Despite years of litigation over keyword advertising, very few courts have reached the ultimate question whether the use of a trademark solely as a trigger to display an advertisement on a search engine's website is trademark infringement. Last week, in a decision with broad implications, the U.S. Court of Appeals for the Tenth Circuit held such a use of a trademark is not likely to cause confusion and therefore is not infringing. 1-800 Contacts, Inc. v. Lens.com, Inc., 2013 WL 3665627 (10th Cir. July 16, 2013).

The facts of the case mirror those of many similar cases. The parties, 1-800 Contacts and Lens.com, are competitors in the sale of contact lenses over the Internet. Plaintiff 1-800 Contacts (1-800) owns the trademark 1800CONTACTS. Lens.com and its affiliates bid to use various terms incorporating the 1800CONTACTS mark as part of Google's AdWords program. After Lens.com won its bid, a user who typed in the 1800CONTACTS mark in the Google search engine would see, in addition to the organic search results from their query, an advertisement for Lens.com in the sponsored links section of the web page.

Importantly, none of the Lens.com ads that appeared in response to these bids used the 1800CONTACTS mark in the text of the ads. Rather, 1-800 claimed the trademark infringement arose simply from Lens.com's bidding on keywords incorporating the 1800CONTACTS mark. While the resulting sponsored links for Lens.com did not feature the 1800CONTACTS mark (or any variations thereof), 1-800 asserted that use of its mark to generate sponsored links for Lens.com created initial interest confusion.

(1-800 also included a secondary liability claim against Lens.com based on the bidding of its affiliates. While the initial claim pertained to sponsored ads that did not include the 1800CONTACTS mark, the sponsored ads at issue in two of the secondary liability cases actually included the 1800CONTACTS mark.)

Lens.com moved for summary judgment dismissing these claims. The district court granted the motion.

With respect to the direct infringement claim against Lens.com, the Court of Appeals affirmed. In reviewing the district court's decision, it emphasized the flexible nature of the test for likelihood of confusion and how some factors may weigh more heavily than others depending on the context. In the context of keyword advertising, the Court considered two key pieces of evidence that showed no likelihood of confusion. First, it relied heavily on Lens.com's  click-through data demonstrating that of the total of 1,625 times its ads appeared, users clicked on them only 1.5 percent of the time. The Court appreciated that a user who clicks on the ad is not necessarily confused about the source of the ad. However, the Court found that the click-through rate set an upper ceiling of possible confusion. That is, the only people who could be confused are those who clicked on the ad. But even if it were assumed every one of those people were confused as to the source of the ad, 1.5 percent is insufficient to support an infringement claim. Indeed, it shows the opposite; that consumers are not likely to be confused.

Second, the Court relied substantially on the fact that all of the Lens.com advertisements clearly identified the source of the ad. The Court wrote: "Perhaps in the abstract, one who searches for a particular business with a strong mark and sees an entry on the results page will naturally infer that the entry is for that business. But that inference is an unnatural one when the entry is clearly labeled as an advertisement and clearly identifies the source, which has a name quite different from the business being searched for."

By focusing on evidence of potential confusion (the click-through data) and the manner in which the alleged offending ads were displayed, the 10th Circuit effectively followed the approach that the 9th Circuit set out in Network Automation v. Advanced System Concepts, 638 F.3d 1137 (9th Cir. 2011). In one sense, the 10th Circuit decision in 1-800 Contacts effectively answers the question the 9th Circuit did not reach – namely, whether focusing on the likelihood of confusion factors relevant to keyword advertising leads to an infringement finding. In answering this question in the negative, the 10th Circuit also sharply distinguished its 2006 case on initial interest confusion, Australian Gold v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), saying "This case is readily distinguishable from Australian Gold, in which the alleged infringer used its competitor's trademarks on its websites."

The 10th Circuit's decision should have broad implications. The two key facts underlying the decision – the click-through data and the clear presentation of the source of the ads – should be present in most cases of keyword advertising. Click through rates for sponsored search engine advertising in the low single digits are generally considered favorable. It would appear to be a very rare case to find a click-through rate that fell within the minimum 10-20 percent that a court may find to be probative of confusion.

With respect to the secondary liability claim, the 10th Circuit held that the district court erred in applying the doctrine of contributory liability. Thus, the Court reversed the district court's grant of summary judgment, but only as to claims for contributory liability based on affiliate ads that used the mark. The Court expressed no opinion on the likelihood of confusion question concerning such ads.