9th Circuit Finds Whether Keyword Advertising Infringes Mark Depends on Presentation of Search Results as a Whole

In Network Automation, Inc. v. Advanced Systems Concepts, Inc., Civ. Case No. 10-55840 (9th Cir. March 8, 2011), Network Automation sells a job scheduling and management software product under the mark AutoMate.  Advanced Systems also sells a job scheduling and management software product under the registered trademark ActiveBatch. Network Automation advertises its product online by purchasing certain keywords, including “ActiveBatch,” to produce a results page showing “www.NetworkAutomation.com” as a sponsored link. Advanced  Systems objected to Network Automation’s use of its ActiveBatch trademark to advertise its competing product where prospective purchasers are using a search engine to find ActiveBatch, and brought a trademark infringement action in the Los Angeles District Court based upon a theory of initial interest confusion.

At trial, the District Court found that Network Automation’s use of Advanced Systems’ ActiveBatch mark to advertise its products did cause infringement compensable under the Lanham Act, 15 U.S.C. § 1114. Specifically, the District Court applied the eight factors established in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir.1979), and noted that the three most important factors in internet related cases are”(1) the similarity of the marks; (2) the relatedness of the goods; and (3) the marketing channel used.” In applying these three factors, the District Court found that there was initial interest confusion, and issued a preliminary injunction against Network Automation’s use of the mark ActiveBatch as a keyword.

On appeal, the Ninth Circuit began its opinion by quoting Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1054 (9th Cir.1999) for the proposition that the courts “must be acutely aware of excessive rigidity when applying the law in the Internet context; emerging technologies require a flexible approach.”  From this perspective, the Ninth Circuit proceeded with its analysis by noting that there was no dispute over whether Advanced Systems owned the mark ActiveBatch in the context of scheduling software.  As such, the dispute centered on whether Network Automation’s use of the mark ActiveBatch was likely to cause consumer conclusion.

In order to resolve this question, the Ninth Circuit reviewed all eight of the factors of the AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir.1979) to determine the relative importance of each factor in the context of keyword advertising: “[1] strength of the mark; [2] proximity of the goods; [3] similarity of the marks; [4] evidence of actual confusion; [5] marketing channels used; [6] type of goods and the degree of care likely to be exercised by the purchaser; [7] defendant’s intent in selecting the mark; and [8] likelihood of expansion of the product lines.”  Moreover, this list was expressly not exhaustive, and was pliable.

Further, the Ninth Circuit noted that in the case of domain names utilizing trademarks, it had identified three of these factors as being of specific importance: “(1) the similarity of the marks; (2) the relatedness of the goods and services offered; and (3) the simultaneous use of the Internet as a marketing channel.”  Brookfield Commc’ns, Inc., 174 F.3d at 1054, n. 16.  While such factors were usable in Brookfield Commc’ns to establish likelihood of confusion in the context of the use of marks in domain names, the same factors in Brookfield Commc’ns were not usable to establish likelihood of confusion in the context of metatags using marks under a theory of initial interest confusion.

Specifically, in the case of metatags, while the search engine would bring up the site of the mark owner and the competitor on the same screen, both search results would clearly identify the sites as being from different owners.  However, while the end user would not be confused as to which site was being accessed, the use of the mark did provide an “improper benefit from the goodwill Brookfield developed in its mark” which was sufficient to find infringement.  Following this test in the context of key word advertising, the Ninth Circuit noted that the concept was not to be extended so as to prevent comparative advertising and was only to be applied in the context of deceptive practices.  Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020 (9th Cir. 2004).

Further, the Ninth Circuit noted that “we did not intend Brookfield to be read so expansively as to forever enshrine these three factors — now often referred to as the ‘Internet trinity” or “Internet troika’ — as the test for trademark infringement on the Internet” since the full test should take into account the remaining Sleekcraft factors as well other variables.  As such, the Ninth Circuit reviewed the facts of the instant case for each of the Sleekcraft factors as follows.

1.       Strength of the mark

In reviewing the strength of the mark, the Ninth Circuit noted that marks have both conceptual strength, which can vary from arbitrary to generic and relate to mark itself, and commercial strength which is related to actual recognition in the marketplace.  The Ninth Circuit found that this “factor is probative of confusion” since “a consumer searching for a generic term is more likely to be searching for a product category” and thus is not expecting to receive a search result limited to a particular source.  In contrast, searches for more distinctive markings would be expected to be limited to the particular source.  Under this analysis, the Ninth Circuit found that the mark ActiveBatch was suggestive.  Therefore internet searches involving ActiveBatch are likely looking for Advanced Systems’ product and thus this factor weighed in favor of there being confusion.

2.       Proximity of the goods

The Ninth Circuit also noted that the relatedness of the goods requires reviewing “whether the products are: (1) complementary; (2) sold to the same class of purchasers; and (3) similar in use and function.”  Sleekcraft, 599 F.2d at 350.  In relation to internet searches, the Ninth Circuit noted that whether the link is labeled or unlabeled should also be reviewed since “the proximity of the goods would become less important if advertisements are clearly labeled or consumers exercise a high degree of care, because rather than being misled, the consumer would merely be confronted with choices among similar products.”  In the context of the instant case, the Ninth Circuit noted that, while the products being sold are interchangeable, the proximity of goods analysis in the context of an internet search is mitigated by the clear labeling of the search result.  As such, the Ninth Circuit found that the District Court had placed too much emphasis on this factor since the proximity analysis was done in isolation without accounting for the effects of labeling.

3.       Similarity of the marks

The Ninth Circuit noted that normally this inquiry compares the marks of the competing products or services, but in the context of using keywords, this inquiry is essentially impossible.  Specifically, when a consumer enters the search term ActiveBatch, it is not confronted with two similar marks.  Thus, the fact that the search term ActiveBatch was purchased by Network Automation does not mean that the consumer would be confused when the search result for ActiveBatch is returned.  That being said, depending on the sophistication of the consumer and whether Network Automation includes its own mark in the sponsored link, this factor can be helpful in at least establishing initial interest confusion.

4.       Evidence of actual confusion

The Ninth Circuit noted that evidence of actual confusion is rare and often such evidence is discounted as not being reliable.  As neither party presented evidence of actual confusion and as such evidence is of diminished importance at the preliminary injunction stage, the Ninth Circuit noted that this factor had no weight in determining likelihood of confusion in the instant case.

5.       Marketing channels used

The Ninth Circuit quoted Sleekcraft, 599 F.2d at 353 for the proposition that “[c]onvergent marketing channels increase the likelihood of confusion.”  However, the Ninth Circuit also noted that “this factor becomes less important when the marketing channel is less obscure,” as is the case with internet marketing.  Since both parties market on the internet, the Ninth Circuit found that “the shared use of a ubiquitous marketing channel does not shed much light on the likelihood of consumer confusion.”  As such, the Ninth Circuit found that this factor was not particularly helpful in the context of internet keywords and initial interest confusion.

6.       Type of goods and the degree of care likely to be exercised by the purchaser

The Ninth Circuit noted that the lower the degree of care, the greater the likelihood of confusion.  The more sophisticated the buyer or the more expensive the item, the less likely that there will be confusion.  The Ninth Circuit noted that, while the District Court had found that the typical care exercised by a buyer on the internet was low, this factor is not limited by the marketing channel and is in fact based upon the expected purchaser.  Moreover, as the internet has become more commonplace, buyers are more likely to understand that there is often a disconnect between the mark and the domain name.  Toyota Motor Sales v. Tabari, 610 F.3d 1171 (9th Cir. 2010).  In this context, the purchaser of an expensive suite of software is likely going to be sophisticated and understand the basic concepts of keyword advertising.  Thus, this factor did not go in favor of likelihood of confusion as suggested by the District Court.

7.       Defendant’s intent in selecting the mark

The Ninth Circuit noted that, for this factor, it is presumed that there will be confusion and that the infringing use was chosen to deceive the public.  However, this factor should not be used to prevent comparative advertising.  Thus, like the proximity of goods analysis, there needs to be evidence of intent to deceive the public as opposed to providing truthful information.  As such, the Ninth Circuit found that the District Court was incorrect in finding that the selection of the keyword was solely to deceive the public as there was no evidence of an intent to deceive.

8.       Likelihood of expansion of the product lines

The Ninth Circuit noted that this factor relates to where marks are being used in different markets, but where one market is a likely ground for expansion for the other.  In the case of direct competitors, this factor is unimportant as both are in the same market.  The Ninth Circuit held that the District Court correctly declined to afford weight to this factor as it is undisputed that both parties are direct competitors.

9.       Other factors

The Ninth Circuit then reviewed other factors also relevant to likelihood of confusion in the context of internet keywords.  One factor noted by the court was what was on the search result where a search was made using the keyword.  Where the search result is unlabeled or confusingly labeled, there is an increased chance of confusion.  Of particular importance to the Ninth Circuit was where the keyword advertisements appeared and what was in the particular banner.  As such, the Ninth Circuit found that, in keyword advertising, the “labeling and appearance of the advertisements as they appear on the results page includes more than the text of the advertisement, and must be considered as a whole.”  Since the search results in the instant case appear under a banner of “sponsored links”, this helped prevent issues relating to confusion.

From this review, the Ninth Circuit found that there are four factors relevant to keyword advertising in relation to showing a likelihood of confusion: “(1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.”  Since the District Court did not analyze these four factors and instead relied upon only the three “Internet troika” factors, the District Court did not account for the differences between domain name confusion and keyword confusion.  As such, the District Court was reversed.

Significance for Trademark Owners

The use of trademarked keywords to advertise a competing product has been an important issue for trademark owners given its potential to steer business away from the mark owner, as well as weaken the mark by making the mark generic for a class of goods.  However, showing infringement is more difficult since it is likely that consumer is not often confused by the search results based upon the keyword.  In Network Automation, the Ninth Circuit updated its keyword analysis to account for the unique issues surround keyword-based infringement claims while also showing the difficulty in bringing and maintaining these sorts of suits.  As such, while frustrating to trademark owners, a carefully-constructed search result will likely defeat a claim of trademark infringement outside of exceptional circumstances and mark owners may need to use other mechanisms outside of suits against search providers to ensure that their marks are protected.

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