Google, Inc., along with the rest of the keyword advertising industry, was dealt an unexpected blow on April 3, 2009 when the U.S. Court of Appeals for the Second Circuit overturned a lower court’s dismissal of claims that had been brought against Google by Rescuecom Corporation. These claims were brought against Google in connection with its sale to Rescuecom’s competitors of Rescuecom’s trademark as a search keyword. The decision to vacate the ruling handed down by the United State District Court for the Northern District of New York in Rescuecom Corporation v. Google, Inc. (Case No: 5:04-cv-1055) distinguished Google’s recommendation and sale of keywords for use in its AdWords program from other forms of internet-based advertising, and has created uncertainty as to whether similar contextual advertising techniques are similarly susceptible to Lanham Act claims.

Google’s AdWords program is perhaps the best-known example of keyword advertising, a form of advertising that produces content based on detection of certain words or phrases. AdWords allows customers to bid on terms that will be used as keywords; typically, these keywords include words and phrases that an internet user might enter into Google’s search engine as search terms. Through its associated Keyword Suggestion Tool, Google actively encourages some customers to purchase certain keywords. Once a keyword has been purchased, Google links an advertisement and hyperlink to the keyword to create what is referred to as a “sponsored link.” Subsequent entry of the keyword by an internet user results in the display of the sponsored link within the results page for the search, which typically cannot be distinguished from so-called “non-sponsored links” - those links to sites that contain relevant content but that are not connected to the AdWords. The AdWords program reportedly generates over 95% of Google’s annual revenues.

The Rescuecom mark was registered by Rescuecom with the U.S. Patent and Trademark Office in 1998 and is considered by the company to be a valuable business asset because of the goodwill and notoriety that it has accrued. In 2005, Rescuecom filed the New York action against Google for trademark infringement, false designation of origin, and dilution under the Lanham Act on the grounds that Google’s sale of the Rescuecom mark as a keyword enables Rescuecom’s competitors in the computer repair, consulting, networking and internet services industries to effectively intercept and divert Rescuecom’s existing and potential customers. Google moved for dismissal of all claims, asserting that the complaint failed to allege that Google’s use of the Rescuecom mark constitutes an actionable trademark use because Google’s use of the mark is not a “use in commerce” under the Lanham Act.

The district court began its analysis of Google’s motion by noting the varying treatments, among district courts in different circuits, as to whether purchase or sale of a trademark as a keyword can serve as the basis for a trademark infringement action. Courts in Virginia (Fourth Circuit) and Minnesota (Eighth Circuit) had determined that such use constituted a “use in commerce” for purposes of applying the Lanham Act, while courts in New Jersey (Third Circuit), California (Ninth Circuit) and Georgia (Eleventh Circuit) had failed to come to a conclusion on the issue, but declined to dismiss such actions in favor of allowing them to be resolved against a factually developed record. Notably, the New York (Second Circuit) case that the court cited resulted in a determination that the use of trademarks as keywords constituted an “internal use” to which the Lanham Act does not apply.

The district court then turned to a previous Second Circuit case, 1-800 Contacts v., Inc., 414 F.3d 400 (2nd Cir. 2005), which addressed the application of the Lanham Act to keyword-based advertising. In 1-800 Contacts, the plaintiff alleged that the Lanham Act was violated by advertising software that provided contextually-relevant advertising to the user by generating pop-up advertisements depending on the website or search term entered into the user’s browser. The plaintiff claimed that the software confused potential 1-800 Contacts customers by generating ads that were relevant to its business. Although WhenU was initially subjected to a preliminary injunction that restricted its use of the software, the Second Circuit subsequently removed the injunction and ordered that all trademark claims against WhenU be dismissed on the basis that WhenU’s use of the 1-800 Contacts website address as a keyword constituted an “internal use,” rather than a “use in commerce.”

The district court latched onto the Second Circuit’s discussion of “internal use” in 1-800 Contacts and made the distinction between “internal use” and “use in commerce” a threshold determination in its classification of Google’s use of the Rescuecom mark. After noting that Google had not actually placed Rescuecom’s mark in any domain names or sponsored links generated by AdWords, the court reasoned that Google’s use of the mark was merely internal. The court thought to bolster its position by quoting directly from 1-800 Contacts in dismissing Rescuecom’s claims: “[I]nternal utilization of a trademark in a way that does not communicate it to the public is analogous to a individual’s private thoughts about a trademark. Such conduct simply does not violate the Lanham Act, which is concerned with the use of trademarks in connection with the sale of goods in a manner likely to lead to consumer confusion . . . .”

In its review of the trial decision (Rescuecom Corp. v. Google Inc. (Case No: 06-4881- cv)), the Second Circuit immediately clarified that the district court had misinterpreted 1-800 Contacts insofar as that decision addressed the concept of “internal use.” The appellate court identified, as the root of the district court’s error, an assumption that the facts of the present case were on all fours with 1-800 Contacts. The Second Circuit clarified that WhenU did not use, reproduce, or display 1-800 Contacts’ mark at all, since the software at issue keyed off of the website address or search term being used by the user’s browser, not an actual trademark of the plaintiff, and that WhenU’s program did not allow advertisers to request or purchase specific keywords as triggers for their ads. The display of each advertisement was based on categorical associations of viewed content, rather than the website or keyword itself. Most importantly, the trigger for any particular ad was not based on WhenU’s sale or recommendation of a particular trademark.

The Second Circuit contrasted WhenU’s practices with the present case, pointing out that what Google is actually using is Rescuecom’s trademark, which Google displays, offers, and sells to customers in the course of selling Google’s advertising services. Even if the use of the actual mark within Google’s internal search algorithm did not move Google’s conduct outside the classification of “internal use,” the appellate court reasoned, the active recommendation and sale of the mark most certainly does. In response to Google’s attempt to characterize such use as “product placement,” the court retorted that “Google’s argument misses the point. From the fact that proper, non-deceptive product placement does not result in liability under the Lanham Act, it does not follow that the label ‘product placement’ is a magic shield against liability, so that even a deceptive plan of product placement designed to confuse consumers would similarly escape liability.” Although declining to opine as to whether Rescuecom would ultimately be able to prove a likelihood of consumer confusion on remand, the Second Circuit stated that Google’s practices are “significantly different from benign product placement that does not violate the [Lanham] Act.”

Upon learning of the appellate court’s decision, Google expressed its disappointment in what it called an “early stage decision” and restated its intention to continue its defense against Rescuecom’s claims. Regardless, this outcome is being hailed as a milestone victory for brand owners and significant setback for Google and the keyword advertising industry.

The effects of the Second Circuit’s decision may prove to have been immediate. Emboldened, perhaps, by Rescuecom’s success, Texas-based software company FPX, LLC (otherwise known as “Firepond”) filed a class action lawsuit (Case No: 2:09-cv-00142) against Google and several other companies in the United States District Court for the Eastern District of Texas on May 11, 2009. FPX’ complaint defines the “class” as including “[a]ny and all indivudals and/or entities . . . domiciled within the state of Texas that own a mark that has been registered with the United States Patent and Trademark Office . . . and that has been sold by defendant Google as a keyword and/or an Adword during the period May 11, 2005 through [May 11, 2009].” Also named as defendants are Google subsidiary YouTube, LLC; AOL, LLC; AOL affiliate Turner Broadcasting System, Inc.; MySpace, Inc.; and IAC/InterActiveCorp (“”), all of which operate websites that utilize Google’s search engine technology.

For its part, FPX alleges that Google’s sale of FPX marks “Firepond” and “Firepond CPQ” to Firepond’s competitors provides the basis for claims of trademark infringement, contributory or vicarious trademark infringement, false designation of origin and unjust enrichment by the defendants. Thus far, Google’s only response to the complaint has been a brief comment that the company remains “confident that [its] trademark policy strikes the proper balance between trademark owners’ interests and consumer choice.”