August 26, 2009
Yahoo Subpoenas Expedia in American Airlines Lawsuit
By Eric Goldman
Yahoo and American Airlines are still tussling over Yahoo's sale of American Airlines' trademarks as keyword triggers (see background at 1, 2, 3). According to Yahoo, American Airlines is arguing that online travel agencies such as Expedia are directly infringing American Airlines' trademarks by buying keywords from Yahoo, which would make Yahoo a secondary infringer by facilitating Expedia's direct infringement.
From my perspective, American Airlines' direct infringement argument looks questionable because Expedia and others should be fully protected by the First Sale/trademark exhaustion doctrine for advertising that it sells American Airlines' branded services--just like any other retailer is free to advertise the trademarks of the manufacturers it vends. However, perhaps American Airlines restricts Expedia's advertising by contract and is taking the position that Expedia exceeded the contract and such a contract breach constitutes trademark infringement. American Airlines is also arguing that Yahoo is tortiously interfering with the American Airlines-Expedia contract, so that seems possible. Even then, it's not clear to me that if Expedia exceeds the contract by buying trademarked keywords, the contract breach would qualify as trademark infringement. The analysis should go back to default trademark law, which should excuse Expedia's purchases under the trademark exhaustion doctrine.
ASIDE AND REQUEST FOR HELP: I have done a fair amount of digging trying to find cases that apply the trademark exhaustion doctrine to the legitimate resale of third party services. I have only been able to find the trademark exhaustion doctrine applied to the resale of physical goods/chattels, not the resale of services, but it seems like the doctrine should apply to both. The travel business is a great example. Travel agents routinely advertise to consumers that they resell travel packages that include a flight on, say, American Airlines. I have been struggling to find any cases or other supportive sources indicating that such advertisements by travel agents are protected by trademark exhaustion. Presumably, in some cases, the advertising and resale is expressly permitted by a contract with the upstream service provider (such as in a consolidation contract between the travel agent consolidator and the airline), but I'm sure there are plenty of cases where there is no contract at all. Any tips/referrals/suggestions on cases applying trademark exhaustion to the legitimate resale of services would be very much appreciated. END OF ASIDE
So, American Airlines is pointing the finger at Expedia as the direct infringer. [Even though, conspicuously, American Airlines isn't suing Expedia, for reasons I explore in my Brand Spillovers paper]. Naturally, Yahoo wants to know more about Expedia's possible exposure as a direct infringer so that Yahoo's defense can include disproving the direct infringement. Therefore, Yahoo sent a subpoena to Expedia requesting all kinds of goodies, such as the American Airlines-Expedia contract, consumer conversion rates from sponsored link ads, and other information about consumer behavior on Expedia.
Not surprisingly, Expedia responded "no thanks" to Yahoo's request. I can think of at least three reasons why. First, Expedia would rather not spend any time and money on someone else's lawsuit. Second, some of the information Yahoo is asking for could have significant competitive advantage to Yahoo. Yahoo partially competes with Expedia via its Yahoo Travel service, plus Yahoo's knowledge of the profitability of its referred customers could affect Yahoo's management of the travel category auctions. Third, some evidence could prompt American Airlines to close the litigation circle by suing Expedia directly.
In response to Expedia's nyet, Yahoo is seeking a motion to compel Expedia's response to its subpoena. Typically, these discovery disputes result in a split-the-baby outcome (either via a settlement or ordered by a judge) where Yahoo gets less than it asked but Expedia also forks over some info. We'll see. Meanwhile, Yahoo's effort is consistent with a trend I first spotted in connection with the Rhino Sports case--advertiser behavior regarding keywords has significant value in litigation discovery and for competitive purposes, so I expect to see more subpoenas like this over time.
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