As Search Marketing Takes Off, Turmoil Grows Over Trademark Issue

Source: DMNEWS

A series of court decisions in the past six months shows that the battle over how far Internet advertisers can go in using competitors' trademarks continues to rage.

Trademark owners are going to court to stop competitors from using their trademarks to prompt pop-up ads and to stop search engines from touting rival products. They are opposed by advertising companies and search engine portals (like Yahoo) that profit by posting ads for competitors.

The Playboy case. The latest decision was issued recently by the Ninth Circuit Court of Appeals. In that lawsuit, Playboy challenged Netscape's and Excite's running of sex-related banner ads whenever an Internet user entered "Playboy" (a registered trademark) as a search term. Playboy argued that the value of its trademark was hurt because surfers might be confused into thinking that Playboy endorsed or sponsored those other sites.

Playboy's case was bolstered by the fact that back in the old days, search engines didn't always identify the sponsor of the ad. The case was dismissed in 2001. Playboy appealed, and the 2004 decision reinstated the suit, holding that if Playboy could prove that its trademark had been diluted as a result of search engine ads, then it could go to trial and seek relief. The case settled out of court soon afterward. Though the decision would seem to strengthen the rights of trademark holders greatly, the holding may be narrowly construed because the court limited the importance of its ruling by noting that "we are not addressing a situation in which a search engine clearly identifies a banner advertisement's source." The conflicting WhenU decisions. Three separate federal courts, in New York, Virginia and Michigan, were asked to determine whether certain Internet advertising constituted impermissible trademark infringement. Two ruled in favor of WhenU, a purveyor of targeted Internet pop-up ads.

WhenU is a software company that distributes an application known as SaveNow. Internet users often download SaveNow with other freeware programs such as screen savers. Before downloading, the user is asked to consent to receiving ads from SaveNow.

Once installed, the application delivers targeted or contextual marketing, much like supermarket scanners that print coupons on the back of your receipt depending on the products you bought. When an Internet user who installed SaveNow surfs the net, the software scans the sites visited on that browser, comparing Web site addresses, search terms and Web page content to SaveNow's directory. If an appropriate match is found between the directory and the user's activity, the program delivers a pop-up ad, often for a direct competitor of the site the person was looking for.

Opponents accuse WhenU of taking a free ride on the good will and brand recognition built by other companies, while WhenU contends that the contextual marketing it provides helps consumers make better purchasing decisions. WhenU is not an isolated phenomenon, and significant numbers have subscribed.
In the New York case, the contact lens seller 1-800 Contacts sued WhenU and a rival contact lens firm, Vision Direct. 1-800 Contacts argued that viewers of 1-800 Contacts' Web site were diverted to its competitor. The court found that WhenU's decision to include 1-800 Contacts' trademark in the SaveNow directory supported a finding that WhenU acted in bad faith.

A full trial is still pending, but in December the judge preliminarily enjoined WhenU from using the 1-800 Contacts trademark in its SaveNow directory and from causing pop-up ads to appear when Internet users try to access 1-800 Contacts' site either directly or through search engines. WhenU is appealing the ruling.

WhenU fared better in a case brought by U-Haul in Virginia. That court granted summary judgment in WhenU's favor on facts virtually the same as in the 1-800 Contacts suit. The court said it is not a trademark use because WhenU merely uses the marks for the "pure-machine-linking function."
A similar result occurred in federal court in Michigan in a case brought by Wells Fargo and Quicken Loans, a mortgage business. The court found that though plaintiffs' names and Web sites prompted ads for direct competitors, WhenU was engaged in legitimate comparative advertising and stressed that "WhenU benefits participating consumers by improving access to relevant, useful and money-saving information about products and services that interest them. WhenU's advertisements increase the choices available to consumers and thereby promote competition."

The four recent rulings are merely chapters in the story. WhenU's appeal of the 1-800 Contacts ruling is ongoing in New York, while the Playboy suit was settled before a final determination was reached. Remember, the Playboy suit was filed in 2000, when search engines did not clearly distinguish ads from search results. Nowadays, they do a better job of disclosing who the paid sponsors are, so the Playboy case may have little future value in the rapidly changing world of cyberspace.

Andrew B. Lustigman is a partner at Olshan, New York. His e-mail address is alustigman@olshanlaw.com.