In a decision that will limit the ability of trademark owners to challenge competitors’ keyword advertising, the U.S. Court of Appeals for the Ninth Circuit vacated a preliminary injunction issued by a district court barring a defendant’s purchase of a competitor’s trademark as a keyword to trigger internet advertisements. Network Automation, Inc. v. Advanced Systems Concepts, Inc., Case No. 10-55840 (9th Cir., Mar. 8, 2011) (Wardlaw, J.).

Network Automation and Advanced Systems Concepts are competing software distributors. Advanced Systems Concepts sells its software under the mark ACTIVE-BATCH. To advertise its software, Network Automation purchased advertisements through internet search engines, triggered by certain keywords entered by internet users. One of the keywords that Network Automation purchased was “Active-Batch,” Advanced’s trademark. After Advanced Systems Concepts demanded that Network Automation cease its advertising practice, Network Automation filed a declaratory judgment action to establish that Network Automation’s keyword advertising did not infringe Advanced Systems Concepts’s trademark.

To determine whether Network Automation’s use of its competitor’s trademark as a keyword in search engine advertising caused a likelihood of confusion, the district court focused on what the 9th Circuit has previously espoused as the three most significant likelihood-of-confusion factors in cases involving the internet. Those factors, the so-called “internet trinity” are the similarity of the marks, the relatedness of the goods and the marketing channels used. The district court found that all three factors favored Advanced Systems Concepts because Network Automation used the identical mark to sell a directly competing product and both parties advertised through the internet.

On appeal, the 9th Circuit clarified that the “internet trinity” should not be prioritized “for every type of potential online commercial activity.” In fact, the 9th Circuit explained, the internet trinity is a “particularly poor fit” given the ubiquitous use of the internet as a marketing tool and the sophistication and familiarity with which many internet users navigate search engines. Accordingly, the court directed that the Sleekcraft factors are non-exhaustive and should be applied flexibly, “particularly in the context of internet commerce.”

After reviewing the particular facts of the case, the Ninth Circuit identified the following Sleekcraft factors as most relevant to the analysis of likelihood of confusion: the strength of the mark, evidence of actual confusion, the type of goods and the degree of care likely to be exercised by the purchaser and the labeling of the advertisements and the and overall appearance of the screen displaying the search results page. Concerning type of goods and purchaser care, the court rejected the district court’s conclusion that internet users generally exercise a low degree of care. Rather, the court noted that today’s internet users are knowledgeable about search engine results and expect to navigate away from web pages when they have not located the information sought. With respect to the fourth factor, the court directed that the presence or absence of likelihood of confusion will “ultimately turn on what the consumer saw on the screen.” Reviewing the specific search engine results for “ACTIVEBATCH” and the appearance of Network Automation’s ads, the court noted that the segregation of “sponsored links” by the relevant search engines was enough to weigh against a finding of a likelihood of initial interest confusion. Ultimately, because the district court erred in failing to weigh the Sleekcraft factors flexibly to match the specific facts of the case, the 9th Circuit vacated the injunction and remanded the case for further proceedings under the correct legal analysis.

Practice Note: This decision will limit trademark holders’ ability to challenge keyword advertisements as trademark violations because it implies that the use of another’s trademark in keyword advertising is not inherently confusing. To avoid resulting liability, companies purchasing keywords consisting of competitor trademarks should take care that their keyword ads or “sponsored links” are sufficiently segregated when displayed with search results so that they will be viewed as advertisements by internet users.