Bullivant Houser Bailey PC: Will Ninth Circuit Decision Open Floodgates on Bidding for Trademarked Keywords?

Bullivant Houser Bailey PC: Will Ninth Circuit Decision Open Floodgates on Bidding for Trademarked Keywords?

By Daniel T. Rockey

In an opinion that will cause many companies to rethink their Internet advertising strategies, the 9th Circuit Court of Appeals held in Network Automation, Inc. v. Advanced Systems Concepts, Inc., Case No. 10-55840 (March 8, 2011) [enhanced version / unenhanced version] that the plaintiff, a developer of office automation software, had failed to show that a competitor's purchase of the plaintiff's trademark as a keyword was likely to cause confusion. The panel reached that decision despite the fact that:

  • The plaintiff and the defendant were direct competitors in the field of office automation software and both used the Internet to advertise their products;
  • The defendant purchased the trademarked keyword with the specific intent of diverting consumers looking for the plaintiff's products to the defendant's website; and
  • The defendant's ad copy did not clearly identify the defendant as the source of the ad.

In a departure from the more rigid analysis applied in past decisions, the panel adopted a common-sense approach that acknowledges today's consumers' more sophisticated understanding of search engines and the Internet. As a result, the court also largely eliminates a primary basis for holding keyword purchasers liable for infringement - the so-called "initial interest confusion" doctrine - under which a defendant could be found liable for using a competitor's trademark to divert consumers to its own website.

In this case, plaintiff Network Automation sold its software under the mark AutoMate, while Advanced Systems sold its product under the ActiveBatch mark. Network decided to advertise its product by purchasing certain keywords, including the term ActiveBatch, through various search engines, including Google and Bing. Thus, a consumer searching for the term ActiveBatch would see a list of "objective" results relating to Systems' ActiveBatch product, along with "sponsored listings," including the ad placed by Network. Network's ads began with the phrases "Job Scheduler," "Intuitive Job Scheduler," or "Batch Job Scheduling," and concluded as follows:

In evaluating Network's advertising strategy, the court acknowledged the utility of the well-worn Sleekcraft factors1 in assessing the potential for consumer confusion, but rejected the notion that the three most important factors in "cases involving the Internet" were the similarity of the marks, the relatedness of the goods or services, and the marketing channels used - the so-called "Internet troika." In its place, the Court stressed the need for flexibility and a common sense assessment of the ultimate question in cases of alleged infringement: whether consumers are actually likely to be confused by what they see.

Among the critical points made by the court:

  • The degree of care exercised by target consumers is a critical factor; the more expensive the product, and the more sophisticated the target consumer, the less likely there will be confusion;
  • Internet users are much more sophisticated than they once were; thus, "the default degree of consumer care is becoming more heightened as the novelty of the Internet evaporates and online commerce becomes commonplace;"
  • In order to prevail on a theory of initial interest confusion, the plaintiff "must demonstrate likely confusion, not mere diversion;" by way of explanation, the court favorably compared consumers being diverted to a competitor's website to shoppers in a department store en route to the Calvin Klein section being diverted by Macy's Charter Club collection;
  • Finally, and significantly, ads triggered by keyword searches must be analyzed in context as they appear on the screen, with due consideration given to the fact that consumers are now accustomed to seeing both objective results and sponsored results, and will expect that sponsored results are likely to include results from various companies.

The court's more accepting view of competitive keyword purchases will almost certainly prompt many companies to rethink their advertising strategies, and can be expected to lead to an increase in competitive bidding for trademarked keywords. However, both those seeking to purchase a trademarked keyword, and those seeking to prevent competitors from doing so, should understand that the opinion is not a wholesale endorsement of the practice.

In evaluating such strategies, certain important principles must be kept in mind. First, where products are expensive and/or consumers are likely to be sophisticated consumers of the products or services at issue, claims of infringement are less likely to succeed. Second, although the plaintiff in this case failed to show a likelihood of confusion from the unlabeled ads at issue, companies should avoid using a competitor's trademark in the ad copy and should avoid any other text that could be considered deceptive or confusing. Finally, companies seeking to prevent a competitor from purchasing their trademark as a keyword should be prepared to conduct more work upfront, including considering conducting a brief survey to assess actual confusion, prior to filing suit.

If your company is considering purchasing a competitor's trademark as a keyword or looking to put a stop to the practice by a competitor, contact Daniel Rockey at dan.rockey@bullivant.com or 415.352.2739 for more information.

[1] In AMF Inc. v. Sleekcraft Boats, 599 F. 3d 341 (9th Cir. 1979) [enhanced version], the 9th Circuit identified eight factors the courts should use to evaluate the potential for consumer confusion in cases of alleged trademark infringement: (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant's intent in selecting the mark; and (8) likelihood of expansion of the product lines.

The information and articles contained in this newsletter are not intended to provide legal advice or serve as a substitute for consulting with retained legal counsel. Additional information about the attorneys and practice areas of Bullivant Houser Bailey PC may be found at www.bullivant.com/.

About Bullivant Houser Bailey PC

Bullivant Houser Bailey PC is a leading business and complex litigation law firm of more than 100 attorneys.  Founded in 1938, the firm maintains five offices on the West Coast, including Portland, Oregon; Seattle and Vancouver, Washington; San Francisco, California; and Las Vegas, Nevada.  To serve its clients better, Bullivant maintains alliances and close working relationships with member firms of the European Lawyers Network and MultiLaw.  Bullivant was recognized as a Washington State top 15 firm for diversity in the 2010 Minority Bar Associations of Washington report.

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