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Are consumers confused by search engine ads?

The battle between trademark owners and search engines took another turn last month when the District Court of New Jersey issued its ruling in the case 800-JR Cigar, Inc., v. GoTo.com, Inc.

Plaintiff JR Cigar is a discount cigar seller. GoTo.com is now part of Yahoo!

GoTo sold several keywords, including "JR Cigar," J R Cigar," and "800 JR Cigar" to various JR Cigar competitors.

As mentioned in my prior article "Keyword Advertisers Win Some, Lose Some," the sale of ads linked to key words is a multibillion dollar industry for search engines. When users type such keywords into a search engine, "sponsored links" or "sponsored results" appear along with the "natural results" of the search.

JR Cigar argued that those "sponsored links" may mislead people into thinking that JR Cigar has somehow authorized or is affiliated with those ads, and it sued both its competitors and the search engine for trademark infringement, among other claims. The competitors settled out of court.
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The case thus went forward against GoTo. In analyzing the liability of the search engine for selling the key words, the first legal issue was whether GoTo was, under trademark laws, making a trademark "use" by selling keywords to advertisers. If yes, then the second question was whether users understood that the sponsored links were really paid-for ads. If consumers were likely to be confused as to source, then the third issue became whether the search engine should be liable for such infringement.

Although JR claimed that GoTo was directly liable for trademark infringement, the court strongly suggested that JR amend its claims to assert that GoTo was only secondarily liable for contributing to any infringing activity of the advertisers.

The courts in Government Employees Insurance Co. v. Google, Inc., Edina Realty v. the MLSonline.com, and Merck & Co. v. Medipan Health Consulting, Inc. each examined issues similar to the JR Cigar case. The GEICO and Edina courts found trademark usage by advertisers when search engines sold keywords to competitors. The court in Merck held the opposite, finding no use and thus no trademark infringement.

The district court refused to give summary judgment to JR, but found trademark usage by GoTo and went on to discuss initial interest confusion. The case will now proceed to trial.

Trademark usage

After reviewing the GEICO decision, the JR district court ruled that GoTo made use of JR's trademark in three ways:

• GoTo traded on the value of the marks when it accepted payment by competitors of JR seeking prominence in search results.

• GoTo injected itself into the marketplace by placing the advertisers before the natural search results list.

• GoTo's "Search Term Suggestion Tool" identified which of JR's marks were effective search terms, and then marketed them to JR's competitors.

As to the Search Term Suggestion Tool, GoTo claimed that this was merely an entirely automated tool which used various algorithms to generate a list to show how many times that term was searched in the past month. The court, however, found responsibility on the part of GoTo for "use" of the marks in this fashion, explaining that the Search Term Suggestion Tool allowed GoTo to funnel advertisers directly to JR's trademarks by giving the advertisers quantitative data about which terms are the most frequently used.

For example, using the Tool, a competitor of JR Cigar could see that the term "j_r cigar" received 10,000 hits in June, and "jrcigar" received 25,000.

This particular court's ruling effectively means that if a search engine's automated process delivers quantitative data to advertisers so that they can tailor their choice of terms to purchase, the search engine has implicitly recommended those terms and has made "use" of the trademark.

Trademark infringement and initial interest confusion

The court looked at the Third Circuit's 10 standard likelihood of confusion factors to determine if the customers would assume that the products advertised on the Yahoo! site are associated with JR. The court found that the similarity of the marks, the strength of the JR mark, and the overlap of advertising channels, consumers, and goods favored JR Cigar. On the other hand, the intent of GoTo, sophistication of consumers, and lack of actual confusion but possible initial interest confusion required a trial on the merits.

With respect to whether consumers were actually confused by the advertising, the court noted JR's claim that because of the competitors' advertisements, nearly 24 percent of consumers were at least temporarily "diverted" from JR's own website to those of competitors. Yet, without evidence as to the price of the cigars, the sophistication of buyers, and the length of the purchasing process, the court could not decide the issue of "whether an Internet user interested in cigars could be lured away from JR Cigar."

At trial, further evidence will need to be developed to determine whether Internet users are initially confused when they see the advertisements and are diverted from going to the JR site. A central question will be whether an appreciable number of Internet users are actually trying to find the JR site to buy cigars only from that site. It may be, for example, that an Internet user typed in "jr cigar" knowing only that he had heard that name associated with discounted cigars before, and that he actually had no real intention of going to JR's website.

What does it all mean?

The court's ruling in JR Cigar comes six years after the case was filed. Since that time, Yahoo! has changed its policy on the sale of keywords and no longer permits a person to buy a keyword that is a trademark of a competitor. Today, the JR ruling is perhaps more relevant to Google's continued practice of selling keywords to any purchaser, whether or not the purchaser has any right to "use" words that are trademarks of others. In short, given that unpaid-for advertisements are ubiquitous and thus obviously successful in drawing users to them, it remains to be proven as to whether actual consumers are unfairly being diverted by the ads.

Other articles by Deborah Wilcox

Deborah Wilcox: Keyword advertisers win some, lose some

Deborah Wilcox: Renew your domain name!

Deborah A. Wilcox is a lawyer and co-chair of intellectual property litigation at Baker and Hostetler, LLP, in Cleveland. She is a graduate of the University of Wisconsin-Madison Law School and regularly handles copyright, trademark and e-commerce litigation. She can be reached at dwilcox@bakerlaw.com.

The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed here.

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