March 16, 2011

Ninth Circuit Addresses Issues Involving Search Engine Optimization and Keyword Liability

On March 8, the U.S. Court of Appeals for the Ninth Circuit issued a decision further scrutinizing the practice of purchasing and using a competitor’s trademark as a search engine keyword.  In Network Automation, Inc. v. Advanced Systems Concepts, Inc. (March 8, 2011, No. 10-55840), the court vacated a preliminary injunction, reasoning that the district court did not analyze the likelihood of confusion between the marks with the flexibility necessary for a keywords case.

The Case

Network Automation (“Network”) and Advanced Systems Concepts (“Systems”) sell competing job scheduling and management software, and both actively advertise on the Internet.  Network purchased certain keywords, including Systems’ registered trademark ACTIVEBATCH, which, when entered into a search engine, triggered the appearance of a link to Network’s website.  Systems objected to Network’s use of its trademark as a triggering keyword, arguing that it was likely to cause confusion among consumers as to the source of Network’s product.  Network responded by seeking a declaratory judgment of non-infringement, and Systems countered by moving for a preliminary injunction to stop Network’s keyword use.

The district court held (and the Ninth Circuit affirmed) that the purchase and use of a trademark as a keyword constitutes a “use” of the mark in commerce.  The district court then considered Systems’ objection by applying an eight-factor test to determine whether there was a likelihood of confusion.  The trial court focused primarily on three factors typically deemed most relevant in cases involving online activity: the similarity of the marks; the relatedness of the goods and the simultaneous use of the Internet as a marketing channel. 

In its March 8 decision, the Ninth Circuit also examined these eight factors, but determined that the lower court improperly weighed the factors and did not apply the flexibility necessary for a case involving keywords.  Specifically, the court explained that the three factors relied on most heavily by the district court are more suited to domain name or cybersquatting cases, and should not be mechanically applied to every case which pertains to online commercial activity.  Rather, the Ninth Circuit concluded the most relevant factors in this case were (i) the strength of the mark, (ii) the evidence of actual confusion, (iii) the type of goods and degree of care likely to be exercised by the purchaser, and (iv) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.  The court then sent the case back to the district court to re-examine the issue of whether Network was likely to succeed on the merits of its infringement claims.

What’s Next

Though the Ninth Circuit’s decision provides a new framework by which to consider keyword liability, courts remain divided as to whether a likelihood of confusion arises through the use of a competitor’s trademark as a keyword.  Nonetheless, it is clear that courts are now considering much more than simply whether the marks are similar or whether both parties advertise on the Internet.  The analysis appears to be more nuanced, with an emphasis on the appearance of the advertisements and the sophistication of the consumers (with a presumption that consumers on the Internet are inherently more sophisticated).  Whether this translates to more wins for defendants remains to be seen.  However, this recent holding does suggest that those purchasing keywords should ensure that any resultant links appear in a separate area of the results page, that the competitor’s mark not appear in the text of the ad and that the owner of the advertisement be clearly defined.