Legality of online trademark keyword ads still in question

Despite the widespread use of trademarks to generate online keyword advertisements or sponsored links, the practice remains controversial as highlighted by two recent developments. On April 18 a California federal court decided that Google was not entitled to summary judgment on its claim for declaratory relief that its practice of selling keyword ads triggered by American Blind and Wallpaper Factory Inc's trademarks does not constitute trademark infringement. In March the State of Utah implemented its Trademark Protection Act (SB 236), a statute designed to ban the use of trademarks to trigger keyword ads displayed to internet users within the state.

A keyword ad is a text-based ad that appears on search engine results pages. They are set apart from the generic search results (usually at the top and/or on the right side of the page) that are triggered when the internet user types in certain keywords. Search engines such as Google, Yahoo! and MSN derive enormous revenue from the sale of these keyword ads. Many keywords sold are trademarks owned by third parties, and disputes have arisen between trademark owners and the search engines and/or advertisers, especially if the advertiser (ie, keyword purchaser) competes with the trademark owner.

Under federal law, the legality of this practice remains unsettled. Some federal courts within the Second Circuit have held as a matter of law that the practice does not amount to trademark infringement because such conduct does not constitute 'use in commerce' of the trademark. See for instance:

On April 19 2007 a New York federal court agreed with the reasoning of these courts and found that the act of using a trademark to trigger a keyword ad does not constitute use in commerce; however, the court indicated that if the triggered ad itself contains the trademark keyword, then use of the trademark as a keyword might constitute use in commerce (see Hamzik v Zale Corp, 2007 WL 1174863 (NDNY April 19 2007)).

Federal courts in other circuits have held the opposite - that the practice does, as a matter of law, constitute use in commerce of the trademark, regardless of whether the mark is used in the ad itself. See for instance:

  • Edina Realty Inc v, 80 USPQ 1039 (D Minn 2006) - case settled;

  • Buying for the Home LLC v Humble Abode LLC, 2006 WL 3000459 (DNJ October 20 2006) - case settled; and

  • 800-JR-CIGAR Inc v Inc 437 F Supp 2d 273 (DNJ 2006) - summary judgment on likelihood of confusion denied.

One such court found that while trademark keyword purchases did amount to use in commerce, it was not likely under the facts of the case to cause consumer confusion as a matter of law (JG Wentworth SSC Ltd v Settlement Funding LLC, 2007 WL 30115 (ED Pa January 4 2007)). Yet another federal court found that such conduct can amount to trademark infringement, particularly when the mark used to trigger the keyword ad is also used within the text of the ad (Government Employees Insurance Co v Google Inc, 2005 WL 1903128 (ED Va August 8 2005) - case settled; see Google and GEICO settle keying case).

In the recent American Blind decision, after drawing on cases from other jurisdictions and Ninth Circuit precedent regarding analogous practices in the cases of Playboy Enterprises Inc v Netscape Communications Corporation (keyword generated banner ads; see Keying has potential to infringe and dilute marks, rules Ninth Circuit) and Brookfield Communications Inc v West Coast Entertainment Corp, 174 F3d 1036 (9th Cir 1999) (metatags), the court found that Google's sale of keyword ads triggered by a trademark does constitute use in commerce of the trademark. With respect to likelihood of confusion, the court concluded that there were enough facts in dispute to deny summary judgment to Google, including whether a consumer knows or should know at the outset whether a keyword ad is related to the trademark holder. Like many of the aforementioned cases, this case may settle prior to a trial on the merits. Moreover, the court's opinion was designated as non-citable as precedent, so the decision may have little impact in the ongoing legal battle other than, perhaps, to foreshadow a possible future circuit split between the Second and Ninth Circuits on the use in commerce issue (depending upon the result in the appeal pending before the Second Circuit in the Rescuecom Case).

Meanwhile, the Utah law attempts to provide a new avenue of attack on the use of trademarks for keyword advertising. The law envisions a new IP right, called an 'electronic registration mark', for an annual fee. The statute prohibits the use of a sign by a third party to cause the delivery or display of an ad for a business, product, or service of the same class as that covered by an electronic registration mark or that is likely to cause confusion. One who sells or displays an ad that is triggered by another party's electronic registration mark is liable if the ad is at any time displayed in Utah or if the advertiser or person selling the ad is located in Utah.

This Utah law has the potential to impact the keyword advertising practices of advertisers and search engines on a national scale. In order to comply with the Utah law, search engines would have to know whether or not their advertisers or users are located in Utah. Also, advertisers and search engines would have to verify whether the desired keyword search term is covered by an electronic registration mark by checking Utah's database, and if so, block the ad altogether or somehow block it from being displayed in Utah.

Critics of the statute argue that it is bad policy and effectively prohibits what federal trademark law allows (ie, use of third-party marks to generate lawful, comparative advertising). Given the impact the law may have on interstate commerce, it likely will be challenged on the theory that it violates the Commerce Clause and the First Amendment of the US Constitution.

On a practical note, Google, Yahoo! and MSN currently have policies in place on the issue of trademarks and keyword search terms. For US and Canadian trademark owners, Google blocks the use of a trademark from the text of the keyword ad but does not block the use of a trademark as a keyword ad trigger. However, because some foreign courts have been less accepting of the practice (see for instance Google loses keying case), Google blocks the use of a trademark as a keyword ad trigger outside of the United States and Canada. Both MSN and Yahoo! either block the use of a trademark from the text of the keyword ad or block the use of a trademark as a keyword ad trigger, if the use of the trademark violates certain trademark usage guidelines.

It seems unlikely that states will be permitted to ban the practice of selling trademarks as keywords on the Internet per se. Most likely, the legality of the practice, at least in the United States, will turn on whether the generated ad is likely to cause confusion. State and federal courts may differ on that analysis.

Ron N Dreben, Morgan Lewis, Washington DC

Unlock unlimited access to all WTR content