Once Again, Buying Competitive Keywords Is Not Trademark Infringement

from the killing-initial-interest-confusion-doctrine dept

Here are some things I hate:

• duplicitous litigants, such as plaintiffs who buy competitive keyword advertising yet sue competitors for doing the same thing
• economically irrational and socially wasteful litigation, such as plaintiffs who spend over a million dollars in legal fees on a problem that, at most, is worth tens of thousands of dollars
• pugnacious litigation over incredibly weak trademarks, like so-called trademarks that are simply 1-800 plus a generic noun
• trademark doctrines that have no rigorous definition or scientific support, like the initial interest confusion doctrine
• technologically unsavvy judges that guess about how consumers use the Internet when those assumptions have been proven false in the literature
• appellate courts that eviscerate a legal doctrine without expressly saying the doctrine is dead, leaving the legal doctrine as a zombie to plague the courts for many years

(Why yes, I did wake up on the wrong side of the bed this morning).

With this list in mind, you can see why I hate the 1-800 Contacts v. Lens.com lawsuit. 1-800 Contact has spent enormous amounts on legal fees—at least $650k as of 2010--pursuing Lens.com for competitive keyword ads that had generated $20 in profit for Lens.com (no, that's not a typo) and, at maximum, a few tens of thousands of dollars in revenue for Lens.com affiliates. All of this litigation is predicated on the initial interest confusion doctrine, an overly amorphous doctrine that no one can define or find any scientific support for, and which has been has been a loser in court for many years. To top it off, 1-800 Contacts had hypocritically engaged in competitive keyword advertising itself. Glass house and stones, etc.

After 6 years in court, the case isn’t over yet. This week, the Tenth Circuit affirmed most of the district court’s opinion and emphatically rejected most of 1-800 Contacts' lawsuit against Lens.com for the competitive keyword advertising it and its affiliates did. However, a small issue got remanded for a jury trial, so the parties will get the pleasure of wasting many tens of thousands of dollars more to conduct the jury trial unless they can finally find a way to settle. Hooray for litigation that create massive deadweight social losses!

Background

Lens.com bought AdWords keyword advertising on the following keywords: “1-800 contact lenses”; “1800 contact lenses”; “800 contact lenses”; “800comtacts.com”; “800contacta.com”; “800contavts.com”; “800contaxts.com”; “800contzcts.com”; and “800conyacts.com.” In addition, Lens.com had 10,000 affiliates through Commission Junction. Two Lens.com affiliates, Dusty Goggans and Ryan McCoy, bought the keyword “1800Contacts” and similar terms; and McCoy ran at least one ad that displayed “1800 Contacts” in the ad copy.

1-800 Contacts sued Lens.com in 2007. In 2010, the district court destroyed 1-800 Contacts' arguments, handing Lens.com a complete win. On appeal, the Tenth Circuit upholds most of the lower court's ruling.

Is Buying Competitive Keyword Advertising Trademark Infringement?

1-800 Contacts argued that Lens.com created initial interest confusion by buying 1-800 Contacts' trademarks. The Tenth Circuit adopted one of the nation's most favorable definitions of initial interest confusion in its horrible 2006 case Australian Gold v. Hatfield. That case said initial interest confusion “results when a consumer seeks a particular trademark holder’s product and instead is lured to the product of a competitor by the competitor’s use of the same or a similar mark.” If this is just a restatement of bait-and-switch law, fine, but it’s generally believed the Tenth Circuit standard covered more than bait-and-switch. Bait-and-switch requires an initial falsity to bait the hook but the 10th Circuit's standard didn't mention falsity, and there’s no intrinsic falsity in a typical competitive keyword ad buy where the competitor's trademark is used to trigger ad copy.

By embracing the initial interest confusion in 2006, the Tenth Circuit was a late adopter to that party. Since then, the Ninth Circuit pivoted away from initial interest confusion doctrine in the Network Automation case (cited in this opinion), and other courts have cast doubts on the doctrine.

Unfortunately, the Tenth Circuit doesn't have the fortitude to knock out the doctrine entirely. Instead, it offers this broad legal interpretation:

initial-interest confusion would arise as follows: a consumer enters a query for “1-800 Contacts” on Google; sees a screen with an ad for Lens.com that is generated because of Lens.com’s purchase of one of the nine Challenged Keywords; becomes confused about whether Lens.com is the same source as, or is affiliated with, 1-800; and therefore clicks on the Lens.com ad to view the site. Lens.com has exploited its use of 1-800’s mark to lure the confused consumer to its website.

Normally I would strenuously object to this standard, but the Tenth Circuit then did a tricky sleight of hand with its evidentiary standards. Typically, trademark law measures consumer confusion through consumer surveys asking for their confusion about product source. Cases have usually held that 20%+ consumer confusion in those surveys is probative of confusion while <10% consumer confusion is probative of no legally actionable confusion.

Here, the court says that clickthrough rate (CTR) is a proxy for a consumer confusion survey--and the 10%/20% presumptions apparently apply. What this means in practice is that if the ad doesn't get well over a 10% clickthrough rate, then the low clickthrough rate will be probative of an absence of consumer confusion. But NO ad EVER gets 10%+ clickthrough rate (and certainly nowhere close to the 20% rate that would be decisively plaintiff-favorable); it’s big news when an ad clears 3% CTR.

With respect to the ads without the 1-800 Contacts trademark in the ad copy, Lens.com got a 1.5% CTR and its affiliates got less than 1% CTR (0.6-0.7%). Because the CTR was dramatically below the 10% threshold that's probative of a lack of consumer confusion, there was no actionable initial interest confusion either by Lens.com or its affiliates.

So this evidentiary standard should be dispositive in other initial interest confusion cases. If other courts follow the same logic, no competitive keyword ad could ever possibly create initial interest confusion because even the best performing ad’s CTR will be below the legally recognized threshold of consumer confusion.

Naturally, if plaintiffs can find other evidence to support initial interest confusion, I don't think this ruling precludes those arguments. But since no one knows what initial interest confusion is, and defendants can always introduce their single-digit CTR, I think we're done with the argument that keyword ads create initial interest confusion, at least in the Tenth Circuit.

Unfortunately, because the Tenth Circuit didn't expressly kill the doctrine outright, it's going to keep appearing in plaintiff arguments for many years hence. That means parties will waste a lot more money in litigation because the Tenth Circuit couldn't just say what it meant. SIGH.

In addition to grousing about the zombie-fication of the initial interest confusion, I have to kvetch about this passage from the opinion (emphasis added):

even if consumers in general may not much care what retailer supplies their contact lenses, the consumers relevant to this suit are looking for a particular retailer. Presumably they have narrowed their search because they have already selected 1-800 as the preferred retailer and are searching for its website or perhaps commentary on its performance. Given the purpose of the search, the shoppers will be attentive to click on those results that will connect them with sites relating to 1-800. In addition, once the consumers see the results page, the substantial dissimilarity between “1-800 Contacts” and “Lens.com” (or its other websites) can be expected to greatly reduce the chance that the consumers will think that the parties are related enterprises; the similarity of the search term and 1-800’s mark is of minor relevance.

Perhaps in the abstract, one who searches for a particular business with a strong mark and sees an entry on the results page will naturally infer that the entry is for that business. But that inference is an unnatural one when the entry is clearly labeled as an advertisement and clearly identifies the source, which has a name quite different from the business being searched for.

Kudos to the Tenth Circuit for recognizing that ad copy educates consumers and helps searchers improve their search process. Big demerits, however, for assuming that a search for "1-800 Contacts" signals that the searchers are, in fact, looking for 1-800 Contacts (or even information about it). This is demonstrably false, as the Hyman/Franklyn study showed and as I explained in 2005. The Network Automation opinion made this identical error. Why are appellate judges so tempted to assume searcher intent from the search keyword?

Contributory Infringement for Affiliates' Ad Buys With the Trademark in the Ad Copy

Although the court's disposition of the initial interest confusion resolves the ads triggered by 1-800 Contact's trademarks that don't display the trademarks in the ad copy, there still remains the ads by Lens.com's affiliate which contained the trademark in the ad copy. In a discussion that goes on way too long, the court ultimately rejects Lens.com's vicarious trademark liability, an agency-based doctrine. This should have been an easy call because there's absolutely no way affiliates mediated through Commission Junction are Lens.com's agents. The court notes the possibility that Commission Junction was Lens.com's agent and the affiliates were sub-agents. Give me a break. Still, the court says that the affiliate displaying the trademark in the ad copy acted outside the scope of any agency. The court says:

The issue is not whether McCoy had authority to act on Lens.com’s behalf at all, but merely whether he had actual authority to publish an ad displaying a variation of 1-800’s mark in its text....McCoy never believed, reasonably or otherwise, that Lens.com authorized him to place the ads. Thus, the subjective component of actual authority was absent.

Nice save of a completely faulty premise.

Nevertheless, the appellate court reopens the contributory infringement issue. The court is bothered by the fact that Lens.com waited 3 months between when it got 1-800 Contacts' lawsuit and asked the Commission Junction affiliate (McCoy) to stop advertising with 1-800 Contacts' trademark in the ad copy. The court says:

if Lens.com could have stopped the use of ads using 1-800’s mark by simply requiring CJ to send an email blast to its affiliates forbidding such use, then Lens.com’s failure to proceed in that manner after learning of such ads could constitute contributory infringement.….When modern technology enables one to communicate easily and effectively with an infringer without knowing the infringer’s specific identity, there is no reason for a rigid line requiring knowledge of that identity, so long as the remedy does not interfere with lawful conduct.

This standard doesn't ensure a 1-800 Contacts jury win. It's not clear to me that Lens.com could have fixed the problem just by sending an email. Still, even if Lens.com loses this portion of the case, this is a small fraction of the overall conduct 1-800 Contacts was complaining about. I believe the damages exposure for the remaining ads in question is relatively small. It would be more rational for the parties to settle up rather than spend the money to take this question to the jury, but nothing about this litigation has been rational to date, so I'd be surprised if rationality suddenly made an appearance now.

Implications

I must sound like a Johnny One Note, but I'll say it again. Keyword advertising litigation is dead, dead, DEAD. It may not have been dead when 1-800 Contacts brought the lawsuit in 2007, but the intervening 6 years have proven that keyword advertising lawsuits are not easy to win and are economically irrational.

In this case, it's been clear all along that 1-800 Contacts' wasn't suing because it wanted to protect its brand. Instead, its apparent motivation all along has been to shut down competitors, by draining them of cash if necessary. I'm sure both parties have spent well over $1M on this litigation--money that the incumbent (1-800 Contacts) can afford more easily than newer entrants (like Lens.com). Thus, it's devastating to Lens.com that both courts have denied its attorneys' fees. Given that 1-800 Contacts got a small victory on appeal, the fee denial is consistent with trademark law, but the consequence is that 1-800 Contacts can get away with lawfare for anti-competitive objectives.

And 1-800 Contact’s fear of competition has manifested itself in other ways, including similar suits against other competitors and repeated attempts to game its state legislature. Lens.com did bring an antitrust claim against 1-800 Contacts for this litigation; that case has been on hold awaiting this Tenth Circuit ruling. We'll have to see if Lens.com now can make any headway to hold 1-800 Contacts accountable for its legal choices.

Prior Blog Posts on This Case

• Just How Egregiously Must a Trademark Plaintiff Act Before a Court Awards Attorneys' Fees to the Defendant?--1-800 Contacts v. Lens.com
• Blog post on district court ruling
• How Much Does 1-800 Contacts Hate Competitive Keyword Advertising? $1.1M Worth!?

I’ve also blogged numerous times on 1-800 Contacts.

Related Blog Posts

For more on keyword advertising legal developments, see my recent Forbes posts on trademark infringement and keyword advertising:

• Suing Over Keyword Advertising Is A Bad Business Decision For Trademark Owners
• Florida Proposes to Ban Competitive Keyword Advertising by Lawyers
• More Confirmation That Google Has Won the AdWords Trademark Battles Worldwide
• Google's Search Suggestions Don't Violate Wisconsin Publicity Rights Law
• Amazon's Merchandising of Its Search Results Doesn't Violate Trademark Law
• Buying Keyword Ads on People's Names Doesn't Violate Their Publicity Rights
• With Its Australian Court Victory, Google Moves Closer to Legitimizing Keyword Advertising Globally
• Yet Another Ruling That Competitive Keyword Ad Lawsuits Are Stupid--Louisiana Pacific v. James Hardie
• Another Google AdWords Advertiser Defeats Trademark Infringement Lawsuit
• With Rosetta Stone Settlement, Google Gets Closer to Legitimizing Billions of AdWords Revenue
• Google Defeats Trademark Challenge to Its AdWords Service
• Newly Released Consumer Survey Indicates that Legal Concerns About Competitive Keyword Advertising Are Overblown

Also see my two related law review articles:

• Deregulating Relevancy in Internet Trademark Law (2005)
• Brand Spillovers (2009)

Filed Under: initial interest confusion, keyword advertising, trademark
Companies: 1-800 contacts, lens.com