In a much awaited decision in the trademark world, on April 3, 2009, the Court of Appeals for the Second Circuit held that Google’s sale and offer for sale of trademarks as keywords, which trigger advertisements called sponsored links, is a “use in commerce” under the Lanham Act. Rescuecom Corp. v. Google Inc., Civil Case No., 06-4881, April 3, 2009, available at http://www.ca2.uscourts.gov/opinions.htm. This decision brings the Second Circuit in line with other Circuits in the United States.

To assert a trademark infringement claim, the Lanham Act requires generally that the trademark owner demonstrate that the alleged infringer is (1) making a use in commerce of the trademark that (2) is likely to cause confusion or mistake, or to deceive. 15 U.S.C. § 1114 and 1125. District courts within the Second Circuit had previously found that if the trademarked search term was “hidden” within computer programs or software such that the public did not see the trademark, rather than being used within the body, heading or URL of the sponsored link, there was no use in commerce, based on a previous Second Circuit decision, 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 2005).

In Rescuecom, the Second Circuit disagreed with this interpretation and clarified its holding in 1-800 Contacts. The Rescuecom court explained that 1-800 Contacts involved software that generated pop-up advertising based on the term or website address entered in a browser, where the pop-up ad appeared in a separate window and the defendant’s brand was displayed in that separate window. In 1-800 Contacts, the term that triggered the pop-up advertisement was the website address, not the trademark itself. Importantly, the software in 1-800 Contacts did not allow advertisers to select or purchase specific terms or trademarks that would trigger their advertisements; rather, the advertisements were displayed based on categories that the software, through a proprietary method, associated with the websites or terms. Thus, in 1-800 Contacts, there was no use of the trademark at all.

The court went on to clarify that 1-800 Contacts did not imply that internal use of a trademark insulates an infringer from a charge of infringement. If that were the case, “the operators of search engines would be free to use trademarks in ways designed to deceive and cause consumer confusion.” To allow such activities, the court noted, “is surely neither within the intention nor the letter of the Lanham Act.”

In contrast, the court explained that Google specifically offers advertisers the ability to purchase their competitors’ trademarks as keywords to trigger advertisements called “sponsored links.” In fact, the court found, Google encourages purchase of competitors’ trademarks as keywords through its Keyword Suggestion Tool. This sale and offer for sale of trademarks, the court held, is a “use in commerce” under the Lanham Act even if the trademark use is entirely internal or hidden from consumer eyes.

Having met the use in commerce element, the court stated that the trademark owner must still demonstrate that that alleged infringer’s actions are likely to cause confusion or mistake, or to deceive. The court remanded the case on this issue, noting, “[w]e have no idea whether Rescuecom can prove that Google’s use of Rescuecom’s trademark in its AdWords program causes likelihood of confusion or mistake.” Thus, while this decision clarifies the “hidden” use in commerce element of trademark infringement, it still leaves vast uncertainty as to the likelihood of confusion element for trademark owners, keyword purchasers, and keyword sellers.

In an interesting turn, the court included an appendix to its opinion questioning whether the definition of “use in commerce” found in 15 U.S.C. § 1127 should in fact be applied in the infringement context. The court runs through the history of the use of the term “use in commerce” in the Lanham Act as well as the evolution of the Lanham Act itself. Finally, the court posed the question “how should courts today interpret the definition of ‘use in commerce’ set forth in 15 U.S.C. § 1127, with respect to acts of infringement prescribed by §§ 1114 and 1125(a)?” and requests that Congress “study and clear up this ambiguity.”