Two Regressive Search Engine Advertising Rulings–Standard Process v. Total Health and Finance Express v. Nowcom

By Eric Goldman

It’s not uncommon for courts to make judgments based on outdated understandings of precedent and technology, especially when dealing with dynamically evolving areas like Internet trademark law. Nevertheless, it can be a little dispiriting to read opinions that ignore modern sensibilities and look like they could have been written years ago. Two such cases came out in June:

Standard Process, Inc. v. Total Health Discount, Inc., 2008 WL 2337279 (E.D. Wis. June 6, 2008)

This is yet another case involving channel leakage leading to unauthorized Internet sales of legitimate goods. I’ve blogged about this issue several times, including:

* Australian Gold v. Hatfield (10th Cir 2006)

* S&L Vitamins v. Australian Gold (EDNY 2007)

* Standard Process v. Banks (E.D. Wis. 2008) [yes, same court and same plaintiff]

* Designer Skin v. S&L Vitamins (D. Ariz. 2008)

The last two cases were largely favorable for the Internet retailer. Unfortunately, this latest ruling barely acknowledges the S&L case (and ignores the Standard Process case altogether) and jumps back to the pro-plaintiff (and doctrinally corrupt) Australian Gold precedent as if it were the only relevant ruling. What happened?

The court says that the Internet retailer may be communicating implied sponsorship/favoritism of the trademark owner by (1) using the “we” and “our” pronouns to describe the product on its website, apparently creating an overly familiar discourse, and (2) buying keyword advertising triggered by the trademark and ranking well for it. This implied sponsorship/favoritism costs the Internet retailer both a first sale defense and a nominative use defense. No SJ for the Internet retailer on trademark infringement.

The court’s emphasis on first-person pronouns is ticky-tack at best. I’d sure love to see some consumer survey evidence to show that the usage actually led consumers to make some association between the retailer and the manufacturer. I’d be really surprised if consumers drew any of the inferences made by the courts.

Similarly, thinking that consumers assume that high ad placement for the trademark implies sponsorship by the trademark owner is SO five years ago. Though this issue has come up in a few prior cases (for example, an analogous issue was central to the Playboy v. Netscape case from 2004), I’ve never seen any empirical evidence validating this assumption, and I am fairly confident that a reliable survey conducted today would thoroughly destroy this line of thinking.

In any case, the breezy way that the court tossed aside the nominative use defense highlights that the defense isn’t all that useful to Internet trademark defendants. For this reason, I continue to believe that we need the trademark use doctrine (which, I understand, wasn’t at issue here) to screen out cases before defendants have to rely on such a flimsy doctrine like nominative use.

The case also discusses whether the Internet retailer committed false advertising by saying that it bought from authorized sources. Rebecca parses this issue.

Finance Express LLC v. Nowcom Corp., 2008 WL 2477430 (C.D. Cal. June 18, 2008)

Finance Express and Nowcom are competitive providers of “software to automate and facilitate credit relationships between used automobile dealers and lenders.” Finance Express acquired some software and tried to migrate users of that software to its standard platform. This transition appeared to trigger a scramble for customers in transition, and Nowcom launched a self-acknowledged “aggressive” marketing campaign for those customers that included the following features:

* registering several domain names containing Finance Express trademarks

* posting a self-laudatory press release at those domain names urging customers to transition to it. Oddly, this press release contained an “About Finance Express” section that the court said made it look like a joint press release between Nowcom and Finance Express.

* including Finance Express’ trademarks in the metatags, which the court describes using the archaic term “keyword stuffing.”

* “keying” (another archaic term) by buying Finance Express’ trademarks as keyword triggers at the search engines to trigger banner ads. The court expressly refers to banner ads, but in the discussion it’s clear that Newcom bought typical text ads.

If Nowcom’s marketing campaign had only 1 of these features, a court might have been more willing to give it a free pass. But the overall package of competitive features was clearly overwhelming to the court. It was easy for the court to see competitive trademark references plus a perceived injury (Finance Express had transitioned only 250 dealers when it projected it would transfer 850) and blame the technology.

The court goes through numerous gyrations to find potential trademark liability here. For example, Finance Express has a number of weak descriptive trademarks, but the court circularly uses the fact that Nowcom targeted the trademarks as evidence that the descriptive trademarks had derived secondary meaning. The court also struggles with the Ninth Circuit’s ambiguous caselaw on whether metatags and “keying” constitutes a use in commerce, but the court says that it sees lots of commercial activity on Nowcom’s part, so it must qualify. (Cite to two 2006 cases Edina Realty and Humble Abode–hey judge, there have been just a few use in commerce cases since 2006!). And finally on the likelihood of consumer confusion question, the court uses the initial interest confusion doctrine as a crutch (extensive cites to Brookfield). Overall, this analysis reads more like a ruling from 1999 than 2008. Preliminary injunction for Finance Express.

Unfortunately, I’m not sure how many practical lessons we can learn from this case.

* The domain names. I don’t know many trademark lawyers who would greenlight one competitor’s purchase of domain names containing the trademarks of a competitor, and it’s a little unsettling to see Nowcom use the technique in 2007. Indeed, the court finds the practice completely meritless, concluding “the only purpose Nowcom could have had in registering Finance Express’ domain name was to direct potential consumers of Finance Express’ products to Nowcom’s website.”

* Metatags/Keyword Stuffing. I have argued against including competitive trademarks in keyword metatags on a straight cost-benefit basis because they are relatively ineffectual from an SEO standpoint but courts–like this one–are easily spooked by them and exaggerate their technological power.

* Keying. The court reflects the overall confusion about “keying” in the Ninth Circuit, but the fact that the court doesn’t even understand the difference between banner ads and text ads undercuts this ruling’s credibility.

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