Saturday, April 04, 2009

2nd Circuit rules that plaintiff's can sue over "misleading" Internet ads for trademark infringement; overall impact very unclear


Electronic Frontier Foundation is reporting a potentially damaging ruling from the Second Circuit in trademark law on April 3.

Friday, The Second Circuit reversed a lower court ruling and maintained that a lawsuit against Google by Rescuecom can go forward. EFF’s copy of the Opinion is here. The complaint alleges tradermark infringement, dilution under the Lanham Act, and false presentation of origin.

At issue were programs called Adwords and Keyword Suggestion. The court opinion (here), around page 6, describes how this process works. Rescuecom alleges that the appearance of an ad purchased by a competitor may cause the visitor to believe “trademark confusion as to affiliation, origin, sponsorhip, or approval of service.”

The Second Circuit had previously ruled, in 2002, in the case of “1-800-Contacts v. When-U” that “he use of trademarks to launch ads does not, by itself, trigger trademark liability” (EFF) and that led many observers to believe that the Second Circuit would throw this new case out, following its own precedent. It would seem to me that the passage of the Trademark Dilution Revision Act late in 2006 may have contributed to its partial reversal, because the Revision Act allows for the idea of "prospective" dilution.

However, there at least seems to be a question now as to the practice of letting a company buy and ad based on a keyword based on a competitor. Does this cause “confusion”? To me, no, as long as I understand that I have to actually read the advertisement in context. But ads are not “literary” they way web content like this posting purports to be. The are designed to sell things. Trademark law has to deal with one of the sharpest divides in our free market culture: the practical need to manipulate people to buy things from you, versus the need to educate them to think for themselves. Trademark is designed to make the former efficient enough that people can make a living selling. Copyright law is the tool much more related to the latter social aim.

The ruling does not mean that Rusecom will win at trial. It still has to prove that consumers are really confused. But there is a problem with the “average consumer”. And there are real problems in that consumer mentality varies so much as you go from one area to another. Non-profit organizations (like SLDN, with which I network) have to “sell” an idea, but to an audience that is generally much more educated than one which is out to buy cheeseburgers. What I wonder is how courts can establish any concrete tests for likelihood of confusion in so many contexts. I wonder if the Second Circuit really understood this – a surprise given its 2002 ruling.

Corynne McSherry wrote the legal analysis on Electronic Frontier Foundation’s website yesterday, “Second Circuit Expands Trademark Rights, Restricts Consumer Search Options”, link here. Her analysis indicates the practical effect on sellers of ad space: they cannot easily dismiss litigation on legal grounds, and potential “plaintiff’s bars” can find them easy targets. Again, to me, this sounds like an area where we ought to have a “loser pays” system (an idea advocated by ABC’s John Stossel) to discourage frivolous litigation in volatile areas where it is difficult to articulate clear legal divides, like this one.

On the surface, the litigation doesn’t seem to threaten holders of domain names, or publishers or distributors of book or movie titles with frivolous infringement claims. But the whole infrastructure for Internet self-publishing depends on an effective advertising mechanism, even for publishers who don’t use it, and even for writers or publishers who don’t themselves purchase adwords, because they depend on the mechanism funded by others who do. This is a good example of collective legal “karma”

There is still a trial on merits to follow. I hope that this case, however, will first be appealed to the Supreme Court. This ruling makes for an alarming development.

(Please see also an earlier posting about this case June 10, 2008 on this blog.)

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