Contributory infringement and vicarious liability in keyword cases: guidance from Tenth Circuit

United States of America

The practice of purchasing competitors’ trademarks and service marks as keywords from internet search engines has generated numerous opinions from US courts over the years, but few have been as comprehensive as that from the US Court of Appeals for the Tenth Circuit in 1-800 Contacts Inc v Inc (No 11-4114, 2013 WL 3665627, July 16 2013). Rather than merely addressing the extent to which purchases of keywords as triggers for paid advertising can constitute direct infringement by the purchaser itself, the court also took on the issue of whether contributory infringement and vicarious liability can arise from those purchases.

The litigation in question arose when the plaintiff, an online retailer of contact lenses, discovered that the defendant had purchased keywords corresponding to the plaintiff’s marks from Google. When Google users searched for the plaintiff’s marks, that action triggered paid advertising for the defendant’s directly competitive goods. Although initially alleging that the defendant’s keyword purchases constituted direct infringement, the plaintiff eventually supplemented its complaint to assert as an additional cause of action that the defendant was liable for the conduct of an affiliate of the defendant, which also had purchased keywords corresponding to the plaintiff’s marks. In particular, the plaintiff alleged that the defendant had engaged in contributory infringement by failing to control its affiliate and, additionally, that the defendant was vicariously liable for the affiliate’s conduct.

Because the text of the defendant’s own advertisements neither expressly mentioned the plaintiff by name nor used the plaintiff’s marks, the Tenth Circuit affirmed the trial court’s dismissal on a motion for summary judgment of the plaintiff’s claims for direct infringement. Although the plaintiff argued on appeal that the defendant’s advertisements created initial interest confusion, which is ordinarily actionable even if consumers ultimately make their purchases knowing the identity of the parties with which they are dealing, the court declined to reach such a holding. Instead, it concluded that:

"Perhaps in the abstract, one who searches for a particular business with a strong mark and sees an entry on the results page will naturally infer that the entry is for that business. But that inference is an unnatural one when the entry is clearly labelled as an advertisement and clearly identifies the source, which has a name quite different from [that of] the business being searched for."

The Tenth Circuit then turned to the plaintiff’s argument that the defendant should be held accountable for advertisements placed by the defendant’s affiliate, some of which, in contrast to the defendant’s own advertisements, did expressly use the plaintiff’s marks in their text. Like the trial court, the Tenth Circuit held that the defendant could not be vicariously liable for the affiliate’s advertisements under common-law agency principles. Specifically, the appellate court held that “a principal is subject to liability for its agent’s tortious conduct only if the conduct is within the scope of the agent’s actual authority or ratified by the principal”. In its subsequent application of this rule, the court held that there was no record evidence or testimony before it indicating that the affiliate believed the defendant had authorised its conduct or that the defendant otherwise had ratified the affiliate’s conduct. As a consequence, the trial court’s dismissal of the plaintiff’s claim of vicarious liability had been appropriate.

Nevertheless, the Tenth Circuit was sympathetic to the plaintiff’s argument that its claim for contributory infringement had been improperly dismissed. On this issue, the court noted that:

[c]ontributory infringement occurs when the defendant either (1) intentionally induces a third party to infringe on the plaintiff’s mark; or (2) enables a third party to infringe on the mark while knowing or having reason to know that the third party is infringing, yet failing to take reasonable remedial measures.”

The first prong of this test did not figure in the court’s analysis, but the second one did: despite knowing that at least one of its affiliates was using the plaintiff’s marks in the affiliate’s online advertising, the defendant had failed to arrange for an email blast to its affiliates barring the practice, and its entitlement to the summary dismissal of the plaintiff’s contributory infringement claim was therefore in dispute. Under these circumstances, the court reversed this aspect of the trial court’s decision and remanded the action for further consideration of the plaintiff’s contributory infringement claim.

Theodore H Davis Jr, Kilpatrick Townsend & Stockton LLP, Atlanta

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