2009 WL 875447 (2d Cir. Apr. 3, 2009)

ABSTRACT

The Second Circuit Court of Appeals reversed and remanded the decision of the Northern District of New York that a search engine’s promotion and sale of plaintiff’s trademark as a keyword trigger was not a use in commerce under the Lanham Act. The Second Circuit clarified and narrowed its prior holding in 1-800 Contacts v. WhenU.com involving pop-up ads, which the court below and a number of other district courts in the Second Circuit had relied on to find that the sale or purchase of trademarks as keyword triggers did not constitute a use in commerce. The Second Circuit distinguished its 1-800 Contacts decision in several material respects and found that, accepting the plaintiff’s allegations as true as it must do on a motion to dismiss, plaintiff’s allegations that Google recommended and sold plaintiff’s exact trademark to Google’s advertisers to trigger ads in a manner likely to cause confusion properly alleged a Lanham Act claim.

CASE SUMMARY

FACTS

Rescuecom operated a computer-services franchising business under the federally registered trademark RESCUECOM. Google allowed advertisers, including Rescuecom’s competitors, to purchase the RESCUECOM mark as a search-engine keyword through Google’s AdWords advertising program. Under this program, when users entered a search query containing the purchased RESCUECOM keyword, advertisements for Rescuecom’s competitors appeared as “sponsored links” that linked to the competitors’ websites. Google displayed sponsored links to the right of and/or immediately above its regular, relevance-based search results. Google also offered advertisers its “Keyword Suggestion Tool,” which recommended the most profitable keywords related to an advertiser’s business. Google’s Keyword Suggestion Tool recommended “rescuecom” as a keyword to plaintiff’s competitors to make their sponsored advertising more successful. Rescuecom sued for trademark infringement, false designation of origin, and dilution, among other claims, alleging that the sale and use of its trademarks as keyword triggers created a likelihood of confusion. Specifically, Rescuecom alleged that searchers will mistakenly believe that its competitors’ paid advertisements (and website links) are sponsored by, endorsed by, approved by, or affiliated with Rescuecom because: (1) users could easily be misled to believe that the “sponsored links” were part of the relevance-based search results, (2) Google failed to clearly label or identify the ads as purchased ads rather than relevance-based search results, and (3) sponsored links appearing immediately above the regular search results may appear to users as the first, and thus most relevant, relevance-based search results instead of paid ads. Google filed a motion to dismiss all claims for failure to state a claim upon which relief could be granted.

The Northern District of New York granted Google’s motion to dismiss, ruling that Rescuecom had not alleged a “use in commerce” of its trademark by Google. The district court based its decision on the Second Circuit’s ruling in 1-800 Contacts v. WhenU.com (“1-800”), in which the appeals court held that the defendant’s advertising program using an “internal” database of URLs to trigger sponsored pop-up ads did not constitute a use in commerce under Section 45 of the Lanham Act. Section 45 requires that a mark be “used or displayed in the sale or advertising of services . . . rendered in commerce” for the use of the mark to be considered a “use in commerce.” Because the competitors’ keyword-triggered ads did not “display” Rescuecom’s trademark, the district court found that such use did not constitute a use in commerce, even if Rescuecom could establish a likelihood of confusion. Rescuecom appealed to the Second Circuit.

ANALYSIS

The Second Circuit reversed and remanded the case back to the district court because the district court “misunderstood the holding of 1-800.” The appeals court found this case to be “materially different” from 1-800 in two ways. First, the defendant in 1-800 “did not use, reproduce, or display the plaintiff’s mark at all” because the search term used to trigger the pop-up ads was the plaintiff’s website address, not its trademark. Here, Google recommended and sold Rescuecom’s exact trademark, RESCUECOM, to advertisers to trigger the advertisers’ sponsored ads.

Second, the advertising program used to generate the pop-up ads in 1-800 did not allow advertisers to “request or purchase keywords to trigger their [pop-up] ads”; “did not disclose the proprietary content of [its internal] directory to its advertising clients”; and did not “manipulate which category-related advertisement will pop up in response to any particular terms on the internal directory,” instead relying on the general category (e.g., eye care) associated with the website or keyword rather than the website or keyword itself. Here, however, advertisers could purchase Rescuecom’s exact trademark and specify which sponsored ads would be triggered whenever that keyword was part of a user’s search-engine query. The court found that this “utilization of Rescuecom’s mark fits literally within the terms specified by [Section 45],” i.e., Google “displays, offers, and sells” Rescuecom’s mark when selling its advertising services in commerce.

The appeals court also briefly addressed several other rulings of district courts within the Second Circuit that had found no use in commerce when the disputed trademark was used “in an internal computer directory,” such as in a website’s metadata or as a search-engine keyword. The Second Circuit stated that these courts “over-read[ ] the 1-800 decision,” because 1-800 “did not imply that . . . an alleged infringer’s use of a trademark in an internal software program insulates the alleged infringer from a charge of infringement, no matter how likely the use is to cause confusion in the marketplace.” If the court adopted such a rule, “the operators of search engines would be free to use trademarks in ways designed to deceive and cause consumer confusion,” a result not intended by the Lanham Act.

The Second Circuit also rejected Google’s argument that keyword purchases were no different from retail vendors that used “product placement” to allow one vendor to benefit from a competitor’s name recognition (e.g., the positioning of store-brand generic products next to trademarked products on a store’s shelves). According to the court, Google’s argument “misses the point.” Simply because non-deceptive product placement was not actionable under the Lanham Act did not mean that product placement was a “magic shield against liability” that would protect deceptive or confusing product placements. The positioning of competing goods on a store’s shelves avoids liability “because it is a benign practice which does not cause a likelihood of consumer confusion,” not because of the absence of a use of a mark “in commerce.” The Second Circuit viewed Google’s acts, as alleged, to be “significantly different from benign product placement that does not violate the [Lanham] Act.” The court declined, however, to consider whether Google’s practices were in fact benign or confusing at this juncture, leaving that determination for the district court to decide on remand.

Finally, the court attached a lengthy appendix to its decision in which it engaged in an extended discussion and statutory analysis regarding the definition and scope of a “use in commerce” under Sections 32, 43(a), and 45 of the Lanham Act. The court deemed the discussion dictum and not a binding opinion of the court, but did note that the judges of the panel who decided 1-800 had read the appendix and stated that they agreed with it.

CONCLUSION

The Second Circuit’s decision significantly narrows the scope of its prior decision in 1-800 Contacts, the case that the court below and other district courts within the Second Circuit had relied on to find that the sale or purchase of trademarks to trigger paid advertisements did not constitute a use in commerce under the Lanham Act. This decision effectively overrules these other district court decisions, which now means there is near uniformity on this issue among the courts. Further, the court’s detailed discussion in its appendix, albeit dicta, may help lower courts decide what constitutes a Lanham Act use in commerce for purposes of infringement and dilution claims relating to the sale and purchase of search-engine keywords to trigger paid advertisements.