Trademark Protection in Cyberspace Rescued

A recent decision of the U.S. Court of Appeals for the Second Circuit, Rescuecom Corp. v. Google Inc., No. 06-4881, F.3d (2d Cir. April 3, 2009), has clarified precedent that had been assumed to foreclose Lanham Act challenges to the surreptitious use of trademarks to compete in cyberspace. In a 2005 decision, 1-800 Contacts v. WhenU.com, 414 F.3d 400, the Second Circuit dismissed a Lanham Act action against an online marketer because the challenged activity ' alleged use of a trademark to generate pop-up Web ads for competitors ' was not a “use in commerce” under the statute. District courts uniformly read 1-800 as holding that internal cyber-use of a trademark is never actionable under the Lanham Act. (For more on the 1-800 case, see, “WhenU Helps Keyword Companies See Clearly” in the August 2005 issue of e-Commerce Law & Strategy; www.ljnonline.com/issues/ljn_ecommerce/22_4/news/144951-1.html.)

In the wake of Rescuecom, that interpretation has been rejected, and advertisers have a potent weapon to protect their trademarks against unfair competition on the Web.

1-800 and Its Progeny

1-800 involved a Lanham Act challenge to the defendant's use of proprietary software to monitor a user's Internet activity for the purpose of generating advertising. The plaintiff alleged that the defendant committed trademark infringement by generating a “pop-up ad” for a competitive product every time a user accessed the plaintiff's Web site. The district court preliminarily enjoined the defendant from the practice.

On interlocutory appeal, the Second Circuit vacated the injunction, holding as a matter of law that the defendant had not “used” the plaintiff's trademark “in commerce,” as required by the Lanham Act. Specifically, the court observed that the defendant had “not use[d] 1-800's trademark in the manner ordinarily at issue in an infringement claim,” that is, by placing the mark on goods or services in order to pass them off as emanating from or authorized by 1-800.

In the wake of 1-800, several district courts in the Second Circuit dismissed attempts by trademark owners to use the Lanham Act to combat the unauthorized use of their marks in cyberspace. These courts reasoned that under 1-800, the internal computer use of a trademark is not actionable as a “use in commerce.” For example, in S&L Vitamins Inc. v. Australian Gold Inc., 521 F.Supp.2d 188 (EDNY 2007), the court held that utilizing a competitor's trademark in a metatag to influence search engine results did not constitute a “use” within the meaning of the Lanham Act. (See also, FragranceNet.com Inc. v. FragranceX.com Inc., 493 F.Supp.2d 545 (EDNY 2007) (no trademark “use” based on defendant's utilization of plaintiff's trademark as search engine keyword or as metatag); Merck & Co. Inc. v. Mediplan Health Consulting Inc., 425 F.Supp.2d 402 (SDNY 2006) (internal use of trademark as keyword to trigger “sponsored links” to defendants' Web sites was not placement of trademark on goods and thus not actionable “use”).

1-800 Limited to Facts

The district court in Rescuecom likewise reasoned that 1-800 mandated the dismissal of plaintiff's trademark infringement, false designation of origin and dilution claims. In Rescuecom, Plaintiff challenged Google's sale of the “Rescuecom” trademark as a keyword in its AdWords service, which allows advertisers to purchase terms that generate “sponsored links” in response to a Web search. Plaintiff alleged that “whenever a user launches a search for the term 'Rescuecom,' seeking to be connected to Rescuecom's Web site, the competitors' advertisement and link will appear on the searcher's screen ' allow[ing] Rescuecom's competitors to deceive and divert users searching for Rescuecom's [W]eb site.”

The lower court dismissed under 1-800 because the non-visible use by Google of the “Rescuecom” trademark was not an actionable “use in commerce.” The Second Circuit vacated and remanded, adopting an extremely narrow view of 1-800, effectively abrogating the case to its unique factual posture. Two material factual differences between the cases were deemed critical.

First, the court reasoned that the defendant in 1-800 did not use the plaintiff's mark, but instead its Web site address. The Rescuecom court viewed this to be a critical distinction, observing that the “[W]eb site address was not used or claimed by the plaintiff as a trademark,” and “[t]he question whether the plaintiff's [W]eb site address was an unregistered trademark was never properly before the 1-800 court.” A footnote added the caveat that “[w]e did not imply in 1-800 that a [W]eb site can never be a trademark” and “[i]n fact, the opposite is true.” A practical implication is that advertisers should take care to federally register their domain names to ensure that they will have trademark protection.

Second, the Rescuecom court explained that the defendant in 1-800 did not use, display or sell the plaintiff's mark. The pop-up ad at issue was controlled by a category associated with the Web site ' for example, “eye care” ' rather than the Web site itself. Nor did the defendant sell any trademarks to others. Thus, the Rescuecom decision explained: “To the extent that an advertisement for a competitor of the plaintiff was displayed when a user opened the plaintiff's [W]eb site, the trigger to display the ad was not based on the defendant's sale or recommendation of a particular trademark.” In contrast, Google allowed others to buy the “Rescuecom” mark as a keyword, an activity that fit within the Lanham Act's required “use in commerce.”

Amici's Arguments Rejected

The Second Circuit accepted four amicus briefs ' two by consumer advocacy groups, one by a group of law school professors, and one by other Internet service providers ' that all joined Google in urging affirmance of the dismissal of Rescuecom's complaint. The Second Circuit considered and rejected two arguments advanced by amici and by Google.

Marshaling the uniform interpretation of 1-800 by district courts in the circuit, Google and its amici argued that as a matter of law, “the inclusion of a trademark in an internal computer directory cannot constitute trademark use.” This argument hinged on language in 1-800 that the “internal utilization of a trademark in a way that does not communicate it to the public is analogous to an individual's private thoughts about a trademark,” and therefore is not actionable under the Lanham Act. The Rescuecom court flatly rejected this argument, stating that it “overreads the 1-800 decision.” The court further explained: “We did not imply in 1-800 that an alleged infringer's use of a trademark in an internal software program insulates the alleged infringer from a charge of infringement, no matter how likely the use is to cause confusion in the marketplace.”

The Second Circuit's clarification harmonizes its view with that of other circuits that have considered the issue. See, North Am. Med. Corp. v. Axiom Worldwide Inc., 522 F.3d 1211 (11th Cir. 2008) (use of trademark in metatag constitutes “use in commerce”); Brookfield Commc'n. Inc. v. West. Coast Entm't Corp., 174 F.3d 1036 (9th Cir. 1999) (same). Indeed, the U.S. Court of Appeals for the Eleventh Circuit recently criticized 1-800, observing that to the extent it “based its 'use' analysis on the fact that the defendant did not display the plaintiff's trademark, we think the Second Circuit's analysis is questionable.” Axiom Worldwide, 522 F.3d at 1219.

The Rescuecom court also rejected a second argument advanced by Google and its amici that urged that the use of the Rescuecom mark to generate sponsored links was the cyberspace equivalent of “product placement” in the brick-and-mortar world. An example of product placement is when a generic product is shelved adjacent to a branded product with the intent that consumers seeking out the trademarked product will instead consider purchasing the less expensive generic alternative. Google's use of Rescuecom's trademark to list competitors' Web sites along with the plaintiff's site in search engine results was argued to be the online equivalent.

The Rescuecom court concluded that the analogy was flawed because if consumer confusion was the likely result, even ordinary product placement was actionable under the Lanham Act. “If a retail seller were to be paid by an off-brand purveyor to arrange product display and delivery in such a way that customers seeking to purchase a famous brand would receive the off-brand, believing they had gotten the brand they were seeking, we see no reason to believe the practice would escape liability merely because it could claim the mantle of 'product placement.'”

Accepting the allegations in the complaint as true, as it was required to do on a motion to dismiss, the Rescuecom court concluded that Google's practice was “significantly different from benign product placement that does not violate the [Lanham] Act.” The court emphasized, however, that “[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.”

Rescuecom might very well have a challenging time making this showing ' at least as it relates to Google. As one amicus explained, Google is not responsible for the content of search results generated by the term Rescuecom. Google also prominently identifies as “sponsored links” those results yielded from purchased keywords, thereby signaling to the public that they constitute paid advertising and helping to reduce the likelihood of confusion.

A Postscript

The Rescuecom court also took the unusual step of issuing an appendix to correct a flaw in the 1-800 decision's statutory interpretation. While stressing that the 1-800 holding “was justified by numerous good reasons and was undoubtedly the correct result,” the Rescuecom court pointed out that, nevertheless, it relied in part on two district court opinions from other circuits that “overlook[ed] key statutory text” of the Lanham Act. The appendix provides an elaborate history of the evolution of the phrase “use in commerce” in different sections of the Lanham Act.

The Rescuecom court explained that 1-800 cited district court decisions relying on that part of the definition of “use in commerce” in 15 USC '1127 providing that a mark “shall be deemed to be in use in commerce ' on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce.” What those decisions, and hence the 1-800 court overlooked, however, was that the first sentence of the definition in '1127 requires the “bona fide use of the mark in the ordinary course of trade, and not made merely to reserve a right in the mark.”

The Rescuecom court concluded that this definition could not apply to those sections of the statute governing infringement and false advertising, 15 U.S.C ”1114 and 1125(a), because “[i]f '1127's definition is applied to the definition of conduct giving rise to liability in ”1114 and 1125, this would mean that an accused infringer would escape liability, notwithstanding deliberate deception, precisely because he acted in bad faith.”

It was “inconceivable” that Congress could have intended this result; rather, it was “clear Congress did not intend that this definition apply to the sections of the Lanham Act which define infringing conduct.” The Second Circuit thus opined that the entire definition in '1127, including the bona fide use requirement, should apply to “use in commerce” as it relates to trademark registrations. The definition of “use in commerce” in the infringement context, however, should be governed exclusively by reference to the second sentence.

In the end, even though “the judges of the 1-800 panel read [the] Appendix and authorized [the Rescuecom panel] to state that they agree with it,” the Rescuecom court emphasized that it was “dictum and not a binding opinion of the court.” The Second Circuit expressly invited Congress to “study and clear up this ambiguity” in the definition of “use in commerce” in the Lanham Act.

Conclusion

The Second Circuit's reversal in Rescuecom by no means assures a victory for the plaintiff on the merits. Having survived the motion to dismiss, Rescuecom must prove likelihood of consumer confusion before it is entitled to relief under the Lanham Act. Nevertheless, this recent decision arms advertisers with the means to combat unfair competitive cybermarketing practices.

A recent decision of the U.S. Court of Appeals for the Second Circuit, Rescuecom Corp. v. Google Inc., No. 06-4881, F.3d (2d Cir. April 3, 2009), has clarified precedent that had been assumed to foreclose Lanham Act challenges to the surreptitious use of trademarks to compete in cyberspace. In a 2005 decision, 1-800 Contacts v. WhenU.com , 414 F.3d 400, the Second Circuit dismissed a Lanham Act action against an online marketer because the challenged activity ' alleged use of a trademark to generate pop-up Web ads for competitors ' was not a “use in commerce” under the statute. District courts uniformly read 1-800 as holding that internal cyber-use of a trademark is never actionable under the Lanham Act. (For more on the 1-800 case, see, “WhenU Helps Keyword Companies See Clearly” in the August 2005 issue of e-Commerce Law & Strategy; www.ljnonline.com/issues/ljn_ecommerce/22_4/news/144951-1.html.)

In the wake of Rescuecom, that interpretation has been rejected, and advertisers have a potent weapon to protect their trademarks against unfair competition on the Web.

1-800 and Its Progeny

1-800 involved a Lanham Act challenge to the defendant's use of proprietary software to monitor a user's Internet activity for the purpose of generating advertising. The plaintiff alleged that the defendant committed trademark infringement by generating a “pop-up ad” for a competitive product every time a user accessed the plaintiff's Web site. The district court preliminarily enjoined the defendant from the practice.

On interlocutory appeal, the Second Circuit vacated the injunction, holding as a matter of law that the defendant had not “used” the plaintiff's trademark “in commerce,” as required by the Lanham Act. Specifically, the court observed that the defendant had “not use[d] 1-800's trademark in the manner ordinarily at issue in an infringement claim,” that is, by placing the mark on goods or services in order to pass them off as emanating from or authorized by 1-800.

In the wake of 1-800, several district courts in the Second Circuit dismissed attempts by trademark owners to use the Lanham Act to combat the unauthorized use of their marks in cyberspace. These courts reasoned that under 1-800 , the internal computer use of a trademark is not actionable as a “use in commerce.” For example, in S&L Vitamins Inc. v. Australian Gold Inc. , 521 F.Supp.2d 188 (EDNY 2007), the court held that utilizing a competitor's trademark in a metatag to influence search engine results did not constitute a “use” within the meaning of the Lanham Act. ( See also , FragranceNet.com Inc. v. FragranceX.com Inc. , 493 F.Supp.2d 545 (EDNY 2007) (no trademark “use” based on defendant's utilization of plaintiff's trademark as search engine keyword or as metatag); Merck & Co. Inc. v. Mediplan Health Consulting Inc. , 425 F.Supp.2d 402 (SDNY 2006) (internal use of trademark as keyword to trigger “sponsored links” to defendants' Web sites was not placement of trademark on goods and thus not actionable “use”).

1-800 Limited to Facts

The district court in Rescuecom likewise reasoned that 1-800 mandated the dismissal of plaintiff's trademark infringement, false designation of origin and dilution claims. In Rescuecom, Plaintiff challenged Google's sale of the “Rescuecom” trademark as a keyword in its AdWords service, which allows advertisers to purchase terms that generate “sponsored links” in response to a Web search. Plaintiff alleged that “whenever a user launches a search for the term 'Rescuecom,' seeking to be connected to Rescuecom's Web site, the competitors' advertisement and link will appear on the searcher's screen ' allow[ing] Rescuecom's competitors to deceive and divert users searching for Rescuecom's [W]eb site.”

The lower court dismissed under 1-800 because the non-visible use by Google of the “Rescuecom” trademark was not an actionable “use in commerce.” The Second Circuit vacated and remanded, adopting an extremely narrow view of 1-800, effectively abrogating the case to its unique factual posture. Two material factual differences between the cases were deemed critical.

First, the court reasoned that the defendant in 1-800 did not use the plaintiff's mark, but instead its Web site address. The Rescuecom court viewed this to be a critical distinction, observing that the “[W]eb site address was not used or claimed by the plaintiff as a trademark,” and “[t]he question whether the plaintiff's [W]eb site address was an unregistered trademark was never properly before the 1-800 court.” A footnote added the caveat that “[w]e did not imply in 1-800 that a [W]eb site can never be a trademark” and “[i]n fact, the opposite is true.” A practical implication is that advertisers should take care to federally register their domain names to ensure that they will have trademark protection.

Second, the Rescuecom court explained that the defendant in 1-800 did not use, display or sell the plaintiff's mark. The pop-up ad at issue was controlled by a category associated with the Web site ' for example, “eye care” ' rather than the Web site itself. Nor did the defendant sell any trademarks to others. Thus, the Rescuecom decision explained: “To the extent that an advertisement for a competitor of the plaintiff was displayed when a user opened the plaintiff's [W]eb site, the trigger to display the ad was not based on the defendant's sale or recommendation of a particular trademark.” In contrast, Google allowed others to buy the “Rescuecom” mark as a keyword, an activity that fit within the Lanham Act's required “use in commerce.”

Amici's Arguments Rejected

The Second Circuit accepted four amicus briefs ' two by consumer advocacy groups, one by a group of law school professors, and one by other Internet service providers ' that all joined Google in urging affirmance of the dismissal of Rescuecom's complaint. The Second Circuit considered and rejected two arguments advanced by amici and by Google.

Marshaling the uniform interpretation of 1-800 by district courts in the circuit, Google and its amici argued that as a matter of law, “the inclusion of a trademark in an internal computer directory cannot constitute trademark use.” This argument hinged on language in 1-800 that the “internal utilization of a trademark in a way that does not communicate it to the public is analogous to an individual's private thoughts about a trademark,” and therefore is not actionable under the Lanham Act. The Rescuecom court flatly rejected this argument, stating that it “overreads the 1-800 decision.” The court further explained: “We did not imply in 1-800 that an alleged infringer's use of a trademark in an internal software program insulates the alleged infringer from a charge of infringement, no matter how likely the use is to cause confusion in the marketplace.”

The Second Circuit's clarification harmonizes its view with that of other circuits that have considered the issue. See , North Am. Med. Corp. v. Axiom Worldwide Inc. , 522 F.3d 1211 (11th Cir. 2008) (use of trademark in metatag constitutes “use in commerce”); Brookfield Commc'n. Inc. v. West. Coast Entm't Corp. , 174 F.3d 1036 (9th Cir. 1999) (same). Indeed, the U.S. Court of Appeals for the Eleventh Circuit recently criticized 1-800, observing that to the extent it “based its 'use' analysis on the fact that the defendant did not display the plaintiff's trademark, we think the Second Circuit's analysis is questionable.” Axiom Worldwide, 522 F.3d at 1219.

The Rescuecom court also rejected a second argument advanced by Google and its amici that urged that the use of the Rescuecom mark to generate sponsored links was the cyberspace equivalent of “product placement” in the brick-and-mortar world. An example of product placement is when a generic product is shelved adjacent to a branded product with the intent that consumers seeking out the trademarked product will instead consider purchasing the less expensive generic alternative. Google's use of Rescuecom's trademark to list competitors' Web sites along with the plaintiff's site in search engine results was argued to be the online equivalent.

The Rescuecom court concluded that the analogy was flawed because if consumer confusion was the likely result, even ordinary product placement was actionable under the Lanham Act. “If a retail seller were to be paid by an off-brand purveyor to arrange product display and delivery in such a way that customers seeking to purchase a famous brand would receive the off-brand, believing they had gotten the brand they were seeking, we see no reason to believe the practice would escape liability merely because it could claim the mantle of 'product placement.'”

Accepting the allegations in the complaint as true, as it was required to do on a motion to dismiss, the Rescuecom court concluded that Google's practice was “significantly different from benign product placement that does not violate the [Lanham] Act.” The court emphasized, however, that “[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.”

Rescuecom might very well have a challenging time making this showing ' at least as it relates to Google. As one amicus explained, Google is not responsible for the content of search results generated by the term Rescuecom. Google also prominently identifies as “sponsored links” those results yielded from purchased keywords, thereby signaling to the public that they constitute paid advertising and helping to reduce the likelihood of confusion.

A Postscript

The Rescuecom court also took the unusual step of issuing an appendix to correct a flaw in the 1-800 decision's statutory interpretation. While stressing that the 1-800 holding “was justified by numerous good reasons and was undoubtedly the correct result,” the Rescuecom court pointed out that, nevertheless, it relied in part on two district court opinions from other circuits that “overlook[ed] key statutory text” of the Lanham Act. The appendix provides an elaborate history of the evolution of the phrase “use in commerce” in different sections of the Lanham Act.

The Rescuecom court explained that 1-800 cited district court decisions relying on that part of the definition of “use in commerce” in 15 USC '1127 providing that a mark “shall be deemed to be in use in commerce ' on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce.” What those decisions, and hence the 1-800 court overlooked, however, was that the first sentence of the definition in '1127 requires the “bona fide use of the mark in the ordinary course of trade, and not made merely to reserve a right in the mark.”

The Rescuecom court concluded that this definition could not apply to those sections of the statute governing infringement and false advertising, 15 U.S.C ”1114 and 1125(a), because “[i]f '1127's definition is applied to the definition of conduct giving rise to liability in ”1114 and 1125, this would mean that an accused infringer would escape liability, notwithstanding deliberate deception, precisely because he acted in bad faith.”

It was “inconceivable” that Congress could have intended this result; rather, it was “clear Congress did not intend that this definition apply to the sections of the Lanham Act which define infringing conduct.” The Second Circuit thus opined that the entire definition in '1127, including the bona fide use requirement, should apply to “use in commerce” as it relates to trademark registrations. The definition of “use in commerce” in the infringement context, however, should be governed exclusively by reference to the second sentence.

In the end, even though “the judges of the 1-800 panel read [the] Appendix and authorized [the Rescuecom panel] to state that they agree with it,” the Rescuecom court emphasized that it was “dictum and not a binding opinion of the court.” The Second Circuit expressly invited Congress to “study and clear up this ambiguity” in the definition of “use in commerce” in the Lanham Act.

Conclusion

The Second Circuit's reversal in Rescuecom by no means assures a victory for the plaintiff on the merits. Having survived the motion to dismiss, Rescuecom must prove likelihood of consumer confusion before it is entitled to relief under the Lanham Act. Nevertheless, this recent decision arms advertisers with the means to combat unfair competitive cybermarketing practices.