Second Circuit and the whole of the law on confusion

This is big, but stay calm.   Though I hardly can.

I took some heat a little while ago for suggesting, contrary to my generally skeptical view of what constitutes trademark use in commerce (a legal premise of infringement), that there’s something very flabby about the argument that the use of trademark-protected words as search terms by competitors can never be infringement.  (I never said it always is.)  And until now, district courts in the Second Circuit have held that the use of trademarks as a term was not “trademark use.”  I may have had theoretical issues with that tendency, but it worked to the (short-lived) benefit of my clients S&L Vitamins.

But today Reuters reported that the Second Circuit has rejected a ruling by a U.S. District Court in New York dismissing Rescuecom’s litigation against Google.  The case had been dismissed on the grounds that Google Adwords program did not constitute a “use in commerce” by Google of Rescuecom’s trademarks. Wrong, said the Circuit. Here‘s the opinion; below are some thoughts and some excerpts, with some links added by me.

google-adwords-logo

Fundamentally, the Circuit says District Courts have read too much into its ruling in 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 19 2005), which it urges was laced with caveats and very fact specific:

The present case contrasts starkly with [two] important aspects of the 1-800 decision.  First, in contrast to 1-800, where we emphasized that the defendant made no use whatsoever of the plaintiff’s trademark, here what Google is recommending and selling to its advertisers is Rescuecom’s trademark. Second, in contrast with the facts of 1-800 where the defendant did not “use or display,” much less sell, trademarks as search terms to its advertisers, here Google displays, offers, and sells Rescuecom’s mark to Google’s advertising customers when selling its advertising services. In addition, Google encourages the purchase of Rescuecom’s mark through its Keyword Suggestion Tool. . . .

Google, supported by amici, argues that 1-800 suggests that the inclusion of a trademark in an internal computer directory cannot constitute trademark use. Several district court decisions in this Circuit appear to have reached this conclusion. See e.g., S&L Vitamins, Inc. v. Australian Gold, Inc., 521 F. Supp. 2d 188, 199-202 (E.D.N.Y. 2007) (holding that use of a trademark in metadata did not constitute trademark use within the meaning of the Lanham Act because the use “is strictly internal and not communicated to the public”); Merck & Co., Inc. v. Mediplan Health Consulting, Inc., 425 F. Supp. 2d 402, 415 (S.D.N.Y. 2006) (holding that the internal use of a keyword to trigger advertisements did not qualify as trademark use). This over-reads the 1-800 decision. First, regardless of whether Google’s use of Rescuecom’s mark in its internal search algorithm could constitute an actionable trademark use, Google’s recommendation and sale of Rescuecom’s mark to its advertising customers are not internal uses.

Furthermore, . . . [w]e 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. If we were to adopt Google and its amici’s argument, the operators of search engines would be free to use trademarks in ways designed to deceive and cause consumer confusion.  This is surely neither within the intention nor the letter of the Lanham Act.

Good as far as it goes, right?  First, “Google’s recommendation and sale of Rescuecom’s mark to its advertising customers are not internal uses.” Does this make Google not merely potentially secondarily liable, but liable liable?  Second, 1-800 was never meant as a broad rule that no keyword advertising can ever be infringing.

But this is the part I really liked, because I have always found the argument that keyword ads are “merely product placement” to be ridiculous:

An example of product placement occurs when a store-brand generic product is placed next to a trademarked product to induce a customer who specifically sought out the trademarked [sic] product to consider the typically less expensive, generic brand as an alternative. . . . 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. It is not by reason of absence of a use of a mark in commerce that benign product placement escapes liability; it escapes liability because it is a benign practice which does not cause a likelihood of consumer confusion. In contrast, 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.” The practices attributed to Google by the Complaint, which at this stage we must accept as true, are significantly different from benign product placement that does not violate the Act. . . .

What Rescuecom alleges is that by the manner of Google’s display of sponsored links of competing brands in response to a search for Rescuecom’s brand name (which fails adequately to identify the sponsored link as an advertisement, rather than a relevant search result), Google creates a likelihood of consumer confusion as to trademarks. If the searcher sees a different brand name as the top entry in response to the search for “Rescuecom,” the searcher is likely to believe mistakenly that the different name which appears is affiliated with the brand name sought in the search and will not suspect, because the fact is not adequately signaled by Google’s presentation, that this is not the most relevant response to the search. Whether Google’s actual practice is in fact benign or confusing is not for us to judge at this time. We consider at the 12(b)(6) stage only what is alleged in the Complaint.

We conclude that the district court was mistaken in believing that our precedent in 1-800 requires dismissal.

There are two things LIKELIHOOD OF CONFUSION® loves about this conclusion.

One is that neither the reasoning nor the rule of law are dependent on the spurious notion of initial interest confusion (“IIC”).  The court is saying it cannot say, as a a matter of law, that there could not be a LIKELIHOOD OF CONFUSION such that a consumer could end up buying something different from he thinks he is buying, because of the error as to implied affiliation.  The court is not saying here that it is enough, as in the IIC scenario, that the consumer might, God forbid, be “diverted” by having the opportunity to think about a competing product, despite the absence of deception.  There Second Circuit sees no need to posit a marketplace monopoly on impression, allusion or reference to say that some keyword advertising could be an infringement.

And the second one is that, bless their hearts, the panel also hints to judge and counsel to get to work and make an empirical record, and thereby address what is perhaps the sorriest aspect of our present Lanham Act jurisprudence:  the seeming permit for judges to “wing it,” or let juries wing it, when deciding if there is a LIKELIHOOD OF CONFUSION.  The key words, again, are “Whether Google’s actual practice is in fact benign or confusing is not for us to judge at this time.”  In other words, the question of confusion is not a legal determination — it it were, the court could have reversed the judgment below, instead of remanding it.

Ron Coleman“Prove confusion.”  This is the whole of the law.  The rest is commentary. Now go and litigate!

UPDATE:  Rescue.com declines my invitation to “go litigate”; drops the lawsuit.

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Author:Ron Coleman

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4 Responses to “Second Circuit and the whole of the law on confusion”

  1. James H
    April 7, 2009 at 9:50 am #

    If I’m reading this right, Google runs into trouble here in part because they suggest using a competitors trademark as one of your ad keywords, right?

  2. April 7, 2009 at 1:02 pm #

    Ron, I am an avid follower of your blog and normally agree with your analysis, but I am struggling with the analysis here.

    The best reasoned part of the opinion seems to be the dicta regarding the statutory definition of “use in commerce.” The product placement argument which appears without citation seems to fail to take into account a considerable amount of case history and the purpose of trademark law (or at least my understanding of it.)

    In my opinion Trademark law was designed to protect CONSUMERS by ensuring that they are aware of the source of the goods they purchase not to protect brands. The material I have read on the matter implies that trademarks are treated as protection for goodwill and reducing consumer search costs. This interpretation seems correct given that the U.S. Trademark law requires Brands to use marks in order to be eligible for protection and registration. To that end Trademark allows brands to protect their TMs and their product design (when it has established secondary meaning) so that consumers will not be confused about the source of the goods.

    I have difficulty reconciling this interpretation with the use of trademarks in search engines. It seems to me that when trademark is used in the product placement and search engine context what is being appropriated is not the goodwill or consumer search costs but a brand’s advertising efforts. For example, if I want to buy my girlfriend a new kitchen knife I am likely instead of searching for kitchen knives to search for a store that will sell kitchen knives in my neighborhood. Being relatively new to the area I am unaware of what store to go to and instead search for Macy’s because it is the first store that comes to mind that might have kitchen knives. Thankfully my search of Macy’s also brings up advertisements for Nordstrom’s and Bloomingdale’s. As it turns out Bloomingdale’s is the closest to my home so I go their first to look for the knife. In my opinion, the “trademark use” in my example is not the kind trademark law was designed to protect. By displaying relevant competitors as results to my search query, Google and the competitors have benefited from Macy’s brand awareness efforts NOT from any goodwill I have associated with Macy’s. If I was concerned with goodwill alone, I would have gone to the Macy’s despite its greater distance from my home.

    While benefiting from a brand’s advertisement may be a tort, I have seen no evidence that it is a Trademark infringement. Eric Goldman’s paper on Brand Spillover details a number of example of competitor’s use of a brand’s awareness by a competitor to its own benefit. (available here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1324822# ) While many of the cases cited can be reconciled with the Rescuecom court’s proposition that product placement escapes liability “because it is a benign practice which does not cause a likelihood of consumer confusion.” However the fact is that some of these cases were dismissed, and if the reason was because of lack of likelihood of confusion then they would have required the finder of fact not just the finder of law’s decision.

    Perhaps this is all moot because the courts will recognize that there is no LIKELIHOOD OF CONFUSION (although as Ochoa likes to say “2% of the population is confused about anything.) However it seems to me that the court has done Google and consumers real harm by eliminating “a basis for summary disposition” something the Supreme Court in Wal-Mart Stores, Inc. v. Samara Brothers, Inc. was particularly concerned with.

    • April 7, 2009 at 11:48 pm #

      Greg, am I supposed to pay you for this?!

      Seriously, I appreciate your thoughtful contribution. As you know my general inclinations are not so different from yours. I wish I had time to respond appropriately, but it may be a while until I can.

  3. May 3, 2010 at 10:44 pm #

    Well, in short, Greg, my answer to your comments is this: You may be right. My recent thinking on this topic, including in preparation for a presentation this Friday at the AIPLA (subbing for Google’s Annabelle Danielvarda), has led me to think that perhaps the keyword case is in fact different from other IIC situations — especially domain names — and the way to conceptualize it as such could be this: The “confusion” would have to be deemed as occurring, as a matter of law, in the process of a search engine “taking” the consumer to a place, by virtue of a “bad faith” appropriation of goodwill, to a place he otherwise would not be. The search engine is being “confused.” So what if it happens really fast?

    After I first enunciated this at the dinner table (oh, yes, we have quite an interesting dinner table), two objections immediately arose. One is, where does the statute say that? It doesn’t. We have to say that, at best, this is an arguably desirable policy that is as entitled to become the law as any other outcome, given that Congress has refused to do its job here and actually make policy on this question — one clearly never anticipated by the drafters of the Lanham Act.

    The second one is, well, wait. You’ve invented a whole new tort here (you’re in good judicial company): “Wrongful benefiting form a competitor’s brand’s awareness.” That is as good an idea for a new tort as any, — and perhaps this is not so different from the first objection, after all – but it’s not trademark INFRINGEMENT. Because there may be all sorts of legerdemain, perhaps actionable under various extant state law torts as well as the Rule of God, but there’s

    No.
    Likelihood.
    Of.
    CONFUSION.

    And, by the way, unless and until these hypothetical examples (“I wouldn’t have gone to that store, I would have gone to the store I first meant) is turned into something approaching rigorous proof of HARM, I still don’t think you have any tort at all — though as I said at the beginning, I am not resistant to the idea that perhaps there is something tortious, and conceptually amenable to being captured as a legal wrong, in this sort of free riding. But I haven’t seen it yet.

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