Last Friday’s much anticipated appellate decision in the Rescuecom v. Google case was a step towards harmonizing and clarifying the law surrounding keyword advertising. Keyword advertising is the practice by which search engines “sell” words which will trigger the display of the client’s ad. It has become a highly lucrative industry but after Friday’s Second Circuit ruling, the Pay Per Click industry may be considerably chilled.

By Laura Slezinger, Legal Contributor

Rescuecom sued Google for selling its trademarked name to competitors as a keyword via Google’s Adwords program, so that the competing sites would appear alongside search results for Rescuecom as “sponsored links.” Rescuecom claimed this was freeriding on their mark and diverting consumers from their site to their competitors.

Prior to this appeal, the lower court had agreed with Google’s argument that this use of Rescuecom’s trademark was for internal purposes and not a “use in commerce.” The Second Circuit’s three-judge panel reversed holding that selling Rescuecom’s trademark as a keyword to a competitor, enabling the competitor’s ads to be displayed alongside search results for Rescuecom, was a “use in commerce,” and not merely internal to Google.

While there is much debate by Trademark scholars over the interpretation of the statutory requirement that the Trademark be used “in commerce,” this usually refers to use or sale in the stream of commerce, as opposed to internal, private, or personal uses. The mark must be used “in commerce” in order for its use to qualify as infringing. So placing the trademark on goods sold in grocery stores across the country is clearly “in commerce” while use of the trademark on a product still in its testing stages within the company and not released to the public is usually not “in commerce.”

This decision by the court does not mean that selling trademarks as keywords is automatically infringing. Each case will still have to go through the usual process of proving likelihood of confusion: that the use is likely to confuse consumers such that they may be diverted to the competitor.

However, practically speaking, this is still a huge blow to Google and its ilk. By providing precedent that this sort of use satisfies the threshold requirement of being a “use in commerce,” it makes unavailable the option of defeating these cases at very early stages via a 12(b)6 motion. A successful 12(b)6 motion allows a case to be dismissed for “failure to state a claim on which relief may be given” before going through costly discovery and long before trial. Given that litigation is expensive and time consuming, by allowing these cases to easily clear this initial hurdle, Google will have the burden of shouldering the discovery process on many more claims than previously under the Second Circuit. Due to this risk, Google may be likely to err on the safe side and refuse to sell Trademarks as keywords all together in order to avoid immense amounts of costly litigation.

However, Google’s claim that this use was internal rather than “in commerce” seems disingenuous: while the keyword connections with the sponsored links are not technically visible they generally are a lucrative and successful way of diverting traffic from one’s competitor’s site to one’s own- otherwise businesses would not pay Google for use of trademarks as keywords with such regularity.

The chilling effect brings us to the issue of fair use of trademarks. “Fair use” and “nominative fair use” of a trademark by someone other than the owner of the trademark is allowed for the purposes of description or identification. For example, a writer may mention drinking Coke. This use is permitted because the audience understands that the Coca-Cola company is not sponsoring and is in no way associated with the writer merely because the author mentions drinking their beverage. Trademarks may also be used in the context of criticism for the purpose of identification (e.g. Walmart is evil!). So, while this ruling impacts Google’s Adwords business, it also impacts consumers. The court worried about the sponsored links diverting traffic from the sites of the trademark holders, which is considered “initial interest confusion,” a no-no under trademark law. However, there’s much debate about whether consumers are actually confused as to source, or merely enticed into shopping around, trademark law does not try to prevent fair competition.

The free speech concern here is that sites which may be critical of the business or practices of the trademark holder will not have as strong of a means of reaching their audience if Google suspends allowing trademarks as keywords. A protest site will no longer be displayed alongside the company it is criticizing. Consumers will also suffer in that online shopping may be made less efficient. Consumers will no longer be shown comparable products in the “Sponsored Links” and similar sections.

On one hand, the Second Circuit’s interpretation of “use in commerce” is pretty much in line with the customary statutory interpretation and should not come as a surprise. The court seemed inclined to believe that this practice was enough to deceive consumers as to the source or affiliation of the sponsored links. While some believe this decision represents a strengthening of trademark law that may hurt consumers and make competition less efficient, the Second Circuit’s decision is by no means an outlier, but rather joins the other circuits in its interpretation.

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