Competitor’s Keyword Ad Purchase May Be Trademark Infringement–Edina Realty v. TheMLSonline

By Eric Goldman

Edina Realty, Inc. v. TheMLSonline.com, 2006 WL 737064 (D. Minn. Mar. 20, 2006)

There have been many lawsuits involving keyword advertising, but in most of the reported decisions, the search engines were the defendants. There have been only a few wispy reported decisions where the keyword ad purchaser was the defendant, and I don’t recall any substantive discussion of trademark law in those cases.

That’s what makes this case significant. I think this is the first case substantively analyzing a purchaser’s liability for buying a competitor’s keyword.

This case involves two real estate companies. Edina Realty is a major old-line Minnesota real estate agency, and TheMLSonline.com appears to be an online realty agency with some full-service aspects. In that respect, the firms are competitive, although TheMLSonline.com also offers a content database of MLS realty listings from all sources, including competitor agencies.

To build traffic, TheMLSonline.com purchased keywords at Google and Yahoo such as “Edina Realty,” “Edina Reality,” “EdinaReality.com,” “EdinaRealty,” “EdinaRealty.com,” “www.EdinaReality.com” and “www.EdinaRealty.com.” (Interesting that people appear not to know how to spell “realty.”) The resulting ads contained the words “Edina Realty,” such as:

“Edina Realty™ listings–MLS Home Search

Find Edina Realty™ and Twin Cities MN MLS listings. Also includes listings from Coldwell Banker Burnet, Counselor Realty and many more. Updated daily. Request showings online

www.themlsonline.com.”

(Not surprisingly, pursuant to Google’s trademark policy, Edina Realty eventually blocked text references to Edina Realty in the ad copy on Google. Under Yahoo’s new trademark policy, I assume that Edina Realty now can block these purchases at Yahoo outright.)

According to the opinion, these ads were extremely successful; the court’s opinion suggests that the ads produced clickthrough rates of 18-40%. (I’m skeptical that this is right; the court’s language here is sufficiently vague that the court may have been trying to say something else).

Finally, TheMLSonline.com included white text on a white background (“hidden text”) with phrases like “Edina Realty information presented at TheMLSonline.com.”

Edina Realty sued for trademark infringement, dilution and false advertising. In this opinion, the court addressed the parties’ cross-motions for summary judgment on the infringement and dilution claims.

Use in Commerce

The court (correctly) considers “use in commerce” as a threshold matter. This is noteworthy because so many other Internet trademark cases have simply ignored the TM use in commerce requirement. However, the court’s discussion leaves much to be desired. The court’s entire substantive discussion:

“While not a conventional “use in commerce,” defendant nevertheless uses the Edina Realty mark commercially. Defendant purchases search terms that include the Edina Realty mark to generate its sponsored link advertisement. See Brookfield Communs., Inc. v. W. Coast Entm’t Corp., 174 F.3d 1036, 1064 (9th Cir.1999) (finding Internet metatags to be a use in commerce). Based on the plain meaning of the Lanham Act, the purchase of search terms is a use in commerce.

Really?! The court doesn’t cite to several precedent on point, such as the first Geico ruling (finding Google made a use in commerce by selling keywords) and the 1-800 Contacts 2nd circuit opinion (finding that WhenU didn’t make a use in commerce by using keywords to trigger ads). Nor does the court acknowledge that the precedents are arguably contradictory.

The court also does not discuss how the federal statutory language is arguably unclear and contradictory. The Lanham Act makes two different references to “use in commerce,” one arguably establishing federal jurisdiction and the other arguably requiring use on product packaging. There have been several law review articles discussing this very point (such as Uli Widmaier’s and Margreth Barrett’s, as well as my own) that have argued that the statute should be interpreted directly contrary to this ruling. At best, the court cut corners by saying that its conclusion is based on the “plain meaning” of the statute.

Likelihood of Confusion

Having found use in commerce, the court then moves to the standard likelihood of consumer confusion test. The plaintiff argued to cut short the LOC analysis because the various uses should constitute initial interest confusion, while the defendant argued that the court should cut short the LOC analysis because the uses constitute nominative fair use.

The court rejects both arguments. Instead, the court briefly evaluates the standard LOC factors and finds enough dispute about several factors to require a trial.

However, the court rejects the defendant’s claim of nominative fair use as a matter of law, saying that the “Defendant could have done more to prevent an improper inference regarding the relationship.” While this may be true, this conclusion ignores important public policy issues here. The defendant offered a version of the MLS database to the public, and it let potential searchers know about the existence of the database. In this capacity, the defendant wasn’t a competitor; it was a provider of a valuable information resource. Limiting the marketing of that database service to searchers does a disservice to the competitive market generally.

Dilution

The court grants summary judgment to the defendant on the dilution claim because the plaintiff didn’t marshal enough evidence of actual dilution. This ruling presumably will be different after enactment of the Trademark Dilution Revision Act.

Conclusion

The plaintiff hasn’t won its case yet. At trial, the court could find that there was no likelihood of consumer confusion at trial, similar to how the Geico v. Google court found that there was a TM use in commerce but no likelihood of consumer confusion. And undoubtedly this case will not be the final opinion on the matter.

However, until we get more data points (such as new cases or a defense win at trial in this case), I think this ruling potentially has the following two long-term implications:

1) This ruling puts increased pressure on Google’s policy not to block competitor keyword ad purchases. Now that Yahoo blocks these purchases, Google effectively stands alone in the industry, so it lacks any cover provided by prevailing industry standards. More importantly, Google’s position has just become legally riskier. To the extent that competitors’ ad purchases constitute direct trademark infringement, Google may face an elevated risk of being deemed a contributory infringer.

2) This case offers the first solid data point (in the US) that buying competitors’ trademarks as keywords, without more, could constitute trademark infringement. This could permanently reduce the market size for keyword ad sales. Some competitive keyword ad buys currently being made will be eliminated because the competitors (or search engines) decide those purchases are too risky. Stock valuations of relevant industry players should adjust downward accordingly.

UPDATE: Although this case sets new precedent in the US, there have been a fair number of analogous rulings internationally. Cedric recounts some of the action in France (partially in French).

UPDATE 2: New case, different result. See my post on Merck v. Mediplan Health Consulting, saying that keyword ad buys aren’t a trademark use in commerce.

UPDATE 3: Brian Quinton wrote an article recapping the topic. In the article, he quotes Gary Angel of SEMphonic, who works in SEM. Gary explains why “using another company’s name as a search term was a sensible strategy whose time has gone,” including:

* Google raised the minimum bid price on keywords across-the-board, and the minimum price now exceeds a price that gets good ROI

* click-throughs are highly qualified but low in volume because, as Gary says, “When searchers search for the company name or brand of a competitor, they’re highly inclined to click through on that competitor…That makes it very difficult to get large returns on that kind of targeted attack on your competitors.”

Two observations from this. (1) Gary’s quote reinforces that consumers generally will follow the trademark owner if they search on the trademark if that’s what the consumer wanted. (2) Given the low margins and volume, I continue to be befuddled why trademark plaintiffs are wasting their dollars on litigation.