Competitive Pop-up Ads Aren’t Unfair Competition or Tortious Interference–Overstock v. SmartBargains

By Eric Goldman

Overstock.com, Inc. v. SmartBargains, Inc., 2008 UT 55 (Utah Sup. Ct. Aug. 19, 2008)

In light of the death of adware and the fact that almost all of us have moved on, it is jarring to see adware opinions still emerging. This case, percolating in the courts four years, is quite a throwback.

In 2004, Overstock sued SmartBargains for buying adware-delivered pop-up ads that were triggered by user visits to Overstock.com. There have been a lot of keyword advertising cases since then, but this case is unusual because (for reasons not clear to me) Overstock did not make the more typical trademark infringement claim or even the less common trademark dilution claim.

Instead, Overstock asserted three causes of action: (1) violation of the initial Utah Spyware Control Act passed in 2004, (2) unfair competition, and (3) tortious interference with prospective business relations. The Spyware Control Act claim was mooted when the statute was deemed unconstitutional and further mooted when the legislature amended the law, so Overstock did not pursue that claim further. The district court also ruled against Overstock on the other 2, and Overstock appealed to the Utah Supreme Court. [for reasons that aren’t clear to me, this case apparently bypassed the Utah appeals court.]

The Supreme Court had little difficulty disposing of the remaining claims. The pop-up ads didn’t constitute unfair competition (in Utah, an anti-passing off claim) in this case because SmartBargains’ pop-ups appeared in a separate window and displayed the SmartBargains’ logo. The tortious interference claim gets tossed for exactly the right reason–competitive ads are a good thing, not bad. The court says “SmartBargains’ pop-ups indisputably exist to compete with Overstock. Competition is not an improper purpose, even though other byproducts of competition may exist.” Case dismissed.

In one sense, this case isn’t all that important. With respect to lawsuits over competitive online ads, most of the action relates to trademark infringement and particularly what constitutes a trademark use in commerce. But this case is important because it’s fairly typical for plaintiffs in those lawsuits to add a laundry list of additional claims with the hope that something sticks. As this case shows, the laundry list claims are junky and easily disposed of, and a state supreme court ruling to that effect is a nice and useful precedent for defendants.

Even so, I wonder about the political ramifications of this ruling. Overstock’s attitude towards keyword advertising has been erratic. On the one hand, it went to the Utah legislature to protest the Utah Trademark Protection Act because it apparently buys keyword ads on third party trademarks. On the other hand, it supported Utah’s initial Spyware Control Act, it was the first to try to take advantage of the law, and it was willing to pursue this silly lawsuit for over 4 years. In response to this loss, will Overstock flip–just like its Utah Internet retailing peer 1-800 Contacts flipped–and go seek out a friendly and easily persuaded Utah state legislator to give it a tailor-made anti-keyword advertising statute? Stranger things have happened in Utah…

HT: Evan Brown

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