‘Mere Diversion’ Not Enough to Punish Trademarked Keywords, 9th Circuit Says

Advanced Systems Concepts sells its job-scheduling software under the trademark “ActiveBatch,” which its competitor Network Automation used as a keyword trigger. The lower court found that such triggering would likely create “initial interest confusion” and imposed a preliminary injunction against Network Automation’s use of “activebatch."

The 9th Circuit panel on Tuesday faulted the lower court for picking out three of eight factors under the appeals courts’ 1979 Sleekcraft test, which the appeals panel called a “nonexhaustive list of factors relevant to determining the likelihood of consumer confusion.” The panel said it agreed with the 2nd Circuit’s decision in Rescuecom, the last major keyword trademark case to go through appeal, that using trademarks as search triggers was a “use in commerce” under the Lanham Act (WID April 6/09 p3). This week’s decision was written by 9th Circuit Judge Kim McLane Wardlaw on behalf of herself and Judges Stephen Trott and Michael Mosman.

The judges sought to clear up what they saw as the lower court’s confusion over the 9th Circuit’s first major application of Sleekcraft to Internet ads, the 1999 Brookfield case. The 9th Circuit had ruled that three Sleekcraft factors were particularly important for Internet ads -- “the similarity of the marks, the relatedness of the goods or services, and the simultaneous use of the Web as a marketing channel.” But the appeals court never intended to rigidly impose what’s now known as the “Internet trinity” to all online trademark cases, the panel said: The “trinity” factors have proven most useful in analyzing domain-name disputes. “Given the multifaceted nature of the Internet and the ever-expanding ways in which we all use the technology, however, it makes no sense to prioritize the same three factors for every type of potential online commercial activity,” the panel said. It added that those factors were “a particularly poor fit” for a keyword dispute.

The most relevant question is whether Network Automation caused “likely confusion, not mere diversion” away from Advanced Systems Concepts, the panel said. It agreed with the lower court that the trademark at issue was “distinctive” and not generic, so consumers were probably looking for a specific product, but added the lower court gave too much emphasis to the competing products’ “proximity,” or similarity, and to the fact they used the same marketing channel, the Internet: “The shared use of a ubiquitous marketing channel does not shed much light on the likelihood of consumer confusion."

The “degree of care” that consumers use in searching for products and services online has markedly changed since the Brookfield decision in the early days of the Web, the panel said: “The default degree of consumer care is becoming more heightened as the novelty of the Internet evaporates and online commerce becomes commonplace.” The lower court was wrong to assume that “Internet users on the whole exercise a low degree of care” in today’s Internet marketplace, and thus would be easily confused by Network Automation’s sponsored links. The lower court also wrongly assumed Network Automation sought to deceive consumers looking for the ActiveBatch software, rather than compare its product to ActiveBatch, the panel said. By focusing so narrowly on the “trinity” factors and not fully considering the potential for consumer confusion, “the district court abused its discretion in issuing the injunction,” the panel said.

The appeals ruling is “clearly the best keyword advertising teaching case now available,” said Eric Goldman, director of the High Tech Law Institute at Santa Clara University, who regularly blogs on Internet trademark law. He said the 9th Circuit seems to suggest an “Internet quadrangle” of factors to consider for keyword cases: Mark strength, evidence of actual confusion, type of goods and purchaser’s degree of care, and labeling of the ads and the search results page’s “surrounding context.” Those are a “step forward” from the “trinity” factors, Goldman said.

Goldman said the lower court’s likely ruling on remand was still a “close call.” The lower court was clearly “moved” by Advanced Systems Concepts’ “story” of being wronged, though the panel ruling gave much more support to Network Automation, he said. Goldman also criticized the panel for making “presumptions” that a person searching for a trademark was likely looking for a specific product, not a class of products, and that a user’s sophistication may lessen the chances of confusion. Those are empirical questions, and the court doesn’t defend its answers, he said.

"The opinion holds out hope for a more sensitive treatment of claims about online trademark infringement,” said Paul Levy, an attorney for Public Citizen, which has defended clients whose “consumer commentary and comparative advertising” were alleged to infringe trademarks. Some of the holdings could be fairly limited, such as the sophistication level of Internet users searching for those terms, he said. The panel also didn’t consider a “highly significant” factor, the wording of the ads themselves. But the 9th Circuit clearly ruled that simply buying or selling trademarks as keywords is “not inherently an infringement of that trademark,” Levy said: And thankfully, it threw the Brookfield precedent into the “dustbin of history.”