Second Circuit Tells Trademark Owners to Stop Suing Over Competitive Keyword Advertising–1-800 Contacts v. Warby Parker

October 9, 2024 · by Eric Goldman · in E-Commerce, Marketing, Search Engines, Trademark

Fifteen years ago, courts generally avoided categorical pronouncements about the legitimacy of competitive keyword advertising. That produced a string of waffly or irresolute rulings, such as the appellate rulings in Rescuecom v. Google (2d Circuit) and Rosetta Stone v. Google (4th Circuit).

Whatever legal ambiguity might have existed then has been decisively resolved, at least with respect to competitive keyword ads that don’t use the trademark in the ad copy. Courts almost never found trademark infringement in those cases, but it was only in the last decade that we started to get opinions saying this bluntly and clearly.

That’s why I welcome the Second Circuit’s ruling in 1-800 Contacts v. Warby Parker, part of 1-8oo Contacts’ irrepressible efforts to revive the litigation genre. The Second Circuit says, unambiguously, that “the mere act of purchasing a search engine keyword that is a competitor’s trademark does not alone, in the context of keyword search advertising, constitute trademark infringement.”

The court explains that there is no mark similarity because the purchased keyword isn’t the right comparator; and the absence of mark similarity is singularly decisive in these cases. As a result, trademark owners can’t plead around this ruling. The message from the Second Circuit is plain: stop bringing competitive keyword advertising cases. I hope this ruling will be persuasive to other courts so that we can finally and permanently put this chapter to rest after 2+ decades of pointless litigation.

This ruling doesn’t address the scenario where the advertiser’s ad copy references the trademark. Those cases generally have also gone poorly for trademark owners–they often fail in court, and they are routinelty terrible financial decisions (i.e., the dollar value of the clicks at issue is well below the costs of litigation). At this point, advertisers should generally steer away from such trademark usages unless they are explicitly comparative. Even if the ads are legally permissible, both parties run the risk of spending way too much money on legal tussles.

* * *

Likelihood of Consumer Confusion

1-800 Contacts complained about this screenshot:

As you can see, Warby Parker’s ad appears at the top but doesn’t reference any trademark of 1-800 Contacts. The court views this as an easy case:

We now join the consensus view and decide that the mere act of purchasing a competitor’s trademarks in the context of keyword search advertising does not constitute trademark infringement….Warby Parker’s practice of bidding on competitors’ trademarks during search advertising auctions is a permissible and standard industry practice….This well-known marketing strategy—standing alone—cannot support a claim of trademark infringement absent additional use of 1-800’s Marks

The court conducts the standard multi-factor likelihood of consumer confusion analysis (the “Polaroid” factors in the Second Circuit). The lower court held four of the Polaroid factors weighed in favor of 1-800 Contacts (mark strength, competitive proximity, relative quality, and good faith), and the gap-bridging factor wasn’t relevant. The Second Circuit accepts those determinations. Normally, if the trademark owner has four of the 8 Polaroid factors in their favor and another is irrelevant, they are well-positioned to win. Not this time.

Mark Similarity. The court doesn’t compare the trademark to the purchased keyword: “although the marks Warby Parker purchased at auction for use as keywords are identical to 1-800’s Marks, this alleged use—including the consumer’s component of typing the keyword into a search engine—does not violate the Lanham Act and is not the relevant comparison point for the similarity-of-the-marks factor.” Instead, “in the search advertising context, the similarity-of-the-marks factor should be assessed as it relates to the paid advertisement’s appearance on the result page.” Because Warby Parker didn’t display any of 1-800 Contacts’ marks in the ad copy, this factor favors Warby Parker.

Actual Confusion. The complaint didn’t provide any evidence of actual confusion. The court also credits the prominent display of the word “Ad” and the display of Warby Parker’s domain name in the ad title.

With respect to the landing page promoted by the ad, 1-800 Contacts complained that the Warby Parker landing page looked too much like its home page:

The court’s treatment of this surely will infuriate 1-800 Contacts because no consumer will ever see these screenshots side-by-side simultaneously. Despite this, the court says:

a comparison of the website screenshots shown above does not lead to a plausible inference that “an appreciable number” of consumers who reach Warby Parker’s Deep Linked Ad Page would actually be confused by a partial light-blue color and a discount offer (15% as opposed to 1-800’s 20%) into thinking Warby Parker’s webpage is sponsored by or affiliated with 1-800.

Different sizes of discount offers should prompt consumers to recognize that vendors are different…seriously?

Consumer Sophistication. The lower court held that it could assume consumers of contact lenses were reasonably sophisticated. The court rejects that conclusion because the lower court relied on material outside the complaint and thus not available for consideration at this procedural stage.

Instead, the court says “in the search advertising context, actionable initial-interest confusion can occur if a defendant deceptively diverts the plaintiff’s consumers to the defendant’s site by misusing plaintiff’s marks…1-800’s allegations about the sophistication of consumers engaged in navigational searches raised a plausible inference that the relevant consumer base could be susceptible to initial-interest and affiliation confusion.” (More on the IIC doctrine below). This flips the factor to slightly favor 1-800 Contacts.

Summary. If you’re keeping score, 1-800 Contacts won 5 Polaroid factors (one only slightly) and 1 factor was irrelevant; while the defendant prevailed on 2 factors. This seems like an easy win for the trademark owner, right?

No. The court says flatly: “the dissimilarity of the marks factor is dispositive in this case; 1-800 has not adequately alleged likelihood of consumer confusion.” 💥💥💥 If the proper mark comparison isn’t to the purchased keyword, and mark dissimilarity is singularly dispositive, then defendants will ALWAYS win competitive keyword advertising cases when they don’t use the mark in the ad copy.

To recap: the Second Circuit is telling trademark owners, emphatically, to STOP SUING OVER COMPETITIVE KEYWORD ADVERTISING.

Some Tangents

The opinion contained some quirks, but don’t let those distract you from this opinion’s clear topline conclusion.

The Metatag Tangent. 1-800 Contacts referenced the term “metatags,” but the court disregards it because it wasn’t properly pled and because “a defendant’s use of a plaintiff’s trademark in an ‘unpublished directory of terms’ does not constitute a trademark infringement under the Lanham Act.” Cite to the WhenU case.

The Trade Dress Tangent. In addition to the weird trade dress discusison about price discounts, the court gave a bizarre example:

if Warby Parker’s landing webpage mimicked 1-800’s website such that it was a mirror image of 1-800’s site but stopped just short of using 1-800’s brand name and related Marks, 1-800 could have a potential trade dress infringement claim, and our analysis would likely weigh the similarity-of-the-marks factor much more heavily in 1-800’s favor.

This scenario no longer involves competitive keyword ads, it’s a trade dress case. In other words, if the defendant promoted the mimicry page using advertising beyond than keyword ads, the legal analysis would not change.

The Consumer Survey Tangent. The court says: “Lanham Act claimants typically present evidence of actual confusion through consumer surveys.” This is true, but this case is being resolved on a motion for judgment on the pleadings. Typically, a consumer survey would be introduced through an expert report, well after filing the complaint. Instead, the court implies that 1-800 Contacts should be faulted for not doing the survey and discussing it in the complaint…? Bizarre.

Other Implications

Comparison to the Network Automation Case. In 2011, in the Network Automation case, the Ninth Circuit reshaped how to do the LOCC analysis for competitive keyword advertising with a modified 4-factor alternative:

the most relevant factors to the analysis of the likelihood of confusion are: (1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.

The Second Circuit does talk about ad labeling and actual confusion, so it seems like there was some implict convergence. However, the Second Circuit essentially one-upped the Ninth Circuit’s reductiveness and created a single-factor test (mark similarity).

Courts Can’t Kill the Initial Interest Confusion Doctrine. The initial interest confusion doctrine was largely moribud in the 2010s, but it’s been reinvigorated in the Fifth and Eighth Circuits in the 2020s. This is a very unfortunate development IMO.

The Second Circuit joins this fray, approvingly quoting the Eighth Circuit’s recent definition of the IIC doctrine: “initial-interest confusion is a type of consumer confusion that occurs pre-sale, in which a “consumer falsely infer[s] an affiliation between the [plaintiff’s and defendant’s marks],” which “provide[s] the [defendant] with [a sales] opportunity it otherwise would not have achieved, or deprive[s] the [plaintiff] of an actual [sales] opportunity.””

This definition is typically terrible. Among other defects, sponsorship and affiliation confusion is already part of the likelihood of consumer confusion test (as is bait-and-switch), so we don’t need another shapeless concept to describe those activities. Further, the court says “a showing of intentional deception” is needed “to sufficiently plead internet-related initial-interest confusion.”

So what is the status of the initial interest confusion doctrine in the Second Circuit? ¯\_(ツ)_/¯ On the plus side, the court confirmed that IIC arguments are irrelevant in competitive keyword ad cases.

An Embarrassing Loss for 1-800 Contacts. For over two decasdes, 1-800 Contacts has brought competitive keyword advertising lawsuits to hinder its competitors and boost its prices to consumers. The FTC slapped its hand for this anti-competitive practice, only to have the Second Circuit reverse the FTC and give 1-800 Contacts a clean antitrust bill of health. 1-800 Contacts expressed its gratitude to the Second Circuit by promptly bringing a spate of new anti-competitive keyword ad lawsuits, including this one against Warby Parker. How predictable was it that the Second Circuit would see the rebound effect of giving a free pass to 1-800 Contacts?

Unchastened by its FTC dalliance, 1-800 Contacts really wanted to win this lawsuit so that it could get back to its old tricks. That made this appeal a must-win, with no-expenses-spared. As evidence of that, look at its legal team on this case:

One Shearman & Sterling lawyer from New York
Two Shearman & Sterling lawyers from DC
One Cleary Gottlieb lawyer from DC
Three Michael Best lawyers from Utah
One Michael Best lawyer from Milwaukee

Eight lawyers on the brief, including from some of the most expensive law firms in the world. All that legal talent, and still they got their hat handed to them. 👌

Case Citation: 1-800 Contacts, Inc. v. JAND, Inc., 2024 WL 4439136 (2d Cir. Oct. 8, 2024)

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Second Circuit Tells Trademark Owners to Stop Suing Over Competitive Keyword Advertising–1-800 Contacts v. Warby Parker

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