A fool’s bargain: Part 2

(Editor’s note: This is the second of two parts. Read Part 1.)

In the first part of this article, I discussed what trademarks are, what they protect and what factors courts generally use to determine if a trademark has been infringed.  In this installment I will be discussing how courts have dealt with the rise of keyword advertising and the use of trademarks in keyword advertising.

In the early days of the keyword advertising cases, the courts struggled with some threshold concepts, such as whether bidding on someone else’s trademark was a use in commerce. Some courts said yes, and some said no. After many years, everyone seems to agree that even though the consumer never sees the keyword bidding process, that the act of bidding on another’s trademark as a keyword is a use in commerce.

The next question is whether the company’s actions cause a likelihood of confusion. The situation in which the ad text doesn’t mention the trademark is almost universally accepted as not causing a likelihood of confusion. But what about ads that do mention the trademark?  This situation is a little less cut-and-dry and this is where society’s use and understanding of technology starts to play a role.

Whenever courts are dealing with novel legal questions, they often try to look back to something that is known to compare the current situation to. The legal arguments start to become a battle of analogies. Sometimes they can get quite humorous. In the key word advertising context, several competing analogies have evolved. One is of a driver driving down a desolate highway (picture something on Route 66 in New Mexico) that sees billboard advertising that a store sells a certain product – for example, Coca-Cola.

The driver exits the highway and drives a few miles to the store. When they get to the store, the driver finds out that the store does not sell Coke, but instead sells their own house brand cola.  Tired, dejected and thirsty, the driver buys the house brand cola, turns around and drives back to the highway.

Early courts advocating this analogy often found trademark infringement for use of a trademark in the ad text. The rationale was that just as the driver was duped to exit the highway and drive to the store expecting to buy a Coke, so to are Internet users who type search queries into a search engine expecting to find a certain product and upon landing on a website; they too are so tired, dejected and thirsty that they buy the “house cola” instead of the cold refreshing Coke that they were originally seeking.

While the above analogy works well for misleading billboards and weary interstate travelers, it doesn’t necessarily represent the realities of the Internet world and online advertising, at least not in its current state. It is conceivable that in the early days of the Internet, people just shopped at the first site they came across. But as time has gone on, consumers searching habits have evolved and become more savvy.

As this has happened, the transaction costs of searching on-line have dropped and the billboard example has become less and less appropriate.  In the billboard example the consumer purchases the house brand cola because the transactions costs are too high – they would have to drive back to the highway, go down to another exit and try a different store. 

It is much easier to buy the house brand cola, even though it was not what they were looking for. One of the great benefits of the Internet is that it vastly reduces transactions costs. Almost an infinite amount of information is available to users at the click of a button. If someone does a search click on a result and doesn’t get what they are looking for, the remedy is as simple as clicking the back button on their browser. 

Consequently, the analogies used by courts have also changed. One of the more prominent ones is that of a consumer at a drug store where the brand name medication sits right next to the generic store brand with its packaging that says “same active ingredient as ____”.  In these cases, the courts rationalize that the use of the competing trademark benefits society in that it gives consumers more options to choose from. Since the consumer is not confused by the presence of the generic medication and understands that it is an alternative to the branded medication, the use of the trademark on the packaging is not considered a trademark infringement.

Our analogy in arguing the General Steel case is that search engine results and keyword advertising are more like a menu, where the possible choices are presented before a consumer and that the consumer can pick or choose the ones that fit their needs. If they click an ad that they think is for the product they want and it leads to a different product, they can easily hit the back button, chose another item off the menu and see if that takes them where they need to be. Courts have come around to this reality and the changing direction in trademark law reflects it.

So what is a company to do?  If you are a trademark owner, it’s best to get used to other companies using your trademark as a keyword. That’s just life in the digital age. As for mentioning the trademark in the ad text, we will have to wait and see. Things seem to indicate that those types of activities will be allowed as well. However, one thing can be guaranteed – trademark owners will not like that sort of activity and will more likely take issue with it and potentially even continue to sue on it. However, the odds are that those trademark holders will continue to lose. 

For trademark holders, it is probably wiser to develop other strategies to deal with keyword advertising than to spend massive amounts on litigation and enter into a fool’s bargain. As with any sort of trademark matter, it is always important for business owners to seek out the advice of qualified trademark counsel before embarking on any keyword advertising or other marketing strategy. Failure to do so could end up costing a company in the future.