Sales over the Internet are a growing source of revenue for most corporations. Websites that were once nothing more than expensive on-line brochures now serve as legitimate international sales outlets.  These new portals process orders and payments, track shipments and even allow customers to report problems. More than ever, corporations must defend their on-line revenue and anticipate unfair, on-line trade practices.

Branding your products on the Internet is a double-edged sword.  On-line clients rarely memorize a domain address or know the source for goods. They rely on search engines and, using a descriptive term or a brand, search for the site they want.¹  The use of brands and trademarks facilitates the digital search but is also a magnifying glass to other advertisers and competitors.  Once a person types in a brand, direct competitors have located a prey who can potentially become a loyal customer. The fight over on-line traffic is ongoing, and the law recently evolved on this front.²  

How Searching Works

Search engines offer free Internet indexing.  No annual subscription is required.  But in exchange, these service providers are free to raise money by selling advertising space often located next to search results.  Search engines distinguish between the hits returned from the search and the advertisers placed next to the hits.  Few take issue with this free business model until they realize that clients who enter a protected brand into the search engine are subsequently presented with very attractive or even deceptive ads.  The practice reaches an apotheosis when the protected brand is used to benefit both the search engine and the competitor.³  

Google generates $29 billion in annual revenue from a complex system that manages ads; Google’s system is called AdWords.⁴  AdWords is designed to divert traffic and only charges advertisers when traffic is diverted; this is the Pay-Per-Click (PPC) system.  Google’s revenue is collected from “diverted” clicks of searchers who entered one word in the search engine field and then click on the ad link.

The Problem 

There are two ways to view this situation.  Free market proponents argue that search engines are nothing more than an update of the Yellow Pages or retail store shelving where retailers are allowed to place their products to their benefit.  The other view is that, once a protected brand is secured, it should not be used by search engines or competitors to divert traffic.  Once again, the free market clashes head on with trademark law.⁵

Trademark law developed from a need to protect consumers as they bought goods or services.  Corporations are granted certificates of registration, or common-law rights to police the marketplace, on behalf of their consumers.  With the growth of the Internet, and the public’s growing experience with search engines, claims of confusion diminish, favoring the free market argument.  But with increased speeds and faster purchasing cycles, confusion is enhanced, thus favoring the trademark enforcement argument.  It is not surprising that, absent clear congressional intent on this topic, judges are at odds as to what should prevail, the free market theory or enforcement of trademarks. 

The Legal Analysis

Trademark law provides:  “Any person who shall, without the consent of the registrant . . . use in commerce any reproduction of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive . . .  shall be liable in a civil action.”⁶  (Emphasis added.)

The above-quoted section places liability on a competitor selecting and using a registered mark, as long as confusion, deception or mistake can be shown.  The question is:  can a search engine that does not sell these goods be liable under this section?  Search engines argue they do not “use in commerce” the protected mark and therefore cannot be liable under this statute.  The Lanham Act⁷defines how broadly the “use in commerce” must be read.  “[I]n the construction of this Act, unless the contrary is plainly apparent from the context, the term ‘use in commerce’ means the bona fide use of a mark in the ordinary course of trade . . . [A] mark shall be deemed to be used in commerce when it is used or displayed in . . . sale or advertising . . . and the person rendering the service is engaged in commerce in connection with the services.”⁸ Search engines argue that they do not sell soda, cars or even banking services, they simply sell search tools and, therefore, they are not a “person rendering the services engaged in commerce with the services” and cannot be liable under the statute.

 In 2005, the Second Circuit found that a pop-up ad generator, which relied on a URL to generate ads, did not qualify as engaging in “use in commerce.”  In that case, a trademark owner owned a web domain where the protected mark was part of the address (1-800 Contacts).  The computer system read the URL, and therefore the mark, and in response generated a pop-up ad to divert traffic.  Based on this ruling, systems were free to use protected marks to generate ads as long as the trademark was not displayed.⁹

Many lower courts and foreign jurisdictions have reached similar conclusions.  In 2010, the British Columbia Supreme Court ruled that 1-800 Contacts was good law and that search engines were free to act as they wanted.¹⁰  Also in 2010, the European Court of Justice went one step further, finding not only that there was no “use in commerce” by the search engine, but that there was also a safe harbor provision available to the search engine, as long as the conduct was neutral, merely technical and passive.¹¹

While Canada and Europe are aligning themselves with the 1-800 Contacts decision, the Second Circuit, which had issued the 1-800 Contacts decision back in 2005, in an en banc decision reversed itself.¹²  In this long opinion, the Court found a strange way to keep face, and tried to distinguish the AdWords system from the pop-up generator of 1-800 Contacts.  The Court ultimately ruled that, while it was very difficult to see the search engine’s conduct constituting “use in commerce” giving liability to the search engine, the Court used the introductory portion of the definition that reads, “In the construction of this Act, unless the contrary is plainly apparent from the context . . .” and found that the AdWords use by Google was plainly a use in commerce, and that a conclusion that AdWords does not use the mark was contrary to the plainly apparent context of the law.¹³

The Court explained: 

“Google contends its use of the trademark is no different from that of a retail vendor who uses ‘product placement’ to allow one vendor to benefit from a competitor’s name recognition . . . Google misses the point . . . It does not follow that . . . product placement is a magic shield against liability, so that even a deceptive plan of product placement designed to confuse consumers would [not] escape liability . . . 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 . . . .”¹⁴

Conclusion

In the shadow of the Rescuecom decision, trademark owners can take direct action against search engines that misuse their marks.  The author routinely enforces client’s marks even against search providers.  However, this issue is likely to reach the Supreme Court, who must take issue with the legal reasoning of the Rescuecom decision. 

 While search engines may not ultimately be liable for direct trademark infringement under the Lanham Act, they may be liable under a theory of contributory trademark infringement.  A plaintiff must simply show the search engine intentionally induced the advertiser to infringe the mark, or continued to display the ad even after knowing or having a reason to know the advertiser was engaged in trademark infringement.  Under current law, and under the contributory liability theory, search engines must still remove problematic ads once they are given notice of them or face legal consequences.¹⁵

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 ¹   For example, a descriptive term can be “soft drink,” a brand (e.g., “Coke Zero”), or a trade name like “Coca-Cola.”

²   Rescuecom v. Google, 562 F.3d 123 (2d Cir. 2009).

³   When a person enters “Coke Zero” in the search engine, the back-end software has already auctioned off to the highest bidder this protected brand. These third parties are then able to create any ad to divert and deceive traffic with little or no control from the search engine. 

⁴   The author encourages trademark owners to visit the AdWords program, open an account, and bid on their own marks to quantify the volume and cost of the traffic lost.  Many corporations have opted to pay search engines for their own marks to recapture a portion of this lost traffic.

⁵   Generally, “the basic objective of the law regulating the American free market economy is the promotion and encouragement of competition.”  Continental v. GTE, 433 U.S. 562 (1977).  But see “trademarks serve an important public purpose.  They make effective competition possible in a complex, impersonal marketplace.”  Smith v. Channel, 402 F.2d 562 (9th Cir. 1968).

⁶   15 U.S.C. § 1114.

⁷   U.S. Trademark Law, 15 U.S.C. § 1051 et seq.

⁸    15 U.S.C. § 1127.

⁹   1-800 Contacts, Inc. v. When U.com, Inc., 414 F.3d 400 (2nd Cir. 2005). The author believes that confusion is made unlikely in a pop-up ad business model, unlike a search engine, where web surfers who enter a domain know very well the invasive nature of these pop-up ads. 

¹⁰  Private Career v. Vancouver Career, 2010 B.C.S.C. 765 (B.C. Supreme Court, 2010) (“The practice of using Keyword Advertising is no different than the time-honoured and generally accepted marketing practice of a company locating its advertisement close to a competitor’s in traditional media . . .”).

¹¹  Google France v. Louis Vuitton, C-236/08.

¹²  Rescuecom v. Google, 562 F.3d 123 (2nd Cir. 2009).

¹³  15 U.S.C. § 1127.

¹⁴  Rescuecom v. Google, 562 F.3d 123 (2nd Cir. 2009).

¹⁵     Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982).