The Internet has changed the way companies advertise, even for those that do not directly sell their wares online. Advertising tied to search engines such as Google have become big business - Google reports over $7 billion in advertising revenue in the first three quarters of 2006. Most of the legal issues with this growing industry center on questions of trademark law. A few topics that have surfaced in recent years are likely to continue to be prominent features of the legal landscape in 2007, including keyword buys and click fraud.
Keyword buys allow an advertiser to place their advertisement prominently on the screen of a search engine user along with the search results when the user's search contains the keyword. Because this ability allows the advertiser to target search engine users who may be seeking particular products (based on their choice of search terms), keyword buys can be an effective means to reach the right market segment. Certain keyword buys, however, may also be a potential legal liability.
The most straightforward keyword buy is if you sell widgets and pay a search engine to show your advertisement any time someone searches for the term "widget." If you sell widgets under the registered trademark WIDGETTA and pay for the "widgetta" keyword, you can make sure that web searchers who are looking for your widgets will find them. But if your competitor pays a search engine to show an advertisement for its MEGAWIDGET widgets when a user types in "widgetta," you might cry foul.
Several recent cases, however, are split on the question of whether this hypothetical keyword buy infringes on your WIDGETTA trademark. The legal analysis in those cases has centered primarily on the question of whether your competitor's keyword buy constitutes a "use in commerce" under the Lanham Act.
The view that keyword buys constitute a "use in commerce" is typified by the opinion of the United States District Court of the District of New Jersey in Buying for the Home, LLC v. Humble Abode, LLC , No. 03-cv-02783 (D.N.J. Oct. 20, 2006). Buying for the Home ("Buying") and Humble Abode ("Humble") compete in online furniture retailing. Buying operated the site www.totalbedroom.com and, although it lacked a registration, claimed an ownership interest in the mark TOTAL BEDROOM. Buying alleged that Humble purchased the keyword "total bedroom" through Google's AdWords program. Humble's advertisement did not display TOTAL BEDROOM within the ad itself - it only used the keyword buy to trigger the ad's display.
Buying sued, and the New Jersey court analyzed on summary judgment the question of whether Humble's keyword buy constituted a use in commerce. Although the court opined that the use was not "traditional," it applied a commonsense understanding of the phrase to determine that "the alleged purchase of the keyword was a commercial transaction that occurred 'in commerce,' trading on the value of Plaintiff's mark [and that Buying's] alleged use was both 'in commerce' and 'in connection with any goods or services' in that Plaintiff's mark was allegedly used to trigger commercial advertising." The court also found it significant that the advertisement provided a direct link to Humble's website, where users could make furniture purchases. For those reasons, the court declined to grant summary judgment disposing of the trademark infringement and unfair competition claims of Buying's complaint.
Other cases reaching a similar result include 800-JR Cigar Inc., v. Goto.com Inc. , No. 00-3179, 2006 WL 1971659 (D.N.J. July 13, 2006); Google v. American Blind & Wallpaper Factory Inc. , No. 03-05340, 2005 WL 832398 (N.D. Cal. Mar. 30, 2005); and Edina Realty Inc. v. MLSonline.com , No. 04-4371, 2006 WL 737064 (D. Minn. Mar. 20, 2006).
On the other hand, Rescuecom Corporation v. Google, Inc. , No. 04-cv-1055, 2006 WL 281171 (N.D.N.Y. Sept. 28, 2006), illustrates the competing view that such keyword buys do not constitute a use in commerce. Rescuecom is the owner of a chain of computer repair and consulting franchises. A substantial amount of its business is conducted over the Internet. Rescuecom sued Google, alleging that Google had improperly allowed competitors to purchase "rescuecom" as a keyword buy and even suggested that they do so. Here again, "rescuecom" did not appear in the advertisements themselves, but were only used to trigger the display of the competitors advertisements.
Google moved to dismiss, and the United States District Court of the Northern District of New York analyzed whether the alleged conduct constituted a "use in commerce" as defined by the Lanham Act. The court found that there was no allegation that Google had placed Rescuecom's trademark "on any goods, containers, displays, or advertisements" under the statutory definition. The court also found that Google's alleged conduct was internal, and not "visible to the public," invoking the reasoning of a Second Circuit Court of Appeals decision relating to "pop-up" advertising, 1-800 Contacts v. WhenU.com, Inc. , 414 F.3d 400 (2d Cir. 2005). The court dismissed the Lanham Act claim.
Another case deciding that similar use was not use in commerce is Merck & Co. v. Mediplan Health Consulting Inc. , No. 05-cv-3650, 2006 WL 800756 (S.D.N.Y. Mar. 30, 2006).
Just as with any split among courts, these competing views create substantial uncertainty, both for private parties trying to ascertain what conduct is allowed and what is forbidden, and for potential litigants trying to gauge the merits of potential claims or defenses. Because the keyword buy cases have been occurring at the trial court level, the uncertainty will likely persist for some time, until a clear majority approach emerges at the Court of Appeals level. For now, if your marketing department wants to know whether they can make a keyword buy of a competitor's trademark, the answer is "not without risk." If you want to know whether you can successfully challenge a competitor who has made a keyword buy on your mark, the answer is a similarly indefinite, "maybe," where the final answer may depend on where suit is brought.
Keyword buys and other types of Internet advertising, including banner ads and "pop-up" ads, are sometimes purchased on a "per-click" basis, where the ad purchaser is charged not based on the number of times the ad appears, but rather on the number of times that someone "clicks" the ad, usually routing them through to the advertiser's website. "Click fraud" describes a range of behaviors that generate "clicks" on Internet advertising that are not made by potential interested customers, but by people or automated programs for ulterior purposes that drive up prices for the advertiser without providing the corresponding commercial benefit that the advertisers expect. Sellers of Internet advertisements attempt to combat click fraud, and some click fraud is relatively easy to detect, such as a high number of repeated clicks from the same Internet address. Other click fraud is more subtle, and its perpetrators frequently adopt new methods to avoid detection.
One of the big Internet advertising stories of 2005 was a series of class action lawsuits against Google and other sellers of online advertisements, including Lane's Gifts and Collectibles LLC v. Yahoo! Inc. , Arkansas Circuit Court No. CV-2005-52-1. That case alleged that Google and others took inadequate measures to protect ad buyers from click fraud, and wrongfully charged them for clicks that were fraudulent. In 2006, the Arkansas court approved a settlement of the claims against Google despite the objections of some class members. That settlement has resulted in the dismissal of at least one other purported class action against Google on the grounds of claim preclusion. Advanced Internet Technologies, Inc. v. Google, Inc. , No. C 05-02885-RMW (N.D. Cal. Dec. 12, 2006) (stipulation and dismissal order).
The Lane's Gifts case continues, however, against other defendants who have stated that they intend to defend against the allegations in the case. It is therefore likely that click fraud will continue to make legal news in 2007.
Internet advertising is already big business, with explosive growth on the horizon. Look for legal issues relating to keyword buys and click fraud to continue to make news throughout 2007.
Daniel K. Hampton is a partner in the Boston office of Holland & Knight LLP, where he concentrates his practice on intellectual property litigation. He has litigated a wide variety of intellectual property and other business disputes in federal and state trial and appeals courts. He may be contacted at (617) 573-5886.