company notes that when consumers conduct a Google search for a term such as “Mary Kay Coupons,” advertisements for RMN appear first on the Google search results page, likely because RMN has purchased search terms from Google using “Mary Kay.” Mary Kay also points out that RMN uses its trademark “MARY KAY” directly in RMN’s keyword advertisements, which Mary Kay argues is trademark infringement.

Significance

Mary Kay’s lawsuit poses a challenge to the fast-growing digital coupon industry. In a statement released after Mary Kay filed its suit, RMN asserts that its practices comply with intellectual property and advertising laws and that the site merely aggregates information to help shoppers save money.

The suit may also help shed more light on the trademark implications of online keyword advertising. Many online advertisers use third party trademarks in keyword advertising on search engines such as Google and Yahoo! However, there has been some disagreement among the courts as to whether the use of third party trademarks in keyword advertising constitutes trademark infringement. Often, the final answer appears to depend on the specific characteristics of the ads in question.