The Northern District of Texas denied defendants’ motion for summary judgment on the affirmative defense that their resale of plaintiff’s genuine goods was protected by the first-sale doctrine because the expired nature of the products created a genuine issue of material fact as to whether they were “materially different.” Regarding defendants’ keyword advertising, the court held that defendants were not barred from asserting the fair-use defense for the purchase of keywords, but the way plaintiff’s mark was used in the keyword-triggered ads (and on their website) created a genuine issue as to the likelihood of confusion that precluded summary judgment. Finally, the court denied plaintiff’s motion for summary judgment on its laches defense because any delays by plaintiff in commencing this action were reasonable.
Plaintiff Mary Kay, Inc. (“Mary Kay”) sells cosmetics, toiletries, and skin-care products under the mark MARY KAY and is known for its use of the color pink. Mary Kay distributes and sells its products through Independent Beauty Consultants (“IBCs”), who purchase the products at wholesale rates from Mary Kay and resell them to consumers for a profit. Defendant Amy Weber was an IBC for more than four years, during which she accumulated a large inventory of unsold products. Weber, with the help of her husband and others (collectively “Weber”), began selling her inventory on eBay via an online store she named “marykay1stop.” Mary Kay demanded that Weber cease using its MARY KAY trademark as part of her store name and remove all copyrighted Mary Kay photographs.
Weber removed the copyrighted materials and changed the name of her eBay store to “Touch of Pink.” She also created a website at www.touchofpinkcosmetics.com through which she continued to sell her inventory of Mary Kay products as well as products acquired from other IBCs. Although the names of the eBay store and website no longer contained the Mary Kay name, Weber used the Mary Kay name on these sites to identify the products she sold. Mary Kay sued for trademark infringement, among other claims. Weber moved for summary judgment on her affirmative defenses of the first-sale doctrine, nominative fair use, and laches.
After ruling on several evidentiary issues including a likelihood-of-confusion survey conducted for Mary Kay, the court addressed Weber’s affirmative defenses. First, Weber contended that her sales of Mary Kay products were protected by the first-sale doctrine, which provides that once a mark owner has sold a product, the resale of that same product cannot constitute trademark infringement. The court initially noted that the first-sale doctrine would seem to apply here because Weber was simply reselling Mary Kay products. But Mary Kay asserted that Weber’s goods were “materially different” from its own because they consisted of expired and discontinued products that did not carry the same product guarantee as other Mary Kay products. Weber acknowledged that approximately 75% of her products were expired.
In determining whether Weber’s expired products materially differed from nonexpired Mary Kay products, the court relied on the Second Circuit’s decision in Warner-Lambert Co. v. Northside Development Corp., which involved the sale of expired cough drops. There, the court found infringement when the mark owner abided by defined, legitimate, quality-control procedures which, if violated, would diminish the value of the mark. The court found that holding “persuasive” and applicable to Weber’s sales based on Mary Kay’s evidence of its quality-control mechanisms that kept expired products from reaching the marketplace. It also noted Weber’s $20,000 monthly advertising expense, the 79 keywords purchased from Google (75 of which included the MARY KAY mark or the name of a Mary Kay product) to ensure her website’s top search-result placement, and that “thirty two percent of individuals who search[ed] for one of these 79 keywords click[ed] on . . . Weber[’s] website.” The court viewed “this extensive infiltration into the world of Mary Kay consumers” as enough to allow a reasonable juror to conclude that Weber’s expired products were “prevalent” enough to affect or diminish the Mary Kay name and thus create a genuine issue of material fact sufficient to deny summary judgment.
Weber’s second affirmative defense was nominative fair use, which “allows the use of another’s mark to truthfully identify another’s goods or services in order to describe or compare its product to the markholder’s product.” But the party asserting nominative fair use may only use so much of the owner’s mark as necessary to identify the products and must not do anything that suggests affiliation, sponsorship, or endorsement by the mark owner. Weber claimed that she used only the Mary Kay name and avoided “use [of] any registered logos, any distinctive script or pictures, and [did] . . . not mimic the look and feel of . . . Mary Kay’s website.” Mary Kay countered that Weber’s purchase of Google keywords containing the MARY KAY mark and her use of that mark in the text of the resulting sponsored ads and on her website gave off the impression of sponsorship by or affiliation with Mary Kay.
Regarding keyword purchases, the court rejected Mary Kay’s claim that Weber’s use of its marks as Internet keywords precluded a fair-use defense because “[t]o adopt such a rule would prevent all defendants who advertise via search engines from asserting the fair use defense.” Rather, the court stated that the fair-use doctrine “allows second-hand sellers to inform customers that it sells a mark holder’s product so long as it conveys the information ‘fairly,’ i.e., in a way that uses no more of the mark than necessary to identify the product, and does not suggest affiliation or sponsorship,” and that this principle should also apply to resellers on the Internet. The court discussed two recent keyword cases, Designer Skin v. S&L Vitamins from the District of Arizona and Tiffany v. eBay from the Southern District of New York, where those courts relied on nominative fair use to protect the resellers’ use of the product trademarks both as keyword triggers and on their websites. The court recognized the inherent differences between television or print advertisements and sponsored link ads, the latter of which do not appear until the user has already expressed an interest in a particular search term. Although “[o]ne could argue that this process inherently suggests some relationship between the search term—here, Mary Kay—and the sponsored link—here, touchofpinkcosmetics.com,” the court found that it “stretches the legal concept of affiliation too far” and that “affiliation connotes a much stronger relationship than one existing between search terms and sponsored links.” Finally, the court was persuaded by the Designer Skin court’s reasoning that “the law will destroy the valuable resource that search engines have become if it prevents those search engines from doing what they are designed to do: present[ing] users with the information they seek as well as related information the user may also find helpful or interesting.” Accordingly, the court ruled that Weber was not barred from asserting nominative fair use to defend her keyword purchases containing Mary Kay’s marks.
The court next examined whether the text of Weber’s keyword-triggered ad improperly suggested an affiliation or sponsorship with Mary Kay. Weber’s ad read: “Mary Kay Sale 50% Off: Free Shipping on Orders over $100 Get up to 50% Off-Fast Shipping www.touchofpinkcosmetics.com.” The court initially commented that the wording “Mary Kay Sale 50% Off” does “imply that May Kay is hosting the sale.” It then compared this ad text to other ads that had been found not to suggest any affiliation or sponsorship. For example, in Brookfield Communications v. West Coast Entertainment, the Ninth Circuit described a permissible hypothetical banner ad containing the following text: “Why pay for Moviebuff when you can get the same thing here for FREE?” Here, the court commented that the Brookfield ad “dr[ew] a clear line” between the advertised service and plaintiff’s Moviebuff service, and that had the Brookfield ad resembled Weber’s ad and stated only “Moviebuff 50% Off,” the line between the advertised service and the mark “would be far less clear.” Turning to Weber’s ad, the court found that “[t]he overall message . . . is only that some entity—whose website, it bears noting, includes the word ‘pink,’ a color often associated with Mary Kay—is offering Mary Kay products at 50% Off” and that “[o]ne could easily conclude from this ad that the entity offering the sale either is Mary Kay, or has Mary Kay’s approval.” The court thus found a genuine issue of material fact on whether nominative fair use protected Weber’s use of the MARY KAY mark in the text of the sponsored ads and denied summary judgment.
Regarding Weber’s use of the MARY KAY mark on her website, the court declined to decide whether such uses constituted nominative fair use. Rather, the court applied the traditional likelihood-of-confusion factors to determine whether Weber’s website created a likelihood of confusion as to affiliation or sponsorship. The court found that six of the seven factors favored Mary Kay, including that the marks used and products sold by Weber were identical to Mary Kay’s marks and products; the identities of potential purchasers were “likely identical or at least very similar”; the parties used the same advertising media—the Internet, including Google; and there was some evidence of actual confusion in the form of emails with one individual and “legally relevant” confusion from an otherwise flawed survey. The final factor—Weber’s intent—was neutral. Although Weber included a disclaimer stating that her website was not endorsed by or affiliated with Mary Kay, it was not prominent. Rather, the disclaimer did not even appear unless a user clicked on an “About Us” link. The court thus denied summary judgment on Weber’s nominative fair-use defense regarding her use of the MARY KAY mark on her website.
Finally, regarding laches, the court held that the nearly three-year delay between Mary Kay’s discovery of Weber’s activities in June 2005 and the filing of this action in May 2008 was not an unreasonable delay for two reasons. First, the delay was within the four-year time period considered reasonable by the relevant state statute of limitations. Second, the time that elapsed after Mary Kay sent its demand letter in January 2006 did not count for purposes of laches. The court thus denied summary judgment on Weber’s laches defense.
Although this decision did not decide many issues on the merits, it does provide some potentially useful guidance regarding use of the Internet to resell others’ branded products. For example, there is no absolute right to use a trademark owner’s marks to resell its branded products as such sales may be limited by exceptions like the “materially different” standard for expired products. Regarding keyword advertising, this court at least appears to be of the view that the text of keyword-triggered ads in the reselling context should be more of a comparative advertisement to constitute a nominative fair use. Finally, the inconspicuous use of a disclaimer on a reseller’s website, including a disclaimer accessible only from a link on the site’s main page, is not sufficient to avoid a likelihood of confusion.