Technology & Marketing Law Blog

June 29, 2009

Sixth Lawsuit Filed Over Google AdWords, Plus an Assault on Google's Organic Search Results--Ascentive v. Google

By Eric Goldman

Ascentive, LLC v. Google, Inc., 2:09-cv-02871-JS (E.D. Pa. complaint filed June 25, 2009)

Guess who got sued again? Google now has 6 pending lawsuits challenging its AdWords service. The previous five are:

* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google
* Stratton Faxon v. Google (this wasn't a trademark case last I checked)
* Soaring Helmet v. Bill Me

The latest lawsuit has a different spin than the others. Ascentive makes software that it claims will improve the speed of its users' computers and combat spyware. Earlier this year, Ascentive had a run-in with StopBadware, which initially labeled Ascentive as a scamware-like offering that hyped the threats on users' computers to induce them to pay to upgrade their Ascentive software. (See the initial StopBadware alerts 1, 2). StopBadware has since reached a compromise with Ascentive and repealed its warning, a move that appears to have been fairly unpopular in some segments of the security community. (This post gives a sense of the sentiments towards Ascentive and StopBadware).

Around the same time, the Ascentive-Google relationship deteriorated, which Ascentive speculated was due to StopBadware's classification (Google's correspondence just cryptically cited "multiple policy disapprovals"). After Ascentive had spent over $645k as an AdWords customer in 2008, Google kicked Ascentive out of the AdWords program. A week later, Google completely dropped Ascentive's website from its search index. As a result, Ascentive was frozen out of both Google's organic search results and sponsored links, and not surprisingly, Ascentive suffered a "severe drop in online sales" from this double-whammy. Ascentive's entreaties to Google were rebuffed.

Ascentive makes two broad legal attacks on Google. First, as has become typical, Ascentive alleges that Google commits trademark infringement and related torts by selling competitive ads keyed to its trademark and by suggesting that advertisers buy Ascentive's trademarks in Google's keyword suggestion tool. Among other specific issues, Ascentive complains that Google didn't respond to its trademark appearing as a third-level domain in a competitor's ad copy or the inclusion of "Finally Fast" in ad copy (Ascentive's applicable trademark is "FinallyFast.com"). Overall, these complaints don't break much new ground compared to prior allegations against Google's AdWords program.

Second, Ascentive alleges a variety of legal violations because Google kicked Ascentive out of its organic search results index. This is a bit like KinderStart redux. The allegation that really caught my attention starts in Para. 83, which reads "Google's refusal to list Ascentive's website in its natural search result listings violates the Lanham Act" as a false designation of origin. Whoa! The complaint doesn't explain this allegation thoroughly, but the theory seems to be that consumers expect to see the trademark owner in organic search results for the trademark and therefore consumers will be actionably confused if the trademark owner doesn't appear there.

Framed that way, of course we know such a claim is DOA. Indeed, as exciting as it would be to see some meaty discussion on the topic of Google's liability (or lack thereof) for deciding who gets into its search index, I'm guessing Google will beat this prong of the complaint quickly and completely. One way Google could get there is through 47 USC 230(c)(2) (which I just blogged about last week), which completely protects Google's ranking decisions as a subspecies of filtering choices generally. However, to get there, a court will have to conclude that a false designation of origin claim isn't an "IP claim" which is excluded from 230's coverage. If it doesn't want to reach that doctrinal issue, the court has a wide smörgåsbord of other doctrinal choices to squash this claim.

Posted by Eric at 07:32 AM | Derivative Liability , Search Engines , Trademark | TrackBack

June 17, 2009

Twitter, Email and Brand Engagement

By Eric Goldman

Last week, in an interview with a reporter, I extolled the virtues of Twitter as a tool for brands to keep in touch with and engage their customers. The reporter responded by asking why brands would choose Twitter to engage customers instead of email, which companies have been using successfully for many years. I thought this question raised important issues about online marketing, so I thought it would be worth exploring the differences here.

Let's start with some basics. I am a big fan of email marketing. Like many of you, I have voluntarily signed up for numerous commercial email newsletters/announcement. I also get unrequested email from companies I've dealt with; I look at some of these, I ignore others, and occasionally I get so fed up that I blacklist the sender or report it as spam. I also get spam, LOTS of spam, but it doesn't bother me too much. Gmail has a good spam filter and it only takes a minute or two a day to sort, review and delete the spam.

However, as a recipient, email has some downsides. Most obviously, it is not always easy to unsubscribe. I remain amazed in this post-CAN-SPAM era by how often email unsubscriptions don't work. The link may be down, or my opt-out simply doesn't stick technologically, or the sender just ignores me. This is true even for senders who are involved in the legal industry and are spamming lawyers who love to bring lawsuits (never a wise move). If I were a litigious plaintiff, I would have no problem finding plenty of defendants.

Email also has the downside that the sender has my email address and may share it with others who are going to clutter up my in-box. With a good spam filter, this extra unwanted email isn't a huge problem, but the mere threat of subsequent email deluges can give me pause about whether or not I trust a website enough to give them my email address. (As you can appreciate, the website's privacy policy is a complete non-factor in my trust determination).

From the sender's standpoint, email is a huge pain. It is more heavily regulated than other marketing media, and complying with the regulations (such as providing a reliable opt-out mechanism) is costly and filled with litigation risks. Perhaps more importantly, email can be reported or killed as spam at several steps along the way, and the sender can be tagged as a spammer as well for all future messages. So, for example, a big website's email distribution of an announcement about a new user agreement or privacy policy--a completely legitimate communication between a site and its users--is almost certain to prompt a flurry of unsubscribes, emails from users who insist to their IAPs and email service providers that they are being spammed (even though they often just forgot about the relationship), and lots of bouncebacks from dead email addresses that may cause some IAPs/email service providers to blacklist the sender as a spammer. Plus, a bunch of users will never see the message at all because it goes into their spam folder. (Recall, for example, that AT&T spam-foldered its own contract amendment announcement). These are not exactly the hallmarks of an effective communication technology.

Contrast the user experience with Twitter. More than anything, Twitter is a no-risk opt-in communication tool for consumers to listen to marketers. I can follow a brand at Twitter any time, and more importantly, I can unfollow at any time too. Plus, there isn't any risk that the brand I'm following will ignore my unsubscribes or pass along my Twitter username to spammers. When I unfollow, the relationship is completely over on my terms.

From the brand's standpoint, Twitter has none of the baggage of email marketing. No spam folders to fear, no unsubscribes to manage, no CAN-SPAM. Sure, Twitter's tight character restriction mostly limits marketers to headlines, but frankly this isn't all that different from maximizing email subject lines to get email recipients to open the email.

Twitter has one other really important benefit for brands. Folks are often willing to retweet a message--even a commercial message--thereby sharing it to their entire follower base in ways that these same folks would never forward a commercial email to hundreds of their friends. And this type of word-of-mouth marketing is the holy grail of marketing because of the extra imprimatur of having the message validated by someone in the reader's social network. The retweeting phenomenon is a powerful traffic driver (I've been watching how it boosts my bit.ly stats), and marketers who aren't on Twitter are missing some upside. (Please, marketers, don't even consider shilling or astroturfing or any of those other silly stunts to generate faux word-of-mouth marketing; if you have a good offering, you really don't need to disrespect people that way).

I don't follow many commercial brands in Twitter, but I do want to mention three brands that have impressed me:

@LivingHarvest. I tried hempmilk for the first time recently, and I was fascinated to learn about the extensive anti-industrial hemp regulations that have hampered hempmilk from coming to market. LivingHarvest, a hempmilk manufacturer, is Twittering the status of various legislative efforts to enable industrial hemp farming. It's a fascinating political drama.

@UnitedAirlines. I am a frequent flyer on United Airlines, so I'm already on their email list. But they have totally gotten the point of Twitter. Not only have they been offering valuable freebies to their Twitter follower to boost their subscriber count (they are giving away discount certificates if you sign up before they hit 50,000 followers), but they also offer "Twares," blowout deals on remnant inventory. LOVE IT!

@AmazonMP3. Amazon offers one highly discounted MP3 download a day, and this Twitter account notifies me of the deal of the day. Great stuff. I've lost track of the number of times I've purchased albums this way.

Twitter practices like these build my trust as a loyal customer and pull cash out of my wallet in ways email marketing never did.

One final point: RSS offers many of the same benefits as Twitter in terms of reader empowerment, although it does not have the same retweeting upside. In particular, RSS is a true opt-in like Twitter. The website doesn't get my email address, and whenever I unsubscribe from the RSS feed in my RSS reader, it's over.

For example, as I recently mentioned, RSS is a great option for websites to allow users to learn about changes to user agreements and privacy policies on a true opt-in basis. In this respect, RSS is so much better than email. Consider, for example, DoubleClick's privacy policy, which offers users the opportunity to learn about privacy policy amendments by signing up to an email list. (DoubleClick will rarely have the email address already because it doesn't have direct privity with users). DoubleClick's option is a more enlightened practice than most similar web services, but still, no thanks. If I don't trust DoubleClick's privacy practices to begin with, I'm not going to give them my email address with the risk that they will spam the crap out of it and pass it along to others who will spam the crap out of it too. Of course DoubleClick promises not to do this, but the whole point is that those promises mean nothing to the people who don't trust DoubleClick to begin with. On the other hand, if DoubleClick offered an RSS feed to announce modifications to its privacy policy, then I could subscribe to its notifications with no spam risk at all.

I'm so enamored with RSS as a superior notification tool for announcing privacy policy and user agreement amendments that I will be recommending it to all of my clients as a supplement to other notification options. I hope you'll consider doing the same.

Posted by Eric at 07:03 AM | Marketing , Spam , Trademark | TrackBack

June 11, 2009

Google Sued Again for Trademark Infringement--Soaring Helmet v. Leatherup.com

By Eric Goldman

Soaring Helmet Corp. v. Bill Me Inc., 2:2009cv00789 (W.D. Wash. complaint filed June 9, 2009). The Justia page.

It's clearly open season on trademark infringement lawsuits against Google. The latest is a lawsuit by Soaring Helmet, manufacturers of "Vega" helmets. This case is similar to the recent Hearts on Fire v. Blue Nile case in that the manufacturer (Hearts on Fire/Soaring Helmet) complained that a retailer (Blue Nile/Leatherup.com) purchased the manufacturer's trademark and said/implied in its ad copy that it sold the manufacturer's goods even though it allegedly didn't carry the manufacturer's goods at all.

The main difference between this lawsuit and the Hearts on Fire lawsuit is that the manufacturer also dragged Google into the lawsuit--even though Google treated Soaring Helmet's initial cease-and-desist letter as a trademark opt-out and blocked subsequent references to Vega in Leatherup.com's ad copy. Thus, unless Soaring Helmet seeks to reach back to the ads displayed before its C&D, it appears Soaring Helmet is trying to hold both Google and Leatherup.com liability simply for showing ads triggered by Soaring Helmet's "Vega" trademark.

For those of you keeping score, this is the fourth time in a month that trademark owners have sued Google over its AdWords programs. The other three are:

* FPX v. Google
* John Beck Amazing Profits v. Google
* Stratton Faxon v. Google (this wasn't a trademark case last I checked)

A fifth pending AdWords trademark lawsuit is the Rescuecom case. I'm not aware of any others pending beyond these 5, but surely this action is making Google's outside counsel smile.

I note that the John Beck lawsuit is a putative class action covering all US trademark owners. I wonder if Google could consolidate this case with that...?

Posted by Eric at 07:16 AM | Derivative Liability , Search Engines , Trademark | TrackBack

June 08, 2009

May 2009 Quick Links Part 1

By Eric Goldman

Just a reminder that I'm posting some quick links exclusively to my Twitter account.

Trademarks

* Texas International Property Associates v. Hoerbiger Holding AG, 2009 U.S. Dist. LEXIS 40409 (N.D. Tex. May 12, 2009). Domainer loses ACPA claim over typosquatted domain name. The PPC advertising constituted bad faith intent to profit. Ryan Gile recaps the action.

* GunBroker.com LLC v. Heckler & Koch Inc., No. 09-cv-00051 (M.D. Ga. complaint filed May 14, 2009). Interesting lawsuit by an online auction site for guns seeking a declaratory relief action against a trademark owner who deployed an enforcement agency, Continental Enterprises, to send a driftnet takedown letter that apparently targeted used gun resales or compatible goods. Ryan Gile has more.

* Miranda v. Guerroro, 2009 WL 1381250 (S.D. Fla. May 14, 2009). Miranda is “Paola Morena,” a Latin singer. Her former manager convinced her to do some nude photo shoots in an effort to get a Playboy gig. The Playboy gig didn't materialize, and the manager stopped representing Miranda/Morena. After Morena's career took off, the manager then allegedly threatened to publicly post the photos unless she paid him $70k. Morena rebuffed the request, so the manager allegedly followed through with his threats by launching a website paolamorena.com [I got a nasty Google malware warning when I tried to visit the site], calling it her “official” site and posting some of the photos. The court enjoined the manager under trademark law. I'm a little confused how Morena had protectable trademark rights in her name. Did she make any use in commerce in the United States? Did her name achieve secondary meaning? This could be another case where trademark law is being stretched to stop bad behavior.

* Eric Menhart, the self-purported owner of a trademark in the term Cyberlaw, has gotten his very own personal gripe site.

Advertising and Marketing

* How much can Behavioral Targeting Help Online Advertising? HT Greg Linden

* Yingling v. eBay, 5:2009cv01733 (N.D. Cal. complaint filed April 21, 2009). A class action lawsuit alleging that eBay Motors overcharged merchants.

* IAB has issued its Click Measurement Guidelines designed to answer the Q “What is a Click?” See if their 28 page report actually answers the Q.

* A confusingly written LA Times article reports that 4 South Korean dissident bloggers are being criminally prosecuted for artificially inflating impression counts in order to game rankings of most popular pages.

* Perennially funny: unfortunate product names.

Copyright

* Solicitor General recommends against granting cert in Cartoon Network v. CSC.

* AV v. iParadigms, April 16, 2009. The Fourth Circuit says that the Turnitin system is fair use. My initial blog post on the district court ruling.

Security

* News.com: Interview with FBI cybercrime agent working undercover.

* Oddee: problematic CAPTCHAs. Funny.

Google

* Everyone wants to talk about whether Google is a monopolist
- In early May, I heard Susan Athey, Microsoft's Chief Economist, give a lunchtime attack speech on Google at a George Mason event
- Google is circulating a document explaining why it's good for competition
- Google is blanketing DC with lobbyists too.
- And Google says it's actually small potatoes.
- Wired: Will Wolfram Alpha forestall antitrust inquiry into Google? As I've argued before, we continue to see new entrants into the search business all the time—it’s just too big a market to ignore.
- NYT weighs in too. And the Washington Post discusses how Microsoft and others are complaining about how many Google folks are going into the Obama administration.

* Danny Sullivan: State Of Search: Google Will Stay Strong Despite Bing & Yahoo

* Wired: Secret of Googlenomics: Data-Fueled Recipe Brews Profitability

Posted by Eric at 04:03 PM | Copyright , Derivative Liability , E-Commerce , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Trademark | TrackBack

June 03, 2009

An Insider's Look at Utah's Failed HB 450

By Eric Goldman

Perry Clegg is a Utah IP attorney and the 2009 chair of the Utah State Bar's Cyberlaw Section. A few months ago, he wrote an article entitled "Insight on Utah Senate's Sedation of HB 450," which provides his assessment of why HB 450--Utah's latest legislative attack on online advertising--failed to pass the Utah Senate this year.

The article implies that HB 450 failed in part due to in-fighting among various influential folks in Utah, perhaps caused by some bruised feelings/egos. With slicker and more inclusive politicking in the future, these influencers are poised to rally behind a similar future regulation.

As a result, the article provides some support for why I think Utah will attack online advertising a fourth time. Indeed, the article quotes a third party as saying that "the bill’s opponents should either propose a compromise solution or expect some form of this bill to pass next year. Senate leadership apparently believed that there were not enough votes to pass it this year, but that they could gather the votes to pass it by next year."

What I find most amazing is that there appears to be broad insider consensus that some type of Utah regulation of online advertising makes sense. As the article says, "the Utah legislature is generally behind HB 450’s policy but want to make sure they do their homework so the policy is implemented using the right language." In most other places around in the country, most policy-makers recognize the illogic and futility of trying to reshape global online advertising to meet state specifications. The pro-regulatory Utahns seem to see the world differently, and many of us who don't live in Utah simply cannot understand why the Utah legislature keeps picking a fight that it's almost certain to lose in the courts, even if legislation passes. I have no rational explanation for this.

In any case, I will be closely watching the Utah legislature in February 2010 to see what shenanigans they might be trying anew.

Posted by Eric at 02:35 PM | Marketing , Search Engines , Trademark | TrackBack

May 29, 2009

Another Lawsuit Over Google AdWords--Stratton Faxon v. Google

By Eric Goldman

Stratton Faxon v. Google, Inc. (New Haven Superior Ct. complaint filed May 27, 2009)

Today's lawsuit combines two trends:

Trend #1: Lawyers-as-plaintiffs suing Google for their own account. I don’t have a complete inventory of these lawsuits, but other examples include the Field, Feldman, Person and Bradley lawsuits. Ironically, I believe all of these lawsuits were shot down in inglorious flames--lawyers-as-plaintiffs often seem to do even worse than other plaintiffs.

Trend #2: Lawsuits over Google AdWords, Heck, two were filed earlier this month (the Firepond and John Beck lawsuits).

This lawsuit is brought by a Connecticut plaintiff-side law firm that discovered a rival law firm was keying AdWords ads to the law firm name. Trademark owners faced with this situation might normally contact the rival and ask them to stop (which the rival firm claims to have done as soon as it heard of the lawsuit) and take advantage of Google's trademark policy. But, if you're a plaintiff's lawyer, it sure is tempting to sue first and ask questions later…

And this lawsuit does raise a lot of questions, including:

* why didn't the plaintiff sue for trademark infringement? The plaintiff claimed interference with business relations and unfair competition, but both claims fundamentally sound in trademark law and would be preempted if there was a robust trademark preemption doctrine. Perhaps a trademark claim is coming.

* why didn't the plaintiff sue the advertiser instead of Google? Among other things, the plaintiff complains that its rival firm is mimicking other offline marketing efforts. If the problem is with the rival firm, wouldn't they be the more appropriate target?

* why did the plaintiff seek a prejudgment $50,000 lien against Google instead of just filing a complaint? Maybe Connecticut law has some quirks that encourage or require this procedural step. Otherwise, is the firm concerned that Google won't have $50,000 to pay off the plaintiff if it wins?

* did the plaintiff really just discover that its competitors are advertising on its name? The plaintiff was quoted as saying that the Firepond lawsuit prompted him to check the search results for the first time. What is this, 2002?

All of these questions make me wonder if this lawsuit is really intended to get some publicity and maybe prompt some calls from potential plaintiffs to form a new class action suit. Otherwise, Connecticut law may differ from California law, but under CA law this lawsuit would almost certainly be DOA. For example, even without relying on 47 USC 230, under CA law I don't see any possibility that the plaintiff could establish the requisite scienter to make the interference with business relations claim stick. For a good analogous example of a failed misdirected attempt to smack a search engine for unwanted advertising, see the Heartbrand Beef case, where Yahoo was excused (without relying on 230) from a false designation of origin claim for selling trademarked keywords.

Stated differently, lawsuits like this--from lawyers who are clearly new to our community--simultaneously make me feel really smart and really stupid. Their allegations are so unmoored from our normal legal discussions that either the lawyers know something I don't, or they have no idea what they are doing. I'll let you to form your own conclusion about this lawsuit.

Clearly, this lawsuit isn't a clone of the Firepond lawsuit, but I think it's fairly characterized as a spawn of it in that the Firepond lawsuit helped educate another plaintiff lawyer about the desirability of suing Google. I expect other plaintiffs’ lawyers are getting the same message as we speak.

In theory, if the plaintiff firm really wanted to tweak its rival, it might also complain to the bar regulators about impermissible advertising under rules about lawyer advertising. This prompted me to wonder: have any bar association opinions on the permissibility of buying trademarked search keywords? I am not aware of any, but I may be forgetting something. Please let me know if you've seen such an opinion.

Posted by Eric at 10:15 AM | Marketing , Search Engines , Trademark | TrackBack

May 28, 2009

Contributory Cybersquatting and the Impending Demise of Domain Name Proxy Services?--Solid Host v. NameCheap

By Eric Goldman

Solid Host, NL v. NameCheap, Inc., 2:08-cv-05414-MMM-E (C.D. Cal. May 19, 2009)

Facts

This case involves an alleged domain name theft. Solid Host is a web host and initial owner of the domain name solidhost.com, which it registered through eNom in 2004. Solid Host claims that in 2008, a security breach at eNom allowed an unknown interloper (Doe) to steal the domain name and move the registration to NameCheap. Doe also acquired NameCheap's "WhoisGuard" service, a domain name proxy service that masked Doe's contact information in the Whois database. Solid Host contacted Doe and sought the domain name; Doe asked for $12,000, and Solid Host took a pass. Instead, Solid Host demanded that NameCheap hand back the domain name and identify Doe, but Doe claimed that he had bought the domain name legitimately. NameCheap, apparently feeling like the cheese in a sandwich, demurred to Solid Host's requests. Solid Host then got a TRO ordering NameCheap to transfer the name and reveal Doe's identity, both of which occurred. For unclear reasons, Solid Host hasn't amended the complaint to name the Doe, but it is proceeding against NameCheap on various claims, including an Anti-Cybersquatting Consumer Protection Act (ACPA) claim.

The Opinion

Who is the Registrant?

My understanding of domain name proxy services is that the service acts as the legal registrant, thus supplying its contact information, but it registers the domain name for the benefit of its customer, making the customer the beneficial registrant. An analogy: a bank may take legal title of a property as part of securing a loan on the property, but the borrower retains beneficial title to the property.

So, for purposes of the ACPA, is the proxy service the “registrant” of the domain name? ICANN’s agreement with registrars seemingly contemplates this characterization in Section 3.7.7.3 of its Registrar Agreement, which says “A Registered Name Holder licensing use of a Registered Name according to this provision shall accept liability for harm caused by wrongful use of the Registered Name, unless it promptly discloses the identity of the licensee to a party providing the Registered Name Holder reasonable evidence of actionable harm.” However, it’s not clear to me that a proxy service “licenses” the domain name, especially if you accept my lender-borrower analogy above. Alternatively, if the proxy service is the “agent” of the customer, the licensing analogy also breaks down.

Whether the proxy service is the registrant matters a great deal to the legal outcome, and unfortunately, the court’s analysis of this important question was cursory, muddled, and possibly internally inconsistent.

In this case, the court’s inquiry is made more difficult by the fact that NameCheap acted as both the registrar and the proxy service provider. As a registrar, an ACPA claim against NameCheap should be squarely preempted by the domain name registry/registrar safe harbor enacted as part of the ACPA (15 U.S.C. §1114(2)(D)). For example, 1114(2)(D)(iii) says:

A domain name registrar, a domain name registry, or other domain name registration authority shall not be liable for damages under this section for the registration or maintenance of a domain name for another absent a showing of bad faith intent to profit from such registration or maintenance of the domain name

(This provision only moots damages, not an injunction, but since Solid Host has the domain name back in its possession, damages seem like the only remaining issue).

The court concludes that NameCheap is not eligible for the domain name registrar safe harbor because NameCheap is the domain name registrant. It says, "NameCheap is, by virtue of the anonymity service it provides, the registrant of a domain name that allegedly infringes Sold [sic] Host’s trademark." Thus, NameCheap is ineligible for the registrar safe harbor, which applies only when the registrar acts as a registrar.

But, having rejected the domain name registrar safe harbor because NameCheap was the domain name registrant, the court then inconsistently says that NameCheap is not the registrant for purposes of the prima facie ACPA claim. Instead, for ACPA purposes the court treats Doe as the registrant, leaving NameCheap exposed to a possible secondary ACPA liability claim. (The court acknowledges that NameCheap would defeat a direct ACPA claim because NameCheap did not have any bad faith intent to profit from the domain name. Offering the proxy service wasn't enough to qualify as a bad faith intent to profit).

Wait a minute—how can NameCheap simultaneously be both the registrant (no safe harbor) but not the registrant (thus, subjected to a secondary claim)? The court does not acknowledge or explain this apparent inconsistency.

Contributory Cybersquatting

Courts have rarely discussed a contributory ACPA claim. The only one cited by the court was a 2001 case (the Ford Motors vs. Greatdomains.com case) and I can’t think of any others. Perhaps this isn’t surprising because (1) as the Greatdomains.com case indicated, a contributory ACPA claim is available "in only exceptional circumstances," and (2) registrars are the most likely targets of a contributory ACPA claim, and the domain name registrar safe harbor effectively eliminates their contributory ACPA liability.

Adopting the analysis in the Greatdomains.com case, this court equates contributory ACPA liability with the Ninth Circuit’s 1999 Lockheed standard for online contributory trademark infringement (as opposed to ACPA liability), which requires that "a plaintiff must prove that the defendant had knowledge and ‘[d]irect control and monitoring of the instrumentality used by the third party to infringe the plaintiff’s mark.'"

So how did NameCheap have the requisite control over Doe's instrumentalities? Good question. The court tosses out this gem: NameCheap was "the “cyber-landlord” of the internet real estate stolen by Doe." WHAT??? The court continues:

NameCheap’s anonymity service was central to Doe’s cybersquatting scheme. If NameCheap had returned the domain name to Solid Host, Doe’s illegal activity would have ceased.

The second sentence is true with respect to NameCheap, but it is also true of every registrar for every domain name they register--and we know from the 1999 Lockheed case that registrars lack control over the instrumentalities of their registrants. So the proxy service seems to make a legal difference, but how does the proxy service evidence NameCheap's greater control over the registrant's instrumentalities? I think something is amiss here.

To complete the prima facie contributory ACPA claim, in addition to control, Solid Host must show that NameCheap has the requisite knowledge of Doe's ACPA violation. The court sets a high scienter bar--mere notice from an aggrieved party isn't enough--but the court conclusorily says that the complaint alleged enough knowledge to survive the motion to dismiss.

Why This is a Troubling Ruling

As I trust is clear, I think the court's analysis is questionable at best. I’m also troubled about the normative implications. Most obviously, this case could portend the demise of domain name proxy services. Read literally, every proxy service is exposed to potential contributory ACPA liability for every domain name it services. I can’t imagine proxy service providers will be excited about that liability exposure, and some may choose to exit the business.

If proxy services evaporate, domain name registrants will have a tougher time maintaining their privacy. This could affect at least two groups. First, businesses seeking to register domain names for unlaunched new brands often want to procure the new brand's domain names without publicly announcing their intentions through the Whois database. (Of course, some businesses register such domain name through agents or shell companies, but at a much greater expense than a proxy service). Second, gripers, whistleblowers, critics and others may want to use proxy services to make it harder for their targets to unmask their identities. This ruling jeopardizes the potential privacy options available to both groups.

I’m also troubled by this ruling’s narrow reading of the domain name registrar safe harbors. There haven’t been many cases interpreting those safe harbors, and this case might influence other courts to read them narrowly.

A Mini-Trend of Lawsuits Against Registrars

I’ve noticed a small but troubling increase in lawsuits against domain name registrars in the past few months. In addition to this case, see the Vulcan Golf v. Google lawsuit (which named some registrars as defendants), OnlineNIC cases, Philbrick v. eNom and uBid v. GoDaddy. Personally, I believe this litigation trend mirrors the expansion of new and legally untested non-registration services offered by registrars. I explored this issue with Elliot Noss of Tucows in the most recent installment of TWiL (worth listening to, IMO). Discussing the uBid lawsuit, Elliott explained how registrars monetize dropped domain names before being returned to the available pool of unregistered domain names. The delay is putatively for the benefit of customers who mistakenly let a registration lapse; but this also has the happy (?) by-product of letting registrars create new ad inventory that they are monetizing.

In the past, a lot of the legal attention regarding domain names has focused on trademark owners vs. registrants. From my perspective, those lawsuits are becoming passé. The real litigation growth industry appears to be trademark owner vs. registrar lawsuits over new registrar service offerings that trademark owners don't like. Rulings like this one, with a broad reading of contributory ACPA liability and a narrow reading of the domain name registrar safe harbor, raise the specter that registrars may find more legal trouble than they anticipated.

UPDATE: Commentary from Domain Name News

UPDATE 2: A call for registrars to exit the domain name proxy business.

Posted by Eric at 03:27 PM | Derivative Liability , Domain Names , Privacy/Security , Trademark | TrackBack

May 20, 2009

EFF's Guide to Griping, Plus Some Recommendations of My Own

By Eric Goldman

The EFF has posted "Avoiding Gripes About Your Gripe (or Parody) Site," which includes 6 prophylactic recommendations to prospective gripers:

1) Be noncommercial — no ads, no links to commercial sites, no affiliate links, no Café Press T-shirt sales, no fundraising if you can help it.

2) Don't use the target's name alone in the domain name — adding "sucks" is good, but you can be creative.

3) Have a prominent disclaimer that explains that your target is neither affiliated with nor endorses your site.

4) Find a service provider with backbone.

5) If you borrow from the target's own materials, such as text or images from the target's own websites, be selective.

6) If a mark-owner challenges your use of a mark in a domain name, don't offer to sell it to the mark-owner without the assistance of legal counsel.

All excellent advice. I'd like to add a few suggestions of my own (all standard disclaimers apply--this is not legal advice, and you should consult your own attorney):

7) I would modify #1 to say don't have any outlinks from your gripe site, period. Courts sometimes engage in bizarre link-counting exercises to determine commerciality, including in some cases considering sites two or more links away. Keep it simple and skip outlinks altogether if you can.

8) I would modify #5 to recommend against using the target's logo at all unless it is absolutely essential to the gripe. Otherwise, courts can get hung up on the logo display even when if other aspects of a trademark claim are weak. See, e.g., BidZirk v. Smith and SMJ v. Lafayette Restaurants.

9) I would also modify #5 to say that if you recycle any graphics or photos from the target, consider presenting them as a thumbnail (with a link to the original source if necessary) rather than presenting them full-size. The thumbnail sizing may help with a fair use defense.

10) Never EVER include the target's trademarks in the site's keyword metatags. Some courts lose all sense of perspective the moment they see a trademark in the keyword metatag. Plus, the keyword metatag offers very little or no SEO benefit, and there are much more effective ways to spread the word about your site. It should be OK to include the trademark in the description metatag if the site description clearly communicates the griping nature of the website, but even then, be careful. Courts don't know how to evaluate description metatags either.

11) Think carefully before buying the target's trademark as a keyword for sponsored ads to promote your gripe site, Some courts are suspicious of keyword advertising and may unduly fixate on the ad triggering and not the underlying message.

12) Make sure every fact you say is 100% accurate and everything else is couched as your opinion. Plaintiffs will carefully read every word on your site text looking for anything that they can argue is inaccurate.

Posted by Eric at 11:13 AM | Copyright , Domain Names , Marketing , Trademark | TrackBack

May 15, 2009

Google Liberalizes US Trademark Policy: "What, Me Worry?" Part 2

By Eric Goldman

In my Deregulating Relevancy article from a few years ago, I explained how trademark law was having pernicious consequences for online conversations. Among other unwanted effects, trademark law hinders online discussions about trademarks even when both conversationalists found the discussion relevant.

I don't think things have gotten better since I wrote the article in 2005. Perhaps we have a better understanding of trademark law's capacity for harm, but we continue to see misguided lawsuits from trademark owners and mixed results from judges.

While the courts do not automatically support online trademark-mediated discourse, the bigger practical threat to online trademark law comes from extrajudicial privately enforced trademark policies, such as the search engines' "voluntarily" adopted trademark policies. These policies minimize search engines' exposure to trademark liability for their ad sales, but they effectively resolve a huge percentage of trademark owners' "problems," almost always in the trademark owner's favor, without any judicial oversight at all.

Thus, I was delighted to see Google's announcement that it was liberalizing its trademark policy to allow a group of "special" advertisers to reference third party trademarks in the advertisers' ad copy, even if the trademark owner objects. See Google's official announcement. The "special advertisers" includes resellers, review sites, and sellers of compatible/complementary/replacement products.

In practice, this means that these advertisers and consumers can now use the same trademark to speak with each other. In contrast, today, the advertiser can purchase the trademark as the triggering keyword but can't use the trademark to explain why the consumer was seeing the ad. Personally, I had always thought the "blind" nature of the ad copy had the potential to confuse consumers, and Google has taken a big step forward in solving that apparent problem.

Having said that, I wish Google had gone further. There are two obvious groups of advertisers who should be able to reference the trademark in the ad copy but still will not be able to do so: (1) competitors making comparative claims, and (2) gripers who wish to complain about a trademark owner's practices. These two advertiser groups can still buy third party trademarks, but they will still be forced to speak in code in the ad copy to explain why they did so. Nevertheless, we shouldn't let these omissions detract from what is otherwise very good news from Google.

While I think the policy change is good news, I don't expect trademark owners will agree. Trademark owners already are wary of Google due to the widespread perception that Google's trademark policy is less trademark owner friendly than Microsoft or Yahoo. (Google will not disable a trademark as a keyword at the trademark owner's request; while Yahoo and Microsoft will do so in many circumstances). Google's move could antagonize trademark owners further.

Should the battle move into the courtroom, I think Google's move is legally defensible on two fronts: (1) The group of special advertisers generally should be protected by the nominative use doctrine, and (2) to the extent the ads are no longer "blind," there may be less consumer confusion about the ads than there has been in the past.

Even so, I expect trademark owners to be even more aggressive about suing Google. First, some trademark owners will bring trademark lawsuits to control their online channels (see, e.g., the Mary Kay case and the many cases I cite therein), so special advertisers like resellers are an irresistible target for trademark owners trying to reduce competition among their retailers. Second, the Rescuecom decision eliminated Google's ace-in-the-hole to eliminate trademark lawsuits early, so trademark owners may feel like their odds of success have gone up.

Indeed, in what I think is a completely unrelated move, this week a group of plaintiffs' lawyers initiated two class action trademark lawsuits against Google (1, 2). I would not be surprised to see other trademark owners decide they've had it with Google. I could also see trademark owners deciding to push legislative solutions, especially in Google-hating Utah. (Although, some of the special advertiser groups in Google's new policy would not have been able to take advantage of Utah HB 450, Utah's most recent foray in disrupting the online advertising business). It could take years for all of the legal shenanigans to shake out.

I think the biggest question is why Google is making this change now. After all, Google has not had any good news recently on the trademark front. If anything, the Rescuecom decision might have counseled Google to become more restrictive. not less. Further, it's clear from the Firepond lawsuits that trademark owners aren't afraid to sue Google over Google's multi-billion-dollar cash cow. And, although Google is now in line with Microsoft and Yahoo's policies with respect to their trademark policies as applied to the special advertiser groups, none of those voluntary trademark policies are successfully battle tested in court; Google has no precedent to confirm that it will win in court if challenged. Collectively, it's not like a cloud of doubt about the trademark law implications of Google's policy changes has magically lifted.

Indeed, the timing is interesting given last week's announcement that Google was liberalizing its trademark policies for 190 countries. On the surface, it looks like the two liberalized policy announcements may be connected because both could have the same effect of increasing Google's ad revenues. In other words, perhaps Google is feeling the effects of the market downturn and looking for easy sources of new revenues, and what is easier than taking cash from customers who are already asking to buy ads but Google is voluntarily refusing?

Personally, I don't think this is a cash grab by Google. If nothing else, if the policy change also leads to an increase in expensive lawsuits, the change may not be cash-flow positive for Google any time soon. (Though it should be immediately cash-flow positive for Google's outside trademark counsel!) Instead, I'm willing to accept Google's argument that the policy change is actually about allowing advertisers and consumers to speak the same language, which simultaneously improves the consumer experience and should lead to better ad performance for advertisers. And, in my opinion, that's exactly what trademark law should be about.

Other comments on this policy change:
* Danny Sullivan at Search Engine Land
* News.com (1, 2)
* Wendy Davis
* Miguel Helft at NYT
* Reuters
* Sherwin Siy

Posted by Eric at 03:56 PM | Search Engines , Trademark | TrackBack

Firepond "Copycat" Lawsuit Filed Against Google--John Beck Amazing Profits v. Google

By Eric Goldman

John Beck Amazing Profits, LLC v. Google Inc. 2:2009cv00151 (E.D. Tex. complaint filed May 14, 2009). The Justia page.

Earlier this week, a group of lawyers filed a class action lawsuit against Google and its distribution partners (FPX v. Google) alleging that Google's AdWords infringed the rights of Texas trademark owners. The same group of lawyers has now filed a second putative class action lawsuit against Google in the Eastern District of Texas.

I didn't do a word-for-word comparison, but two main differences were obvious. First, a smaller number of Google's distribution partners are targeted. Second, and more importantly, this complaint alleges a class comprised of all US trademark owners, instead of restricting the class just to Texas.

I don't fully understand why the same group of class action lawyers would file two separate class action complaints covering the same basic defendants and issues, but it's not the first time we've seen this tactic (the advertisers suing Yahoo over "syndication fraud" pulled the same stunt). I suspect it has something to do with trying to ensure lead dog position if/when a judge consolidates multiple copycat lawsuits from other plaintiffs' lawyers.

In any case, this lawsuit covering all US trademark owners now squarely offers Google the option to resolve and clean up any past trademark liability for past AdWord sales should it choose to accept this battle. In light of Google's liberalized AdWords trademark policy announced last night (which I'll blog shortly), it doesn't seem like Google is looking for an easy way out.

Posted by Eric at 07:21 AM | Search Engines , Trademark | TrackBack

May 11, 2009

Google Hit With Major Class Action Trademark Lawsuit Over Trademarked Keyword Ad Sales--FPX v. Google

By Eric Goldman

FPX, LLC v. Google, Inc., 2:2009cv00142 (E.D. Tex. complaint filed May 11, 2009)

In retrospect, it seems so obvious. Why were the lawyers for these chickenscratch plaintiffs (Rescuecom? Check 'n' Go?) suing Google over trademarked keyword ad sales on behalf of just one aggrieved trademark owner client when they could sue Google on behalf of thousands of trademark owners? GOBOGH! (Go big or go home). After all, even if Rescuecom wins an injunction on its own behalf, Google will just excise Rescuecom from the database without any real change, so Rescuecom's leverage over Google isn't huge. But if a plaintiff's lawyer could win an injunction on behalf of every trademark owner in the state of Texas, that could bring Google to its knees. Surely Google would be willing to write over a few billion dollars to prevent that from happening....

So a two-bit plaintiff, Firepond (who?), brought a trademark infringement lawsuit against Google and some of its distribution partners in Marshall, Texas (where?) alleging that Google's flagship (and only real) revenue generator, AdWords, infringes the trademark of all Texas trademark owners. (Note: I expect copycat lawsuits of this complaint will be filed by other plaintiffs' lawyers seeking some spoils for themselves, all of which should get consolidated into a single action). This is a well-structured lawsuit that squarely raises the long-contentious debate over the legitimacy of selling trademarked keywords. (I won't recap that debate here, but I still think this article of mine best explains why plaintiffs' whining about competitive diversion from search ads is fundamentally misguided). Should this lawsuit reach a final judgment on the merits, we will have a very important answer about what search engines and other keyword sellers can and can't do.

But, I don't think this lawsuit will give us that answer because the judge is very unlikely to certify the class. As we saw in the Vulcan Golf lawsuit, where the court denied class certification over Google's domain name parking program, trademark issues are just too complicated and individualized for class adjudication. Every trademark is different, the identity of each competitive (or other) advertiser is different, every AdWords ad copy is different, the informational needs of every trademark owner's customers are different (for more on this, see Hearts on Fire's complicated standard for evaluating consumer confusion), trademark defenses are idiosyncratic, etc. Perhaps the reason no one has sought a trademark class action over AdWords before is that it probably can't be done. (Although I realize a prediction like that just fans the flames of a plaintiff class action lawyer).

While on the surface this lawsuit sounds like bad news for Google, Google might look at it as an opportunity, not a threat. Similar to the way it got favorable solutions from the click fraud class action and the Google Book Search settlement, Google could decide it wants to form the class so that it can permanently end all trademark owners' beefs at once. If the class forms, then Google can either (a) make its stand in a single case, fight to the death and try to win the lawsuit outright, effectively eliminating further challenges, or (b) more likely, settle up by paying an amount that represents a pinprick to its financial well-being but makes a few lawyers in Marshall, Texas rich enough to buy more cow pasture than they can shake a rattlesnake at. The settlement would then bind all trademark owners governed by the class, eliminating their right to sue. This could be cheap one-stop shopping for Google.

The Marshall, Texas origins of this lawsuit are interesting for another reason. As most of you know, Marshall has become the patent litigation capital of the United States due to patent owners' perceptions that it has plaintiff-friendly judges and juries. However, I've been reading reports that the pace of new patent lawsuits in Marshall is slowing down. Could it be that the plaintiff's patent bar in Marshall now has a little extra time on their hands and is looking for a new revenue stream? Could Marshall, Texas become the new home of dubious class action trademark litigation by repurposed plaintiff patent lawyers?

UPDATE: Joe Mullin explores the "patent troll" ties to this lawsuit.

Posted by Eric at 09:05 PM | Search Engines , Trademark | TrackBack

May 05, 2009

Google's International Trademark Policy Change: "What, Me Worry?"

By Eric Goldman

I've had a number of discussions with folks about what Google would do in light of its adverse ruling in Rescuecom. Personally, I didn't expect them to do much of anything right now. I still think they have a good shot at winning the Rescuecom case in the end, and if they do, they probably won't feel any reason to change their practices. If they lose the Rescuecom case, then we'll have to see why the loss occurred before evaluating corrective changes.

Meanwhile, in a probably unrelated move that is nevertheless interesting especially due to its timing, Search Engine Land reports that Google has liberalized its trademark policy in 190 countries to conform to its current policy in the US, Canada, Ireland and the UK (the latter two may have been liberalized in response to the favorable UK Mr. Spicy case). Thus, in 190 additional countries, Google will no longer block the sales of trademarked keywords. Notorious litigation hot-spot France remains on the list of places where Google will block trademarked keyword sales.

I'm not sure what, if any, legal developments have changed in these 190 countries to give Google comfort on the trademark front. However, I am sure this move will be unpopular with trademark owners!

Posted by Eric at 09:55 PM | Search Engines , Trademark | TrackBack

May 03, 2009

April 2009 Quick Links

By Eric Goldman

[Just a reminder that I am posting some “quick links” exclusively to my Twitter account, so if you want to keep up with everything, follow me at Twitter or subscribe to the RSS feed.]

Marketing/Spam

* Zango is dead (and so is adware), Ken Smith, Zango's CTO, conducts a post mortem: What Zango Got Wrong and What Zango Got Right. Mike Masnick's post-mortem.

* The FDA's instructions about pharmaceutical search marketing have led to lots of confusion. See Search Engine Land and the NYT.

* NYT: "Never Mind What It Costs. Can I Get 70% Off?"

* Tsan Abrahamson on social media and marketing law.

* Asis Internet Servs. v. Consumerbargaingiveaways. A district court diverges from Mummagraphics and says CAN-SPAM does not preempt CA's anti-spam law even if there is no common law fraud.

* Jackson v. American Plaza Corp., No. 08-8980 (S.D.N.Y. April 28, 2009), A Craiglist advertiser isn't a third party beneficiary of Craigslist's contract for purposes of stopping another advertiser from breaching the contract (in this case, spamming the forum).

Defamation

* Gardner v. Martino (9th Cir. April 24, 2009). I'm not a fan of talk radio, and the 9th Circuit apparently isn't either. The court upheld an anti-SLAPP dismissal of a defamation claim against the radio talk show host because "The Tom Martino Show is a radio talk show program that contains many of the elements that would reduce the audience’s expectation of learning an objective fact: drama, hyperbolic language, an opinionated and arrogant host, and heated controversy." Accord DiMeo v. Max. As Marc Randazza notes, rulings like this pose a challenge for those who think contextually ridiculous statements should be treated as "cyberbullying" or "cyber-harassment." Cf. the Finkel v. Facebook case involving asinine but clearly meaningless chatter on a private Facebook page.

* Some big defamation losses reported by CMLP:
- Blogger hit with $1.8M damage award.
- $12.5M defamation judgment against a gripe site.

* CMLP has a page organizing all of its 47 USC 230 material.

Intellectual Property

* Publicly republishing a private email leads to a default judgment of copyright infringement.

* Bryant v. Europadisk, Ltd., 2009 WL 1059777 (S.D.N.Y. April 15, 2009). In 2000, musicians authorized distributors to distribute their [hard copy] recordings, which the defendants ultimately ripped and allowed Amazon and Rhapsody to deliver via downloading. The resulting lawsuit turned on the interpretation of the license agreement term “internet sites.” The court says the term "is not ambiguous and does not extend to websites selling digital copies of songs. At the time the parties entered into the agreements, The Orchard sold physical copies only. As its Vice President explained by affidavit testimony, digital downloads of music did not become a “viable business” until iTunes was launched in approximately April 2004, long after Media Right and Gloryvision entered into contract."

* Octomom is seeking trademark registrations.

Miscellaneous

* GeoCities is shutting down.

* eBay will referee customer disputes.

* Wilson Sonsini's VC financing term sheet generator.

* Oddee: 10 Most Bizarre [Online] Gaming Incidents

Posted by Eric at 06:31 AM | Adware/Spyware , Content Regulation , Copyright , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Marketing , Spam , Trademark , Virtual Worlds | TrackBack

April 28, 2009

Promatek Redux: Software Consultant Enjoined from Metatag Usage and Other TM References--Deltek v. Iuvo

By Eric Goldman

Deltek, Inc. v. Iuvo Systems, Inc., 2009 WL 1073196 (E.D. Va. April 20, 2009). The Justia page.

Every year in Cyberlaw, I teach Promatek v. Equitrac, a Seventh Circuit metatags case from 2002 noteworthy for its multiple litigant and judicial errors typical of a cyberspace freakout case. Among the many mysteries of the case is how the court treats the fact that Equitrac advertised that it provided servicing of Promatek's equipment. The court says that Equitrac was free to say that, but it couldn't say it in the metatags...for reasons that I still don't understand.

Today's case raises similar issues to the Promatek case, and the resolution isn't much clearer. Deltek sells complex cost-accounting software. Iuvo includes three former Deltek employees who started a business providing consulting about Deltek software and other Deltek software-related services. Iuvo's websites advertise the fact that it provides servicing for Deltek software, but Deltek apparently doesn't like that or, apparently, the competition (not surprising because Iuvo was allegedly undercutting Deltek's price). Thus, Deltek launches a multi-prong attack on Iuvo, including claims that the site infringes its trademarks, the former employees misappropriated Deltek trade secrets, and the former employees violated their non-compete agreements.

With respect to the trademark claims, the defendants assert "fair use" (more precisely, nominative use). The court isn't convinced, in part because of the implied affiliation from Iuvo's references to Deltek's trademarks, even though the websites had an appropriate disclaimer of any relationship. Citing the doctrinally confused Axiom case, the court relies on the same implied-affiliation grounds for the metatags, saying "This use of Deltek's trademarks as metatags may cause a consumer to believe that Iuvo is affiliated or related to Deltek and may therefore constitute an improper attempt to trade on the commercial value associated with the marks." However, no one who understands metatags believes this statement is in the least bit credible.

Ultimately, the court crafts a split-the-baby injunction, restricting Iuvo:

from using in the "www.iuvosystems.com" website the phrases "Deltek Upgrade", "We Provide Deltek Solutions" and "Technology Consultants With Deltek Experience"; from using as metatags for any website associated with the Defendants' business activities any Deltek trademarks or trade names including, but not limited to, "Deltek Costpoint," "Deltek Time Collection," "Deltek Install," "Deltek Hosting" and "Deltek Consulting" and from using the web domain names "www.installdeltek.com" and "www.installdeltek.net."

Although the injunction is relatively narrow, it is still obviously problematic. First, the blanket restriction on including Deltek in the metatags makes no sense. See the Welles case. Second, I don't immediately see anything wrong with the phrase "installdeltek" in the domain name if Iuvo acts as a systems integrator and, in fact, installs Deltek software (a point I believe Deltek contested). Finally, I'm struggling to see what's wrong with the phrase "Technology Consultants with Deltek Experience," which seems completely accurate in describing both the former Deltek employees' experience as well as the company's accumulated experience.

Three observations about the case:

1) I hate metatag cases!

2) This is yet another example that the nominative use defense isn't very robust.

3) It's interesting that the court declined to issue an injunction based on the trade secret and non-compete claims, so Deltek's only victory came from its trademark claims. This is a good example of trademark's power to restrict competition, even when other anti-competition legal doctrines fail, and even when the competition may be in the consumers' best interest.

Posted by Eric at 09:31 AM | Trade Secrets , Trademark | TrackBack

April 27, 2009

Catching Up on Three Keyword Advertising Cases--Hearts on Fire, Romeo & Juliette, AAA

By Eric Goldman

Three trademark owner v. advertiser rulings from the past month:

Hearts on Fire Co. v Blue Nile, Inc., 2009 WL 794482 (D. Mass. March 27, 2009). The Justia page.

This is an interesting and potentially very important keyword advertising case.

The plaintiff is a diamond manufacturer which sells its products under the "Hearts on Fire" brand. The plaintiff does not sell its diamonds directly to consumers. The defendant is an Internet retailer that does not sell the "Hearts on Fire" brand of diamonds. The plaintiff alleges that Blue Nile bought the keyword "hearts on fire" at WebCrawler and then displayed an ad that included the words "hearts on fire" in the ad copy.

In this ruling, Blue Nile tries to dismiss the trademark claims for lack of use in commerce. The ruling came out before the Rescuecom case, but it doesn't matter. (The court did not feel bound by the First Circuit's Venture Tape case, which did not address use in commerce in a metatags case). After canvassing the statute and the precedent, the court says "there is little question that the purchase of a trademarked keyword to trigger sponsored links constitutes a "use" within the meaning of the Lanham Act." Post-Rescuecom, this is even more likely to be true.

The court also discussed consumer confusion. Noting that "there is no suggestion that diverted consumers inadvertently believed they were purchasing Hearts on Fire diamonds at Blue Nile's website," the sole possible basis of consumer confusion is initial interest confusion. In an understatement, the court notes that doctrine is a "somewhat ill-defined concept."

Unfortunately, the court proffers its own definition of initial interest confusion (one of dozens of different definitions), and its definition is a regressive throwback to 1990s legal conceptions of search processes:

[a] classic example [of IIC] is where a consumer sets out in search of one trademarked good, but is then sidetracked en route to his or her original destination by a competitor's advertisement or offering. He or she is never confused as to the source or origin of the product he eventually purchases, but he may have arrived there through either misdirection or mere redirection. In effect, initial interest confusion involves the diversion of the consumer's attention from one trademarked good to a competing good, even if he is not confused about the source of the products he ultimately considers or buys

As I've repeatedly explained, this definition (and its emphasis on attention diversion) is analytically corrupt because it overassumes a linear search process. How do we know when a consumer is "sidetracked" or, in fact, discovers more helpful information? And how can a court determine this?

Despite this odd and unfortunate construction of initial interest confusion, the court acknowledges an alternative story that searchers might be able to distinguish between competitive offerings, which would preempt any initial interest confusion. The court hypothesizes that some keyword advertising listings might be akin:

to a menu--one that offers a variety of distinct products, all keyed to the consumer's initial search. Sponsored linking may achieve precisely this result, depending on the specific product search and its context. When a consumer searches for a trademarked item, she receives a search results list that includes links to both the trademarked product's website and a competitor's website. Where the distinction between these vendors is clear, she now has a simple choice between products, each of which is as easily accessible as the next. If the consumer ultimately selects a competitor's product, she has been diverted to a more attractive offer but she has not been confused or misled

So where does Blue Nile fit on this spectrum between attention usurper and menu-option? The court isn't willing to let Blue Nile off the hook because it advertised on a trademark for a product it does not sell, saying a "consumer who had just entered a search for Hearts on Fire diamonds might easily believe that the Defendant was one such authorized retailer when presented with Blue Nile's sponsored link, even if the accompanying text did not contain the trademarked phrase."

As a result, the court reserves this case for a full multi-factor likelihood of consumer confusion analysis—but not the normal multi-factor analysis. Instead, the court plans to look at a bunch of additional factors beyond the normal ones:

under the circumstances here, the likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context. This content and context includes: (1) the overall mechanics of web-browsing and internet navigation, in which a consumer can easily reverse course; (2) the mechanics of the specific consumer search at issue; (3) the content of the search results webpage that was displayed, including the content of the sponsored link itself; (4) downstream content on the Defendant's linked website likely to compound any confusion; (5) the web-savvy and sophistication of the Plaintiff's potential customers; (6) the specific context of a consumer who has deliberately searched for trademarked diamonds only to find a sponsored link to a diamond retailer; and, in light of the foregoing factors, (7) the duration of any resulting confusion.

This is a good news/bad news development. The good news is that this is a very productive inquiry for courts to make. It does not matter what judges or plaintiffs intuitively think will confuse consumers; it only matters what consumers think and how they process the information presented to them. The bad news is that I have no idea how the parties will provide credible evidence to support this inquiry, and a new and even more complex multi-factor test is destined to compound the existing judicial difficulties with the multi-factor likelihood of consumer confusion test.

Some implications of this case:

1) In the past, some language in First Circuit cases implied that the First Circuit did not recognize the initial interest confusion doctrine. This case offers more evidence that the initial interest confusion doctrine, like a virulent weed, has taken root (in some form or another) everywhere.

2) A ruling like this shows how courts are analytically tortured by keyword advertising cases.

3) Assuming that Blue Nile falsely advertised that it sold "Hearts on Fire" diamonds, isn't this a paradigmatic bait-&-switch? In other words, do we really need to go through these doctrinal contortions? On the other hand, if the Blue Nile ad copy had a clearer exposition that it sold diamonds but not Hearts on Fire branded diamonds, wouldn't that also be an easy case? Thus, the only difficulty is when Blue Nile keys its ads to Hearts on Fire but doesn't reference the trademark in the ad copy at all (which, for example, would be the result in any Google ads if Hearts on Fire blocks its trademark). Personally, I would love to see some empirical evidence about how consumers evaluate ads without any reference to the triggering brand. Meanwhile, for you SEMs, if you are not already doing so, you should be running your ad copy by your lawyers. Clear ad copy ought to reduce or eliminate the risk of lawsuits like this.

4) I will be interested to see if other courts embrace the court’s addition of new factors to the multi-factor consumer confusion test. If so, this could make these cases much more complicated and expensive, but it could also prevent quick plaintiff wins by trademark owners who have no evidence of consumer confusion/initial interest confusion/whatever.

Other opinions on the case: Wendy Davis, Ryan Gile and David Kelly at Finnegan,

Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, 2009 WL 750195 (S.D.N.Y. March 20, 2009). The Justia page.

The litigants are competing laser hair removal vendors. The plaintiff alleges that the defendant ran the following ad:

Romeo And Juliette Laser
Unlimited Laser Hair Removal
$599/Month. Free Consultations.
www.assaralaser.com
New York, NY

Clicking on the URL took consumers to a website where the second line allegedly read "romeo juliette laser Unlimited Laser Hair Removal-$599/Month. Free Consultations."

The defendant alleges that the offending website was operated by a third party, ReachLocal. The court doesn't describe the Assara-ReachLocal relationship in detail, but it does say that ReachLocal is a "third party that Assara hired to manage its advertisements."

In any case, the defendant also seeks dismissal based on a lack of use in commerce. Although this ruling was also pre-Rescuecom, it doesn't matter because the plaintiff's trademark was referenced in both the ad copy and the linked website, which easily satisfies the use in commerce requirement. See, e.g., the Hamzik case.

Ron Coleman has more to say on this case.

The American Automobile Association v. Darba Enterprises, 2009 WL 1066506 (N.D. Cal. April 21, 2009). The Justia page.

Normally I stay away from jurisdictional rulings. However, occasionally keyword advertising plays a key role in the jurisdictional analysis (see, e.g., the Optihealth Products case), and those cases can be a little more interesting.

The defendants operate "several websites that purport to match consumers seeking auto insurance quotes with third-party insurers." AAA complains that the defendants "displayed the AAA Marks without authorization for the purpose of tricking internet users into believing that the site was affiliated with AAA," bought keyword ads triggered by AAA marks, and displayed AAA marks in the ad copy. Further, AAA complains that consumers submitted the lead generation form expecting AAA to be included but the form did not actually get submitted to AAA for a quote.

The court has little problem establishing jurisdiction over the defendant. The court deems the site "commercial" and "interactive" for purposes of the Zippo jurisdictional test. There were also 2 California consumer complaints against the defendants, and the lead generation form had a zip code field to indicate when consumers were from California. "Moreover, by utilizing pay-per-click advertisements to ensure that its name would come up when internet users searched for "AAA insurance," defendant intended to lure internet users to its website, including California residents."

It’s difficult for advertisers on third party trademarks to avoid jurisdictional responsibility in the trademark owner’s home court, so this ruling is not very surprising. However, as discussed with the Hearts on Fire case, I hope the court rethinks its perceptions about advertisers “luring” consumers.

Posted by Eric at 09:56 AM | E-Commerce , Marketing , Search Engines , Trademark | TrackBack

April 20, 2009

eBay Resales Constitute Trademark Infringement Despite First Sale Doctrine--Beltronics v. Midwest

By Eric Goldman

Beltronics USA Inc. v. Midwest Inventory Distribution, No. 07-3340 (10th Cir. April 9, 2009)

This is yet another online channel leakage case (for my last visit to this topic, see the Mary Kay v. Weber case). Beltronics makes radar detectors. Some unnamed distributors bought radar detectors from Beltronics at wholesale prices but subject to a minimum resale price promise. The distributors removed Beltronics' unique identifiers from each detector and resold them to Midwest. Midwest then resold the detectors on eBay.

Removing the unique identifier made it difficult for Beltronics to identify the rogue distributors who were supplying Midwest. Without Beltronics' unique identifier, Beltronics also refused to provide warranty coverage (and some other minor post-sale services) to buyers. However, Midwest claimed that it offered buyers its own 1 year warranty and disclosed in the eBay auction listings that Beltronics would not provide any warranty coverage. Nevertheless, Midwest's claim didn't get much credit because Beltronics claimed that it received inquiries from Midwest buyers seeking warranty coverage, thus leading the courts to conclude that Midwest's disclosures weren't doing a very good job.

The district court concluded that the resales of the Beltronics radar detectors as "new" detectors when they lacked the manufacturer's warranty and other post-sale services created a likelihood of consumer confusion sufficient to support a preliminary injunction blocking Midwest from reselling Beltronics detectors without unique identifiers (which in practice cuts off Midwest's supply because now any rogue distributors can be caught). Midwest attacked the PI on the basis that its resales were protected by the trademark first sale doctrine. The 10th Circuit, heavily citing its atrocious Australian Gold v. Hatfield decision, held that the first sale doctrine didn't apply because Midwest sold a materially different good without the manufacturer's warranty and without adequate disclosures to buyers about the differences.

The net result then is that eBay buyers willing to pay a discount for an identical radar detector but with only Midwest's warranty instead of Beltronics' won't get that choice. Instead, they get the pleasure of buying at the minimum resale price set by Beltronics. However, the 10th Circuit implies, without saying, that it could have reached a different result if Midwest had done a better job with its disclosures. But, after anti-competition rulings like this and the Australian Gold case, I'm guessing Midwest isn't too excited about experimenting in the 10th Circuit.

Posted by Eric at 08:26 PM | E-Commerce , Trademark | TrackBack

April 15, 2009

Graeme Dinwoodie on Rescuecom v. Google

By Eric Goldman

[Eric's note: As I mentioned, I'm getting a lot of private emails about Rescuecom v. Google, including the email from Margreth Barrett that I blogged last week. Today, I got the following email from Graeme Dinwoodie, a law professor currently at Chicago-Kent Law and soon to be at Oxford. Like Margreth, Graeme has written on the trademark use in commerce doctrine and search engine liability. I've blogged on a few of Graeme's papers before as well; see his SSRN page. Graeme has graciously permitted me to share his email on the blog:]

I think that your bottom-line take on Rescuecom is largely right, though it will not surprise you that I do not regard the decision as “disappointing.” I think the Second Circuit largely accepted the arguments that Mark Janis and I have made in our articles, and so I am pleased with the outcome. I agree that there are some oddities in the reasoning, though these are in large part a product of (1) having to distinguish the very badly reasoned decision in 1-800 Contacts, and (2) the fact that the trademark use requirement does not map well to the concerns that should drive the scope of trademark protection. In fact, looking at where the court appears to want to go, I have to think that – if the 1-800-Contacts decision was not out there -- they would have concluded that there was no such thing as a trademark use requirement.

I think that the court largely accepts the critique that some of us have offered of the trademark use requirement: the court recognizes that there is no inevitable symmetry between use sufficient to create rights and use that causes likelihood of confusion; the court recognizes that uses by defendants that fall outside the strict scope of the section 45 definition could be “pernicious”; and the court thinks it important to adopt a rule that allows courts to hold defendants liable when confusion is created (footnote 4 clearly reflects the concern that courts should be able to police this activity).

Of course, because of 1-800-Contacts they could not simply say that Section 45’s definition did not apply to defendants’ uses, which would have been much cleaner. If one accepts, as they do, that the definitions only apply “unless the contrary is plainly apparent from the context,” one could simply have said that almost none of the section 45 definition is intended to constrain what type of activities by a defendant might be actionable. Instead, the appendix proffers a reading of the two sentences in the definition that is truly weird. (Indeed, under one reading, you might even say that they were endorsing -- in the last couple of pages -- a trademark use requirement linked to the affixation language in what the court called the second sentence of the definition.) But their having to do all this is simply a function of the fact that the Second Circuit had previously applied the second sentence to sections of the act of defining infringement in 1-800 contacts: see fn 12.

Likewise, some of the factual distinctions seem a bit odd (even though they were to some extent predictable given the dicta in 1-800-Contacts). The URL/mark distinction is inconsistent with typical infringement analysis that permits use of a term similar to the mark to be infringing and is functionally ridiculous given the prevalence of Mark.com URLs. I suppose the distinction between an ad triggered by a “product category” in 1-800 Contacts and one triggered by a mark as in Rescuecom (also a predictable distinction given the dicta in the earlier case) might reflect some vague notion of directness or frequency of harm, but the alleged harm that is experienced when the ad appears is surely pretty similar. (It reminds me of the link-counting analysis to determine commercial use?). See Dinwoodie and Janis, Confusion Over Use at 1635.

What I take from the decision is that they really would like to go back and rethink 1-800 Contacts. I agree though they have effectively undermined 1-800-Contacts. The bad news is that the messy way in which they have done it -- if they take seriously the details of their analysis rather than the message that they are sending -- might generate some silly litigation in the meantime. The good news is that, if courts focus on the message, we might now get greater judicial consideration of the central issues of what types of confusion -- if any -- are created by this type of advertising, and what types of confusion should be actionable (and I hope that those are separate inquiries). That this is the court’s preferred focus is evident from their alternative explanation for the outcome in I-800-Contacts (see p. 17), their analysis of the product placement analogy, and some of the factual distinctions that they draw between 1-800 Contacts and Rescuecom (at least at the 12(b)(6) stage). It does not seem inevitable to me that search engines or advertisers will lose on the confusion analysis in the cases to come (including this one). And at least I hope we will now have some judicial exploration of whether there is any confusion and whether that should be actionable. To be sure, there are some litigation and compliance costs associated with this, but even those may dissipate over time through accretion of case law. And I hope and expect that defendants will begin to explore the types of uses of marks in ads that might be immunized through defenses such as nominative fair use (we've had a couple of lower court cases beginning to move in that direction). The combination of all of this analysis will, I hope, be more helpful to search engines in formulating appropriate policies and responses to trademark owner requests -- something they have already given a tremendous amount of thought to – than debate about “trademark use”

In short, although there are some problems with the opinion, the outcome should at least start us talking about types of issues that I believe we should be talking about in this area. To put it (I hope not too) tendentiously, the Second Circuit has decided to opt for analysis of “confusion” over “use”, and has decided that we should litigate the scope of trademark law, with due regard for “context.” See Graeme B. Dinwoodie and Mark D. Janis, Confusion Over Use: Contextualism in Trademark Law, 92 Iowa L. Rev. 1597 (2007). Alternatively stated, I think the law that will be developed in the next few years in the wake of this decision will be heavily driven by factual particular rather than broad legal rules (though rules of sorts may accrue over time).

Posted by Eric at 07:28 AM | Derivative Liability , Search Engines , Trademark | TrackBack

April 14, 2009

GoDaddy Sued for Cybersquatting for Parked Domain Names--uBid v. GoDaddy

By Eric Goldman

uBid, Inc. v. GoDaddy Group, Inc., 1:09-cv-02123 (N.D. Ill. complaint filed April 6, 2009)

Domain name parking programs have generated some lawsuits, including the Vulcan Golf v. Google lawsuit (plus several "me-too" lawsuits following in its footsteps) and the recent Philbrick v. eNom decision. Here, uBid (the online auction site) goes after GoDaddy for its parked domain name program when the domain names include a uBid trademark. In a mild surprise, uBid only claims an Anti-Cybersquatting Consumer Protection Act violation; it does not claim trademark infringement or the various junky unfair competition claims that often accompany a trademark claim. Maybe those claims are coming in an amended complaint. I'm also interested in the fact that uBid only sued GoDaddy and not the other providers of domain name parking services (of which I believe there are many)--what did GoDaddy do (or not do) to deserve special attention?

Tom O'Toole handicaps uBid's ACPA claim and raises some questions about the lawsuit.

From my perspective, I remain baffled by lawsuits over domain name parking programs and other programs to associate domain names with ads. First, although I understand that it's mostly a fight over cash, these lawsuits have always struck me as a manifestation of domain name exceptionalism in that the law treats domain names as having magical search powers compared to other keywords. If displaying ads triggered by the uBid marks in the domain name is so bothersome to uBid, shouldn't it also be chasing advertisers who buy its trademark for ad triggered at the search engines?

Second, as I explain my Deregulating Relevancy article, there has been a longstanding battle between domain name registries, domain name registrars, toolbar providers, computer manufacturers and others to control the ad inventory of inactive domain names. Even if GoDaddy "turns off" its parking program, others may try to fill the void and monetize the exact same domain names. As a result, I'm still not clear exactly what uBid hopes to accomplish with this lawsuit (other than to take some cash out of GoDaddy's pocket if it wins).

Posted by Eric at 07:25 AM | Domain Names , Marketing , Search Engines , Trademark | TrackBack

April 10, 2009

Q1 2009 Quick Links, Part 2

By Eric Goldman

Trademarks/Domain Names

* The ridiculous Jones Day v. BlockShopper case settled. The settlement agreement. The ABA Journal and Legal Blog Watch stories. Commentary from CMLP, Paul Levy, Tom O'Toole.

* The trial court denouement of the S&L Vitamins v. Australian Gold did not turn well for the defense--$6M jury award. The S&L Vitamins v. Australian Gold and Designer Skins v. S&L Vitamins cases subsequently settled. According to Ronald Coleman: "This settles, for our clients S&L Vitamins, Inc., the Australian Gold case and the related appeal in the Designer Skin case. All money judgments are vacated and parties bear their own fees. Our client agrees to move on to another line of work, however."

* Twelve Inches Around Corp. v. Cisco Systems, Inc., 2009 WL 928077 (S.D.N.Y. March 12, 2009). 17 USC 512(f) does not cover trademark takedown notices.

* Suarez Corp. v. Earthwise, 2008 U.S. Dist. LEXIS 92931 (W.D. Wash. Nov. 14, 2008). Including a competitor's name in a web page disclaimer creates initial interest confusion when the competitor's name is indexed by the search engines. Compare Promatek v. Equitrac, the 2002 7th Circuit case ordering the defendant to include the plaintiff's name on its web page as a cure for initial interest confusion.

* CRS Recovery v. Laxton, 2008 WL 4408001 (N.D. Cal. Sept. 26, 2008). Another California-based court says that domain names are property that can be converted. I'm amazed that these cases are still being brought.

* North American Bushman, Inc. v. Saari, 2009 WL 211932 (M.D. Pa. Jan. 27, 2009) The parties entered into a settlement agreement that "Plaintiffs further agree not to use, and in addition, to offer up or destroy, any material that includes, but is not limited to, the names, photos, images, embroideries, of likeness of [Defendant] James Saari and any of the a above named trade names and trademarks of Defendants." The court holds that this provision wasn't breached when third party users posted comments referencing the defendants in UGC areas of websites operated by the other party.

* Advice Co. v. Novak, 2009 WL 210503 (N.D. Cal. Jan. 23, 2009). Justia page. Stupid lawsuit alert! Attorneypages.com believes Attorneyyellowpages.com infringes its trademark. Case dismissed for lack of personal jurisdiction. Participating in Google AdSense doesn't automatically create jurisdiction in CA.

* DSW v. Zappos, which involved allegations of trademark infringement based on Zappo's affiliates, settled.

* An update on Google's AdWords woes in France.

* Kiva Kitchen & Bath Inc. v. Capital Distributing Inc., 2009 WL 890591 (5th Cir. April 2, 2009). The Fifth Circuit upholds enhanced damages under ACPA. Good discussion of the purpose of damages in the ACPA.

* Toys R Us buys the domain toys.com for over $5M. Is any domain name worth $5M any more?

* A 2007 interview with "Pokey" of Pokey.org fame. This is one of my favorite domain name disputes from the 1990s. A very smart cyberlawyer (Ian Ballon), on behalf of the trademark owners of Pokey & Gumby, unexpectedly got into a public tangle with a 12 year old kid nicknamed "Pokey" over the domain name pokey.org. Debating 12 year old kids in the press never turns out well.

Advertising/Marketing

* Some new material on behavioral advertising: an FTC report and a CRS report.

* Latest NYT article on human billboards. See my prior blog post.

* Privacy advocates are freaking out about Google Android and its ability to deliver location-based information and ads. But location-based information and ad targeting is inevitable...and a good thing.

* Action over mobile marketing: Mobile Messenger settled a false advertising suit with Florida for $1M, and another settlement. Google's response.

* The class in the "Vista Capable" lawsuit was decertified.

* Tsan's post on the latest FTC efforts to rein in testimonials on social networking sites and blogs. Unfortunately for the FTC, some of its efforts may be preempted by 47 USC 230.

* eBay v. Digital Point Solutions, 2009 WL 481269 (N.D. Cal. Feb. 24, 2009). eBay loses an intermediate round in its cookie stuffing lawsuit against Digital Point Solutions.

* e360, a serial defendant in spam cases, sued Choicepoint for selling it email addresses that led to the suits. Apparently neither e360 nor Choicepoint got the memo that the days of email list brokering are dead.

* 10 Creative Bathroom Ads.

Search Engines

* Study: Google's search lead not matched by loyalty. A critical response.

* Is Google giving big brands extra credit in its organic search results rankings? Compare: media giants complaining they don't get enough weighting in organic results.

* Sign of improving consumer search skills: search queries are getting longer.

* Yahoo reserves the right to "auto-optimize" advertiser accounts by changing ads and advertiser bids automatically. This is not a popular move.

* Wired: The Plot to Kill Google.

Posted by Eric at 10:20 AM | Domain Names , Internet History , Marketing , Search Engines , Spam , Trademark | TrackBack

April 09, 2009

Margreth Barrett on Rescuecom v. Google

By Eric Goldman

[Eric's note: my email in-box is bulging with emails trying to sort out last Friday's Second Circuit decision in Rescuecom v. Google. I got the email below from Margreth Barrett, a law professor at UC Hastings who has written a number of papers on online trademark issues (several of which I've blogged about before). See her SSRN page for a couple of those papers. With Margreth's permission, I'm reposting her email to me:]

It strikes me as weird to differentiate Google from the 1-800 case on the ground that the WhenU software didn't use the plaintiff's mark to trigger the pop-up--since when does a defendant have to use an exact mark before it can be deemed to have made an actionable use of the mark? Last time I checked, a defendant could infringe with a word or symbol that was confusingly similar to the plaintiff's mark, like, for example, 1-800 Contacts and 1800contacts.com (or whatever it was). I know that the 1-800 contacts court noted that the web address was not the mark, but I can't see why that should matter. At most the distinction says something about the defendant's intent, but the defendant's intent has not been a basis for declining to find infringement (unless it is considered in the context of a fair use defense, to excuse infringement). Does this decision mean that Google could use the mark owner's Mark.com web address to key a competitor's ad every time a search result listed the mark owner in the top two or three search results? If so, what has been accomplished?

And the court's technical application of the language of the section 45 definition of "use in commerce" is painful. It's basically saying that Google's display of the plaintiff's mark to competitors using the keyword suggestion tool brings Google within the definition. But shouldn't the display be to the people who are likely to be confused? Judge Leval is entirely disassociating the definition of use in commerce from the concept of trademark use. The folks who see Google's "display" of the mark are not going to rely on it for information about product or service source. And the folks who might rely on it for information about source never see it.

The opinion strikes me as moving toward the notion in Panavision [Panavision Int'l, LP v. Toeppen, 141 F.3d 1316 (9th Cir. 1998)] that "selling" a mark constitutes trademark use. Boston Professional Hockey strikes again! [Boston Pro. Hockey Assoc., Inc. v. Dallas Cap & Emblem Mfg., Inc., 510 F.2d 1004 (1975)]

1-800 Contacts was a reasonably good decision, and Judge Leval has completely dismantled it. So what constitutes trademark use after this? The real underlying problem that I see here is that the court is trying to use an internal software application of a mark to prohibit an allegedly confusing screen display, which is only tangentially related to the software application, at best. It would be far better to address the screen display issue as a non-trademark-related issue of passing off or "fraudulent marketing," as that term was defined in the Restatement of Torts. Tying to make liability for the screen display rest on the keying use of the mark just further distorts and extends mark owners' control over their words and symbols in digital contexts.

And finally, what was the Appendix on the section 45 definition of use in commerce all about? The court's account of the legislative history is sloppy and shockingly incomplete in a number of ways (for example, the court seems to be unaware that "affixation" and similar "trademark use" limitations were expressly built into the definition of technical trademark infringement both at common law and in all the prior federal trademark acts--language that looked a lot like the sec. 45 definition. And the court totally ignores the sequence in which things happened in the drafting process, which is extremely telling. See my full account of the legislative history of the sec. 45 "use in commerce" definition in my recent article at 43 Wake Forest L. Rev. 893) But aside from all that, what's the point? Is the Appendix simply a performance for the benefit of Congress?

I think it is ironic that Judge Leval wrote an earlier law journal article [Leval, Trademark: Champion of Free Speech, 27 Colum. J.L. & Arts 187 (2004)] in which he touted the trademark use limitation on infringement actions as an important tool in protecting First Amendment interests.

Posted by Eric at 03:36 PM | Search Engines , Trademark | TrackBack

April 03, 2009

Second Circuit Says Google's Keyword Ad Sales May Be Use in Commerce--Rescuecom v. Google

By Eric Goldman

Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. April 3, 2009)

The Second Circuit has issued its long-anticipated opinion in Rescuecom v. Google over Google's sale of trademarked keywords as ad triggers. In a disappointing but not surprising conclusion, the Second Circuit reversed the lower court and says that Rescuecom properly alleged that Google's keyword ad practices constituted a "use in commerce." This ruling merely reverses the 12b6 dismissal for Google, but it raises some important questions--including whether this ruling effectively eliminates any future "use in commerce" defense in keyword advertising cases and whether Google and other search engines could reform their practices so that they are no longer deemed uses in commerce.

1-800 Contacts v. WhenU Distinguished

The most interesting part of the opinion is how this panel distinguishes its 2005 1-800 Contacts v. WhenU precedent, which held that an adware vendor did not make a use in commerce through its keyword ad triggering processes. The court says that Google is different in two main respects:

"First, in contrast to 1-800, where we emphasized that the defendant made no use whatsoever of the plaintiff’s trademark, here what Google is recommending and selling to its advertisers is Rescuecom’s trademark. Second, in contrast with the facts of 1-800 where the defendant did not “use or display,” much less sell, trademarks as search terms to its advertisers, here Google displays, offers, and sells Rescuecom’s mark to Google’s advertising customers when selling its advertising services. In addition, Google encourages the purchase of Rescuecom’s mark through its Keyword Suggestion Tool."

The court appears to be making two distinctions. First, WhenU didn’t sell trademarked keywords directly but instead rolled up search queries into product categories that didn’t contain the trademark anywhere but in an internal database table, so there was an additional layer of abstraction away from trademarks built into WhenU's matching process. Second, the court clearly doesn't like Google's Keyword Suggestion Tool, which I think has also frustrated trademark owners and been repeatedly cited against Google in pleadings.

In theory, then, Google could eliminate its trademark use in commerce by adding a product category abstraction--although this may not be a good idea, as it would not work with long-tail queries--and by modifying or dropping the Keyword Suggestion Tool.

The case also discusses Google's "sponsored link" label and distinguishes it from WhenU's labeling of its pop-up ads. The court gives credence (as it must on a 12b6) to Rescuecom's allegations that Google's placement of ads above the organic results might confuse consumers into thinking those ads were organic. In contrast, in WhenU, the "pop-up ad appeared in a separate browser window from the website the user accessed, and the defendant’s brand was displayed in the window frame surrounding the ad, so that there was no confusion as to the nature of the pop-up as an advertisement, nor as to the fact that the defendant, not the trademark owner, was responsible for displaying the ad, in response to the particular term searched." Personally, I think Google’s interface is sufficiently clear to consumers, but this is a factual assertion not ready for judicial review in this case yet.

One oddity: the court repeatedly says that WhenU displayed ads "randomly" chosen in response to searcher behavior. I'm not sure what the court was trying to say, but the ads were hardly chosen at random, and this is a pretty significant factual error on the court's part.

Finally, the court discusses the analogies to shelf-space adjacency in the retail context. This is a topic of special interest because I've parsed this issue in gory detail in my Brand Spillovers paper. The court, without any citations, reaches the conclusion that

It is not by reason of absence of a use of a mark in commerce that benign product placement escapes liability; it escapes liability because it is a benign practice which does not cause a likelihood of consumer confusion. In contrast, if a retail seller were to be paid by an off-brand purveyor to arrange product display and delivery in such a way that customers seeking to purchase a famous brand would receive the off-brand, believing they had gotten the brand they were seeking, we see no reason to believe the practice would escape liability merely because it could claim the mantle of “product placement.”

Fair enough—if consumers purchase a passed-off good, that would be actionable. However, the court sidesteps all of the nuance in concluding that shelf-space adjacency is a "benign practice that does not cause...consumer confusion." Retailers are hardly “benign” in their practices; see my Brand Spillovers paper for more on that. Further, and perhaps more importantly, it's unclear how Google's ads misdirect anyone. The court had to accept Rescuecom's allegations of diversion as true, but I think those bear very close scrutiny on remand.

What Is a Use in Commerce?

The opinion also contains a scholarly appendix, expressly labeled as dicta, explaining its statutory analysis of the Lanham Act's use in commerce phrase. Not surprisingly, at the end of the appendix it says "It would be helpful for Congress to study and clear up this ambiguity." Although it is dicta, I expect many other courts will follow and embrace this appendix when discussing use in commerce. I also expect that this will put an end to the cottage industry of law review articles debating what the phrase means in the keyword context.

Implications of this Ruling

1) This opinion narrows the 1-800 Contacts v. WhenU opinion substantially to a very specific set of facts. I'm not sure how many courts will be favorably citing that precedent in the future.

2) This case jeopardizes the half-dozen or so district court cases (in Second Circuit-controlled jurisdictions) that have held that keyword advertising purchases aren't a trademark use in commerce. This case involves Google's sale of keyword advertising, not an advertiser's purchase of keyword advertising, but I think those cases are now very shaky precedent. (The court particularly says that the Merck and S&L Vitamins cases "overread" the 1-800 Contacts precedent). The Second Circuit still could find a way to distinguish ad buys from ad sales, but I would be surprised if it did so.

3) This case also jeopardizes the rulings in those cases that keyword metatags aren't a trademark use in commerce. The court says specifically "We did not imply in 1-800 that an alleged infringer’s use of a trademark in an internal software program insulates the alleged infringer from a charge of infringement, no matter how likely the use is to cause confusion in the marketplace." I'm not sure how this applies to keyword metatags, which can't cause consumer confusion under any circumstance. Nevertheless, if the keyword metatags don't have the layer of abstraction that WhenU used, I don't think the court would regard them favorably.

4) Although this is clearly a loss for Google because Google no longer has a reliable way to kick out cases on a 12b6, Google might still prevail in the case. Google had won on a 12b6, and the court merely said that Rescuecom alleged enough in its complaint to survive the 12b6. Google could still win on summary judgment or trial, or the parties might settle. Either way, Rescuecom merely lives to fight another day. (In theory, Google could also appeal this ruling to the Supreme Court; I would be surprised if they went that route or if the Supreme Court would take it).

5) Accordingly, I don't expect this ruling to do much for cases like American Airlines v. Yahoo. Indeed, perhaps anticipating this loss, Yahoo didn't try to get the case into the Second Circuit. I suspect that's because Yahoo had already decided not to expect the use in commerce defense to go in its favor.

6) I'm interested to see what this ruling will do to state efforts to attack keyword advertising, such as Utah's ill-fated forays in this area. In theory, this ruling might alleviate some of the pressure state legislators feel that they have to do something. However, I suspect state legislators are only mildly interested in legal proceedings elsewhere, so I doubt this will make state legislators second-guess their own brilliance.

7) As the court says, it would make a lot of sense for Congress to clean up the statutory drafting muddle over use in commerce in the Lanham Act. I don't think this is likely because of the political gridlock that would emerge over the topic. As I discuss in my Deregulating Relevancy paper, a more pragmatic approach would be for Congress to expressly provide a safe harbor for search engines selling keywords analogous to the safe harbor for domain name registrars selling domain names, but I doubt Google has the muscle for that either. As a result, I don't anticipate legislative intervention to overturn this ruling.

The case library:

* Commercial Referential Trademark Uses (Rescuecom v. Google Amicus Brief Outtakes)
* Rescuecom reply brief
* Law professors' brief by Stacey Dogan and me
* Electronic Frontier Foundation amicus brief by Jason Schultz, Corynne McSherry and Fred von Lohmann
* Public Citizen amicus brief by Paul Levy
* eBay/Yahoo/AOL amicus brief by Celia Goldwag Barenholtz, Janet Cullum and others of Cooley Godward Kronish [now mooted]
* Google's initial brief
* Rescuecom's initial brief
* District Court's opinion

Posted by Eric at 11:51 AM | Derivative Liability , Search Engines , Trademark | TrackBack

March 24, 2009

"Locate Plastic Surgeon" Trademark Registrant Brings Dubious Enforcement Action--Ezzo v. Google

By Eric Goldman

Ezzo v. Google, 2:09-CV-00159 (M.D. Fla. complaint filed March 17, 2009). The Justia page.

I'm suffering ennui about blogging pro se lawsuits against companies like Google. Most of them are completely unmeritorious and poorly expressed, so they don't warrant the time and legal risk associated with writing them up. Nevertheless, I decided this lawsuit is blog-worthy because it, combined with the Medical Justice no-talk waivers that I hope to blog about soon, appears to be part of a troubling trend of using IP to make it harder for consumers to find appropriate medical services.

Jamil Ezzo has a registered trademark on the Supplemental Register for the phrase "Locate Plastic Surgeon," which he apparently uses in connection with his website locateplasticsurgeon.com. Armed with this registration, in this lawsuit he sues Google and AOL (apparently for selling the trademark as an ad keyword) and a bunch of other folks in the plastic surgery business who apparently advertised on the keyword. (The complaint is so indecipherable that I'm not really sure what he's beefing about; this is my best guess).

Among other dubious aspects, he comes up with a claim for $90M in damages. He says that over 5 years, the competitive keyword advertising cost him 5,000 customers who would have paid $100/mo each. That's pretty powerful keyword advertising and a gravity-defying 100% margin business. Add in treble damages, and that produces $90M in damages. Nevertheless, the good faith in his computations is palpable because he kept the damages claim under 9 figures.

In any case, putting aside the indecipherability of the complaint, this lawsuit will be quickly crunched because (among other defects) I am extremely confident that "Locate Plastic Surgeons" is not a protectable trademark. Registration on the Supplemental Registry only confirms that the phrase could become a protectable trademark some day, but it's not necessarily protectable today. To make progress, he'll need to show secondary meaning in the phrase, and given the highly descriptive phrase plus the apparently low profile of the site, I think the chances of showing secondary meaning are near zero. Given this, I think this lawsuit is a good candidate for the court to award attorneys fees to the defendants (awardable in exceptional cases, which I think this is).

Even if this lawsuit is a little off-kilter, it still depresses me that anyone could think they can own a protectable trademark in the phrase "Locate Plastic Surgeon" for the process of locating plastic surgeons. It's dramatic evidence of the abysmal and overexpansive state of trademark doctrine today.

More on this lawsuit from Tom Seery of RealSelf.com.

Posted by Eric at 11:01 AM | Derivative Liability , Search Engines , Trademark | TrackBack

March 16, 2009

Union Organizers' Activist/Gripe Sites Don't Support Trademark Claims--Cintas v. Unite Here

By Eric Goldman

Cintas Corp. v. Unite Here, 2009 WL 604099 (S.D.N.Y. March 9, 2009). The Unite Here press release.

Cintas, a Fortune 500 company, manufactures uniforms. The defendants are unions and affiliated folks interested in unionizing Cintas' workforce. This article indicates that the litigants don't like each other.

To advance their objectives, the defendants set up several websites that critique/criticize Cintas, such as cintasexposed.org (targeting Cintas' customers), uniformjustice.org (targeting Cintas' employees) and notonmytrack.info (targeting NASCAR fans). The cintasexposed.org website contained a disclaimer and also linked (directly and indirectly) to some sites with commercial aspects.

Among other things, Cintas sued the defendants for trademark infringement, dilution and cybersquatting. the court grants the motion to dismiss all three claims.

For the trademark infringement claim, the court starts with a standard likelihood of confusion multi-factor analysis, but the factors just don't work in a nominative/referential use situation like this. Unfortunately, the court doesn't mention the nominative use doctrine, which would have facilitated an analytically clean dismissal. Nevertheless, the court gets on the referential track, saying "Defendants are not using the “CINTAS” mark as a “source identifier”, but rather solely to criticize Cintas's corporate practices," which negates any consumer confusion. The court dismisses the initial interest confusion argument because there was no evidence of intentional deception.

The trademark dilution claim fails for a lack of requisite use in commerce (this theory could have helped dismiss the trademark infringement claim too, but the court didn't connect the dots). The court rejects the plaintiff's efforts to do link-counting to linked websites where referred users might be able to transact, saying "The twice-removed links to a union “store” is at least one bridge too far and insufficient to establish the use of the CINTAS mark for profit." (I severely criticize link-counting exercises from prior Internet trademark cases in this article). The cybersquatting claim similarly fails for lack of profit motive.

Posted by Eric at 09:38 AM | Domain Names , Trademark | TrackBack

March 13, 2009

Utah HB 450 Dies in Utah Senate Without a Vote

By Eric Goldman

After barely passing the Utah House, Utah HB 450--Utah's third ill-fated attempt to regulate keyword advertising--died quietly last night when the Utah Senate failed to act on it before the Utah Legislature adjourned for the year. My understanding is that 1-800 Contacts, the bill's principal advocate, stopped pushing the bill in the Senate earlier this week when it became clear that it couldn't muster the votes.

On its face, this bill's failure appears to be good news. While the bill was less ill-conceived than Utah's past two anti-keyword advertising laws, it was still an ill-conceived anti-competitive law designed principally to advance the protectionist interests of a local Utah company. Laws like this should be rejected.

Nevertheless, I feel that there is no real good news here. If the law had died because the Utah Legislature had recognized the folly of thinking that it was uniquely well-positioned to improve keyword advertising, or had abandoned the quest because of its abysmal track record in regulating the Internet, we'd have good reason to celebrate. Unfortunately, I haven't seen any evidence of such an epiphany.

Instead, I *guarantee* that the Utah legislature will revisit the topic of regulating keyword advertising for a fourth time. (I'm reminded of the fable of Ulysses and the Sirens; trying to "fix" keyword advertising appears to be simply irresistible to the Utah Legislature). One reason is that there remains a lot of hostility towards keyword advertising in the Utah Legislature. For example, Rep. S. Clark was quoted last week as opposing HB 450 (indeed, he voted no) because:

"We should be going after the Googles that are creating this problem. They're the villains." .... "If we're going to use the strength and resources of the state to go after businesses, then we ought to go after the business that is causing the harm. … We ought to go after the Googles with the state's resources and reputation."

Nice. In addition to this ill-informed antipathy, companies like 1-800 Contacts and Overstock.com--both Utah-based web retailers with, at best, highly descriptive trademarks--are always interested in ways to reduce their competition. So, Utah's legislative hubris plus local company rent-seeking creates a toxic brew that ensures repeat surfacing of bad policy proposals. Let's reconvene here in February 2010 and see what the Utah bunch is cooking up for the 2010 legislative session. [UPDATE: Kate Kaye has a little more to say about the future.]

Meanwhile, even though 1-800 Contacts didn't get its statutory shortcut to control keyword ads on its trademarks, I expect 1-800 Contacts will keep bringing traditional trademark lawsuits against competitive retailers who buy competitive keyword advertising. 1-800 Contacts has already been busy on this front; I don't have a complete census of these lawsuits, but I pulled the following case list from PACER ()which is usually incomplete for a variety of reasons):

* 1-800 Contacts v. Lensworld.com, 2:2008cv00015 (filed 01/08/2008, closed 09/09/2008)
* 1-800 Contacts v. Drugstore.com, 2:2008cv00157 (filed 02/26/2008, closed 08/12/2008)
* 1-800 Contacts v. Lens.com Inc., 2:2007cv00591 (filed 08/13/2007)
* 1-800 Contacts v. Premier Holdings, 2:2007cv00946 (filed 12/06/2007, closed 05/16/2008)
* 1-800 Contacts v. Memorial Eye, 2:2008cv00983 (filed12/23/2008)
* 1-800 Contacts v. Lensfast, 2:2008cv00984 (filed 12/23/2008)
* 1-800 Contacts Inc v. Manila Industries Inc, 8:2007cv00102 (filed 01/26/2007, closed 04/07/2008) (note: the complaint wasn't on PACER, so I couldn't confirm that this was a keyword suit)

Given this level of activity, I doubt we've seen the last of these lawsuits (unless 1-800 Contacts has exhausted the universe of defendants).

One last point: I remain flabbergasted by the standards of acceptable conduct in the Utah Legislature. For example, as I mentioned before, I got a reliable tip (but I haven't been able to confirm otherwise) that one house representative mistakenly voted yes on HB 450. Whoops! Subsequently, the Salt Lake Tribune reminded us that Rep. Jennifer "Jen" Seelig--who voted yes on HB 450, in case that wasn't obvious--is a lobbyist-employee of 1-800 Contacts, the principal advocate for the bill. (This page describes her title as "Associate Director of Governmental Relations" for 1-800 Contacts). What??? Rep. Seelig explained that she doesn't lobby for 1-800 Contacts in the Utah Legislature, but I would think any representative with such obvious conflicts would necessarily abstain from voting on bills advocated by her employer. (Or perhaps there should be rules against legislators also being employed as lobbyists, but I digress...). Apparently not in the Utah Legislature. Utah residents, I just don't get it--why are you not demanding better practices from your elected representatives???

Posted by Eric at 10:27 AM | Marketing , Search Engines , Trademark | TrackBack

March 12, 2009

Fifth Circuit Denies Yahoo's Jurisdictional Appeal in American Airlines Case

By Eric Goldman

In re: Yahoo! Inc; Overture Services, Inc., No. 09-10098 (5th Cir. March 11, 2009)

In January, the Texas district court denied Yahoo's request to transfer the American Airlines keyword advertising lawsuit out of Texas and into Yahoo's home court in California. Yahoo appealed that ruling to the Fifth Circuit, and yesterday the Fifth Circuit denied the request.

Yahoo's principal argument was that the parties' lawsuit was governed by its Sponsored Search Agreement, which had a mandatory venue clause requiring litigation in Yahoo's home court. The district court judge did not respond well to that argument, calling it "completely nonsensical." The appeals court wasn't as harsh but still concludes that Yahoo didn't make the extraordinary showing required to obtain the relief Yahoo sought--even though American Airlines is seeking disgorgement of its payments under the Sponsored Search Agreement as one of the requested remedies.

This case remains at an early procedural stage, but already I'm struck by how aggressively Yahoo is fighting to get the case out of Texas. There may be good reasons for this--naturally, a litigant prefers to be in its home court and not in its opponent's home court, plus there may be substantive doctrinal benefits in the Ninth Circuit instead of the Fifth Circuit. However, Yahoo is spending a fair amount of money over this procedural point, signaling that it isn't looking for a quick or cheap settlement.

The only remaining jurisdictional question is what, if anything, Judge Fogel in Northern District of California will do with Yahoo's declaratory judgment suit. The most logical thing would be for Judge Fogel to stand down in the face of the continued litigation in Texas, but I don't know if that's the only possible result.

Posted by Eric at 04:01 PM | Search Engines , Trademark | TrackBack

March 06, 2009

Utah House Barely Passes HB 450 (Maybe)--UPDATED

By Eric Goldman

The Utah legislature is continuing its embarrassing third attempt to regulate keyword advertising. Today, after making a ticky-tack amendment, the Utah House passed HB 450 and sent the bill to the Senate. However, the House was sharply divided, voting 38-36-1 to pass it. The law barely made it through due to the fierce last-minute lobbying efforts of 1-800 Contacts; Kate Kaye catches us up on some of 1-800 Contacts' maneuverings.

It's not clear if the Senate will approve the law; or if it will even act on the law before the legislature recesses on March 12. It's also possible that the governor would veto the law. However, for now, it is clear that the Utah legislature is still working hard to retain its status as the reigning jesters of Internet regulators.

UPDATE (12:30 Pacific): Perhaps I should have known better than to rely on the Utah legislative website. I got the following email from a tipster:

"So the bill passed by one vote but one rep realized she voted the wrong way....So she's putting a hold on it and they're going to try to reconsider the action, basically revote the thing, today or Monday."

WHAT??? I realize that mistakes can happen, but I would think that legislators would work really, really hard to vote the right way on bills. After all, isn't that the single most important thing we pay legislators to do? In light of this apparently crucial flub, it seems like the last line of my initial post was even more apropos than I realized.

UPDATE 2: Kate Kaye provides an update.

UPDATE 3 (6 pm Pacific): My latest understanding is that the misvoting representative lifted her hold, and the bill will move to the Senate.

Posted by Eric at 11:26 AM | Marketing , Search Engines , Trademark | TrackBack

March 04, 2009

Utah Trying to Regulate Keyword Advertising....Again!? Utah HB 450

By Eric Goldman

When I first heard that the Utah legislature is considering yet another law to regulate keyword advertising, I thought: Are you kidding me? After all, Utah has pursued these regulations twice with disastrous results. The first time, in 2004, Utah's attempt to regulate adware-mediated keyword advertising was declared unconstitutional, and Utah amended the law in 2005 to make it irrelevant. In 2007, Utah tried again, passing a law that restricted keyword advertising across-the-board. That law was a spectacular failure, garnering derision both within Utah--especially from angry Utah citizens shocked that their elected representatives passed a law that the state AG thought was unconstitutional and that was going to cost valuable taxpayer money to defend in court--and globally as everyone wondered if the Utah legislature was really that crazy. In 2008, the legislature tucked its tail between its legs and repealed the 2007 law.

With this track record, the Utah legislature wants to try regulating keyword advertising again...? Are you kidding me?

Then again, perhaps this latest foray really isn't all that surprising. My sources tell me that 1-800 Contacts is the prime mover behind this statute, and 1-800 Contacts has testified in support of the law. 1-800 Contacts has an hard-to-explain love/hate relationship with keyword advertising. 1-800 Contacts has been a repeat litigant against keyword advertising, including being the losing plaintiff in the landmark 1-800 Contacts v. WhenU case, and 1-800 Contacts has continued to bring other lawsuits against competitive retailers (such as the LensWorld case I blogged about a year ago). At the same time, 1-800 Contacts has been a buyer of trademarked keyword ads, and it was one of the companies that protested the 2007 law because it was concerned the law would limit its own advertising practices (although, at the last minute, 1-800 Contacts flip-flopped and tried to sneak in new restrictions on keyword advertising into the putative repeal of the 2007 law). Clearly, 1-800 Contacts has a complex attitude towards keyword advertising, although it might just be pure duplicity. Either way, with 1-800 Contacts’ flip in 2008 and its continued litigation against keyword advertising, it’s not unexpected that they might try to bend the ear of the apparently pliable Utah legislature.

The Proposed Law

The 2004-05 laws banned trademark-triggered pop-up ads triggered by adware. The 2007 law allowed trademark owners to register their marks with a newly created Utah administrative registry (which never got created) and prohibited keyword buyers and sellers from using registered marks as triggers for keyword advertising. HB 450, the proposed 2009 law, takes a very different approach than the 2007 law:

Fewer Defendants. The law only applies to keyword buyers (advertisers). Unlike the last two laws, keyword sellers such as search engines are immune from liability under this law. However, the law is expansive in other ways: the law expressly holds an advertiser liable for affiliates' keyword purchases (a currently open point in trademark law), and the law expressly references telephone directory assistance advertiser as being within its scope.

Opt Out. The law only applies after the trademark owner sends a takedown notice/cease & desist demand to the advertiser. Further, if the advertiser stops within 10 days of the takedown notice, it is not liable for any remedies under this law. (They might still be liable under other legal doctrines).

Limited Remedies. My reading of the law is that the only remedies against an advertiser are an injunction and attorneys fees--no damages. I'm not 100% sure about this because some states have laws that create damage claims outside the scope of any specific statute (I'm thinking of California B&P 17200). I don't know if Utah has a catchall provision like that.

Geographic Restrictions. One of the most deficient aspects of Utah's 2007 law was that it required advertisers throughout the country to check the new registry before buying keyword advertising on a third party trademark, even if the advertiser, the keyword seller and the trademark owner all had zero connection with Utah. This law tries much more clearly to restrict its reach to Utah. First, the law only applies to ads "in Utah," whatever that means. Second, the law only restricts keyword buys made from sellers that allow "an advertiser to limit the display of advertisements by geographic location." I'm not exactly sure what this means--after all, a site like eBay segregates its listing database by country; does that mean eBay gives advertisers geographic choices?--but it's clear that an advertiser purchasing ads from a seller that doesn't offer any geolocation choices isn't covered by the law. Third, the law doesn't apply if segregating Utah ad viewers from non-Utah ad viewers isn't "technologically feasible" or would impose "an undue financial burden." I'm not saying that this law will survive a dormant commerce clause challenge--personally, I think all state regulation of the Internet is inherently suspect--but the law certainly tried to limit its reach to Utah.

Narrow Scope. The law applies when "the delivery or display of an advertisement in Utah...is the product of a bad-faith attempt to profit from the registrant's mark by diverting a consumer from the registrant, the registrant's authorized licensees, or another source authorized by the registrant." The statute provides for a multi-factor evaluation of what constitutes a "bad faith diversion" by keyword advertising, with the first factor being that the ad "is likely to create an initial, misleading impression that the person is a legitimate source of the goods or services" (which itself is subject to another multi-factor evaluation). Personally, I don't think there is such a thing as bad faith diversion or initial misleading impressions with respect to truthful ad copy, so this ought to be a null set. Even so, the law lists a number of categorical exclusions from its coverage, including:

* advertiser belief that the ad is fair use. Note: the bill uses the term "fair use" several times, even though this term is not well-defined in trademark law. So it isn't clear to me if "fair use" meant descriptive fair use, nominative use, both, neither, or yet something else.
* the sale is permissible under the First Sale doctrine. This should exclude keyword buys by other parties in a trademark owner's distribution channel. However, as I recently blogged, courts are struggling with the First Sale doctrine's application to e-commerce.
* "(a) fair use of a mark in comparative commercial advertising or promotion to identify the competing goods or services of the owner of the famous mark; (b) noncommercial use of a mark; and (c) all forms of news reporting and news commentary." This is an interesting set of exclusions; it looks like the drafter tried to (incompletely) mimic the federal dilution exclusions. However, the implicit redundancy with the other fair use aspect mentioned above also raises a question why (a) only applies to famous marks. That's either a drafting error or a significant limitation on that prong.

So What Does This Law Do?

From my reading, it appears that this law does not apply to gripe ads or trademark conflicts within a distribution channel. Therefore, I think the law really only applies to advertising on competitors' trademarks, and even then, only some of the ads.

Given the application to competitive keyword advertising and the focus on an injunction as a remedy, this law covers only limited circumstances that are not already addressed by the search engines' trademark policies, which provide an extrajudicial "injunction." Indeed, this law is nearly co-extensive with Yahoo's and Microsoft's trademark policies. On the other hand, the law would govern situations that Google isn't remediating with its trademark policy because it could force advertisers off keywords that Google would happily sell. Furthermore, the ambiguous application of the law to keyword buys from places other than search engines, such as telephone directory assistance services, may implicate some keyword sellers who don't currently have trademark policies.

Conclusion

If I'm right that this law simply codifies current search engine trademarks policies and extends them some, then this law isn't as problematic as Utah's last two efforts. But it also makes me wonder--what's the point? Doesn't Utah have more important problems to solve???

Even if the law is less troublesome than the last two, let's be clear: this is not a good proposal. As with Utah's past two efforts, this law has nothing to do with improving consumer welfare. Instead, it would allow companies to suppress competition by helping companies keep their competitors from gaining exposure among the company's potential customers; meaning that companies won't have to work as hard competing on price and quality. I understand why companies such as 1-800 Contacts, who has a pattern of trying to use legal tricks to suppress competitors, would find it attractive to ply their local legislators for some corporate welfare. But why any legislator would waste their time with such an unabashed anti-competitive, anti-consumer request is simply beyond me. As I have explained elsewhere, policy-makers should be helping consumers get relevant content, not enacting laws to take it away from them.

The bill is making its way through the Utah House, and my observation of Utah legislative proceedings is that bills can be amended substantially from beginning to end. So this bill could get better, or it could get much worse. Fortunately, a coalition of Internet companies is lobbying against the bill, and the bill barely survived its first committee hearing on an 8-6 vote. Thus, it's not guaranteed that this law will make it through. My hope is that the Utah legislators will recognize the law’s depravity and their own poor track record in the area and squelch this latest effort.

Posted by Eric at 09:55 PM | Adware/Spyware , Derivative Liability , Domain Names , Marketing , Search Engines , Trademark | TrackBack

March 03, 2009

Online Resale of Expired Cosmetics May Be Trademark Infringement--Mary Kay v. Weber

By Eric Goldman

Mary Kay, Inc. v. Weber, 2009 WL 426470 (N.D. Tex. Feb. 20, 2009). The Justia page. There are a number of Mary Kay meta-sites tracking this and other Mary Kay lawsuits. For more filings and commentary on this case, see pinklighthouse.com.

Amy Weber is a former Mary Kay Cosmetics independent salesperson (in Mary Kay-speak, "Independent Beauty Consultant," or "IBC"). To retain her IBC status, she was required to buy $200/mo of cosmetics. It sounds like Weber wasn't able to move this much product through traditional Mary Kay sales techniques, so she ultimately lost her IBC status. Meanwhile, apparently stuck with an inventory of unsold goods, Weber started reselling the cosmetics on eBay. Over time, she started buying cheap Mary Kay products on eBay from other folks and flipping them on eBay for more. Eventually she started an e-commerce website, initially called "marykay1stop" but later renamed "touchofpink.com." It sounds like the venture became quite successful.

Not surprisingly, Mary Kay wasn't pleased with the channel conflict that the defendants were causing. A Mary Kay representative first contacted the defendants in 2005, ordering them to change their e-commerce site's name (so that it didn't reference Mary Kay) and remove any copyrighted product shots. The parties dispute this conversation; the defendants say that the representative promised that they would be legally OK if they took these steps, while Mary Kay says that its demands didn't promise safety. Not satisfied with the defendants' responses, Mary Kay sued in 2008 for trademark infringement and a variety of other claims.

Regular blog readers will recognize this fact pattern. We've seen a number of similar lawsuits where a manufacturer/brand owner with restricted distribution channels sues because those channels break down and legitimate original goods hit the Internet. See, e.g., Standard Process. v. Total Health Discount (E.D. Wis. 2008); Australian Gold v. Hatfield (10th Cir 2006); S&L Vitamins v. Australian Gold (EDNY 2007); Standard Process v. Banks (E.D. Wis. 2008); Designer Skin v. S&L Vitamins (D. Ariz. 2008); and Tiffany v. eBay (SDNY 2008). The legal principles developed in these cases are decidedly mixed.

In this case, it sounds like one possible problem is that Mary Kay forced its retailers (i.e., the IBCs) to buy more product (through the minimum monthly orders) than the retailers could sell--which would be a type of channel stuffing that leads to big inventories of unsold goods being held by retailers. If so, then Mary Kay got blitzed by all of this unsold inventory when an Internet sales channel opened up. If anything, the minimum monthly order probably exacerbates the problem because those orders are probably at the reduced distributor prices, which would allow IBCs to flip a portion of the inventory at cost to Weber (keeping the rest for personal consumption at the discounted distributor price or resale through traditional means), enabling Weber to undercut standard retail prices.

Trademark Infringement

From a legal standpoint, the trademark infringement claim looks easy to dispose of. Due to the First Sale doctrine, IBCs and any downstream resellers should be free to resell legitimate goods at whatever price they want; and they should be free to let consumers know of the availability of those goods. However, the First Sale doctrine applies only when the resold goods are not "materially different." Mary Kay argued that the goods were materially different because "(1) they are expired, (2) they do not carry the same product guarantee, and (3) they are old, used, discontinued, or otherwise defective." Some of these arguments are questionable (why are discontinued but unmodified goods "materially different"?), but everyone agreed that Weber was reselling expired goods, and with perishable goods this could matter. Not being a cosmetics consumer, I'm not sure how perishable cosmetics are; I suspect some aren't, even if they are stamped with an expiration date. In any case, the court denies summary judgment, making this a fact question for the jury.

The defendants also claimed nominative use, which allows the defendants to use "Mary Kay" to refer to the vendor/licensor Mary Kay. The nominative use defense is only available if the defendants did not take more of the trademark than necessary and did not imply any sponsorship or affiliation.

In addition to the defendants' website references, the defendants spent $20,000/mo on Google keyword advertising to purchase 79 keywords, of which 75 included the phrase Mary Kay or the name of a Mary Kay product. Further, some of the text ads included Mary Kay in the ad copy. Citing the Total Health case, Mary Kay argued that purchasing keyword ads categorically precluded a nominative use defense because the defendants took more of the trademark than necessary. The court rejects this argument, reading the Total Health case more narrowly. The court goes further to say that it would disagree with a broader reading of the Total Health case because Mary Kay's proposed reading would mean that "second hand sellers could not advertise on search engines such as Google without facing liability for trademark infringement."

Instead, the court cites Tiffany and Designer Skin for the proposition that keyword advertising on third party trademarks does not automatically create an implied sponsorship or affiliation. As the court says:

the law will destroy the valuable resource that search engines have become if it prevents those search engines from doing what they are designed to do: present users with the information they seek as well as related information the user may also find helpful or interesting [cite to Designer Skin]

Yes! However, the court says that a fact issue remains whether the ad copy created an implied sponsorship/affiliation. The ad in question read:

"Mary Kay Sale 50% Off: Free Shipping on Orders over $100 Get up to 50% Off-Fast Shipping www.touchofpinkcosmetics.com."

The court says the language "Mary Kay Sale 50% Off" could be read to imply that the ad was from Mary Kay itself.

As for the Mary Kay references on the touchofpink.com website, the court says that the likelihood of confusion factors point heavily in favor of a plaintiff win, so on that basis summary judgment for the defense is inappropriate. The court's whole discussion of likelihood of confusion is entirely odd; the court seems to miss the point that the likelihood of confusion factors necessarily will point towards infringement when dealing with an unauthorized reseller of legitimate goods.

Other Discussion

* The court dismisses the tortious interference claims because the defendants didn't actively recruit other IBCs to resell goods to them, even if the defendants knew that the IBC contract had a restriction on Internet resales, and because the defendants sale of the "trappings" of being an IBC didn't substitute for becoming an IBC.

* The court also dismisses the unjust enrichment claim because unjust enrichment isn't a standalone cause of action. Why why why do so many plaintiffs waste their time alleging unjust enrichment as a standalone cause of action???

* The court partially tosses Mary Kay's consumer survey putatively showing the consumers assumed an affiliation between Mary Kay and the touchofpink website: "confusion that stems solely from the fact that the Webers are reselling Mary Kay products is not legally relevant and might confuse the jury. As a result, the court cannot allow the jury to hear the bald statement that forty five percent of consumers were confused about touchofpinkcosmetics.com's affiliation with Mary Kay." However, respondents' narratives about why they assumed affiliation are admissible.

Conclusion

Mixed rulings like this often produce a settlement. Frankly, I could see both sides wanting to keep this case out of a jury's hands. In court, defense counsel will hammer on the fact that Mary Kay is trying to suppress legitimate resales because they don't like the competition; plaintiff's counsel will probably argue that the defendants deliberately went too far in pretending to be Mary Kay instead of being clearer that they were an unauthorized reseller. I don't know which argument will appeal more to a Texas jury, and this unpredictability increases the attractiveness of a settlement.

Doctrinally, I suspect the defendants hoped for a better ruling. Their First Sale defense was so palpable that it's frustrating the defendants couldn't get the court to embrace it fully. Then again, unauthorized resales of legitimate goods that have leaked out of a controlled channel have really confounded the courts, so perhaps a mixed ruling is to be expected--especially in light of some questionable (in hindsight) decisions by the defendants, such as their original choice for their website name, the ambiguous references to Mary Kay in their ad copy, and the heavy reliance on reselling expired cosmetics.

While the defendants' failure to get a solid win was a loss of sorts, this case does offer some good news for future defendants--especially the court's clear conclusion that simply buying trademarked keyword ads, without more, does not create an implied sponsorship or affiliation with the trademark owner. It would have been nice for the court to rely on some social science to support this proposition, but let's celebrate the court's wisdom however it got there. This, combined with the recent case saying that keyword advertising isn't a false designation of origin, suggest that we are slowly overcoming past rulings that have treated keyword advertising as having some mystical power to hypnotize and divert consumers.

Finally, while completely irrelevant to the case, I'd be remiss if I didn't link to a Mary Kay pink Cadillac--perhaps the most enduring attribute of the Mary Kay brand for a non-consumer like me. Wow.

Posted by Eric at 12:54 PM | E-Commerce , Search Engines , Trademark | TrackBack

February 25, 2009

Domaining Registrar Defeats Cybersquatting Lawsuit--Philbrick v. eNom

By Eric Goldman

Philbrick v. eNom, Inc., 2009 WL 152127 (D.N.H. Jan. 22, 2009). The Justia page.

Philbrick's Sports is a New Hampshire retailer of sporting goods. eNom's customer registered two domain name variants of Philbrick Sport's website. When the customer didn't pay eNom, eNom took the names back for itself. Subsequently, eNom registered another domain name variant of Philbrick's website through a domain name tasting program. Each of these domain names were parked with Yahoo, who displayed sponsored ads on the domains. Philbrick's then sued eNom, claiming cybersquatting and trademark infringement.

Anti-Cybersquatting Consumer Protection Act (ACPA) and Trademark

The court sidesteps the complexities associated with the domain name registrar safe harbor when applied to a registrar holding the domain name for itself, but calls eNom's argument "troubling" (for a little more on this, see my blog post on OnlineNIC). Instead, the court finds that the Philbrick trademark is neither famous (thus not triggering the ACPA protection for famous marks) nor distinctive because it's a personal name and the plaintiffs failed to establish secondary meaning. The fame analysis is actually easy due to the geographically limited footprint of the business, although the court doesn't reference that.

To overcome the fact that Philbrick is the plaintiff's surname, the plaintiff makes a common argument that eNom intentionally copied the plaintiff's trademark, which the plaintiff argues should act as prima facie evidence that the mark has achieved secondary meaning (i.e., if the term is meaningless to consumers, why is the defendant mimicking it?). Philbrick's goes further to argue that Yahoo's auto-population of the links provides evidence that Yahoo recognizes the Philbrick's mark and is responding to it. The court rejects these arguments, correctly calling them "circular," and ultimately concludes they are unpersuasive. It was nice to see a court apply a rigorous scrutiny of secondary meaning considerations, rather than rotely rubber-stamping data that only acts as a proxy for consumer perceptions.

The net result is a painful outcome for the plaintiff. As we've seen before (e.g., the American Blinds lawsuit), the plaintiff walks out of court with fewer trademarked assets than it thought it had.

With Philbrick's marks declared non-distinctive for lack of secondary meaning, Philbrick's trademark infringement claim drops away. For good measure, the court independently concludes that there was no likelihood of consumer confusion.

Cyberpiracy

In an unusual move, the plaintiff brought a "cyberpiracy" claim for registering a domain name containing his personal name (15 USC 1129). This portion of the ACPA is lightly litigated because it only applies when the registrant obtains a domain name for profitable resale, and few domain registrants do that any more. Rather than ruling on this ground, the court says that the domain "philbricksports" is not substantially similar to the plaintiff's name of "Daniel Philbrick," and thus the claim fails for lack of similarity. This is a pretty narrow reading of 1129 because it seems to allow a personal name in the domain name so long as there is a substantial noun in the domain name as well. If this reading holds, we'll see even fewer 1129 claims in the future.

Other Points

A false advertising claim fails as well. The plaintiff claimed that the headline "Welcome to Philbrickports.com” was false, but because the domain was Philbrickports.com, this headline is unquestionably true.

In addition to the factual novelty of the case (the registrar as an ACPA defendant and the 1129 cyberpiracy claim), some other interesting angles to this case:

* I've repeatedly argued that lawsuits over domain names don't make economic sense, and we get more evidence of that here. The court cites evidence that one domain name generated $183.29 in revenue and a second domain name generated 70 cents of revenue. If Philbrick's doesn't get statutory damages from the court, with numbers like these, there is no possible way that a court will award enough damages to make this lawsuit economically rational.

* the case does not cite the limited precedents involving domainers and cybersquatting. Most conspicuous is the absence of a citation to Verizon v. Navigation Catalyst, which is the flagship plaintiff's win in the area. Verizon's other big win, with $33M in damages, didn't get a mention either.

* the court rejects any initial interest confusion argument with a nice shoutout:

it is worth noting that the initial interest confusion doctrine has been criticized as “predicated on multiple and empirically unsupported assumptions about searcher behavior” on the Internet, e.g., “that using a trademarked keyword means that the searcher wanted to find the trademark owner.” Eric Goldman, Deregulating Relevancy in Internet Trademark Law, 54 Emory L.J. 507, 555-56 (2005). That is yet a further problem with the proof in this case-apart from the one customer who encountered the “philbricksports.com” site while looking for the plaintiffs, there is no evidence to suggest how anyone else ended up there, and thus no basis to assume that they were necessarily trying to find the plaintiffs' business but became “lost,” even initially.

I love it when a court does good research! :-)

Conclusion

In the end, eNom wins summary judgment on all claims. According to this news report, Philbrick plans to appeal. From my perspective, that doesn't look like a prudent call. Putting aside the illogic of throwing more money at these not-worth-it domain names, the district judge missed a number of defense-favorable rationales to support its ruling. As a result, there is plenty of room for an appeals court to find alternative grounds to affirm.

UPDATE: Marty Schwimmer doesn't agree with this opinion or with me. Marty is right that the court was decidedly not generous with the secondary meaning analysis, although I did like that the court didn't just accept the plaintiff's arguments blindly.

Posted by Eric at 10:02 AM | Domain Names , Trademark | TrackBack

February 24, 2009

Guerrilla Marketing Under False Pretenses Might Be Passing Off--Heartland v. Forest River

By Eric Goldman

Heartland Recreational Vehicles, LLC v. Forest River, Inc., 2009 WL 418079 (N.D. Ind. Feb. 18, 2009). The Justia page.

When deciding whether it should bring a lawsuit, a potential plaintiff needs to consider not only their likelihood of winning, but also the risk that the lawsuit will prompt some counterclaims or affirmative defenses that leave the plaintiff worse off than if it had never sued in the first place. We've seen several examples of plaintiffs who probably wished they hadn't started the litigation. See, e.g., American Blinds, Axact, and Buying for the Home. Sometimes it really is better to do nothing.

Today's lawsuit started with a patent infringement claim by Heartland, a manufacturer of travel trailers/RVs, against its competitor Forest River. Forest River strikes back against Heartland by arguing that Heartland engaged in a type of guerrilla marketing. Here's a recap (based on the facts recounted in the opinion):

Forest River brought RV dealers to lovely Mishawaka, Indiana (a suburb of South Bend) for a private trade show (which sounded like an event to wine-and-dine dealers of Forest River's RVs). Forest River put the 700+ attendees up at local hotels. Heartland apparently got wind of the shindig and prepared packets for these attendees containing comparative advertising and an invitation to visit Heartland's facility in beautiful Elkhart, Indiana (also part of the greater South Bend/Michiana metro area). Then, while the attendees were at one of Forest River's events, Heartland employees:

went to the front desks of the hotels and then falsely stated and represented to the hotel attendants that they were "from Forest River" and that they had "important" envelopes which needed to be delivered to the Forest River guests "for a Forest River dealer meeting the next day."

At least two hotel security cameras caught Heartland employees making these requests. (Say cheese!) Not wanting to reject a request putatively from a major customer, the hotel employees dutifully distributed Heartland's packets to the guests staying there. According to Forest River, Heartland's action caused "disruption and confusion among several of Forest River's guests because of the incongruity and surprising manner in which the envelopes were delivered ... [and] adversely affect[ed] Forest River's good will with its dealers and adversely affected Forest River's sales of its products."

Clearly Heartland isn't afraid of aggressive marketing. But was their stunt illegal?

The opinion does not suggest that Heartland's packets contained deceptive marketing materials. The court also does not say that Heartland misappropriated a trade secret or otherwise impermissibly learned about the attendees (although the opinion implies that Heartland might have gotten an illicit copy of the attendee list). Further, knowing that the dealer group was in town, Heartland can freely communicate with the attendees in a variety of ways--billboards, radio ads, even leafletters standing outside the various hotels

So the main crux of the problem is Heartland's apparent misrepresentation to the hotel employees to get them to distribute the packets to the hotel guests. Is such a misrepresentation actionable by the putatively harmed competitor? The court expresses doubt about the merits of Forest River's claim but does not dismiss it, saying:

Heartland's intentionally deceptive conduct in the hotel action plausibly had the natural and probable tendency and effect of which was to deceive the public so as to pass off its goods or business as for that of Forest River. Moreover, the Court will not condone Heartland's actions as simply healthy competition.

One possible lesson from this case is that it would make a lot of sense for Heartland and Forest River to collaborate on a greater Michiana RV trade show that would have given them shared access to the dealer group. This would have mitigated the risk of guerrilla marketing by one of the local competitors and allowed them to share expenses.

Another lesson is that the case reinforces the already well-established rule that marketers should not lie in marketing campaigns, either in the marketing message's substance or to get the marketing message delivered.

Finally. the case reminded me a little of the Toy Manufacturer's case (Toy Manufacturers of America, Inc. v. Helmsley-Spear, Inc., 960 F.Supp. 673 (SDNY 1997)), which suggests that certain kinds of time-and-space adjacencies for competitive activities are not permissible. For more discussion about the trademark implications of such adjacencies, see my Brand Spillovers article.

Posted by Eric at 09:57 AM | Marketing , Trademark | TrackBack

February 19, 2009

AP Enforcement Action Against Syndicator Survives Dismissal Motion--AP v. All Headline News

By Eric Goldman

Associated Press v. All Headline News Corp., 08 Civ 323 (SDNY Feb. 17, 2009)

We've seen a lot of ruffled feathers over Internet republication of news headlines, ledes and snippets--the most recent being the GateHouse lawsuit and settlement, but we can easily go back at least a dozen years to the old Shetland Times lawsuit to find similar issues. Some of the teeth gnashing is due in part to the ambiguity and paucity of directly applicable law, so any new judicial ruling, even an opinion on a motion to dismiss, is noteworthy.

According to the opinion (which is a little cryptic), All Headline News either rewrites AP stories or copies stories in full, strips out the source identification in some cases, and republishes its version of the stories to a network of paying customers. To the extent All Headline News is a syndication service of real-time news, it appears to be at least a partial competitor of AP. AP alleged a number of claims against All Headline News, and this ruling addresses All Headline News' motion to dismiss the following complaints:

* Hot News. After concluding that All Headline News was subject to NY's law, it held that a hot news claim was properly pled. This makes sense in light of both the original INS v. AP case from 1918 (which addressed a not-dissimilar set of facts) and the more recent 1997 2nd Circuit Motorola case, which held that sports scores might be protectable under a hot news doctrine. While we have not seen a lot of viable hot news claims in the past dozen years, the hot news doctrine remains important because it exists independent of copyright. Accordingly, the republication of headlines and ledes could be a hot news misappropriation even if it isn't a copyright infringement. Because of the early procedural posture, the hot news claim might still fail, but the hot news doctrine's survival of the motion to dismiss isn't a favorable development for news aggregators and republishers.

* Copyright Management Information (17 USC 1202). We haven't seen much action under this portion of the DMCA, which protects against the removal or modification of "copyright management information" (such as a byline) from copyrighted works. It hasn't been extensively litigated, and the courts have interpreted the statute narrowly. Despite that, the court does not dismiss the claim. It will be interested to see if the AP can have any success with this claim given the narrow precedent supporting it.

* Trademark Infringement. The court dismisses the trademark infringement claim. The AP's pleading of both CMI violations and trademark infringement points to an interesting conundrum for content publishers/aggregators. Remove the source attribution and you create a potential 1202 problem. Preserve the source attribution and you might be committing trademark infringement. The court overcomes the damned-if-you-do/damned-if-you-don't situation by implying that citing your sources can't be a trademark infringement.

* Unfair Competition. The court dismisses the 43(a) false advertising claims but preserves the common law unfair competition claim.

Implications. if, in fact, All Headline News is paraphrasing or plagiarising AP stories to operate a competing business, this is a materially different factual scenario than the aggregation and republication of headlines/ledes/snippets that has been the primary focus of Internet legal angst for the past few years. Nevertheless, revitalized doctrines of hot news and 1202 copyright management information both pose significant risks to these aggregation and republication activities independent of the copyright analysis. At minimum, this is a good reminder that focusing purely on copyright infringement claims misses other important considerations.

HT: Marty Schwimmer

UPDATE: Joe Mullin has some interesting things to say about the hot news doctrine and this lawsuit.

UPDATE 2: Jeff Neuburger's comments.

Posted by Eric at 11:21 AM | Copyright , Trademark | TrackBack

February 17, 2009

Affiliate Liability Talk Notes from SMX West

By Eric Goldman

Last week, I spoke for 10 minutes (actually, I took 12) at SMX West on the topic of advertiser liability for affiliates' actions. My talk notes:

General Principles

Issue: when are advertisers liable for their affiliates’ behavior?

General rule: a company isn’t automatically liable for the acts of independent contractors.

Main exception: principal-agency liability. Principals are automatically liable for agent’s behavior within scope of agency. Agency can be express, implied or apparent. Generally, to form an agency, principals must control the agent’s behavior; an agency isn't formed merely by telling an independent contractor the desired results.

Application of general rule: Unless affiliates are agents, advertisers aren’t liable for their behavior, and most affiliates aren’t agents.

CAN-SPAM

CAN-SPAM is a statutory exception to the general rule. State anti-spam laws may have similar statutory extensions.

15 USC 7705: Advertiser liability if advertiser (1) knew that affiliate is spamming, (2) is economic beneficiary of spam, and (3) doesn’t take reasonable steps to prevent or report.

Numerous advertisers have settled with the FTC based on the FTC’s theories of how to interpret this statute. However, the FTC's interpretations don’t have a great track record in court:

* U.S. v. Cyberheat, Inc., 2007 WL 686678 (D. Ariz. March 2, 2007). Government’s theory of strict liability for affiliate behavior rejected—liability requires advertisers’ knowledge and control of affiliate behavior.

* US v. Impulse Media. Government took Impulse Media’s liability for affiliate spam to a jury and lost.

Also, most civil plaintiffs have lost trying to hold advertisers liable for affiliate spam. See, e.g., Fenn v. Redmond Venture, Inc., 2004 UT App 355 (Utah Ct. App. Oct. 15, 2004); Hypertouch, Inc. v. Kennedy-Western University, No. 3:04-cv-05203-SI (N.D. Cal. Mar. 8, 2006); People v. Synergy6, Inc., Index No 404027/03 [Sup Ct N.Y. Co 2006]; ASIS Internet Services, v. Optin Global, Inc., 2008 WL 1902217 (N.D. Cal. March 27, 2008; unsealed April 29, 2008),

Other Types of Affiliate Liability

* Fraudulent ads prepared by affiliates. Florida's AG office has pursued mobile content ads, including those prepared by affiliates to promote the advertiser.

* Adware. The FTC and NYAG have taken expansive view of advertiser liability for running ads in adware. Indeed, based on these theories, the NYAG procured a settlement from Priceline, Travelocity, and Cingular Wireless in Jan. 2007 for $30-$35k each. But the NYAG’s expansive theories about affiliate installations of adware were soundly rejected in People v. Direct Revenue LLC, 2008 WL 1849855 (N.Y. Sup. Ct. March 12, 2008).

* Trademarks. In at least three cases, trademark owners have alleged that advertiser liable for trademark infringement due to affiliate behavior (such as affiliates bidding on trademark owner’s keywords). See DSW v. Zappos.com (S.D. Ohio complaint filed May 12, 2008); NameSafe v. LifeLock (M.D. Tenn. complaint filed June 26, 2008); Rosetta Stone v. Rocket Languages (C.D. Cal. complaint dated July 2, 2008). This is an unsettled area of trademark law. I think it should be analyzed as contributory trademark infringement, which probably would result in no liability for advertisers. As a point of comparison, advertisers are not liable for ads appearing on a site that infringes trademarks. See Fare Deals v. World Choice Travel.com case, 180 F. Supp. 2d 678 (D. Md. 2001),

Other Consequences of Affiliate Liability

Even if advertiser isn’t liable for affiliate’s behavior, advertiser-affiliate relationship may still create problems:

* NY sales tax collection obligation. NY Tax Law Section 1101(b)(8)(vi) enacted April 2008 says:

a person making sales of tangible personal property or services taxable under this article ("seller") shall be presumed to be soliciting business through an independent contractor or other representative if the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller, if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an agreement with the seller is in excess of ten thousand dollars during the preceding four quarterly periods

Legal challenge to the statute: Amazon and Overstock v. NY, decided Jan. 12, 2009. The court upheld the statute against dormant commerce clause, due process and equal protection claims. I think this is a goofy ruling.

Implications of the NY Sales Tax law:

1) If upheld, other states undoubtedly will adopt the same model.

2) Web retailers will either double-down on affiliate programs or kill them (Overstock killed its NY affiliates).

3) This may be the effective death knell for retailer-sponsored online affiliate programs, which could have a significant consequence on the Internet advertising community.

* Competition with affiliates for AdWords/organic placement.

* Public opinion, including FTC shaming, adverse media coverage, and disgruntled consumers.

Best Practices for Advertisers

1) Advertisers' affiliate contracts should prohibit ads in spam, adware, etc. This has successfully cut off advertiser liability in several cases (Fenn, Hypertouch, Impulse Media, Synergy6)

2) Affiliate contract should restrict the affiliates' keyword ad practices. Note, however, the more the affiliate contract controls affiliate behavior, the greater the risk that a court will misinterpret the contract to form an agency relationship.

3) Escrowed/delayed payments are the best way to minimize affiliate fraud and manage contract compliance. It's rare for advertisers to bring lawsuits against affiliates (e.g., Land’s End v. Remy, eBay v. Digital Point Solutions). The best way to curb bad affiliates is to keep dollars out of their pockets.

4) Advertisers must actually police affiliate behavior

5) Especially in light of NY tax law, advertisers must do a cost-benefit analysis of affiliate programs. Are they net-profitable, after considering all of the costs? The answer may surprise you.

For more reading on this topic, see my lengthy article from last year, Affiliate Liability Extravaganza.

Posted by Eric at 10:07 AM | Derivative Liability , E-Commerce , Marketing , Trademark | TrackBack

February 13, 2009

Yahoo's Sale of Competitive Keyword Ads Isn't False Designation of Origin--Heartbrand Beef v. Lobel's

By Eric Goldman

Heartbrand Beef, Inc. v. Lobel's of New York, LLC, 2009 WL 311087 (S.D.Tex. Feb. 5, 2009). The Justia page.

Heartbrand sells Akaushi beef, a special and very expensive Japanese variety of beef. Heartbrand brought an enforcement action against several defendants, including Yahoo for selling a retailer, Lobel's, the first ad position for the keyword "Akaushi." Lobel's sells very expensive beef but not Akaushi beef. Heartbrand alleged that Yahoo's display of the ad constituted Lanham Act false designation of origin and common law unfair competition. I suspect that other plaintiffs have alleged that the search engine makes a false designation of origin by presenting keyword ads, but I can't recall an actual ruling on this issue before.

From my perspective, the natural analytical approach would be to assume the advertiser makes the false designation of origin and then consider Yahoo's liability under some kind of "contributory" or "derivative" false designation claim (if such a thing exists). However, stated this way, the claim then should be preempted by 47 USC 230; other cases have concluded that 47 USC 230 preempts non-trademark portions of the Lanham Act. See, e.g., Kruska v. Perverted Justice Foundation Inc. But see Doe v. Friendfinder.

The court sidesteps this direct-v.-contributory issue entirely, even though it acknowledges that Heartbrand's claim doesn't make sense because "Yahoo! obviously does not fit into these classic models [of false designation of origin] because Yahoo! is not in the business of selling beef." Instead, the court rejects the false designation claim because (1) Yahoo doesn't make any "statement" (the advertiser does), and (2) even if Yahoo does make a statement, it's not designating the origin of Yahoo's offerings.

This case reminded me of the Overstock v. SmartBargains opinion from last August, where the Utah Supreme Court said that trademark-triggered competitive pop-up ads do not constitute common law unfair competition or tortious interference. (Note that in that case, the defendant was the ad buyer, not the ad seller, so there is a significant factual difference). In both the Overstock case and this one, the courts rejected plaintiffs' efforts to fit their claims in doctrines that are ancillary to the more traditional trademark infringement claim. In that respect, this case helps channel the lawsuits back to trademark infringement and might help curb claim sprawl.

Ryan Gile has also blogged on the case.

UPDATE: Rebecca weighs in.

Posted by Eric at 12:02 PM | Derivative Liability , E-Commerce , Marketing , Search Engines , Trademark | TrackBack

February 06, 2009

2008 Cyberlaw Year-in-Review

By Eric Goldman

It's a sign of my schedule that I'm just now getting to this, and this post will be more pithy than I initially conceived. This post recaps some of the Cyberlaw highlights from last year. Frankly, the two biggest stories of 2008 were the financial markets meltdown and the ascension of President Obama, neither of which have a lot of Cyberlaw angles. In light of those big developments, Cyberlaw in 2008 was comparatively quiet. However, there is still plenty of interesting developments to revisit.

Broad Themes

A few broad themes emerged last year:

* Ludicrous trademark claims. 2008 hardly had a monopoly on dumb trademark claims; those are perennial. But 2008 certainly saw some asinine entries, including putative Cyberlawyer Eric Menhart's claim to own a trademark in the term "Cyberlaw," Jones Day's efforts to claim that a web page referencing its name as the employer of some homebuyers violated its trademark rights, and putative Cyberlawyer John Dozier's claim that if his name is used as anchor text, the link must go to his website or it violates his trademark right.

* This was a good year for expansive readings and applications of user agreements. Some examples:
- the Lori Drew prosecution, where Lori was convicted of violating an agreement that someone else clicked through.
- Jacobsen v. Katzer, where a user of copyrighted material is bound by a contract that he/she never clicked through at all.
- AV v. iParadigms, where kids were not allowed to void a user agreement despite their status as minors (and despite the fact that some of them had no meaningful choice about whether or not to consent).
- JuicyCampus enforcement action, where the New Jersey Attorney General's office tried to treat a negative user behavioral restriction in a user agreement as an affirmative marketing representation that such user behavior would not occur on the site.

* One of the long-standing Cyberlaw memes is that websites must either be passive conduits to avoid liability or active editors to manage their liability, but if a website chooses the latter, the website is liable for any editorial mistakes. That is, if the website edits its site but misses something, it's fully liable for what it missed. This simply isn't true under 47 USC 230, which allows websites to choose to be passive, active or anything in between without varying liability. In the IP context, this passive v. active meme has had more traction, but 2008 saw two solid cases suggesting that if a website tries to police its premises and fails, courts will be sympathetic and excuse any omissions. Example #1: Tiffany v. eBay, where the court gave eBay extra credit for its VeRO program as a basis to excuse any counterfeit goods that slip through. Example #2: Io v. Veoh, where the court was more willing to excuse Veoh because it had undertaken extra policing efforts than was required for the 17 USC 512 safe harbor. Finally, although not an IP case, the court in Cisneros v. Yahoo also lauded search engines for their affirmative efforts to block gambling ads, which the court acknowledged was a hard challenge.

* Despite some adverse rulings early in the year, punctuated by the Ninth Circuit's en banc ruling in Roommates.com, the 47 USC 230 immunization is still extremely robust. We saw a number of expansive and pro-defense rulings per 230 throughout the year, including Craigslist, Doe v. MySpace, Cisneros v. Yahoo and Goddard v. Google. Perhaps more importantly, in the three 230 cases I've seen since Roommates.com that cited to the opinion, all three cited the opinion in ruling for the defense.

* Battles over keyword advertising are hardly over, even though Utah officially backed off its attempt to ban them. The ABA IP Section tried to get into the act, and American Airlines sued Google, settled, and then sued Yahoo.

Top 11 Cyberlaw Developments of 2008

#11: Utah Trademark Protection Act repealed. The Utah Trademark Protection Act had the potential to throw the entire keyword advertising business into turmoil. Instead, now that it's repealed, it just remains as a dramatic reminder of the Utah legislature's incompetence regarding Internet legislation.

# 9 and 10: Fair Housing Council v. Roommates.com and Goddard v. Google. The Roommates.com en banc opinion makes the list based mostly on its potential consequences, not its actual effect. It remains one of the most significant pro-plaintiff incursions into the solidly defense-favorable interpretations of 47 USC 230, but it's so riddled with contradictory and ambiguous language that no one really knows what to do with it. I think Judge Fogel's reading of the case in Goddard v. Google has the potential to become the defining interpretation of the case, and his solidly defense-favorable reading of the precedent in excusing Google for ads placed by its advertisers may only reinforce how little Roommates.com changed the law.

#8: AV v. iParadigms. This case was a terrific win for online fair use enthusiasts because the for-profit commercialization of a database of third party copyrighted works was still deemed fair use. The upholding of the contract against the minors forced to enter into it was also significant. Before this ruling, my assumption is that any plaintiff trying to form a class action lawsuit in the face of an adverse user agreement could always form the class on behalf of any minors who had the right to void the contract. This case seems to shut down that loophole in user agreement protection.

#7: Io v. Veoh. The 17 USC 512(c) safe harbor has been law for over a decade and has produced a couple dozen rulings, but few are cleaner and more decisive for the defense than this one. It was a textbook example of a court rejecting the many different arguments plaintiffs make to kick a defendant out of the safe harbor, and as mentioned before, it was a great validation for Veoh's decision to do more than 512 required.

#6: Jacobsen v. Katzer. From a doctrinal standpoint, this case raises really difficult questions about how a copyright consumer can be bound to terms that he/she never "assented" to. Even so, this case had huge implications because it effectively validated that open source licenses can be binding on licensees, giving much more legal credibility to the entire multi-billion open source software industry. However, an odd footnote: on remand, the district court denied an injunction for the plaintiff, raising more issues about what exactly the plaintiff won at the Federal Circuit.

#5: Tiffany v. eBay. A fantastic validation of eBay's practices against a very serious and sympathetic challenger who had plenty of evidence that counterfeit goods were being sold on eBay's site. The case also shows that courts can grow tired of IP owners simply making up their own rules about how online sites should protect them and then suing the sites for breaching these artificial rules.

#4: Mazur v. eBay. A more scary case to 47 USC 230 defense enthusiasts than the Roommates.com opinion. The court says that eBay isn't protected by 230 for some of the marketing representations it makes, even if those representations are rendered untrue by third parties. While this makes a lot of doctrinal sense, it is also a green light for plaintiffs to mine a website's marketing representations as a way to bypass the otherwise-fatal consequences of 230 on a lawsuit triggered by user behavior or content.

#3: Google Book Search settlement. This makes the list for two independent reasons. First, many folks were hoping the case would establish solid precedent on online fair use, and the settlement ended that hope. Second, the proposed Book Rights Registry has the potential to reshape a number of major industries, including the book publishing business, the book retailing industry and the library industry.

#2: the Lori Drew prosecution. I think this may have been the most polarizing Cyberlaw development of 2008, exposing deep divides in people's appetite for punishing bad conduct online. It's hard to assess the overall implications of her conviction because no one rallied to praise Lori Drew's choices, and her case is still a ways from a final legal outcome. However, the possible implications of the case were so complex that it took a special three part series for me to explore its nuances (1, 2, 3).

#1: Cartoon Network v. CSC (the "Cablevision" case). Boy, the more I think about this case, the more important it becomes. The case upends our assumption that if we see it online, it's fixed, creating a new class of unfixed electronic works. Also, the court treats the users, not the service, as making the requisite copies, which reinforces the possibility that online providers can be just "dumb technology providers" for copyright law purposes and reinvigorates the possible defense that a service provider's copying is just done as a proxy for its users. However, the Supreme Court's ambiguous response to the cert petition--not yes, not no, but a request to the Solicitor General for comments--leaves this decision in a precarious position.

Other Developments of Special Note

47 USC 230

* Doe v. MySpace. The Fifth Circuit soundly rejects the argument that MySpace had an obligation to police its “premises.”

* Craigslist. Judge Easterbrook's language in Doe v. GTE had given plaintiffs some hope that the Seventh Circuit would provide a friendly venue to plaintiffs trying to overcome 47 USC 230. Judge Easterbrook may still love his language (which he quoted extensively in the Craigslist ruling), but his practical and no-nonsense ruling for the defense squelches the hope that the Seventh Circuit will become a plaintiff's haven.

* New Jersey's enforcement action against JuicyCampus. State AG offices HATE 47 USC 230.

Affiliate Liability

* Impulse Media. A jury thumped the FTC's overly expansive views of affiliate liability for spam.

* NY v. Direct Revenue. A state judge emphatically rejected the NY AG's office's expansive views of affiliate liability for adware.

Trademarks/Domain Names

* American Airlines' lawsuits against Google and Yahoo. No one I know fully understands why American Airlines sued Google for selling its trademarks for keyword ads. No one I know understands what concessions Google gave to American Airlines to settle the case. And no one I know understands why American Airlines decided to sue Yahoo after procuring the Google settlement. It's all a big mystery.

* NSI's grabbing of domain names in response to WHOIS queries. Is there any better example of ICANN's failings to police domain name retailers than to have one retailer selling a scarce good grabbing the good exclusively (blocking attempted sales by all other retailers) when a customer merely inquires about it?

* Kentucky's attempted seizure of 141 gambling-related domain names. As I wrote before, "Is a domain name property? Yes. See the Sex.com case. Can a plaintiff seize a domain name pursuant to a favorable judgment? Yes. Is it appropriate for Kentucky to seize domain names for gambling websites available in Kentucky? Of course not, because this would effectuate an extraterritorial reach by curtailing non-Kentucky residents from making possibly legal uses of the domain name."

* Eric Menhart, a lawyer who claims to practice Cyberlaw, doesn't know that Cyberlaw is a generic term.

* New gTLDs. Maybe I should reserve this development for 2009...if it happens.

Others

* McCain complains about 512(c)(3) notices taking down his YouTube videos. Surprise! 512(c)(3) notices are unforgiving. Sen. McCain, now that you've had a first-hand taste of their power, maybe you'd like to revisit the statute to see if it's producing the right incentives?

* FCC's bust of Comcast. The pro-regulatory forces were queued up to pounce on any examples where an IAP violated Net Neutrality principles, and Comcast's chicanery in forging reset packets was impossible for anyone to defend.

* NebuAd's flameout. Behavioral ad targeting is in our future unless regulators stop it. NebuAd won't be the winning provider of targeting services, but legislators will keep trying to regulate it further out of existence nonetheless.

Posted by Eric at 05:50 PM | Adware/Spyware , Copyright , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Spam , Trademark | TrackBack

February 04, 2009

Online Retailer's Link to House Brand from Manufacturer's Product Page Might Infringe--BabyAge v. Leachco

By Eric Goldman

BabyAge.com, Inc. v. Leachco, Inc., 2009 WL 82552 (M.D. Pa. Jan. 12, 2009). The Justia page.

Welcome to the cutthroat world of pregnancy pillows. Leachco manufactures pregnancy pillows and has a patent on them. BabyAge is an online retailer of baby and maternity goods and sells pregnancy pillows, including Leachco's pillows as well as the "Cozy Comfort," BabyAge's house-branded pillow.

Leachco asserted patent and trademark claims against BabyAge for the Cozy Comfort. The patent claims get tossed on summary judgment.

The trademark claim is based on the fact that BabyAge creates "featured brand" web pages for each manufacturer it carries. (See the current page, although the relevant action was before 2007). This featured brand page contained a "pregnancy pillows" section that had a 200 word narrative educating consumers about pregnancy pillows and informing them of two competitive brands--the Cozy Comfort and another brand. Each of these brand references included a hyperlink to the product page for those pillows. Leachco's brands weren't mentioned in the narrative at all.

Leachco argued that this narrative constituted a "bait and switch" because the Leachco brand lured consumers to the featured brand page, where they were then redirected to these competitive brands. The court conceptualizes this as initial interest confusion. After running through the multi-factor likelihood of consumer confusion test irresolutely, the court denies summary judgment to BabyAge on the trademark infringement claim.

The possibility of BabyAge being liable for the featured brand page is ludicrous for at least three reasons:

1) BabyAge should be protected under the First Sale doctrine for using the Leachco brand in the featured brand page. (Surprisingly, First Sale wasn't mentioned in the opinion at all). Due to the First Sale doctrine, BabyAge is allowed to advertise that it sells Leachco products, which it did. The advertisement does not have to be exclusively for Leachco products, any more than a grocery store does not need to feature only one brand in any particular ad.

2) There is no possibility of "real" consumer confusion. The 200 word narrative is entirely clear that the pillows being discussed are not from Leachco; and any consumer investigating the linked product pages will be even more clear about the distinction. Thus, the only possible confusion is any initial interest confusion (whatever that means) that occurred before reading the narrative...but since the narrative self-corrects any confusion, where is the harm at all?

3) As I discuss in my Brand Spillovers paper, this looks like cyberspace exceptionalism. Offline retailers create these types of multi-brand product adjacencies all the time. As just one example, a retailer may have a dedicated area for a single brand (such as the clothing area of a department store), but there may be placards or signage in that area that inform consumers of other options, or there may be a salesperson assigned to the area who might orally inform consumers of other options. The signage or salesperson communications not only aren't trademark infringement (initial interest confusion or otherwise), but (as evidenced by the complete lack of cases making such arguments) it would never occur to most trademark owners that they might sue the retailer for this "bait-and-switch." Yet, somehow, when the signage and product information is all digital, suddenly consumers now might be bait-and-switched. Huh? As my Brand Spillovers paper explains, this is both doctrinally wrong and potentially detrimental to consumer search costs.

Posted by Eric at 08:48 AM | E-Commerce , Trademark | TrackBack

January 28, 2009

Web Host Faces Potential Contributory Trademark Liability--Louis Vuitton v. Akanoc

By Eric Goldman

Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., C 07-03952 JW (N.D. Cal. Dec. 23, 2008)

This is one of countless anti-counterfeiting actions by luxury brands against allegedly infringing websites—but the twist is that the brand owner is going after the sites' web host. In Tiffany v. eBay, the big brand got very little traction against eBay based on eBay hosting auctions for allegedly infringing goods. This case doesn't turn out as well for the web host. The court, without citing Tiffany, leaves open the possibility that the web host could be liable for its customers' infringing activities. Why the difference?

Contributory Copyright Infringement

The court starts with contributory copyright infringement. The court doesn't clearly specify the direct copyright infringement taking place. It discusses evidence that the defendant's customers are selling counterfeit goods, but it doesn't connect the dots to show that the counterfeit goods are actually protected by copyright law. (It's not automatic that counterfeit goods infringe copyright).

Also, the DMCA online safe harbors are not mentioned, which makes sense if the copyright-infringing behavior is the actual sale of the counterfeit goods instead of publishing information about those goods. However, as we saw in the Tiffany case, the web host cannot determine if the goods being sold are actually counterfeit. Nevertheless, the court says a jury could find the web host had actual knowledge of the infringement due to a series of defendant emails and demands from the plaintiff. From my review, it appeared that the referenced emails involve the web host relaying the plaintiff’s takedown notices to the hosted customers, so I'm not sure how these emails could evidence knowledge of the counterfeiting.

With respect to material contribution, the court references the confusing language from Perfect 10 v. Amazon and the archaic Napster precedent to say that failure to take simple measures to stop infringement can qualify as a material contribution (a standard referenced in Amazon), and the web host here could easily disable the IP address of the putatively infringing website. As a result, its failure to take such simple steps could constitute material contribution.

All told, the contributory copyright infringement analysis in this case is heavily plaintiff-favorable. It appears that the plaintiff’s prima facie showing is (1) allegedly counterfeit goods being sold outside the host's purview (the direct infringement), (2) demand letters plus emails from the host to customers relaying takedown notices (knowledge), and (3) the host’s ability to turn off accounts or disable IP addresses (material contribution). This is a disconcerting standard, because just about every web host could satisfy this test.

Contributory Trademark Infringement

The court references the contributory trademark infringement standard from the Ninth Circuit's 1999 Lockheed v. Network Solutions case, requiring knowledge of the infringement plus “[d]irect control and monitoring of the instrumentality used by the third party to infringe the plaintiff’s mark.” In practice, it appears the court equates the contributory trademark and contributory copyright analysis. The court does so expressly for the knowledge prong, where the judge simply references its prior copyright discussion.

As for the host’s control, the court analogizes the host to an offline swap meet (just like Tiffany did), shoots down some of the defendant's arguments and then says that, per Fonovisa, the defendant cannot remain willfully blind to infringement on its servers. This sounds a lot more like a contributory copyright infringement analysis than the Lockheed “direct control and monitoring” requirement.

I was disappointed that the court (like so many others) does not address the web host's eligibility for the printer/publisher defense. This might very well be apropos to web hosts.

Other Claims

The court dismisses the vicarious copyright infringement claim because there was no evidence that the web host's profits varied with the infringing activity. The court also dismisses the vicarious trademark infringement because the web host lacked the requisite agency relationship with its customers (why do apparently smart IP lawyers routinely allege vicarious trademark infringement when there is no agency???).

Implications

I think the contributory trademark infringement ruling is entirely consistent with the obvious hole left open by the Lockheed case, which excused a domain name registrar for selling allegedly infringing domain names but implied that web hosts might be treated differently. More surprising, perhaps, is that in the decade since the Lockheed case, we've had almost no cases mapping out the boundaries of web host liability for contributory trademark infringement. It's remained one of those known Cyberlaw frontiers. While it's nice to get a case addressing that frontier, I wish it were more favorable to web hosts.

Posted by Eric at 10:11 PM | Copyright , Derivative Liability , Trademark | TrackBack

January 22, 2009

Brand Spillovers Article Now Available

By Eric Goldman

I have finally posted my article, Brand Spillovers, to SSRN. It will be published in the Harvard Journal of Law & Technology later this year. I have blogged about this project several times over the past 4 years, but for most of you, this is your first public opportunity to read the article in full. Please take a look!

This article has been in the works nearly 5 years, so a few words about this project. It started with my Deregulating Relevancy article. While writing that in 2004, I had a few paragraphs regarding the analogies between retailer shelf adjacency and keyword triggering--a popular meme then, and one that still gets used a lot. I ultimately removed most of that discussion from the draft and set it aside to explore in a separate paper. I initially conceptualized the paper about the role of physical and temporal adjacencies in trademark law, and I presented on that topic at Law & Society Association in May 2005. (See my slides from 2005).

After several drafts, many presentations and lots of very helpful comments, the paper has evolved substantially. The paper now explores the analogy between shelf adjacencies and keyword triggering in careful detail, explaining why the analogy is legally and factually complicated but also useful. My hope is that the paper will become the key reference any time anyone in the future wants to make that analogy.

Also, the paper is one of the few articles that analyzes the unique role of retailers in trademark infringement lawsuits. My research suggests that retailers are universally ignored by trademark lawyers, judges and regulators, even though retailers do a lot of things with third party trademarks that look actionable. I've thought a lot about this over the past 5 years, and I keep coming back to the unavoidable conclusion that trademark plaintiffs seem to be erring by not suing more retailers even in manufacturer-vs-manufacturer lawsuits. The paper tries to explain why retailers get a free pass nonetheless, but if you have alternative explanations after reading my attempts, I would be extremely grateful.

Finally, this paper is noteworthy because it is the last stop in a multi-year project on how trademark law can damage the Internet. Other papers in the series include Deregulating Relevancy, Online Word of Mouth (which also was a branch-off of the Deregulating Relevancy article) and, to a lesser extent, a Coasean Analysis of Marketing. I'm still interested in Internet trademark law, but next few projects are going to focus on other topics. The next article in queue is a short essay detailing why Wikipedia will fail. After that, I will be focusing on my Economics of Reputational Information project, which I expect to be working on over the next couple of years, and a big stealth project.

In any case, the Brand Spillovers paper remains a draft, and I have limited opportunities to make changes. Accordingly, I gratefully welcome any comments you have.

The abstract:

This Article considers the spillover effects of trademarks—in particular, “brand spillovers,” which occur when consumer interest in a trademark increases the profits of third parties who do not own the trademark. Using techniques such as loss leaders and shelf space adjacency, retailers routinely create brand spillovers for their profit, and trademark law generally has not restricted these activities. Online intermediaries, such as search engines, also create and profit from brand spillovers by selling manufacturers’ trademarks for advertising purposes (“keyword triggering”). However, in contrast to retailer practices, keyword triggering has sparked a heated and irresolute battle over its legitimacy under trademark law. By drawing lessons from retailers’ experiences with brand spillovers and through an analysis of the ways intermediaries can add value to consumers, this Article offers a new way to resolve the keyword triggering debate. The Article proposes that all intermediaries—including both retailers and online intermediaries—should be permitted to use brand spillovers as part of their effort to reduce consumer search costs, even if the intermediaries profit from the brand spillovers along the way.

Posted by Eric at 09:57 AM | Derivative Liability , E-Commerce , Marketing , Search Engines , Trademark | TrackBack

January 21, 2009

American Airlines v. Yahoo Venue Transfer Denied

By Eric Goldman

American Airlines, Inc. v. Yahoo!, Inc., 4:08-CV-626-A (N.D. Tex. Jan. 16, 2009)

The procedural battles over American Airlines' lawsuit against Yahoo for selling trademarked keywords continue. You may recall that American Airlines sued Yahoo in its home court in Fort Worth, Texas. This venue has several advantages, including a hometown judge, higher costs for Yahoo to litigate 1500 miles from its HQ, and a location in the Fifth Circuit, which doesn't have much jurisprudence on keyword advertising cases but is unlikely to adopt the current defense-favorable approaches of the Second Circuit.

In response, Yahoo initiated a declaratory judgment against American Airlines in its home court of Northern District of California. [note: Yahoo is based in the Silicon Valley but the former Overture operations are principally in Los Angeles, so Yahoo appears to consider both NDCal and CDCal as acceptable.] I was pretty surprised by this venue choice, largely because the Ninth Circuit has the adverse Playboy v. Netscape keyword advertising precedent and the Second Circuit seemed so much more defense-favorable. However, my suspicion is that Yahoo hopes to take advantage of the Ninth Circuit's favorable nominative use defense.

In its DJ complaint, Yahoo also intimated that American Airlines had contractually agreed to the NDCal venue in AA"s advertising contract with Yahoo. This is an interesting argument because a contractual venue stipulation would almost assuredly trump all other venue considerations, but American Airlines' beefs with Yahoo relate to AA's advertising via the Yahoo network only tangentially at best.

Yahoo floated this contract-based venue argument in front of the Fort Worth judge, and that didn't go so well. In a short but pointed ruling, the judge dismisses the argument emphatically, calling it "completely nonsensical." OUCH. Oddly, the judge declined to explain his reasoning, but the limited explanation he offers makes me wonder if he misread the actual contract language. (Compare the quoted language with the footnote language--both have the word "exclusive" in them).

In any case, the Fort Worth judge has thrown down the gauntlet to the NDCal judge, saying, in effect, "this case isn't leaving my courtroom." This sets up a showdown with the NDCal judge, who will either dismiss the DJ action or pick up the gauntlet and keep the case. What happens at that point is unclear to me; maybe a civil proceduralist can help me understand what happens if neither judge backs down.

Posted by Eric at 09:14 AM | Search Engines , Trademark | TrackBack

January 15, 2009

Cautionary Tale of Website Co-Ownership--Mikhlyn v. Bove

By Eric Goldman

Mikhlyn v. Bove, 2008 WL 4610304 (E.D.N.Y. Oct. 15, 2008). The Justia page.

In my Co-Blogging Law article, I discussed the potentially ugly legal consequences of "blog divorces" when co-bloggers fall out of love with each other and start fighting. I wrote:

Whether a limited liability entity or a private agreement is the better choice depends on the bloggers’ specific circumstances and goals. However, either choice is preferable to co-bloggers doing nothing proactive to override the default rules.

When I wrote the article in 2005, I didn't have any dramatic examples of how bloggers got screwed by the default rules, nor I was able to say with confidence exactly how a judge would resolve a blog divorce. I still don't know the latter, but if I were writing the article today, I would discuss Mikhlyn v. Bove as the cautionary tale. The case involves an e-commerce website divorce that involves cousins, embroidery, alleged drug use, a scramble for website passwords, and the current denouement, a hailstorm of litigation (with both groups suing each other for about a dozen causes of action each) that will surely cost each side more than the business was ever worth. If you are a co-blogger or a co-operator of a website and you don't have a documented exit strategy, take note!

(Please note that the parties contest just about every fact, so my recitation of what happened is based on the court's opinion as best as I could read it, and I've omitted a lot. You have to read the whole opinion if you want the complete story).

This case reinforces the maxim that you should never do business with family members. The case involves Israeli neighbors Ana and Polina (Group 1), who in 2002 established an e-commerce business selling embroidery designs through eBay and their website. The business ultimately expanded to include embroidery supplies in addition to designs. Over time, Ana's cousin-in-law Inga and cousin Vadim, both from Brooklyn, got involved in the business (Group 2). Group 1 says they hired Group 2 as employees; Group 2 says that Groups 1 and 2 were all partners in the venture. Uh oh.

It sounds like business did well financially for a while. Then the relationships turned south in 2007 and into 2008. Ana relocated from Israel and moved in with Inga and Vadim, but they allege Ana started abusing drugs and scaring the kids, which may have prompted them to kick Ana out of the house. Starting in Spring 2008, the parties brought in the lawyers, thus commencing the formal legal fight over the venture's assets. And it turns out there were a fair number of assets to fight over, including several websites under the "ABC" brand (including domain names and the website design/text--Ana obtained a (contested, of course) copyright registration for the latter), an eBay storefront, a registered trademark in "ThreaDelight" (held in the name of all four parties), embroidery designs by Ana (but no copyright registrations in them), and various trademark rights in the name "Anna Bove" (note 2 "N"s instead of 1).

Ana brought an unsuccessful UDRP to get the ABC-based domain names. However, because co-defendant Polina was the listed owner for some of the domain names, Ana was able to assume technical control over those domain names. Doing so apparently split the technological empire, such that Group 2 is running certain websites and Ana or Group 1 is running other websites. This is an unstable allocation of the business, so in August, Group 2 sued Group 1, which prompted counterclaims from Group 1.

What a mess. WHAT A MESS!

Just how messy is it? Check out how the court resolves the partnership v. employees dispute at the core of the lawsuit. The court says that Groups 1 and 2 were neither partners nor employer-employee. OK...so what were they? I don't know, and the court doesn't seem to know either, but it hypothesizes--without concluding--that the parties may co-own certain copyrights and trademarks of the venture. As I explain in my Co-Blogging article, IP co-ownership can come with numerous unexpected pitfalls, so I suspect no one is happy with the co-ownership resolution. Ugh.

Ana also tried to stop Group 2 from using her name (the modified "Anna Bove" mark) as part of their business. The court rejects the effort, saying that both groups have been using the Anna Bove mark in parallel with each other for a number of years, and thus Ana's claim is barred by acquiescence or laches. Accordingly, it looks like Ana has effectively lost control over her own name because Group 2 can continue to operate an "Anna Bove" business that she can't stop or restrict. Double ugh.

As should be obvious, the current resolution is complex, ugly and unsatisfying to everyone. The good news is that the parties are going to mediation. Maybe they can do some horse-trading and find a mutually improved outcome than the one the court's opinion leaves them in. If mediation doesn't work out, I could see the groups being locked in a death struggle where no one other than the lawyers emerges with anything of value.

I'm sure the parties wish they could go back in time and make a nice, clean agreement documenting their relationship that would avoid all of this heartache. If you are a co-blogger or co-operator of a website without such an arrangement, what are waiting for?

Posted by Eric at 11:06 AM | Copyright , E-Commerce , Trademark | TrackBack

January 07, 2009

December 2008 Quick Links, Part 1

By Eric Goldman

Copyright

* Stockwire Research Group, Inc. v. Lebed, 577 F .Supp. 2d 1262 (S.D. Fla. Sept. 18, 2008). $2.5M default judgment for violation of anti-circumvention provisions.

* The RIAA announced that it is shifting away from suing its customers to putting more pressure on Internet access providers to do their dirty work. Fred at EFF and Mike Masnick weigh in. But Mike wonders if the RIAA is really changing its practices?

* Capitol Records v. Thomas, No. 06-1497 (MJD/RLE) (D. Minn. Dec. 23, 2008). In the Jammie Thomas case, the judge refused to certify the "making available" theory for an interlocutory appeal.

Trademarks/Domain Names

* Nerds on Call (Indiana) v. Nerds on Call (California), 1:07-cv-00535-DFH-TAB (S.D. Ind. Dec. 22, 2008):

The court realizes that a simple internet search for "nerds on call" could return the Nerds/California site. If a person has lived in Indiana and used Nerds/Indiana's services before, the person might be confused momentarily. Given trademark law's explicit approval of concurrent uses of marks in different geographic areas or product markets, see 15 U.S.C.A. §1052(d), this momentary confusion on the internet is not a sign of intentional targeting. The internet is available worldwide. Use of a locally established trademark on a website may cause momentary confusion among consumers. The solution to that problem is not to require that all trademarks be given worldwide effect even if their non-web use is limited to a narrow geographic area. Instead, users of the web simply need to understand that a worldwide web search may turn up results from distant businesses.

* Saint Louis University v. Meyer, 2008 WL 5412263 (E.D. Mo. Dec. 24, 2008). SLU allegedly threatened to close the student newspaper, so the paper's faculty advisor registered a new non-profit organization with the secretary of state under the name "The University News, a Student Voice Serving Saint Louis University Since 1921" in case the students wanted to go independent. The university and the students worked out a deal, and the faculty advisor promptly dissolved the organization without ever having done anything with it. Still, the university sued the advisor for trademark infringement, dilution and other claims. In this ruling, the court rejects most of the claims because the advisor never made a "trademark use in commerce." Why was the university suing its own tenured faculty member for forming and then promptly dissolving a non-profit organization without ever using it? Makes no sense to me.

* 1-800 Contracts, Inc. v. Lens.com, Inc., 2008 WL 5191705 (D. Utah Dec. 10, 2008). In a trademark lawsuit over keyword purchases, Lens.com is hit with sanctions for discovery abuses.

* The EFF has collected amicus briefs in the Tiffany v. eBay appeal to the Second Circuit.

* WSJ on the growth in numerical SLDs.

* Paul Levy shines the spotlight on yet more questionable marketing practices by Lifestyle Lift.

Linking

* GateHouse v. New York Time. The CMLP page. Another silly anti-deep linking and headlines-as-copyright infringement lawsuit, this time between two media companies. Some of the claims are clearly off-base, like the trademark claims. Note to dilution plaintiffs: it is almost impossible by definition to be both a hyper-local business and a famous trademark. Also oxymoronic is the allegation that the sites are competitors when a competitor is prominently promoting the website and apparently passing PageRank. If you are my competitor and would like to pass me some PageRank, I would be happy to chat. The most novel part is the plaintiff's attempt to use the Creative Commons license as an affirmative contract to claim breach of contract. I can't recall a similar allegation in the past where the Creative Commons license was used as a sword instead of a shield. Finally, the complaint doesn't mention anywhere that the plaintiff's website apparently offers RSS feeds, which raises a bunch of problems for its arguments.

* McVey v. Day, 2008 WL 5395214 (Cal. App. Ct. Dec. 23, 2008). This is a dispute between rival members of the teacher's union. Among other activities, the defendant sent an email linking to a website that had allegedly defamatory statements about the plaintiff, but the website's statements were authored by third parties. In this ruling, the court grants the defendant's anti-SLAPP motion, saying that the defendant wasn't liable for the emailed links per 47 USC 230. This is another nice anti-SLAPP win for Internet content, following on December's Higher Balance case.

Some Personal Notes

* I'll be at AALS and plan to attend the blogger's get-together Thursday night. If you're going to be around, hope to see you there!

* If you're in the Sacramento area on January 13, come to this free event!

* Most of you know that I maintain my personal blog for posts that don’t really belong on this blog. But you may not know that I’ve also been Twittering with some regularity. Check it out!

* Good news: this blog is a finalist for Best Law Blog from Weblog Awards.

Posted by Eric at 09:48 AM | Copyright , Derivative Liability , Domain Names , Marketing , Search Engines , Trademark | TrackBack

December 19, 2008

Vulcan Golf v. Google Class Certification Denied

By Eric Goldman

Vulcan Golf, LLC v. Google Inc., 1:07-cv-03371 (N.D. Ill. Dec. 18, 2008). Previous blog posts: initial complaint filed, ruling on motion to dismiss

This is a complex lawsuit by trademark owners attacking domaining and the role of the Google AdSense for Domains program in funding domaining activity. When I first blogged on the case in 2007, I wrote:

the lawsuit could effectively fall apart if the judge rejects formation of a class. Trademark class action lawsuits are rare for good reason-- trademark owners must establish the validity of their marks, the famousness of their marks (for dilution) and the similarity between their marks and the defendants' usage. These are all intensely fact-specific questions; none of which seem susceptible to class adjudication

Yesterday, the court ruled on class certification, and perhaps not surprisingly, the court denied certification--giving Google and the other defendants an early Christmas gift. Happy holidays! This ruling doesn't completely squelch the lawsuit, but without class certification, the case becomes a whole lot less interesting to the plaintiff's lawyers. For that reason, it also wouldn't surprise me to see them appeal the class certification denial.

The ACPA and Trademark Infringement Claims

The court rejects class certification for the trademark infringement and Anti-Cybersquatting Consumer Protection Act claims because the individual questions of fact predominate over the common questions of law.

The court blanches at the thought of trying to determine the owners of the applicable trademarks. The plaintiffs said that TESS could answer any ownership questions, but the court rightly realizes that TESS is not a definitive and comprehensive source of trademark ownership information. As a result, the court says "Even if the court has to conduct hearings regarding ownership on even a tiny fraction of the potentially millions of registered and unregistered marks or personal names of the putative class members, such an undertaking would render proceeding as a class unmanageable."

The court also rejects the verifiability of trademark "distinctiveness." The plaintiffs argued that a trademark registration could suffice as evidence of distinctiveness, but the court rightly points out that registration only provides rebuttable evidence of distinctiveness. The court also points to problems with unregistered trademarks and personal name marks. The court thus concludes "were the class to be certified, the court would be required to engage in thousands (or more) of individual inquiries as to whether a class members’ mark is distinctive," which would be a "staggering" undertaking with respect to the unregistered and personal name marks.

The court also assesses the prospects for adjudicating various affirmative defenses, such as abandonment or fair use. The court says "the affirmative defenses related to the putative class members’ marks simply add another layer to an already fact-specific inquiry that the court must delve into with respect the putative class members’ marks or names."

The Unjust Enrichment Claim

The court bounces the unjust enrichment claim because unjust enrichment laws vary by state. The plaintiffs tried to say California law applies categorically due to Google's involvement, but the court correctly points out that there are plaintiffs and defendants who have nothing to do with California and therefore would not be appropriately governed by CA law. Once CA law is out of the picture, the court confronts the state-by-state variations in unjust enrichment law and concludes that those variations are enough to deny class certification.

Whether Class Action Relief is Superior to Other Methods

In addition to these legal problems, the court has some interesting discussion about the plaintiffs' desired remedy. The court expresses some frustration that the plaintiffs seem to vacillate between saying they want damages and saying they only want injunctive relief. If the plaintiffs only want injunctive relief, the court says that a class action lawsuit is inferior to the extrajudicial options to plaintiffs of pursuing a UDRP action and opting-out of Google's and the domainers' program (which the plaintiffs have already done to some degree). This is the first time I can recall a court favorably citing either the UDRP or a search engine trademark policy as a substitute for judicial action such that it curtails legal recourse. The court also notes the availability of direct non-consolidated actions against the defendants, including large statutory damages plus attorneys fees under ACPA, as another substitute for the class action.

Some Further Implications

First, this case reinforces the difficulty of establishing class action lawsuits to enforce trademark rights. They are possible, but so often the idiosyncrasies of each trademark preclude summary adjudication.

Second, this case might have some utility for the multitudinous other class action lawsuits against Google and the other search engines over their advertising practices, such as the CLRB Hanson case and the string of advertiser lawsuits against Google over AdSense placement on domainer sites. Although this ruling principally turns on the vagaries of trademark law and the other lawsuits typically involve contract interpretations, this court signaled some clear discomfort with class litigation where there are meaningful factual differences between the plaintiffs. To that extent, this case does not suggest favorable outcomes for class certification in those cases either.

Posted by Eric at 02:30 PM | Domain Names , Marketing , Search Engines , Trademark | TrackBack

December 08, 2008

Keyword Ads and Other Marketing Supports Remote Jurisdiction--Market America v. Optihealth

By Eric Goldman

Market America v. Optihealth Products, Inc., 2008 WL 5069802 (M.D.N.C. Nov. 21, 2008)

This lawsuit involves the trademark "OPC-3." "OPC" is the generic term for "group of antioxidant bioflavonoids" that companies sell as dietary supplements. The plaintiff has obtained a trademark registration for "OPC-3." Numbers can become trademarks with enough marketing to educate consumers that they have secondary meaning, but I'm pretty suspicious of trademarks that consist of generic term + number. It's like "Bread 7" for bread.

The defendants sell OPCXtra, a competitive dietary supplement to OPC-3. The defendants deployed some aggressive marketing approaches (which reminded me of the Nowcom case), including registering the domain name opc3.com, purchasing keyword ads that apparently included opc3 and other plaintiff trademarks as keyword triggers, and including OPC-3 in the metatags (as usual, the court was imprecise about which type of metatag, but I infer it was a keyword metatag). In response, the plaintiff sued for trademark infringement, cybersquatting and other claims.

In this ruling, the court held that the NY-based defendant was subject to jurisdiction in the plaintiff's home court of North Carolina. That ruling, on its own, isn't all that interesting. The court found jurisdiction using the standard "minimum contacts" test, but even if it hadn't, trademark infringement lawsuits support jurisdiction based on the "Effects tests" and this circumstance (with its aggressive marketing) seems particularly well-suited to do so. Unfortunately, the court plotzed in excitement because the case involved the Internet and the analytical rigor suffered accordingly, but it got to the logical result.

More interesting is that to attack jurisdiction, the defendants argued that their metatags didn't constitute a trademark use in commerce. This is an odd attack on jurisdiction, though it would have been more logical for a 12b6 motion to dismiss. Consistent with courts outside the Second Circuit, the court rejects the defense because metatag usage qualifies as a trademark use in commerce. Frankly, even if the metatags didn't qualify as a trademark use in commerce, the keyword advertising is probably a use in commerce in all jurisdictions outside the Second Circuit, and the domain name registration presumably qualified as a use in commerce in every court (the domain resolved on comparative reference material with prominent ads for defendants' products). As a result, the no-use-in-commerce defense to jurisdiction seemed doomed from the get-go..

While I still don't understand why the defendants tried this substantive doctrinal attack on jurisdiction, the defendants did get some valuable information. The judge clearly signaled no interest in supporting the defendants' choices, so the defendants got a strong hint to settle up before things get worse.

Posted by Eric at 12:28 PM | Marketing , Search Engines , Trademark | TrackBack

December 02, 2008

November 2008 Quick Links

By Eric Goldman

Trademark

* NYT: "A handful of new Web sites with names like Typo Bay and Typo Buddy are out to help shoppers save money by searching eBay for misspelled brand names." In 2005, I blogged that typographical errors are a significant issue for eBay's search engine.

* It's a bull market for Obama-related trademark filings and Obama merchandise.

* Domain name tasting down 84%?

* Wired: "Think Godzilla's Scary? Meet His Lawyers"

Copyright

* Reuters: "Instead of triggering the usual take-down notices, copyright-infringing footage of select MTV Networks programing uploaded by MySpace subscribers would be automatically redistributed with advertisements that would generate revenue for the companies." I'm interested to see how this system applies to fair uses of the works!

* Arista Records LLC v. Usenet.com, Inc., 2008 WL 4974823 (S.D.N.Y. Nov. 24, 2008). The court dismisses USENET.com's counterclaims for declaratory relief that it doesn't violate 17 USC 512 because the claims duplicate its affirmative defenses.

* James Grimmelmann does an excellent job parsing the Google Book Search settlement agreement and makes some sage recommendations for how it should be modified before court approval.

Advertising/Marketing

* The Google-Yahoo ad syndication deal is dead. Some behind-the-scenes discussions.

* I'm not sure about the implications of this, but Google is expanding its efforts to allow website and ad targeting based on automatic geographic detection. See my prior post about the future of geolocation and a bordered Internet.

* Good news: entrepreneurs want to authenticate children's ages to keep them out of online trouble. Bad news: entrepreneurs might use age authentication to hit the kids with targeted marketing.

* Classmates.com sued for misrepresenting that former school chums were actually looking to reconnect. Yet more pushback on bogus "X is looking for you!" ads.

47 USC 230

* The Supreme Court denied cert in Doe v. MySpace, 2008 WL 4218722. According to Tom O'Toole, this is the seventh time that the Supreme Court has denied cert in a 47 USC 230 case.

* It appears that Children of America v. Magedson has settled.

* The Santa Clara University community is having a catharsis about Juicy Campus.

* Dan Solove and I chatted with Doug Lichtman about social networking sites (asynchronously--I spoke with Doug after Dan had), with most of my conversation focusing on 47 USC 230. Doug edited the conversations together into a one-hour podcast entitled "Privacy in the Networked World." An added bonus for listening--you may be able to earn one hour of CLE FREE!

Spam

* Facebook v. Guerbuez. Facebook wins $873M default judgment under CAN-SPAM. Now, if Facebook could only collect any of this, they would have finally figured out a way to make money!

* Gordon v. SubscriberBASE Holdings, Inc., 2008 WL 4809833 (E.D. Wash. Oct. 31, 2008). Serial anti-spam plaintiff lost again on whether he has standing under CAN-SPAM.

* Evan Brown: Government spam filters do not deprive citizen of right to petition the government.

* Venkat: Unsolicited Marketing Extravaganza in the Ninth Circuit.

Miscellaneous

* eHarmony settles claim that it discriminates against gay singles.

* NYT: "almost five years into its expansion into Europe...Google is getting caught in a web of privacy laws that threaten its growth and the positive image it has cultivated as a company dedicated to doing good."

Posted by Eric at 09:47 AM | Copyright , Derivative Liability , Domain Names , Privacy/Security , Search Engines , Spam , Trademark | TrackBack

December 01, 2008

Yahoo Countersues American Airlines for Declaratory Judgment

By Eric Goldman

Yahoo, Inc. v. American Airlines, Inc., C08-05308 (N.D. Cal. complaint filed Nov. 21, 2008). The Justia page.

As you recall, American Airlines recently followed its July settlement with Google by bringing a clone-and-revise trademark infringement lawsuit against Yahoo in Fort Worth, Texas. I thought that this lawsuit might go away quickly because the parties should be able to iron out their differences. Instead, Yahoo apparently has decided to fight back by bringing a declaratory judgment action against American Airlines in the presumably more friendly confines of the Northern District of California.

I'm not enough of a civil procedure expert to handicap the odds that Yahoo can strongarm the case out of Texas and into California. I've seen a few such ploys in Internet cases fail recently, but I'm not sure if those were aberrational. Regardless of the likelihood of success, I'm fascinated by the fact that Yahoo wants to move the battle to a Ninth Circuit jurisdiction. After all, until the Rescuecom oral argument train wreck, most of us thought that the Second Circuit was the most defendant-favorable jurisdiction for keyword advertising lawsuits because courts have regularly dismissed those cases on trademark use in commerce grounds. In contrast, I highly doubt that a Ninth Circuit court will kick out American Airlines' lawsuit on that basis. See, e.g., the American Blinds and Picture It Sold cases.

Meanwhile, the Ninth Circuit has issued some awful Internet trademark opinions, such as the horrendous 1999 Brookfield case that opened the floodgates of bogus initial interest confusion Internet cases. Worse, fairly directly on point is the Ninth Circuit's 2004 Playboy v. Netscape case, where (among many other analytical defects) the court couldn't even decide if search engines should be analyzed under direct or contributory trademark infringement doctrines--but kept going and trashed Netscape anyway. I realize that the Fifth Circuit Internet trademark jurisprudence is thin, so Yahoo might want to opt out of the unknown, but opting into Ninth Circuit Internet trademark jurisprudence seems...well...counterintuitive....

Of course, Yahoo may be trying to benefit from home court jurisdiction just like American Airlines is, but Yahoo's complaint gives another clue why it might be seeking out Ninth Circuit law. The declaratory judgment complaint references "nominative fair use" repeatedly, suggesting that Yahoo's trademark policy only allows advertisers to bid on American Airline trademarks when doing so would qualify as a nominative fair use. The Ninth Circuit has a more well-developed nominative use doctrine than other circuits and has issued several favorable nominative fair use cases, including the seminal New Kids on the Block case. In contrast, the nominative use doctrine is not as well accepted elsewhere; for example, the Sixth Circuit expressly disclaimed it in the PACCAR case. Therefore, Yahoo may be hoping that the Ninth Circuit's favorable and well-established nominative fair use doctrine may provide it with the strongest chance of success, even if Yahoo has to abandon any chance of a quick victory based on the use in commerce defense (not that such a defense was probable in Fifth Circuit courts).

(FWIW, I personally think that keyword sales are more accurately characterized as a commercial referential trademark use than a nominative use, but I haven't found many folks buying into this theory).

One other reason why Yahoo might be able to pull the jurisdictional switcheroo. The complaint brielfy notes that American Airlines has entered into a contract with Yahoo containing a venue selection clause. Even if true, Yahoo should have been able to raise the contract clause as a defense to the Texas litigation. The declaratory judgment may be a way to try to prevent a Texas judge from disregarding the venue selection clause. Or Yahoo's move might just be a show of strength that Yahoo is going to defend its turf aggressively.

Posted by Eric at 09:37 AM | Search Engines , Trademark | TrackBack

November 21, 2008

Blockshopper Request to Dismiss Jones Day Lawsuit Denied

By Eric Goldman

Jones Day v. Blockshopper LLC, 08CV4572 (N.D. Ill. Nov. 13, 2008). The CMLP page.

2008 has been a banner year for ridiculous trademark claims, so picking the most ridiculous is a little tricky...but this lawsuit easily makes my top 3. As you may recall, Blockshopper reports on real estate transactions--in this case, purchases by two Jones Day associates. Blockshopper wrote about the purchases, referenced their employment with Jones Day, and deep-linked to the associates' bios on the firm's website. Jones Day is now suing Blockshopper for trademark infringement, dilution and more.

We all know this is a meritless lawsuit, but it's not easy to pin down a single reason why. So let me try 4 obvious and non-exhaustive reasons:

1) I don't see any way that Jones Day can show the requisite "use in commerce" for trademark infringement or dilution.
2) I don't see any way that Jones Day can show any consumer confusion, either about the source of goods in the marketplace or about some implied sponsorship/endorsement. If Jones Day is trying to argue that consumers think deep-linking to another website means the linked website endorsed or sponsored the linking website, c'mon! Wendy Davis has more to say about this.
3) I don't think Jones Day can establish the requisite fame to constitute a mark protected under the revised dilution law. They are not a household name, although more ridiculous lawsuits might change that (but paradoxically will not leave them a reputation that can be further denigrated).
4) I don't see how the website reference and deep link could in any way constitute blurring or tarnishment of the mark under the revised dilution law.

With all of these obvious problems, this should be an easy defense win...right? Unfortunately, trademark law is so completely broken that it cannot clean up cases like this on a motion to dismiss when the plaintiff rotely alleges the elements of the claims, no matter if it can't deliver on its allegations later on in the case. Jones Day certainly knows how to make the rote allegations in its complaint, so the judge refuses to dismiss the trademark infringement and dilution claims. (The judge does dismiss the individual entrepreneurs as defendants.) This is consistent with how some judges approach 12b6 motions, but other judges might have pressed Jones Day on the specifics of its allegations and how those allegations support its theories (as Sam Bayard and Corynne discuss), and yet other judges would have at least signaled their skepticism at the ultimate merits of the claims.

Also disconcerting is that the judge rejected the public interest groups' amicus brief. I understand that trial judges typically are less interested in amicus briefs because they often don't help interpret the facts, but in this case the judge needs to understand the possible social import of overexpansive trademark doctrines or even keeping meritless trademark cases past the 12b6 motion to dismiss. (For more about the broader social issues, see here).

Even if justice wasn't served in this ruling and the court isn't listening to some of the experts, let's hope the judge gets to the right place soon. And because the court let the case go on further than it should have, I hope the court awards Blockshopper its attorneys fees--a power the court has in "exceptional" cases, which (in my opinion) this case certainly is.

More on this case:

* EFF
* CMLP
* Paul Levy
* Wendy Davis

Posted by Eric at 02:21 PM | Trademark | TrackBack

November 18, 2008

October 2008 Quick Links, Part 2

By Eric Goldman

Spam

* Kramer v. Perez. An Iowa court awards $236M in damages in a spam case. Venkat's comments.

* After the government lost its jury trial against Impulse Media, the court denied Impulse Media attorneys fees.

Contracts

* AT&T put its own emailed notice of amended contract terms into its spam folder. Whoops! Due to spam filters and other automated blocks, it is becoming almost impossible for websites to communicate with their users by email.

* An estimate of the massive "tax" imposed on consumers by reading privacy policies. Of course the financial drain is overstated because many people make a rational decision not to read every privacy policy, plus not every person has to read a privacy policy for marketplace responses to be effective.

* The Blizzard v. MDY WOWGlider case has reached a stipulated damages amount of $6M.

* Pulaski & Middleman, LLC v. Google Inc., 5:2008cv03888 (N.D. Cal. complaint filed August 14, 2008). The Justia page. Yet another me-too lawsuit against Google over serving ads to parked domains and error pages.

* An Israeli GPL enforcement action settled.

Trademarks/Domain Names

* Kentucky v. 141 Domain Names. Is a domain name property? Yes. See the Sex.com case. Can a plaintiff seize a domain name pursuant to a favorable judgment? Yes. Is it appropriate for Kentucky to seize domain names for gambling websites available in Kentucky? Of course not, because this would effectuate an extraterritorial reach by curtailing non-Kentucky residents from making possibly legal uses of the domain name. More recently, the seizure was stayed.

* Speaking of inappropriate seizures, the Feds are trying to seize the trademarks of the Mongols motorcycle group. DOJ press release. LA Times article.

* Best Western Intern., Inc. v. Doe, 2008 WL 4630313 (D. Ariz. Oct. 20, 2008). Prior blog post in this case. The judge is losing patience: "These filings are wasteful in the extreme. The Court is not a forum for the parties to expend every possible dollar seeking to litigate every conceivable issue, no matter how insubstantial. The Court will no longer tolerate the excesses of this case."

* The Verizon v. Navigation Catalyst Systems domainer lawsuit settled.

* 50 Cent brings yet another questionable lawsuit. (1, 2).

Advertising

* Goddard v. Google Inc., 2008 WL 4542792 (N.D. Cal. Oct. 10, 2008). The case against Google for deceptive mobile phone ads will stay in federal court.

* Eyeblaster, Inc. v. Federal Insurance Co., 2008 WL 4539497 (D. Minn. Oct. 7, 2008). This is a collateral lawsuit to Sefton v. Eyeblaster alleging that Eyeblaster distributed spyware. Eyeblaster tendered the claim to its insurer. This court holds that the CGL policy doesn't apply because the claim relates to software problems, not physical damage to the users' computers. Further the E&O policy doesn't apply because Sefton alleges that Eyeblaster intentionally installed the spyware, bumping Eyeblaster into one of the policy's exclusions.

* Are consumers becoming more tolerant of pop-up ads? For more on consumer acceptance of new advertising formats, see here.

* A big damages award in NetQuote v. Byrd.

Posted by Eric at 06:42 AM | Adware/Spyware , Domain Names , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Spam , Trademark | TrackBack

November 07, 2008

Rip-off Report Back in Court

By Eric Goldman

It's been a few months since I've blogged on new Rip-off Report litigation. For many companies, a blog hiatus might signal good news, but in Rip-off Report's situation, it merely reflects that I've been falling behind in tracking all of the new lawsuits. I don't blog all of their cases, but two relatively new lawsuits caught my attention:

Certain Approval Programs v. Xcentric Ventures, 2:08-cv-01608-MHB (D. Ariz. complaint filed Aug. 29, 2008).

Among the plaintiff's allegations are that automatically putting the words "Rip-off Report" into a user report page's title tag is defamatory and not covered by 230. The complaint has some useful screen shots depicting how Rip-off Report works.

Xcentric Ventures, L.L.C. v. Opinion Corp. dba Pissed Consumer, 2:08-cv-01841-JAT (D. Ariz. complaint filed Oct. 7, 2008).

Rip-off Report is on the plaintiff's side (again), this time suing a putative competitor and its web host for copyright and trademark infringement. Among the interesting tidbits:

(1) Rip-off Report successfully sent three DMCA 512(c)(3) takedown notices to the web host but is suing the web host anyway for failing to terminate the hosting relationship.

(2) if Rip-off Report has ownership or an exclusive license to the user-supplied reports sufficient to have standing to sue, would this alter its ability to disclaim responsibility for the content of the reports? I think the answer should be "no"--see Schneider v. Amazon and Blumenthal v. Drudge--but exclusive control over user content for copyright enforcement purposes but without concomitant responsibility for other purposes will strike most people as counter-intuitive.

(3) the putative competitor allegedly infringed the Rip-off Report's trademarks by creating and using the URL "http://rip-off-report.pissedconsumer.com" and putting "Rip-off Report" in the site metatags. Hmm...does Rip-off Report really want to establish the precedent that these activities infringe???

Posted by Eric at 09:40 AM | Content Regulation , Copyright , Derivative Liability , Trademark | TrackBack

November 06, 2008

First Amendment Protects Spoof Strip Club in Video Game from Trademark Claim--ESS Entertainment v. Rock Star Videos

By Eric Goldman

E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., No. 06-56237 (9th Cir. Nov. 5, 2008)

This case reinforces how trademark law has gone so far astray that easy cases have become hard ones. This lawsuit was brought by the Play Pen, a strip club in downtown Los Angeles. The Grand Theft Auto: San Andreas video game depicts stylized but grittily realistic scenes inspired by a few major metropolitan areas, including Los Angeles. At issue is a virtual strip club in the East LA-inspired area titled "Pig Pen" that resembles the actual Play Pen's trade dress and logo. The Play Pen argues that consumers will assume that it endorsed or is otherwise associated with the video game and therefore the depiction constitutes trademark infringement and unfair competition.

On the one hand, I can almost see Play Pen's point. Due to overexpansive merchandising rights, consumers nowadays have no idea when an acknowledgement or homage in an entertainment product is a paid placement or otherwise a licensed use by the IP owner. But on the other hand, come on! First, if users can actually recognize the homage to Play Pen, inclusion in the video game only seems likely to stimulate consumer interest in the brand. Second, even if users make the recognition, the risk that consumers will be confused about the source of goods in the marketplace is ZERO. What a complete waste of time and money to push such a meritless "problem" to the Ninth Circuit.

So from my perspective, it's absolutely clear that the plaintiff should lose. However, as we've seen with other commercial referential trademark uses, trademark law doesn't have a single apropos doctrinal tool to kill this lawsuit. (See Bill McGeveran's paper for a preliminary cut at this problem).

I personally think that the plaintiff's case fails because the defendant didn't make a use in commerce of the trademark, just like the depiction of a fictional character going into a Wells Fargo bank as a movie's plot point does not qualify as a trademark use in commerce. If courts can ever embrace my commercial referential trademark use argument, it will make it much easier to dismiss these referential cases and substantially clean up the doctrinal contortions courts are using in desperation.

The defense here argued nominative fair use, which both the district and appellate court rejected because the fictionalized variation of Play Pen did not actually refer to Play Pen. I can't really dispute that, but it only further reinforces that the nominative use defense is fairly narrow and not robust enough to solve many problems.

Another "defense" would be the lack of consumer confusion about product source. (I put that in quotes because it's actually the burden of the plaintiff to establish as part of the plaintiff's prima facie case). This seems like an easy out for the court, and the Ninth Circuit waxes philosophic on the topic by making its own implicit findings of fact without any support, but nevertheless both the district court and appellate court decided to rely instead on a First Amendment defense. This is noteworthy for at least three reasons. First, there is no automatic First Amendment defense to trademark law, so it's hardly a well-accepted option for courts. Second, courts usually prefer to avoid constitutional issues if they can, and here the courts bypassed the consumer confusion doctrine to reach for constitutional grounds. Odd. Third, the Rogers v. Grimaldi/Mattel v. MCA rulings--the precedents cited by the court--both involved the defendant referencing the plaintiff's trademarks in media titles, a very specialized fact pattern for trademark law, and here the court treats the First Amendment defense as a broad salve for a parody/spoof. This is a pretty big jump for the Ninth Circuit, and one I suspect other panels will follow reluctantly at best.

UPDATE: See the comparison photos yourself here.

UPDATE 2: Rebecca does a better job explaining the doctrinal messiness than I did.

Posted by Eric at 04:52 PM | Trademark | TrackBack

October 20, 2008

American Airlines Sues Yahoo for Selling Keyword Advertising

By Eric Goldman

American Airlines, Inc. v. Yahoo! Inc., 4:2008cv00626 (N.D. Tex. complaint filed Oct. 17, 2008). The Justia page.

Here's a lawsuit I never expected. Fresh off their settlement with Google, American Airlines is suing Yahoo for selling keyword advertising triggered by American Airlines-owned trademarks. I didn't run a redline comparison, but the complaint clearly borrows liberally from the Google complaint, right down to the heavy-hearted declaration that American Airlines doesn't bring this lawsuit lightly (paragraph 6) and the completely meritless vicarious trademark infringement claim (which erroneously uses the language of vicarious copyright infringement).

I'm surprised by this lawsuit for three reasons. First, most SEMs I've spoken with think that Yahoo has a much more trademark owner-favorable trademark policy than Google. Thus, I would have thought that Yahoo would be better positioned and willing to address American Airlines' concerns than Google was, and it's surprising to see that Yahoo couldn't resolve the dispute outside of court.

Second, it wasn't clear that American Airlines "won" its settlement with Google. The settlement was confidential, but after the settlement I could still easily find triggered ads that the lawsuit targeted. So exactly what did Google concede to, and how were those concessions appealing enough to motivate American Airlines to tango again?

By the way, this afternoon I replicated the searches I ran after the Google settlement. American Airlines, aa.com and AADVANTAGE now have no advertisers at all--which is different than in July. Did Google made some systematic changes after the settlement? (Maybe the settlement had a delayed effectiveness, such as to give Google time to build a new tool). Or has American Airlines chased individual advertisers off the search terms? Hmmm.

Third, and most importantly, I just don't see the business case for any trademark owner to sue a search engine. Maybe Google paid off the lawsuit sufficiently to make the effort financially attractive, but as I explained with the Google lawsuit, otherwise I just don't see how American Airlines could possibly be losing enough in "diverted consumers" to justify the litigation expense.

(On that point, paragraph 83(E) of the complaint was particularly laughable, saying that airline purchasers exercise a minimal degree of care when selecting air transportation services online. Really...? I'm sure people are pretty careless about making many-hundred-dollar non-refundable travel plans, just like they pick the wrong pack of gum in the checkout line.)

I'd be surprised if this lawsuit didn't settle like Google's did. If it doesn't, then it could be interesting.

Posted by Eric at 03:35 PM | Search Engines , Trademark | TrackBack

October 10, 2008

September 2008 Quick Links, Part 1 (Special Trademarks/Domain Names Edition)

By Eric Goldman

For some reason, September was an unusually busy Cyberlaw month, so I'm going to have at least 3 installations of my quick links series. This post focuses just on trademark- and domain name-related items from last month.

* Dozier Internet Law v. Riley. The Dozier Internet Law Firm is at it again. I last blogged about John Dozier for his claim that websites infringe copyright by republishing cease-and-desist letters. Now, he’s suing for trademark infringement because, among other things, a website put the Dozier law firm’s name into anchor text without the link going to the firm website. Fortunately, superstar trademark defense litigator Paul Levy of Public Citizen has taken up the matter and initiated a declaratory judgment lawsuit to stop the nonsense.

* Paul Levy is also taking on an “I-can’t-believe-it” trademark enforcement action by the Jones Day law firm. See Paul Levy’s post and their amicus brief. Wendy Davis piles on.

* adidas America, Inc. v. Payless Shoesource, Inc., 2008 WL 4279812 (D. Or. Sept. 12, 2008). The blockbuster trademark infringement damages award of over $300M has been reduced to “only” $65M.

* Miyano Machinery USA, Inc. v. MiyanoHitec Machinery, Inc., 2008 WL 4145649 (N.D. Ill. Sept. 5, 2008). More initial interest confusion silliness, including the court's belief that a defendant’s disclaimer tacitly admits IIC.

* Healix Infusion Therapy, Inc. v. Murphy, 2008 WL 4155459 (S.D. Tex. Sept. 2, 2008). Previous blog coverage of this case. A domain name registrant who isn’t aware of the plaintiff’s trademark lacks the requisite bad faith to constitute ACPA cybersquatting.

* Richard D. Salgado, Piracy and Chaos in the Marketplace of Ideas: Why Money Cannot Be Everything When Assessing Initial-Interest Confusion and Nonprofit Trademark Holders, 61 Ark. L. Rev. 241 (2008). I generally ignore most articles on initial interest confusion, especially those that actually think the doctrine is a good one. However, this one caught my eye because of this paragraph:

This article argues that courts err when they require financial gain as part of the initial-interest analysis where the trademark holder's enterprise is noncommercial. This requirement undermines the value of a trademark for a wide range of potential trademark holders. These holders include nonprofit organizations, churches, schools, and political organizations. These sanctions are what amount to cyber terrorism against others' valuable ideas, messages, and expressions. This problem is particularly relevant in any election year as the Internet floods with websites on behalf of issues and candidates, selling nothing more than an ideology or identity. (emphasis added)

Cyber-terrorism??? Wow. Call Homeland Security pronto.

* The Power of Internet Gripe Sites: Managing the Destructive Potential of "BrandSucks.com." Destructive potential....? Really. Once again, I ask, just how many people still type "[tm]sucks.com" into their web browser?

* I got an email from GoDaddy's PR department touting: "New Go Daddy Product Helps Domainers Get Sites Developed." I'll be interested to see how this plays out. First, given GoDaddy's history of having an itchy trigger finger when it comes to taking down its customers (see, e.g., 1 and 2), I wonder how many domainers are willing to rely on them? Second, if GoDaddy's domainer customers get sued for trademark infringement, I wonder how a court will evaluate a domainer service provider so closely connected to the site content. See the Vulcan Golf v. Google lawsuit.

Posted by Eric at 09:21 PM | Domain Names , Trademark | TrackBack

September 29, 2008

Delayed Enforcement Blocks Domain Name Lawsuit--Southern Grouts v. 3M

By Eric Goldman

Southern Grouts & Mortars, Inc. v. 3M Co., 2008 WL 4346798 (S.D. Fla. Sept. 17, 2008)

I'm often baffled by lawsuits over domain names and keywords because they just don't seem to make any economic sense. This lawsuit is especially perplexing given the plaintiff's delays and the seeming impossibility of the plaintiff reaching a profitable outcome, even if it won in court. What was the plaintiff thinking?

Background

3M and SGM compete in the field of "quartz aggregate products for surface finishes." SGM has a federal trademark registration for "Diamond Brite." In 2000, 3M bought an unrelated business whose assets included a trademark in "Diamond Brite" and the domain name "diamondbrite.com." For a while, 3M redirected the domain name to the home page of the other business unit it owned. No later than July 2002, the domain name stopped resolving, but 3M continuously renewed its domain name registration. Ultimately, 3M migrated the new unit to its existing trademarks and let its acquired trademark in "Diamond Brite" lapse.

Meanwhile, in 2005, 3M did a 3 week trial buying "diamond brite" in Google AdWords, but the lawsuit only involves the domain name, not the AdWords purchase.

SGM contacted 3M three times about the diamondbrite.com domain name. No later than July 2002, SGM emailed 3M asking if it could acquire the domain name. In Feb. 2005, SGM sent a cease-and-desist letter, which 3M rejected. Then, in July 2007, SGM wrote to 3M again proposing an amicable solution, and 3M continued to resist. SGM then sued 3M in Sept. 2007.

Laches

From my perspective, this is an easy laches case. Taking 5 years to pursue the matter, with nothing resembling an ongoing dialogue, is simply too long. 3M wound down use of the domain name, so its economic expectations aren't disturbed like a typical laches case, but there is still the increased litigation costs due to the 5 year delay. The court rejects that either the AdWords purchase and the domain name renewals resetted the laches analysis.

Unfair Competition on the Merits

The court says that the mere possession of the diamondbrite.com domain name without any further use does not constitute a "use in commerce" sufficient to support Lanham Act violations. Along the way, the court distinguishes a veritable who's-who list of junky domain name cases from the turn of the century, including PACCAR, Brookfield, PETA v. Doughney, OBH and Planned Parenthood v. Bucci. The court distinguishes most on the fact that 3M didn't have an active website resolving to the domain name, but it goes further with the OBH and Bucci cases:

OBH and Planned Parenthood[] are both nearly a decade old. As with any widespread change in technology, there is a learning curve. Even if those cases were correct when decided, I decline to adopt the position today that internet users of any significant number would be frustrated or hindered by merely not arriving at the expected site the first time a web address (domain name) was typed in... With the advent of multiple, and increasingly powerful search engines, it is unlikely that a potential consumer of SGM's products would be turned away by not finding a website at diamondbrite.com. In any event, SGM has presented not a scintilla of evidence to show that consumers have been prevented from accessing SGM's own website, or prevented from obtaining any of SGM's goods or services. (emphasis added)

The bolded language, of course, is true and has been for a number of years, but it's nice to see a court expressly acknowledge that "technological facts" embedded in the precedent are now out-of-date. It's also nice to see the court clearly recognize the substitutability of the domain name system and search engines and to realize that consumers prefer search engines.

The court also rejects the precedent by pointing out that there cannot be likelihood of consumer confusion when the domain name owner doesn't resolve at all. As the court says, "The seven factors use to determine whether a likelihood of confusion exists become irrelevant if there is no “use” to compare the mark to." There is plenty of stupid precedent to the contrary (including those predicated on initial interest confusion, which the court expressly rejects), but this court nails it.

ACPA on the Merits

In my opinion, the ACPA claim is an easy defense win because 3M (and the predecessor company) had legitimate trademark interests in "Diamond Brite" prior to the domain name's registration. The court still courteously goes through the "bad faith" ACPA analysis before concluding that 3M had none. Along the way, the court soundly rejects a pretty silly argument that the domain name registration pointing to an unresolved domain name would divert consumers because frustrated consumers would do a Whois lookup query for the defunct domain, learn that 3M was the registrant and seek out 3M to transact with. Some arguments are better left unmade.

In the end, the court grants summary judgment to 3M and dismisses the lawsuit.

Lawsuit Futility

I understand how matters like this can sit on an in-house counsel's desk for years, only resurfacing every couple of years and prompting a "ping" to the other side. But I simply can't understand how, in 2007, after 5 years of irresolute progress, SGM thought the economic upside justified the expense of a lawsuit.

On the benefit side, a domain name like "diamondbrite.com" has some value, especially when it's associated with a product line bearing that name. But how much value? Assuming a lawsuit like this costs at least six figures, I can't imagine that the domain name is worth anywhere close to that. Indeed, any incremental selling power from the domain name could be cost-effectively replicated through a combination of SEO and SEM on the term "diamond brite." Better yet, SGM could have poured the money into product sales and marketing, which I'm confident has a substantially higher ROI than suing or gaming the search engines.

As further evidence of the weak value of the domain name, SGM did not cite any harm from not owning the domain name, and the matter only rose to the top of SGM's in-house personnel's desk 3 times in 5 years. Clearly, this is not a "must have" domain name,

On the expense side, these types of lawsuits are costly. In addition to the normal attorney's fees, SGM obtained at least one expert witness (and, to add insult to injury, the court bounced the expert's report), did some expensive discovery (including obtaining and reviewing 3M's portfolio of 13,000 domain name registrations) and tied up key internal personnel on the lawsuit (including testimony from the "head of information technology and the executive vice-president of SGM"). The cost of a lawsuit isn't measured just by out-of-pocket attorney expenses but by overall opportunity cost, and on that basis, this lawsuit tied up valuable resources.

Finally, the rational decision-maker multiplies the cost-benefit amount by the probability of winning, and it seemed clear to me that this lawsuit had bad odds from the get-go. The ACPA claim was destined to lose because on the high "bad faith" standards (it also makes me wonder why SGM didn't try the UDRP first) and the fact that 3M had clear legitimate rights at the beginning. The potential success of the unfair competition claim is naturally less clear, but even if SGM won this claim, they had almost no chance of recovering meaningful damages or attorney's fees. As a result, I can't see a scenario where this was a breakeven lawsuit from the beginning. Given the low odds of success, this just seems like a clearly futile waste of money from day 1.

[A personal note: I'm out for the rest of the week for the Jewish holiday and a trip to the heartland. I'll probably next see you again next week. L'shanah tovah tikatev v'taihatem!]

Posted by Eric at 09:53 AM | Domain Names , Marketing , Search Engines , Trademark | TrackBack

September 08, 2008

August 2008 Quick Links, Part 1

By Eric Goldman

eBay

* Mazur v. eBay Inc., 2008 WL 2951351 (N.D. Cal. July 25, 2008). See my previous blog post on the case. Some commentators are excited about this ruling because it rejects eBay's motion to dismiss a RICO claim.

* Missing Link, Inc. v. eBay, Inc., 2008 WL 3496865 (N.D. Cal. Aug. 12, 2008). This is a lawsuit by eBay sellers complaining that eBay didn’t immediately index their listings in its search engine and eBay raised the price on “Good Until Cancelled” listings. This is the second time the court has dismissed some claims, but even so some claims have also survived the motion to dismiss process.

* As expected, Tiffany appealed the eBay ruling. My initial post.

Google

* Vulcan Golf, LLC v. Google Inc., 2008 WL 2959951 (N.D. Ill. July 31, 2008). The court dismisses a few claims made in the plaintiff's third amended complaint. My post on the initial complaint.

* JIT Packaging v. Google (E.D. Ill. complaint filed Aug. 11, 2008) A third lawsuit against Google over the placement of AdWords ads on parked domains and other putatively undesirable pages.

* A heavily redacted version of the Google/Yahoo agreement. The SEC examiner who let the agreement go through with this many redactions was asleep at the wheel!

47 USC 230

* Bauer v. Glatzer (N.J Superior Ct. July 21, 2008). Wikimedia easily wins a lawsuit against it alleging that a Wikipedia entry was defamatory.

* Capital Corp. Merchant Banking, Inc. v. Corporate Colocation, Inc., 2008 WL 4058014 (M.D. Fla. Aug 27, 2008). 47 USC 230 defense denied against allegations that "Leonard Norwich posted defamatory statements about [the plaintiff] on three websites and Francesca Norwich allowed Leonard to use “a computer registered in her name” to make the defamatory statements." The denial makes sense for Leonard but seems clearly erroneous with respect to Francesca.

* Vanginderen v. Cornell (S.D. Cal. June 3, 2008). CMLP page. This isn't specifically a 230 case but it's still relevant. Interesting lawsuit against Cornell and related entities for electronically posting a school newspaper story from 1983 that was allegedly defamatory. The court dismisses the lawsuit on an anti-SLAPP motion.

Blogging

* A Las Vegas nightclub loses its cool and sues a blogger for, among other things, including its logo in the blog post.

* As part of the fallout from the Troll Tracker blog, Dennis Crouch, of PatentlyO fame, has received a subpoena for communications related to his blog. Dennis' comments and LegalWatch. In a related lawsuit, Frenkel (a/k/a Mr. Troll Tracker) was dismissed from a lawsuit again. Ward v. Cisco Systems, Inc., 2008 WL 4079286 (W.D. Ark. Aug 28, 2008)

Content Restrictions

* Kings English, Inc. v. Shurtleff, 2008 WL 3285898 (D. Utah Aug. 8, 2008). The judge denied the plaintiffs’ motion to reconsider its highly unfavorable prior ruling. My initial post on the lawsuit.

* Reisinger v. Perez (E.D. Wis. complaint filed Aug. 18, 2008), First amendment lawsuit against the City of Sheboygan for intimidating a woman into removing a website link to the city's police department.

* National Federation for the Blind v. Target has settled, with Target paying $6M and redesigning its site.

Posted by Eric at 09:47 PM | Content Regulation , Derivative Liability , Licensing/Contracts , Search Engines , Trademark | TrackBack

September 05, 2008

426,487 Reasons Why Metatags Still Matter (In Court)--Venture Tape v. McGills

By Eric Goldman

Venture Tape Corp. v. McGills Glass Warehouse, 2008 WL 3959997 (1st Cir. Aug. 28, 2008). For more on the case, see the initial 2003 ruling denying a motion to dismiss for lack of jurisdiction and a 2006 district court ruling on damages.

Regular blog readers know that metatags don't matter from a technological standpoint and haven't mattered for years. But because they once might have mattered, courts are still treating them as the uber-SEO technique. In this ruling, the First Circuit joins the 11th Circuit as the latest appellate courts this year to experience a judicial freakout about metatags. The price tag to the defendant for using ineffectual metatags: $426,487 in damages, costs and attorney's fees.

The story is all too familiar. McGills sells competitive products to Venture Tape and in 2000 put Venture Tape's trademarks ("Venture Tape" and "Venture Foil") into its metatags and in white-on-white text with the hope of getting some search engine traffic. (As usual, the judge doesn't know or seem to care that there are multiple flavors of metatags, but the opinion treats them as keyword metatags). In 2003, Venture Tape realized this and sued. The district court found for the plaintiff and awarded $230k in damages for the period 2000-2003, $188k in attorney's fees and over $7k in costs. McGills appealed to the First Circuit.

With respect to trademark infringement, the First Circuit's test omits any requirement of trademark use in commerce (a seeming doctrinal problem in its own right), so the only issue was likelihood of consumer confusion. On that front, because the parties are direct competitors and the defense admitted that they referenced the trademarks to generate search engine traffic, the court says "By the conduct of its case below, McGills effectively admitted seven of the eight elements of" the likelihood of consumer confusion test.

The only disputed point is evidence of actual confusion, and the defendant points out that there's no evidence that any consumers were lured to its site due to the trademark references. The court says it doesn't care about this evidence one way or another because this is only 1 of 8 factors, so the 7 other factors are damning enough. In other words, this court says it doesn't matter if any consumers actually changed their behavior because the other proxies to measure the efficacy of the defendant's actions (i.e., the other elements of the likelihood of consumer confusion test) should matter more. Hmm.

The court has no problem declaring the defendant's conduct "willful" (the white-on-white text is really tough to defend, even if it's not efficacious), opening the path to an award of damages. The calculation starts with the defendant's entire revenues during the period of time the plaintiff's trademark was on the website (2000-2003), or $1.9M. The defendant is able to show that its gross profits during that time were only $230k, but it further argued that the competitive products were only 1% of its business. The district court wasn't satisfied with the evidence to bolster that argument, so the court awards 100% of the gross profits (instead of 1%). The consequence is that the defendant's entire business ran at zero profit for over three years solely because of its competitive metatagging--even if the metatagging didn't divert a single consumer. To make it worse, the court awards $188k of attorney's fees for the willful infringement plus $7k of costs. And, of course, the defendant paid for its own attorney for 5 years of litigation. All told, ouch.

I won't now belabor the point that both the district court and the appellate court are wrong in their analysis of metatagging. See here for my previous belaboring of that point. Instead, let me reinforce two practice pointers that I've made before:

1) Don't put third party trademarks in keyword metatags. It's just not worth it. The marketing payoff is trivial at best, and too many courts are overreacting to the presence of metatags. Here, it cost the defendant 3+ years of profits for their entire business plus another nearly $200k for some SEO tactics that had little chance of helping anyway. That's a bad business call.

2) If you are defending a lawsuit involving metatags or other technology-mediated uses of trademarks like keyword advertising, you MUST hire an attorney who already understands search engine technologies. As a good acid test, ask your attorney if they know how search engines index keyword metatags. If they don't know that keyword metatags are irrelevant technologically, drop them immediately. The point is that your attorney will need to explain to the judge why keyword metatags don't matter from a technological standpoint (like the attorneys apparently did in this case), and if your attorney doesn't understand the technology, the judge won't either.

Posted by Eric at 02:29 PM | Search Engines , Trademark | TrackBack

August 27, 2008

7Search Sues McAfee For Red Flagging It

By Eric Goldman

7Search.com v. McAfee, Inc., 1:2008cv04831 (N.D. Ill. complaint filed Aug. 25, 2008). The Justia page.

I don't have a good sense of how many lawsuits have been filed against anti-spyware vendors for classifying third party software as "adware" or "spyware." I've blogged on a few (including Kaspersky, PC Tools and Symantec v. Hotbar), and Ben Edelman maintains a larger catalog of such lawsuits (not sure how up-to-date this is). However, I don't know if these lawsuits are relatively rare (as Ben's chart implies) or if they are multitudinous but most quietly fly under the radar screen.

If there aren't many unpublicized lawsuits, that may reflect that suing an anti-spyware vendor over its classification decisions almost never makes sense. First, many vendors have a private adjudicatory/appellate process that resolves many potential disputes without a lawsuit. Certainly, most vendors don't want to make errors, which undermines their own credibility, and most reputable vendors want to fix their mistakes. Second, lawsuits bring generally unwanted publicity to the plaintiff, calling extra attention to their alleged deficiencies and bringing out all of the gripers. Third, the costs of the lawsuit may be more than the value of any frustrated transactions. Finally, many of the lawsuits have low probabilities of legal success for the reasons I'll discuss in a moment. So there is good reason to believe classification-related lawsuits such as this one are rare. (I'm not saying that grumbles or C&Ds are rare; I'm just referring to formal lawsuits).

In this lawsuit, 7Search says that it was in the toolbar business but stopped offering downloads from its site in 2003. However, McAfee's SiteAdviser gives 7Search the big red X and says "Feedback from credible users suggests that downloads on this site may contain what some people would consider adware, spyware, or other potentially unwanted programs." 7Search claims that this statement is false because it isn't offering any downloads at all. 7Search thus alleges false advertising (Lanham 43(a)), deceptive trade practices, defamation and unfair competition.

The most obvious barrier to 7Search's lawsuit is 47 USC 230. Both (c)(1) and (c)(2) could be implicated. (c)(1) is less likely, but if in fact McAfee is republishing information from third parties (as suggested by the statement's reference to "credible users"), they may be able to claim (c)(1) for the republication. Either way, (c)(2)--the immunization for filtering decisions--is directly on point and potentially immediately fatal to the lawsuit. Zango's lawsuit against Kaspersky was soundly and quickly knocked out on 230(c)(2) grounds (though that is now on appeal to the Ninth Circuit), and a district court in Illinois gave broad deference to the Zango ruling in finding that Comcast could claim 230(c)(2) for email filtering decisions.

At the same time, 7Search alleges that McAfee's classifications were in bad faith. If so, then 230(c)(2) wouldn't apply even under the liberal Kaspersky or Comcast approaches, both of which required subjective good faith. We'll have to see how McAfee responds to determine if 7Search's allegation has any chance of getting traction.

There are two other possible holes in the potential 230 coverage for this lawsuit. First, courts have been inconsistent whether a false advertising 43(a) claim under the Lanham Act fits within the "IP" exclusion to 230. Second, most of 7Search's gripe goes to McAfee's statement that bad downloads are available--words chosen by McAfee to describe its filtering decision. It remains unclear if 230(c)(2) protects an intermediary's characterization of its filtering decision as much as it protects the filtering decision itself--just like 230(c)(1) may protect against liability for third party information but may not protect against marketing representations rendered untrue by third party content or actions.

In any case, I think this lawsuit and others over classification decisions raise interesting and important issues that I plan to explore in my Economics of Reputational Information project. We want skillful intermediaries to digest the overwhelming amount of information available in the marketplace and make reputational judgments that speed up our consumer decision-making. On that basis, we definitely don't want reputational judgments removed from marketplace actors and put into the hands of the judges. However, we also want the reputational intermediaries to make factually accurate judgments because their misjudgments also could distort marketplace decision-making.

Posted by Eric at 03:54 PM | Adware/Spyware , Derivative Liability , Marketing , Trademark | TrackBack

August 26, 2008

Court Slams Competitive Metatagging and Keyword Advertising--Soilworks v. Midwest Industrial Supply

By Eric Goldman

Soilworks, LLC v. Midwest Indus. Supply, Inc., 2008 WL 3286975 (D. Ariz. Aug. 7, 2008)

All too frequently, we get an opinion where the judge clearly didn't grasp current implementations of keyword advertising and metatagging. Often, it's simply a bad luck of the draw; in other cases, the defense lawyers may have failed to educate the judge properly (IMO, the Axiom case is an example of the latter).

This opinion, an outgrowth of patent litigation involving two competitors in the soil anti-erosion business, is a good example of a judge who just doesn't get it. The advertiser's misdeed is that it "uses the [trademarked] phrase 'soil sement' in keyword advertising on an Internet search engine and uses variations of the phrase in metatags for its websites." The opinion doesn't specify if the advertiser triggered ads on the term "soil sement" or displayed the trademark in the ad copy, nor does the opinion specify which metatags (keyword, description, others) contained the "soil sement" references.

Those "details" don't matter to this judge, though, because the initial interest confusion doctrine provides a cure-all for any factual or analytical deficiencies. Even though there was zero evidence that the advertiser's behavior actually or might have confused consumers one bit, the court says that the potential for attention diversion from keyword advertising and metatagging was sufficient to constitute initial interest confusion ("the wrong in a metatag initial interest confusion case is ... the diversion of the consumer's initial attention to the defendant's website using the plaintiff's trademark and goodwill"). Unfortunately for the analytical rigor of the judge's discussion, it's already well-established that (1) keyword metatags have no meaningful diversionary power, and (2) as I've explained here, it is impossible to conclude that consumers were diverted until we can confirm where the consumers were trying to go in the first place (and a simple keyword search can't tell us that). (There are plenty more bases to attack the "logic" here; I'm trying to be selective). As a result, this court's reliance on attention diversion concerns is anachronistic at best and pernicious at worst.

This opinion is too inscrutable to draw many useful lessons from it. However, it reinforces a broader lesson that there remains significant legal downside, and minimal marketing upside, to including competitive trademarks in keyword metatags. Therefore, I continue to strongly suggest that advertisers should avoid this practice.

For more, see Rebecca's commentary, where she says she's "depressed" by rulings like this.

Posted by Eric at 09:57 AM | Search Engines , Trademark | TrackBack

August 20, 2008

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

Posted by Eric at 07:15 AM | Adware/Spyware , Marketing , Trademark | TrackBack

August 11, 2008

Minnesota Court Says Keyword Advertising is TM Use in Commerce--Hysitron v. MTS

By Eric Goldman

Hysitron Inc. v. MTS Systems Corp., 2008 WL 3161969 (D. Minn. Aug. 1, 2008)

In a brief and pedestrian opinion, another court outside the Second Circuit said that buying a trademarked keyword is "use in commerce" under the Lanham Act even if the trademark doesn't appear in the ad copy. The court says:

This Court adopts the majority view that using a trademark to generate advertising constitutes a “use in commerce” under the Lanham Act. This approach adheres to the plain meaning of the Lanham Act's definition of “use in commerce.” The language used in the definition suggests that a “use in commerce” is not limited to affixing another's mark to one's own goods but also encompasses any use of another's mark to advertise or sell one's own goods and services.

The court is right about the majority vote, but it's hardly a strong majority. According to my count, the vote was 7-to-6 before this ruling. However, all 6 no votes are in the 2d Circuit, so geographically there is a stronger basis to characterize the rule as the majority rule.

The court also denied the defense SJ motion because more discovery is required to determine consumer confusion.

Posted by Eric at 11:01 PM | Search Engines , Trademark | TrackBack

August 08, 2008

Affiliate Liability Extravaganza

By Eric Goldman

[Note: I recently published a version of this article at InformIT. Here's the pre-edited version I sent them.]

Introduction

This article discusses marketers’ liability for the actions of their marketing affiliates (what I refer to as “affiliate liability”). The affiliate liability issue has become red-hot recently because numerous plaintiffs have taken aggressive legal positions seeking to expand the boundaries of affiliate liability. In three recent rulings, courts have emphatically rejected these expansive liability arguments. Even so, it seems likely that plaintiffs will continue to look for ways to expand affiliate liability, and despite the favorable rulings, defendants often settle a lawsuit alleging affiliate liability rather than establish their rights in court.

Affiliate Marketing—Good and Bad

Marketers create affiliate programs to outsource marketing decisions to domain experts. For example, independent third parties may have better or cheaper access to subcommunities of potentially interested consumers than a marketer’s employees. An affiliate marketing program compensates these local experts for work and expertise involved to take the marketer’s message to those consumer communities. When it works properly, affiliate marketing programs can play an important role in the broad “invisible hand” economic phenomenon of allocating scarce resources to consumers who value them the most.

Affiliate marketing doesn’t always have this salutary effect. Affiliate marketing programs create payoffs to motivate affiliate behavior, and inevitably some affiliates will try to obtain the payoff without doing the desired activity. Thus, even if the marketer would prefer otherwise, some affiliates might do “whatever it takes” to get paid, including using false advertising or illegitimate marketing mechanisms. Further, the fact that the marketer outsources some choices to affiliates (a necessary part of any affiliate program) can lead to “diffuse responsibility” where the marketer and affiliates point fingers at each other if something goes wrong. Sometimes, when there are multiple tiers of affiliates, it can become effectively impossible to assign responsibility for the wrongdoing.

To bypass these legal entanglements, plaintiffs have sought ways to hold marketers vicariously (automatically) liable for their affiliates’ actions. However, these efforts “break” standard tort law by trying to treat independent contractors as if they are principal-agents without the requisite supervision or authority that typically triggers agency liability. As a result, overexpansive theories of affiliate liability cause marketers to internalize too many costs, curtailing potentially socially beneficial marketing activities or leading to overinvestment in socially wasteful liability minimization schemes.

Plaintiffs Gone Wild: Two Recent Efforts to Expand Affiliate Liability

There have been countless affiliate liability enforcement actions, but I’ll focus on two recent initiatives.

New York Sales Tax Law

State and local taxing jurisdictions have long coveted a way to impose sales tax collection responsibilities on non-resident Internet vendors. In general, these efforts have been stymied by the Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which requires a vendor to have a physical presence in the jurisdiction before the taxing entity can impose sales tax collection obligations on it.

New York, however, developed a nifty workaround. In April, it passed a law (Chapter 57, N.Y. Laws of 2008) declaring that a vendor’s marketing affiliates in New York constituted a physical presence in New York by the vendor. If so, New York can impose sales tax collection obligations on remote vendors due to their New York affiliates. As part of its crafty plan, New York tried to induce compliance with a carrot—if remote vendors voluntarily agreed to collect and pay sales tax from New York residents going forward, then New York would grant them amnesty for any back sales tax collection obligations.

Neat trick, but…a small problem: affiliates are independent contractors of the vendor, so this effort to treat them as legally related entities surely doesn’t comply with the Constitution. I suspect a court will confirm this flaw because both Amazon and Overstock.com have sued New York over the law. At the same time, to minimize its risk, Overstock has also tossed all of its New York affiliates overboard. One might question the wisdom of the New York legislators prompting marketers to cut off opportunities for New York online entrepreneurs.

Trademark Owners Claiming Marketers Are Liable for their Affiliates’ Marketing

Another trend: trademark owners are trying to hold a marketer liable for the alleged trademark infringement committed by its affiliates, such as when affiliates purchase the third party trademark as a keyword trigger for search engine ads. Plaintiffs have alleged affiliate liability in at least three lawsuits in the past couple of months:

* DSW v. Zappos.com (S.D. Ohio complaint filed May 12, 2008). For more, see SEOmoz.

* NameSafe v. LifeLock (M.D. Tenn. complaint filed June 26, 2008). For more, see Techdirt and News.com.

* Rosetta Stone v. Rocket Languages (C.D. Cal. complaint dated July 2, 2008). For more, see the WSJ Law Blog.

Courts Weigh In—and Plaintiffs’ Expansive Theories Don’t Fare Well

The efforts to extend liability in the sales tax and trademark contexts are novel, and it’s hard to predict the final outcome because we have limited direct precedent to consult. However, looking at some recent rulings in other contexts, there is good reason to believe that both legal theories go way too far.

CAN-SPAM

Unlike many other areas of the law, CAN-SPAM (15 USC 7705 and 7706) specifically authorizes affiliate liability in the statute. The Federal Trade Commission (FTC) has routinely invoked this provision in its pursuit of marketers promoted by affiliate-initiated spam (for one of the more recent examples, see the FTC’s press release on one of its porn spam busts and settlements). Further, typically when the FTC targets a marketer on an affiliate liability theory, the marketer rolls over and settles rather than fight.

But…a small problem: the FTC’s expansive interpretation of the affiliate liability statute—the basis it has used to procure these settlements from marketers—may not actually reflect the law. In an outcome that didn’t get nearly the press it deserved, in an lawsuit against Impulse Media earlier this year, the FTC took its affiliate liability theories to a jury and lost. This is a huge verdict because (1) the FTC rarely loses in court, and (2) perhaps more importantly, when average citizens evaluate the FTC’s expansive affiliate liability theories, they may balk.

Oddly, the FTC didn’t take no for an answer. It subsequently asked the judge to enjoin Impulse Media even though Impulse Media won the jury verdict. Talk about chutzpah! Not surprisingly, the court declined the request. US v. Impulse Media, 2008 WL 1968307 (W.D. Wash. May 1, 2008).

In another lawsuit, ASIS Internet Services, v. Optin Global, Inc., 2008 WL 1902217 (N.D. Cal. March 27, 2008; unsealed April 29, 2008), a civil plaintiff, ASIS (a serial anti-spam litigant), invoked the CAN-SPAM affiliate liability provision in its anti-spam lawsuit against 20 defendants. One defendant never showed; 18 defendants settled up (as mentioned, the typical response); and only one defendant—Azoogle—persisted in court.

Azoogle is a lead generation company for upstream marketers, and it relies on downstream affiliates to help it generate leads for its clients. Some of those downstream affiliates generate leads via spam. In this ruling, the court rejects Azoogle’s liability for spam sent by its marketing affiliates:

Although ASIS has pointed to significant evidence that Azoogle, during the relevant time period, did little to investigate the third party vendors it engaged, there is no evidence in the record from which a jury could conclude that Azoogle, in contracting with Seamless Media, made a deliberate choice not to know that Seamless Media would engage third parties to send out spam on Azoogle's behalf. The evidence cited by ASIS to establish knowledge on Azoogle's part is entirely speculative. Even assuming it is true that the Emails were sent by a single individual and that the lead was typed into a web site that was copied from Azoogle's lowrateadvisors site, this is insufficient to show that Azoogle consciously avoided knowing that the Emails would be sent. Further, while ASIS relies primarily on the allegation that Azoogle failed to adequately investigate its third-party vendors, ASIS has pointed to no evidence that if Azoogle had investigated Seamless Media prior to entering into the Insertion Order, it would have learned facts sufficient to show that Seamless Media was likely to engage in CAN-SPAM violations. There is no evidence in the record that would put Azoogle on notice that Seamless Media, or Seamless Media's vendors, obtained leads from spammers. Indeed, the only evidence on this subject is that Seamless Media had a good reputation at the time, and was obliged by its contract with Azoogle to follow the law.

Adware

Another recent affiliate liability decision is the remarkable ruling in People v. Direct Revenue LLC, 2008 WL 1849855 (N.Y. Sup. Ct. March 12, 2008), another case that did not get the attention it deserved. Disclosure note: I helped file an amicus brief in this case.

In 2006, the NY Attorney General’s office (NYAG) made the apparent decision that adware vendor DirectRevenue needed to be shut down by any means necessary, and it launched a multi-front attack on DirectRevenue. It publicly posted a website with information about DirectRevenue that had no apparent purpose other than to denigrate DirectRevenue’s reputation. It bullied DirectRevenue’s advertisers, ultimately procuring, and then releasing a hyperbolic press release about, an insignificant settlement that spooked potential advertisers away from DirectRevenue. And finally, it sued DirectRevenue directly.

The NYAG’s actions had their desired effect. Perhaps due in part to the NYAG’s campaign to close DirectRevenue down, DirectRevenue did in fact go out of business. Congratulations to the NYAG for achieving its apparent goal.

But…a small problem: the NYAG’s assessment of DirectRevenue’s legitimacy may have, in fact, been itself lawless, because the court emphatically rejected all of NYAG’s legal theories. This might be amusingly ironic if the NYAG’s anti-DirectRevenue campaign wasn’t such a chilling and crushing misuse of governmental powers.

The opinion is worth reading in its entirety, especially where the court affirms the EULA formation and limits extraterritorial liability. However, apropos to this post, the court rejected DirectRevenue’s liability for allegedly illegitimate software installations made by its affiliates, saying “petitioner has not shown that respondent should be held liable for the actions of those third parties under a theory of agency or ratification, or otherwise.” The court explains:

Dismissal is required with respect to the 22 [installations by] third parties, who petitioner concedes were independent contractors rather than agents of Direct Revenue. A principal is generally not liable for the acts of an independent contractor because of the lack of control over how the contractor's work is performed (Chainani v. Bd. of Educ., 87 N.Y.2d 370, 380-81 [1995]). Neither may the principal be charged with the conduct of even more remote subcontractors (People v. Synergy6, Inc., Index No 404027/03 [Sup Ct N.Y. Co 2006][unpublished disposition][Attorney General's action for deceptive practices and false advertising under GBL dismissed as against email marketing company where fraudulent emails were sent by company retained by agent]). Although exceptions exist, such as where the contractor was negligently retained or supervised (Saini v. Tonju Assocs., 299 A.D.2d 244, 245 [1st Dept 2002]) or where the principal has ratified the wrongful acts (Kormanyos v. Champlain Valley Fed. Sav. and Loan Assoc. of Plattsburgh, 182 A.D.2d 1036, 1038 [3d Dept 1992]), the record here does not support any grounds for departure from the usual rule.

As noted, under the SDA, Direct Revenue contractually required its distributors to obtain consent of consumers consistent with the terms of the EULA. The SDA also forbade the distributors from holding themselves out as respondent's agents. Respondent was not authorized or obligated to control their work, particularly since many of them additionally acted as distributors for various other advertisers. Although in Sotelo v. Direct Revenue, 384 Supp2d 1219 (ND Ill 2005) the court upheld a cause of action against respondent for negligent supervision of distributors, the issue arose on a motion to dismiss and the court thus restricted its inquiry to the four corners of the complaint. Notably, the court stated that it was precluded at that procedural juncture from considering respondent's evidence that the distributors were independent contractors, evidence which, as here, included the SDA.

…

The theory that respondents ratified the alleged third party misconduct also fails. The allegations that respondent had general and/or constructive knowledge of some distributors' wrongful practices are insufficient to impose liability (see, Synergy6, supra; Del Signore v. Pyramid Sec. Servs., Inc., 147 A.D.2d 759, 760-61 [3d Dept 1989][mere knowledge of litigation and complaints against security company for undue force by guards insufficient to impose liability upon hiring firm]; see also Hamilton v. Beretta USA Corp., 96 N.Y.2d 222, 237 [2001]). Moreover, it is conceded that in those few instances in which respondent obtained actual knowledge of a distributor's misconduct, it took significant steps to modify its procedures. A finding of ratification cannot be found upon such facts, notwithstanding that respondent may have benefited financially from its relationship with the distributors before remedial measures were implemented (see Synergy6, supra).

It is my understanding that the NYAG has filed a notice of appeal in this case to preserve its options, but it is still deciding if it will pursue the appeal.

Unfortunately, I’m not aware of the Synergy6 opinion being available electronically, which is a shame because it’s an interesting and relatively early rejection of the NYAG’s expansive affiliate liability doctrines. Due to that ruling (which involved email marketing instead of adware), the NYAG already had good reason to suspect that its predicate theories were dubious, which makes its decision to pursue those theories against DirectRevenue even more lamentable.

Conclusion

This post highlights two seemingly inconsistent trends. Trend #1 is that plaintiffs (private actors or government agencies) are taking very expansive positions on affiliate liability. Trend #2 is that when tested, expansive affiliate liability theories are failing in the courts. These two trends seem to be in conflict with each other. My hope is that trend #2 becomes so strong that it overrides trend #1, i.e., plaintiffs and government actors get the message that they have gone too far.

Unfortunately, in the interim, many defendants will capitulate and settle an expansive affiliate liability claim—even if it’s lawless—because it’s the cheapest path to resolution or because the precedent isn’t strong enough to ensure victory. Perhaps some defendants will realize that the trend is in their favor and will fight back accordingly. More judicial clarity about the line between permissible and impermissible behavior would benefit everyone.

It is also possible that the legal ambiguities of affiliate liability will be resolved by statute. However, despite the defendants’ string of court victories, I see the chances of legislative intervention to curtail expansive affiliate liability doctrines as nil. If anything, it’s more likely that future legislation will codify liability expansion.

For a rare in-depth analysis of affiliate liability, see Jean Noonan and Michael Goodman, Third-party liability for federal law violations in direct-to-consumer marketing: telemarketing, fax, and e-mail 63 Bus. Law. 585-596 (2008) [ABA subscription required to download].

Posted by Eric at 08:04 AM | Adware/Spyware , Derivative Liability , Marketing , Spam , Trademark | TrackBack

August 05, 2008

July 2008 Quick Links, Part I (IP Edition)

By Eric Goldman

Copyright

* Granger v. Gill Abstract Corp., 2008 WL 2791264 (S.D.N.Y. July 18, 2008). A title company admitted infringing the defendant's copyrighted "rate calculator" by posting it to the title company's website. The plaintiff demanded actual damages of $766 MILLION on the theory that the title company's entire revenues were attributable to the rate calculator on the website. The court dismisses this argument as "preposterous." Instead, the plaintiff admitted that its licensing rate is $500/year, so the court awards a maximum of $1,500 for three years of infringement, an amount that the defendant surely would have happily paid to settle before going to court if the plaintiff would have accepted it. Instead, this is great example of a dispute that had no chance of settling because the plaintiff’s demands were so out of this universe. For another example of irrational plaintiff damage demands faring poorly in court, see the Gregerson case.

* An update on Designer Skin v. S&L Vitamins. You may recall that S&L Vitamins lifted product shots from Designer Skins, and in the previous ruling, the court said that such copying isn't fair use. However, in a July hearing, the court subsequently concluded that Designer Skin suffered no actual damages from the copying when S&L marketed legitimate Designer Skin goods using the images, netting the plaintiff zero dollars. An injunction may still be possible. Of course, plaintiffs in the future will try to register their product shots on a timely basis, positioning themselves for statutory damages and attorneys' fees, so this ruling is helpful only in the cases where the registration isn't timely.

* Chronicle of Higher Education: "When Web Sites Post Test Answers Online, Professors Worry"

* 11th Amendment geeks will be interested in the CRS on Infringement of Intellectual Property Rights and State Sovereign Immunity, July 23, 2008.

Trademark

* Nothing spoils a good birthday party like trademark concerns.

* Paul Levy informs us that the ABA IP Section has finally given up their pointless quest to opine on the keyword advertising issue.

* CafePress has settled a trademark infringement lawsuit by Hustler magazine.

* This month, several interesting trademark academic articles emerged:

1) Margreth Barrett, Finding Trademark Use: The Historical Foundation for Limiting Infringement Liability to Uses 'In the Manner of a Mark' Prof. Barrett does some historical sleuthing to determine the scope of trademark use in commerce” doctrine, and she offers a suggested multi-factor test for defining use in commerce in the future. I previously blogged on one of Prof. Barrett's earlier papers on this topic.

2) Bill McGeveran, Rethinking Trademark Fair Use. Prof. McGeveran discusses trademark rules vs. standards and the interplay between the plaintiff’s prima facie case and the defenses.

3) Ken Port, Trademark Extortion: The End of Trademark Law. Prof. Port marshals some empirical evidence to argue that the quantity of trademark lawsuits is dropping but more trademark demands are settling on extortionate terms prior to a lawsuit being filed.

Posted by Eric at 06:59 AM | Copyright , Trademark | TrackBack

August 01, 2008

Domainer Loses Cybersquatting Lawsuit--Verizon v. Navigation Catalyst

By Eric Goldman

Verizon California, Inc. v. Navigation Catalyst Systems, Inc., 2008 WL 2651163 (C.D. Cal. June 30, 2008). The Justia page. A page with some of the early filings.

[Sorry for the delay blogging this--it just showed up on my radar screen]

This is an extremely interesting and potentially precedent-setting case regarding domaining and domain name tasting. The court condemns both practices, leading to a preliminary injunction against the domainer and its registrar based on the Anti-Cybersquatting Consumer Protection Act (ACPA). As far as I can recall, this is the first time that a domainer has lost an ACPA lawsuit in court, and it provides an important data point confirming that domaining can be cybersquatting (a previously unresolved issue). I also believe that this is the first time a domain name registrar has lost an ACPA lawsuit. Although the court wasn't asked to assess damages (it was just an injunction request), it's clear from the strongly worded opinion that Verizon will get paid if the case gets that far. As a result, this is a major loss for domainers and might very well force them to change their practices.

The defendants are Navigation Catalyst, a domainer, and Basic Fusion, its registrar. Navigation Catalyst engaged in some common domainer practices, including:

* high volume automated domain name tasting. Many of the registered domains have nothing to do with anyone's trademark, but some were typographical error versions of Verizon's trademarks (allegedly, nearly 1400 were variations of Verizon's trademarks)
* trademark "scrubbing" of domain names during the tasting period (both an automated blacklist and a manual review)
* disabling ads on any challenged domains and offering to transfer those domain names to the trademark owner

Despite the scrubbing, Navigation Catalyst registered and kept 126 domain names that Verizon alleges infringe its trademark. Navigation Catalyst also tasted nearly 1300 other challenged domains, and as the court points out, made some money from those domains during the tasting period.

Navigation Catalyst's main defense is that it merely reserved the domains during the tasting period instead of "registering" them (the ACPA statutory requirement) because they hadn't paid for the domains prior to the end of the grace period. Not surprisingly, the court is completely unimpressed with this sophistry.

Further, the court determines that domain tasting is a bad faith intent to profit under the ACPA:

It is clear that their intent was to profit from the poor typing abilities of consumers trying to reach Plaintiffs' sites: what other value could there be in a name like ve3rizon.com? Further, the sites associated with these names often contained links to products directly competitive with Plaintiffs' cellphone and internet businesses, potentially diverting consumers who would otherwise have purchased goods or services from Plaintiffs away from Plaintiffs.

Finally, the defendants tried to argue that Verizon had unclean hands because of Verizon's monetization of wildcard traffic in its FIOS service. Despite some pretty apparent duplicity on Verizon's part, this argument also fell on deaf ears.

While this is a big loss for the domainer, it's a shocking ruling against the registrar. After all, the ACPA specifically limits injunctions against domain name registrars (see 15 USC 1114(2)(d)(i)(II)), and the court did not discuss this section at all or otherwise why an injunction against the registrar was appropriate. I suspect the registrar should be able to get the court to clarify or reconsider its ruling if it asks.

It will be interesting to see how this ruling affects the domainer industry. There is absolutely no good news for them in this ruling. This court rejected the standard risk-management that domainers claim protect them from cybersquatting liability. Further, the big win will only encourage Verizon--already one of the most aggressive plaintiffs against domainers--to keep suing, and it might spur other trademark owners to join the party. Although a single ruling like this often doesn't change an industry overnight, I wouldn't be surprised if we look back in a couple of years and point to this ruling as the beginning of the end of standard domaining practices circa 2007-08.

Posted by Eric at 10:10 PM | Derivative Liability , Domain Names , Trademark | TrackBack

July 19, 2008

American Airlines and Google Settle Keyword Advertising Lawsuit

By Eric Goldman

American Airlines and Google have settled American Airlines' trademark lawsuit over Google's sale of keyword advertising. The settlement terms are confidential. See the unenlightening stipulation and the judge's dismissal order. The Justia page. The Bloomberg News story.

Because the terms are confidential, we don't know who "won" this lawsuit (other than the lawyers, of course). I did a search this morning for "American Airlines" and American Airlines had the only keyword ad. No third party ads showed, which as I recall is different than past results, but it's possible that American Airlines has run third party advertisers off the term one-by-one rather than getting Google to block the term for them. I also did a search this morning for "aa.com" and got one third party ad for lowfares.com. A search for "AADVANTAGE" showed two third party ads, one for an AAdvantage credit card (probably authorized) and the other for firstclassflyer.com (probably not).

Based on this data, my initial hypothesis is that Google did not make any special concessions to American Airlines to block keyword ads on their trademarks. Perhaps Google made other concessions. Or perhaps American Airlines completely wasted its time and money. If so, it wouldn't be the first time that a company with the word "American" in its trademark took on Google and got nothing.

This settlement is presumably a disappointment to trademark diehards who were cheered by a well-financed and well-recognized trademark owner taking on the mighty Google. Now, this case isn't going to break any new ground in the Fifth Circuit. Combined with Utah's repeal of the Utah Trademark Protection Act, the only major threat to Google's keyword ad practices in the United State still pending is the Rescuecom appeal in the Second Circuit, which I must confess I remain nervous about.

Posted by Eric at 09:05 AM | Derivative Liability , Trademark | TrackBack

July 17, 2008

GoDaddy Gets 230 Defense for Web Hosting--Kruska v. Perverted Justice Foundation

By Eric Goldman

Kruska v. Perverted Justice Foundation Inc., 2008 WL 2705377 (D. Ariz. July 9, 2008). The CMLP page with lots of source material.

GoDaddy allegedly hosted some third party websites that said some not-nice things about Kruska (calling her a convicted child abuser, a convicted child molester and a pedophile). Kruska brought a pro se lawsuit against (among other defendants) GoDaddy for hosting the websites. This is squarely in 47 USC 230's sweet spot, and the court notes that "this immunity has proved nearly limitless." Claims dismissed.

More unusual is the court's decision to dismiss a 43(a) Lanham Act claim per 230. The opinion isn't very clear in its discussion (and maybe I missed them in my quick review, but I don't see a 43(a) claim in the two complaints posted on the CMLP page), but I infer her claim is that GoDaddy puts its logo on pages hosted by it and therefore is confusing consumers about the source of the page. The court might have simply dismissed Kruska's claim for lack of standing, but instead refers to 230 in dismissing this claim. I don't believe Kruska was claiming trademarks in her own name (not that it would have improved her odds), but a federal trademark infringement claim is clearly not preempted by 230. Otherwise, I think it's an open question about whether the false advertising parts of 43(a) are preempted by 230. See my slides recapping some of the developments through April. See also Rebecca's blog post trying to sort through the 43(a)/230 interplay in a different case.

As I've now said repeatedly, the interaction between 230 and a website's marketing activities is increasingly unclear and maybe reaching a point of incoherence, and this case certainly doesn't reduce our befuddlement.

Posted by Eric at 02:42 PM | Derivative Liability , Trademark | TrackBack

July 14, 2008

Tiffany v. eBay District Court Opinion Analysis

By Eric Goldman

Tiffany (NJ) Inc. v. eBay Inc., No 04 Civ. 4607 (RJS) (S.D.N.Y. July 14, 2008)

It took most of the day, but I've finally read through the 66 page book in the Tiffany v. eBay case, and this post supplements my brief announcement post with a more thorough critique. Overall, the opinion is very thoughtful. If you have the time, it's worth reading in its entirety. If you deal with websites that are potentially liable for user-caused trademark infringements, you should definitely read the case to get a roadmap of eBay’s multitudinous infringement suppression practices that the court endorses. But if you don't have the time to read the whole case, this post focuses on some of the best parts.

eBay's Counterfeit Suppression Efforts Endorsed

Most noteworthy is that the judge endorsed eBay's various efforts to reduce the sale of counterfeit goods on its site and provide extrajudicial recourse to brand owners like Tiffany. Back in the 1990s, some caselaw suggested that affirmative efforts to suppress user activity might exacerbate liability, so the preferred strategy was to remain "passive" with respect to users. eBay chose a different approach. It proactively attempted to reduce the incidence of counterfeiting on the site through its VeRO program, its fraud engine, manual review efforts to seek out auctions that looked like they might be counterfeit goods. Further, eBay continues to innovate new ways to curb bad users or help brand owners.

A ruling like this validates eBay's investments. The judge fully acknowledged and appreciated that eBay didn't just stand on the sidelines and let Tiffany take it up with its users. Kudos to eBay's management and in-house legal department for navigating the liability issues in a way that clearly impressed the judge.

One small cautionary note. The judge rejected eBay's argument that it was just an online advertising venue. Instead, because of the many value-added services that eBay provides to its sellers, the judge thought that the offline swap meet analogy was more apt. The determination was inconsequential in this case, although I'm sure eBay wishes the reference wasn't there. However, it's a good reminder that this "we're just a venue" argument can be a tough sell to judges. Google, if you're listening, this doesn't bode well for your argument that you just sell ad "space" instead of selling trademarked keywords.

Tiffany's Arguments Rejected

This ruling is a stinging rejection of some of Tiffany's core arguments. First, the court found that Tiffany didn't invest enough in its policing efforts, referring to Tiffany’s investment as "relatively modest." I've argued before that this case is really just a Coasean battle over transaction cost allocation (i.e., once the judge sets the entitlements, the parties can negotiate from there), and Tiffany's arguments to persuade the judge that eBay should bear more costs clearly failed (meaning that eBay gets the legal entitlement). Indeed, the court goes so far to say "even if it were true that eBay is best situated to staunch the tide of trademark infringement to which Tiffany and countless other rights owners are subjected, that is not the law."

Second, it was really interesting to see the court's treatment of Tiffany's demand to eBay that eBay should filter out any auctions containing 5 or more Tiffany items of the same type because such an auction is an obvious red flag of suspect users. Tiffany's approach is very common among IP owners--they manufacture an artificial rule and then demand fidelity to the rule at peril of litigation. (As another recent example of this phenomenon, recall the dustup over the AP's unilateral declaration of the permissible amount of quoting of AP articles. Where did that rule come from?). Many times websites kowtow to these demands to avoid litigation, but here the court shreds Tiffany for creating a baseless rule and then treating eBay as the villain for "breaching" the rule--especially because Tiffany kept on changing the rules and softened its adamancy. Tip to IP owners--if you are going to manufacture a rule about how people can engage with your IP from whole cloth, don't be surprised if judges won’t rubberstamp it. If anything, they may think you're overreaching.

Notice-and-Takedown Scheme for User-Caused Trademark Infringements

Historically, the standards for contributory trademark infringement due to user activity have been underdeveloped. Copyright is covered by the DMCA (512) and non-IP claims are covered by the CDA 47 USC 230, but trademark law lacks an analogous statute. Further, there have been very few cases on the topic, and possibly applicable statutory provisions, such as the 1114 printer/publisher partial defense, are also underlitigated in the online context. Due to the dearth of statutory and caselaw material, Cyberlaw specialists have not had a good sense of the rules applicable to secondary trademark infringement online.

This case fills an important gap in our precedent. In the context of this case, it squarely anchors website liability for user-caused trademark infringements in a notice-and-takedown regime not dissimilar to the RTC v. Netcom copyright ruling from 1995 (which provided the basis for the DMCA notice-and-takedown system). Because it's not statutory, this court doesn't prescribe the specific contours of a sufficient takedown notice. At the same time, it rejects any generalized knowledge of future infringements as being sufficient--and most specifically, it declares as insufficient a trademark owner's C&D letter demanding that the website prospectively police its premises to prospectively prevent any future infringements. (Cite to, and endorsement, of the Ninth Circuit's 1999 Lockheed v. NSI case). It also says that failing to prospectively look for infringement does not equal willfully turning a blind eye.

While this is good news, I remain uncertain how generalizable this ruling is. So much of the court's discussion is deeply linked to eBay's specific situation--both the fact that it allows users to sell legitimate Tiffany goods, as well as the many efforts that eBay made to prospectively accommodate the interests of IP owners, which eBay can afford to do but many other websites can't. Personally, I think a notice-and-takedown scheme is the most probable solution to a website's liability for user-caused trademark infringements, and I hope this ruling moves us more clearly in that direction. However, we'll have to see how much future courts limits this case's holdings to eBay's unique attributes.

An interesting side note: the judge blessed eBay's tiered efforts to punish users whose listings were the subject of a NOCI. In some cases, eBay had a one-strike rule; but in other cases, especially when dealing with a known and trusted user who might be trying to earn a livelihood through the site, eBay had a three-strikes rule. The court endorses this practice, and specifically says that it was OK for eBay not to adopt a universal one-strike rule.

The Nominative Use Defense

With respect to Tiffany's trademark infringement claim, the court largely skipped over the use in commerce and likelihood of consumer confusion discussion and instead focused on the nominative use defense. Per the nominative use defense, eBay is free to tell the world that legitimate Tiffany goods are available through eBay. From my perspective, eBay made a quintessential "commercial referential trademark use" that I have elsewhere argued is outside the scope of trademark law. The court doesn't use that term; in fact, it sloppily uses the term "descriptive use" which superficially made it look like it was confusing this doctrine with the statutory descriptive fair use. Nevertheless, it fully and clearly gets the point that Tiffany was trying to suppress legitimate competitive after-market sales by circumscribing the use of the term "Tiffany," and the court adopts the nominative use defense to give eBay the necessary breathing room.

While the court is right about this, the court does not acknowledge the limitations of the nominative use defense. Just last month, a online retailer reselling legitimate goods lost the nominative use defense because of an implied endorsement. See the uncited Standard Process v. Total Health Discount. I think this court got it right and the Standard Process case got it wrong, but I wonder which path future courts will follow.

eBay's Keyword Advertising Blessed

eBay has received some notoriety for its Google AdSense spam, where it automatically manufactures lots of AdSense ad copy using all kinds of nouns, including third party trademarks, and buys the noun/trademark as the triggering keyword. eBay did this with the Tiffany trademark. Because this court is in the Second Circuit, this judge joins the prevailing caselaw that buying "Tiffany" as the keyword trigger for ads doesn't constitute a trademark use in commerce. However, before eBay disabled the Tiffany term, eBay's spam ads also displayed the term "Tiffany" in the ad copy, and the court (following the directly-on-point Hamzik opinion) says that the ad copy display of the trademark constitute a trademark use in commerce. Nevertheless, because eBay actually sells legitimate Tiffany goods, the ad copy display qualifies as a nominative use. This conclusion directly conflicts with the Standard Process v. Total Health Discount case.

eBay Didn't Engage in False Advertising

Tiffany argued that eBay falsely advertised by implying that it offered legitimate Tiffany goods when, in fact, many goods were infringing. The court rejects this argument, although I fear the court may have cut some corners here. First, the court says that eBay is protected by the nominative use defense. I'd have to do some research, but I can’t recall another case where nominative use was a defense to false advertising. Also the court says that if eBay's advertising is false, it's the users' fault, not eBay's. While I agree with this sentiment, Judge Patel partially rejected this argument in the uncited Mazur v. eBay case.

No Dilution

The court says that a junior user cannot commit blurring when it's making a referential use to the trademark owner. Further, eBay can't be tarnishing the trademark by helping sell counterfeit goods when it takes down all counterfeit auctions it knows of.

The Future

I've read a number of press reports today indicating that Tiffany is likely to appeal to the Second Circuit. Given the amount of time and money they have already invested in this litigation, that's a logical decision. However, I thought this opinion was almost uniformly thoughtful, thorough, well-written and well-researched, with usually multiple alternative bases for its conclusions. It looks like the judge intentionally wrote it to be as appeal-proof as possible. Clearly Tiffany will have an uphill battle on appeal.

If Tiffany loses on appeal, I wouldn't be a bit surprised if the battle moves to Congress. I suspect the various pro-IP bar associations will be itching to mobilize the troops over this ruling.

Other Perspectives

* Michael Kwun at the EFF
* Wendy Seltzer
* Jason Schultz

(Wendy and Jason are ex-EFFers. Looks like a lot of EFF folks are interested in this case!)

* Rebecca Tushnet

Posted by Eric at 06:55 PM | Derivative Liability , Trademark | TrackBack

eBay Wins Huge Ruling in Tiffany Case

By Eric Goldman

Tiffany (NJ) Inc. v. eBay Inc., No 04 Civ. 4607 (RJS) (SDNY July 14, 2008)

In a 66 page ruling that I haven't had time to digest, the judge appears to have completely accepted eBay's arguments in the Tiffany v. eBay lawsuit over sales of counterfeit Tiffany goods on eBay, issuing a clean sweep for eBay and dismissing the case in its entirety. The most interesting parts from the introduction:

* "the Court finds that eBay’s use of Tiffany’s trademarks in its advertising, on its homepage, and in sponsored links purchased through Yahoo! and Google, is a protected, nominative fair use of the marks."

* on the contributory liability question, the court reiterates that the standard is "whether eBay continued to supply its services to sellers when it knew or had reason to know of infringement by those sellers." eBay's response to take down notices satisfied this standard. "The law does not impose liability for contributory trademark infringement on eBay for its refusal to take such preemptive steps in light of eBay’s “reasonable anticipation” or generalized knowledge that counterfeit goods might be sold on its website. Quite simply, the law demands more specific knowledge as to which items are infringing and which seller is listing those items before requiring eBay to take action." The court brushed aside Tiffany's complaints about the policing costs it had to bear.

* The court rejects dilution because Tiffany hasn't shown a likelihood of dilution; and even if it did, eBay's use would be protected as a nominative use.

I need to read this ruling with more care, especially the judge's interesting reliance on the shaky nominative use doctrine. I'll try to update this post after I do. For now, this is a major win for eBay specifically, but it's also a win generally for online service providers who have been receiving trademark takedown notices and haven't known what to do about them. Unfortunately, a nice clean win like this also invites a challenge, and I'd be surprised if this ruling were the end of it. Instead, the battleground might just shift to the Second Circuit or Congress.

UPDATE: I have posted a comprehensive critique of the case here.

Posted by Eric at 10:11 AM | Derivative Liability , Trademark | TrackBack

July 05, 2008

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.

Posted by Eric at 09:09 PM | Search Engines , Trademark | TrackBack

July 01, 2008

June 2008 Quick Links

By Eric Goldman

Trademarks/Domain Names

* Utah Lighthouse Ministry v. Foundation for Apologetic Information and Research, 2008 WL 22043807 (10th Cir. May 29, 2008). CMLP writeup. Nice 10th Circuit win for a gripe site against trademark infringement and cybersquatting. This case, plus the SKI VAIL case, indicate that the 10th circuit is making progress undoing the harm it created in the Australian Gold v. Hatfield case.

* Georgia has a new anti-phishing law (16-9-109.1) that acts as a para-trademark law. See my comments on the analogous California anti-phishing law.

* After initiating a trademark lawsuit against a consumer review site and soundly losing in court, Lifestyle Lift paid $17,500 to settle its own lawsuit and avoid claims for legal fees under Rule 11 and the Lanham Act.

* Marty reports on a German case saying that white-text-on-a-white-background is a trademark use.

* Update on the battle over the trademark registration for "SEO."

* Will TLD proliferation lead to a new open era in domain name administration, or will the resulting anarchy just reinforce that top search engine placement is the really important online real estate? It seems like the currently limited number of TLDs has some benefits from a bounded rationality standpoint, and those benefits will be lost in a cacophony of unknown TLDs.

Patents

* My colleague Colleen Chien has posted "Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission" (forthcoming William & Mary Law Review). She empirically demonstrates that the ITC mostly involves disputes between two domestic litigants, making it a redundant battleground with federal district court but nevertheless an attractive venue for plaintiffs due to a number of procedural advantages. She makes a number of recommendations to eliminate the litigation gamesmanship offered by having parallel venues. Check it out.

Search Engines

* Udi Manber, chief algorithm keeper for Google, reiterates why it's silly for lawyers and judges to put too much legal emphasis on the relative placement of search engine results, saying "it's definitely the case that if you do the same search on a different cluster, you may get slightly different results at a given time. It's also the case that if you do the same search on different days you may get different results, because some of the results are things we indexed five minutes ago."

(Over)Regulation

* In response to an enforcement effort by the NY AG's office, several Internet access providers have blocked access to newsgroups that are putatively sources of child pornography. See the NYT story and the NY AG press release. In practice, this means wholesale takedowns of newsgroups that may have nothing to do with child porn. For example, Verizon is killing all USENET hierarchies except comp.*, misc.*, news.*, rec.*, sci.*, soc.*, and talk.*. Wired suggests this is the death of online intermediary freedom as conceptualized in 47 USC 230. Of course, 230 never protected intermediaries from criminal exposure for child porn, and this isn't the first time that an access provider has knuckled under to the NY AG's office. See the BuffNet enforcement action from 2001.

* Ohm, Paul. The myth of the superuser: fear, risk, and harm online. 41 UC Davis L. Rev. 1327-1402 (2008). A neat article on how regulators manufacture a fake bogeyman, the unbeatable "superuser," as a justification for expansive regulatory power.

* No evidence that data breach disclosure laws actually help reduce identity theft. Surprised?

* The FTC wants civil enforcement authority for spyware actions. Haven't they heard that the adware battle is already over...and they won?

Contracts

* Mark Radcliffe expresses concern about the ALI's proposed software licensing project on open source licenses.

* Sarah Bird on a messy contract lawsuit involving an SEO contractor.

Anonymity

* Tendler v. www.jewishsurvivors.blogspot.com, 2008 WL 2352497 (Cal. App. Ct. June 10, 2008). A subpoena request to identify a blogger doesn't support an anti-SLAPP cause of action.

* In the AutoAdmit lawsuit, Doe 21's motions to squash the subpoena and proceed anonymously were both denied. David Hoffman provides an update on the case.

Event Tickets

* Chicago has moved against eBay for reselling tickets in violation of its amusement tax law.

* The Ticketmaster v. RMG case ended with a default judgment granting a permanent injunction and $18.2M in damages.

General

* Vanity Fair: How the Web Was Won.

* Paul Levy blogs about a plaintiff's effort to bypass 230 by suing the authors of complaints about the vendor and then joining the consumer complaint site as a necessary party as a cost-increasing tactic.

* BusinessWeek on emerging technological tools to protect workers' attention against unwanted/untimely interruptions.

* Text message-savvy kids educate the North Carolina DMV about the meaning of the term "WTF," which was used on a license plate example on the DMV's website.

* I have one free pass to OMMA Behavioral in San Francisco July 21. First person to send me an email asking for the pass gets it.

Posted by Eric at 12:32 PM | Adware/Spyware , Content Regulation , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Patents , Privacy/Security , Search Engines , Trademark | TrackBack

June 26, 2008

"Duck Tours" Is Generic--Boston Duck Tours v. Super Duck Tours

By Eric Goldman

Boston Duck Tours LP v. Super Duck Tours LLC, 2008 WL 2444480 (1st Cir. June 18, 2008)

I previously blogged on this dispute in December. The case involved the defendant's purchase of keyword advertising triggered by the plaintiff's trademark. The district court held that the ad purchases qualified as a trademark use in commerce, but the purchases nevertheless didn't violate the prevailing injunction between the parties restricting the defendant's use of the terms. (To be clear, there are other aspects in dispute between the parties beyond keyword advertising).

In my previous post, I wrote "I wonder if the term "Duck Tours" has become a generic description of tours in an unattractive amphibious vehicle." Apparently my speculation wasn't merely idle, because the First Circuit has now concluded that "duck tours" in this context is, in fact, generic. Accordingly, the plaintiff can only protect the geographic appellation "Boston" as a modifier of the generic phrase "duck tours." "Super Duck Tours" doesn't infringe because "Boston" and "Super" are sufficiently distinguishable, and the injunction against the defendant is dissolved.

The First Circuit opinion doesn't mention keyword advertising, but I thought this ruling was blog-worthy nonetheless because it reinforces one of my oft-stated points that plaintiffs in keyword advertising lawsuits can end up worse off than they started. Like American Blinds in its case against Google, both plaintiffs went into their lawsuits thinking they had protectable trademarks only to have a court--in this case, the First Circuit--conclude that their trademarks aren't protectable at all. This is a good reminder to plaintiffs to do a careful cost-benefit analysis when bringing keyword advertising lawsuits and to include the risk of asset loss in the calculations.

HT: Evan Brown.

Posted by Eric at 12:07 PM | Trademark | TrackBack

June 05, 2008

Keyword Metatags and Keyword-Triggered Ads Don't Create Initial Interest Confusion--Designer Skin v. S&L Vitamins

By Eric Goldman

Designer Skin, LLC v. S & L Vitamins, Inc., 2008 WL 2116646 (D. Ariz. May 20, 2008)

An Arizona district court has ruled that the surreptitious use of trademarks doesn't create a likelihood of initial interest confusion, granting summary judgment on the trademark claims to the defendant.

This case is another enforcement action brought by a manufacturer trying to keep its goods from leaking out of its restricted channel and being sold on the Internet. For other lawsuits along this line, see Australian Gold v. Hatfield, S&L Vitamins v. Australian Gold (yes, the same S&L...and the same lawyer) and Standard Process v. Banks. The plaintiff tries the typical arsenal of claims to control the independent online retailer, including trademark infringement and dilution, copyright infringement for displaying product shots, interference with contract and other related claims.

Trademark Infringement

With respect to trademark infringement, the plaintiff only complained about the surreptitious trademark uses in the keyword metatags and in keyword advertising, not any uses visible to consumers. The plaintiffs argued that these surreptitious uses created initial interest confusion (the discussion skips over the trademark use in commerce question). As I've said repeatedly, no one really knows what initial interest confusion means or how to develop a doctrinally rigorous test for measuring it, so every court makes up its own definition. This court's manufactured definition anchors initial interest confusion in "deception." This is consistent with the general Seventh Circuit articulation of initial interest confusion (although the 7th Circuit doesn't understand initial interest confusion any better than the other circuits), and the court cites to the 7th Circuit Dorr-Oliver case. However, the court partially breaks with some of the controlling Ninth Circuit jurisprudence, which in Brookfield rooted the doctrine in attention diversion, not deception.

By grounding initial interest confusion in deception, it makes the doctrine easy to apply in this case. S&L Vitamins didn't deceive consumers--it was selling legitimate goods and accurately describing this fact. The case has some odd discussion about the possible inherent deception if S&L Vitamins ranked well in the organic search results, but the court rejects this line of thinking, saying anyone confused by good search engine placement on a competitor's trademark will be the "naive few" because S&L operated under a distinguishable domain name. This is the right result but the wrong reasoning--for the right reasoning, see here.

Instead of thinking that keyword metatags and ads creates deception, the court sees them as information-enhancing, thus getting the point that the goal is to match interested consumers with willing vendors:

In contrast to the deceptive conduct that forms the basis of a finding of initial interest confusion, S & L Vitamins uses Designer Skin’s marks to truthfully inform internet searchers where they can find Designer Skin’s products. Rather than deceive customers into visiting their websites, this use truthfully informs customers of the contents of those sites. Indeed, in practical effect S & L Vitamins invites Designer Skin’s customers to purchase Designer Skin’s products. The fact that these customers will have the opportunity to purchase competing products when they arrive at S & L Vitamins’ sites is irrelevant. The customers searching for Designer Skin’s products find exactly what they are looking for when they arrive at these sites. S & L Vitamins is not deceiving consumers in any way.

Bingo! Summary judgment for S&L Vitamins.

Even though this IIC-qua-deception meme is generally consistent with 7th Circuit law, this result appears to be directly contrary to the uncited 7th Circuit Promatek v. Equitrac case, where the court waffled on whether keyword metatags were inherently deceptive, even when used by a legitimate provider of services for the trademarked good.

More importantly, this result also runs directly contrary to the 2006 10th Circuit Australian Gold case, which found that keyword metatags in a virtually identical situation (unauthorized seller of leaked legitimate goods) constituted initial interest confusion. The court acknowledges this conflict but dismisses the 10th Circuit case as "unpersuasive" because the mark usage is designed to attract consumers to the trademark owner's actual goods. From my perspective, this is more evidence that courts are not following the Australian Gold v. Hatfield precedent--the most obvious example being the 10th Circuit's own Ski Vail case, which took a big chunk out of the Hatfield precedent. I know plaintiffs love citing the Hatfield precedent, but it's becoming increasingly less credible to do so.

Trademark Dilution

Given the more rigorous requirements for fame post-TDRA, it seems like many manufacturers who tightly control their channel and restrict Internet sales may inherently have a problem establishing fame. Perhaps I'm not part of the target audience, but I had never heard of Designer Skin products before.

The court doesn't get into the fame issue, instead granting summary judgment to S&L based on the nominative use defense because all of S&L's trademark uses refer to the plaintiff's trademark. I'd have to do some research to confirm this, but I believe this is one of the first (if not the first) post-TDRA cases dismissing a dilution claim on nominative use grounds. Personally, I think S&L's usage neatly fits my characterization as a "commercial referential trademark use," but it's great to see a court get the point, whatever terms it uses to describe the behavior. The court also (correctly, IMO) says that a commercial referential trademark use effectively can't cause a likelihood of dilution because it's neither blurring (there's no new definition) nor tarnishing (it's an accurate reference).

Copyright Infringement

Designer Skin complained that S&L copied the photos posted to its website. S&L claims that it simply recreated the product shots independently. This factual dispute is enough to prevent SJ. Patry believes that 17 USC 113(c) should have protected S&L here, but as Rebecca explains very well, 113(c) may not be germane--Designer Skin admitted that S&L could recreate its own shots if it wants to (see FN9 of the opinion), so the only question is whether the photos actually displayed on S&L's site were independently created.

If S&L snatched the photos from Designer Skin's website, then the court says republishing those would not be a fair use. I think this is probably right, although it's rather silly from a social welfare perspective to make people recreate product shots when invariably they will look effectively the same, and certainly the manufacturer isn't going to stop producing product shots simply because legitimate downstream retailers "free ride" on that investment. Rebecca has more to say about the fair use discussion.

Other Claims

The court dismisses the interference with contract claim and S&L's unfair competition claim, but it preserved Designer Skin's unfair competition claim (which, as Rebecca rightly points out, should be preempted by copyright's preemption clause).

Conclusion

As I've said before, I don't understand why plaintiffs try to control their channel so tightly to preclude Internet sales. I mean, I get the fact that they are trying to increase profits by reducing retailer competition, but those efforts will pay off only in the short run at best. Time to develop a new business model! Meanwhile, courts are realizing that they are being asked to facilitate anti-competitive practices, and wisely they are balking. Thus, a case like this illustrates that a judge will find limits to the initial interest confusion doctrine (a doctrine that otherwise has no natural doctrinal limits) and interpose pro-competitive defenses to trademark dilution.

Posted by Eric at 10:49 AM | E-Commerce , Search Engines , Trademark | TrackBack

June 02, 2008

May 2008 Quick Links, Part 1 (Trademarks/Domain Names Edition)

By Eric Goldman

* Syncsort Inc. v. Innovative Routines Intern., Inc., 2008 WL 1925304 (D.N.J. April 30, 2008). Including a third party trademark in a keyword metatag qualified as nominative use. (Along the same lines, see the Designer Skin case that I will blog about later this week).

* Punch Clock, Inc. v. Smart Software Development, 2008 WL 936889 (S.D. Fla. April 7, 2008). In a default judgment, a judge awarded the trademark owner the right to obtain 7 years of corrective advertising (a total of over $1M), calculated by what it would take for the trademark owner to buy the top spot in Google AdWords. Tom O'Toole sorts through this mess.

* A new ruling in the V Secret v. Moseley case. Rebecca puts it in context.

* Matthew Nelson, Comment, Utah's Trademark Protection Act: Over-Reaching Unconstitutional Protectionism or Decisive Clarifying Legislation?, 2007 Utah L. Rev. 1199. A couple of months after the Utah legislature repealed the Utah Trademark Protection Act, a Utah law student says the law is unconstitutional. His conclusion:

The Utah Trademark Protection Act places an undue burden on interstate commerce and the courts should find it unconstitutional under the dormant Commerce Clause using the Pike balancing test. Apart from the constitutional problems, the Act is bad policy for Utah businesses and Utah consumers. Although the unpredictability that currently exists in the courts makes it difficult for Internet advertisers and advertising sellers to mitigate risks and set efficient policy, these risks are far outweighed by costs to consumers and business. The Act sacrifices fair use, comparative advertising, and noncommercial use to gain certainty. These trademark functions are more important than the additional protections afforded mark holders under the law, protections that go too far and encourage anticonsumer policy rather than furthering the competitive environment trademark policy seeks to create.

Uses of keywords to trigger advertising that are unfair, deceptive, and contrary to trademark policy can still be pursued under the current common law. Trademark law is effectively evolving to handle these new challenges. If there should be legislation, it should be at the federal level because this issue so profoundly affects interstate commerce. The refining process that is occurring in the courts will provide Congress, should it choose to act, with valuable insight into how to handle all the competing interests in the rapidly growing area of Internet advertising.

* Tdata Inc. v. Aircraft Technical Publishers, 2008 WL 2169353 (S.D. Ohio May 21, 2008). Initial interest confusion does not substitute for actual confusion when considering if damages are appropriate under the Lanham Act. See my prior post on this case. See also the related Gibson Guitar case.

* I'm not exactly sure what's going on in France, but a French court has asked the European Court of Justice to opine on the legitimacy of keyword advertising.

* Verisign has obtained a patent for its defunct SiteFinder tool. Domain name wildcarding was taking place for years before VeriSign tried it, so I wonder about the prior art to this patent.

* NYT: Can a Dead Brand Live Again? This article discusses the development of a secondary market for well-recognized but defunct brands. Says the market maker: "We're taking consumers' memories and starting entire businesses."

* Todd Davies, A Behavioral Perspective on Technology Evolution and Domain Name Regulation, PAC. MCGEORGE GLOBAL BUS. & DEV. L.J. 21, 1-25 (2008). See my previous blog post about this paper.

Posted by Eric at 10:36 AM | Domain Names , Patents , Search Engines , Trademark | TrackBack

May 27, 2008

Connecticut Blogger Not Subject to Texas Jurisdiction--Healix Infusion v. Helix Health

By Eric Goldman

Healix Infusion Therapy, Inc. v. Helix Health, LLC, 2008 WL 1883546 (S.D. Tex. Apr 25, 2008)

I've mentioned before that I try to avoid blogging about Internet jurisdictional cases, but occasionally an interesting jurisdictional case comes along. This one caught my attention because it involves the jurisdictional implications of blogging, a topic near and dear to my heart!

This case involves, at its core, a trademark dispute between Healix Infusion Therapy, a Texas company, and Helix Health, a New York company. Stephen Murphy is a Connecticut blogger with an unclear connection to Helix. According to this Zoominfo page, Murphy is the president and owner of Helix, but the court actually never says that, and the Helix Health page just lists Murphy as part of the team.

Whatever the relationship, Murphy is an active blogger at Gene Sherpas. It appears that his blog is not an official endeavor of Helix Health, and the court treats it as an independent blog.

Healix and Helix started mixing it up when Healix opposed Helix's federal trademark application. After some interaction, Healix sued both Murphy and Helix in Texas on several grounds, including claims against Murphy for Texas state anti-dilution and federal cybersquatting (ACPA). Murphy and Helix moved to dismiss for lack of jurisdiction, and Healix tried to support Texas jurisdiction by pointing to the reach of Murphy's blog. The court applied the Calder "Effects Test" rather than a more traditional minimum contacts test. Doing so, it concludes that Murphy, even as an active blogger, isn't subject to Texas jurisdiction for the state anti-dilution claim:

HIT argues that the following facts establish that Murphy expressly aimed his conduct at Texas residents through his blog: (1) in some of his posts Murphy has cited the work of Texas residents; (2) Murphy's blog contains a link to another Web site, ClustrMaps, that shows that many users from Texas have viewed Murphy's blog; (3) in his blog posts Murphy has acknowledged that a large number of his users reside in Texas, specifically Houston; (4) Murphy's site is “highly interactive” and permits users to interact with Murphy and each other by allowing users to append comments to Murphy's blog posts, participate in surveys, and join organizations; (5) Murphy listed his blog on another Web site, BlogCatalog.com, which is located in Texas; and (6) Murphy placed a link on his blog to another Web site, Café Press, that offered many products bearing the Helix Health logo for sale, which one Texas resident purchased [Eric's note: the purchaser was Healix's counsel]. The court is not persuaded that these facts taken together warrant a finding that Murphy “expressly aimed” his activities on his blog at the residents of this forum. [citations omitted]

Some of Healix's supporting arguments were pretty bogus. A blogger citing the work of Texas residents? A blogger getting listed in a blog directory located in Texas? Puh-lease. But even on the core issue of a blogger having Texas readers, the court is unmoved:

Murphy provided content on his blog regarding issues that attracted many users, and provided a forum where those users, including users from Texas, could interact concerning those issues. However, the evidence does not indicate that Murphy specifically directed is blog toward Texas users; rather, the evidence shows that...Murphy geared his message toward an entire world of users, a fact supported by the vast geographic diversity of Murphy's users. And while Murphy sometimes used Texas sources to convey his message...Murphy's use of Texas sources was “merely collateral” to the focus of his posts: to inform all users about particular issues in the field of personalized medicine wherever they may arise. Thus, although Murphy knows that many residents of Texas use his blog, that fact alone does not mean that Murphy used his blog with the “‘intent to target and focus on [Texas] [us]ers.’" [Citations omitted]

As a result, the court dismisses the state anti-dilution claim for lack of personal jurisdiction. Along with the Traffic-power v. Wall case, this ruling reinforces that bloggers should not be exposed to lawsuits in remote jurisdictions just because they have an active blog with a wide and engaged readership.

Some other interesting aspects of this case:

* FWIW, Murphy didn't escape Texas completely; for reasons unrelated to his blog, the court found jurisdiction over the ACPA claim.

* This is my third blog post this year discussing opinions where a plaintiff tries to use a CafePress storefront against the defendant. See my prior posts on the Wal-Qaeda and Curran cases. The court doesn't find that the CafePress storefront mattered here because the only sale in Texas was a "manufactured" one to the plaintiff's lawyer. Even so, from my perspective, a CafePress storefront looks like it can be an unintended liability trap for bloggers and gripers.

* This dispute appears to have taken a nasty turn. It's never good when the judge has an entire section of the opinion entitled "Parties' Lack of Civility," sends the lawyers a copy of the Texas Lawyer's Creed and admonishes "Counsel for all parties are directed to read and reflect on the Creed...and conduct themselves accordingly."

* Healix apparently is ramping up for a possible litigation frenzy over the term "Helix." Not only did they lose a separate TTAB action over a different Helix registration, but they have opened a new battlefront in this dispute by recently suing Pragmatix for its role in the alleged violations associated with the helixhealth.org domain name. The relationship between Pragmatix, Helix and Murphy is unclear from Healix's complaint, but Pragmatix is listed as the technical and administrative contact for the domain name (see the Whois results) and the complaint alleges that Pragmatix owns the domain name, designed and hosts the Helix website, and provided a variety of other services to the enterprise. This secondary lawsuit could raise a variety of interesting issues over the liability of a website designer and host for allegedly infringing activity by its customers, although I suspect this lawsuit will avoid all of those interesting issues before it settles or is otherwise resolved.

Posted by Eric at 10:57 AM | Trademark | TrackBack

May 21, 2008

Keyword Law Talk at MLRC

By Eric Goldman

Last week I spoke at the Legal Frontiers in Digital Media conference at Stanford, organized by the Media Law Resource Center. The topic was online advertising, and I was allotted 10 minutes to recap the state of keyword advertising law and provide some practical suggestions. Trying to stay within this tight time limit (I ended up taking more like 18 minutes), I redacted my hour-long talk into a 2 slide whirlwind. See my abbreviated slides. For more, see the full unredacted version of the Keyword Law talk (recently updated).

Posted by Eric at 01:17 PM | Derivative Liability , Trademark | TrackBack

May 12, 2008

Lifestyle Lift v. RealSelf Settles

By Eric Goldman

In early March, I blogged on Lifestyle Lift's trademark infringement lawsuit against RealSelf based on user criticisms of Lifestyle Lift. This lawsuit was noteworthy on at least two fronts. First, it was a prime example of a trademark owner invoking trademark law to stifle online word of mouth. Second, RealSelf fought back with a novel counterclaim against Lifestyle Lift alleging that it wrote shill reviews.

The parties have now settled the lawsuit on confidential terms. See the dismissal order. It's not clear who "won" this lawsuit, but the conversation about Lifestyle Lift is still going strong at RealSelf.

Posted by Eric at 08:32 PM | Derivative Liability , Trademark | TrackBack

May 07, 2008

April 2008 Quick Links

By Eric Goldman

Anti-Gaming

* Even though Ticketmaster won its lawsuit, Minnesota overreacted to the Hannah Montana ticket crush by banning software to circumvent an online ticket allocation process. See Sec. 609.806. Check out the hyperbole in this press release! What's next? Are legislators going to make SEO a crime?

* Google modified its relevancy algorithm 450 times in 2007. And yet courts still cite to Brookfield for how search engines operate!

* The UK cracks down on shill marketing online. ClickZ: "Under the new [UK] Consumer Protection from Unfair Trading regulations, it will be illegal to "Falsely claim or create the impression that the trader is not acting for purposes relating to his/her trade, business, craft or profession," or to "falsely represent oneself as a consumer."" See also AdAge.

IP

* Speaking of SEO....the latest pathetic attempt to grab a generic term and trademark it? "SEO." Sarah Bird is on the job.

* Do student notes of a professor's lecture constitute copyright infringement? We may find out.

* Atlantic v. Howell. More on the "making available" theory of copyright infringement.

* Sarah Bird on registering copyrights in websites and blogs.

* A for-profit T-shirt listing the names of deceased Iraq soldiers sparks a publicity rights lawsuit.

General

* Bowen v. YouTube, Inc., 2008 WL 1757578 (W.D. Wash. April 15, 2008). The court upheld the forum selection clause in YouTube's user agreement.

* eBay is ending its promotion of third party live auctions. Maybe because of this loss?

* Rebecca blogs on SuccessFactors, Inc. v. Softscape, Inc., 2008 WL 906420 (N.D. Cal.), an odd case involving the Computer