TechLaw

Francis Gurry has been nominated to be the next Director General of World Intellectual Property Organization, according to an announcement released today by that organization. Gurry, presently WIPO's Deputy Director General, will have to be officially appointed by the WIPO General Assembly this fall.

Gurry should be well-known to cyberlaw attorneys, having lobbied hard for the creation of ICANN's Uniform Domain Name Dispute Resolution Policy, a quick-justice remedy against cybersquatters, way back in 1999. While at WIPO, Gurry built WIPO's Arbitration and Mediation Center into the leading provider of UDRP dispute resolution services.

The court's final order in Orion Bancorp Inc. v. Orion Residential Finance LLC, No. 07-cv-1753 (M.D. Fla., March 25, 2008), is a good example of the sweeping relief possible when the defendant defaults in an online trademark infringement case. Here, the plaintiff, which owns registered marks for ORION, ORION BANK, and ORION BANCORP, was able to nudge the defendant, a competitor in the residential mortgage business, off the orionresidentialfinance.com domain name. But not only that: in addition to preventing the defendant from capitalizing in any manner on the plaintiff's ORION mark, the court's order does a very thorough job of preventing the defendant from engaging in competitive advertising (i.e, Check us out, we're cheaper and faster than Orion Bank.) against the plaintiff. Not only was the defendant enjoined from purchasing Google AdWords containing the plaintiff's marks, it was ordered to purchase a "negative adword" option that prevents ads for the defendant's services from ever appearing when an Internet user searches with a query containing the plaintiff's marks.

The defendant was permanently enjoined

from purchasing or using any form of advertising including keywords or "adwords" in internet advertising containing any mark incorporating Plaintiff's Mark, or any confusingly similar mark, and shall, when purchasing internet advertising using keywords, adwords or the like, require the activation of the term "ORION" as negative keywords or negative adwords in any internet advertising purchased or used. (For purposes of this court order, a "negative keyword" or "negative adword" shall mean a special kind of advertiser keyword matching option that allows an advertiser to prevent its advertisement from appearing when the specific terms are a part of a given user's internet search or search string. It does not infer that the Defendant may use the specified negative keywords or adwords for any other purpose.)

...

from publishing, assembling, marketing, distributing, or otherwise utilizing for commercial or beneficial gain, any literature, business forms, advertisements, signs, or other representations regardless of the medium, which contains the term ORION, or any other confusingly similar term.

Cases like this one (and this one) demonstrate that trademark owners can obtain much more punishing relief against competitors with the Lanham Act in federal court than with the Uniform Domain Name Dispute Resolution Policy in an arbitration case.

By Thomas O'Toole

This morning I learned about tiny software company in Florida that brought a trademark infringement suit against a software company in Canada, obtaining a million-dollar judgment based on the estimated cost of purchasing seven years' worth of Google AdWords keywords containing the plaintiff's mark and a couple variations of it.

Whether the theory that led to this result will endure is anyone's guess, but the prospect of using Google AdWords to measure trademark infringement damages should certainly be tantalizing to trademark owner plaintiffs. The winning formula here was "Infringement" + "Corrective Advertising" + "Search Engine Optimization" = $1 Million. No need to prove lost sales.

punchclock.com vs. punch-clock.com

The case is Punch Clock Inc. v. Smart Software Development, No. 07-61684 (S.D. Fla., April 7, 2008). The plaintiff owned a federal trademark registration for PUNCH CLOCK, which he used to sell time clock and computer payroll software. According to the complaint, the plaintiff sold its software "primarily" online at http://www.punchclock.com.

The defendant, based in Canada, sold a similar software program called "PunchClock" at http://www.punch-clock.com. From what I could tell by visiting the defendant's Web site, the defendant has quite a few customers (over 9,800), including many prominent businesses, according to this page.

The plaintiff communicated its concerns to the defendant beginning in 2001, they had an unsatisfying exchange of correspondence over a span of several years, and then in 2007 the plaintiff sued. The defendant defaulted, and the court entered a default judgment finding that the defendant had infringed the plaintiff's PUNCH CLOCK mark, in violation of 15 U.S.C. 1114(1)(a), by using the mark in commerce, and had violated the Anti-Cybersquatting Consumer Protection Act, 15 U.S.C. 1125(d), by registering and using the punchclock.com domain name in bad faith.

Corrective Advertising Demanded

The interesting part of the case is the court's discussion of the damages remedy. The plaintiff did not ask to be compensated for lost sales or any other type of actual damages allegedly arising from the defendant's use of the PUNCH CLOCK mark; nor did the plaintiff ask the court to consider the extent to which the defendant profited from its use of the PUNCH CLOCK mark.

Instead, the plaintiff fixed its sights exclusively on the fact that the defendant's Web site ranked higher on Google's search results display and on the Alexa traffic rankings. The plaintiff claimed that it was entitled to "corrective advertising damages" in an amount sufficient to vault its Web site to the top Google's sponsored search results. According to the plaintiff:

[Plaintiff] believes a corrective advertising campaign is necessary to repairing the seven (7) years of damage done by [defendant] on the Internet by [defendant's] high profile placement of the infringing mark on its web site "punch-clock.com." As a result, corrective advertising damages based upon priority search engine placement on Google's sponsored results is the most effective and cost efficient way to repair the damage done by [defendant] while infringing the PUNCH CLOCK mark ... Corrective adverting damages include recognition of [plaintiff's] placement on Google's sponsored search results. Specifically, the use of the top five phrases or words being "bid upon" on the Google search engine are "punch clock," "punch clock software," "punchclock," punch clocks," and "punch time clock." ... To correct the marketplace perception of [Plaintiff's] genuine time keeping software, [Plaintiff] must use these search terms in a corrective advertising campaign to overcome [Defendant's] aggressive (7) year Internet ad campaign. ... [Defendant] started its web site distribution of the infringing goods in 2001 and seven years of corrective advertising damages are required.

Plaintiff's Damages: Poor Google Ranking

The court agreed (to my surprise). If I summarize the court's discussion, readers will think I have left something out, to serve some rhetorical purpose. So I'll set out the court's reasoning in its entirety:

At a cost of approximately $136 per day, Plaintiff can purchase top placement of its Web site on Google search listings for the top five keywords associated with the "Punch Clock" mark: "punch clock," "punch clock software," "punchclock," "punch clocks," and "punch time clock." This corrective advertising will allow Plaintiff's Web site to receive top billing on any Google searches using those terms, above the listing for [Defendant's] Web site, which will help correct the confusion in the marketplace. The Court also finds that seven years of corrective advertising is the appropriate measure of damages, due to the fact that Defendant's willful and blatant infringement of Plaintiff's mark and promotion of its own business with that mark has been ongoing for at least that long. Accordingly, the total corrective advertising compensatory damages that will be awarded to Plaintiff is $347,480.00. Based on the willful nature of the infringement, these damages must be trebled, resulting in a total figure of $1,042.440.00.

All of this struck me as remarkable. I think the court was making some assumptions that might not be true. Is the owner of a small software company in Florida is entitled to have its Web site so closely associated by Google with terms that could apply to many other businesses? For example, punch clock makers? What about other software companies in the same business? "Punch Clock" is awfully generic. Why must the Plaintiff's Web site be displayed at the very top of the Google search results? A lot of trademark owners seem to believe that Google is like a magic lantern: If you rub it and chant "Coca Cola," then a thousand links to cocacola.com should emerge. The court apparently bought into that assumption here.

Also, isn't there more data in Google's page rank calculations than the name of the domain and the words displayed on the page? Surely there must be myriad other reasons -- aside from trademark infringement -- why the Defendant's Web site is higher on Google than the plaintiff's Web site. Links to the site, for example? There must be many search engine optimization techniques that could account for the relative prominence of the defendant's Web site. From what I could tell, the defendant's Web site was more interactive than the plaintiff's, including login functionality for customers; further, it contained listings of the names of the defendant's 9,800 customers. There was no evidence in the plaintiff's submissions or in the court opinion suggesting that the defendant was purchasing Google AdWords.

Why would using the plaintiff's mark cause the defendant's Web site to rank higher than the plaintiff's Web site? There must be other factors at work, right? If not, wouldn't both sites rank the same?

Any why is it that seven years of AdWords purchases are necessary? If the plaintiff's entire complaint is that the defendant's Web site is busier and easier to find than the plaintiff's Web site, then an injunction plus a one-time Google AdWords purchase would compensate the plaintiff entirely. Assuming that trademark infringement was in fact the source of the Plaintiff's market struggles. The court's use of the seven-year also seems problematic because it rewards the plaintiff for sitting on its rights during this period. Finally, I can't how seven years of past infringement plausibly relates to the need to compensate the defendant for seven years into the future. The argument has a sort of barroom appeal, but it doesn't hold up scrutiny.

Zazu Designs: Small Company, Large Corrective Award

In Zazu Designs v. L'Oreal S.A., 979 F.2d 494 (7th Cir. 1992), Judge Easterbrook tossed aside for lack of foundation a $1 million corrective advertising award, in a case involving a tiny hair salon's trademark infringement claim against a global beauty products company, L'Oreal. Several points made by Judge Easterbrook seemed relevant to the Punch Clock case.

First, the $1 million award belongs to the plaintiff to use as it pleases.

Second, corrective advertising is intended to repair damage to the plaintiff's business. An award should not be so high that it exceeds the value of the business itself.

Third, Judge Easterbook wrote, "To justify damages to pay for corrective advertising a plaintiff must show that the confusion caused by the defendant's mark injured the plaintiff and that 'repair' of the old trademark, rather than adoption of a new one, is the least expensive way to proceed."

All of these considerations appear to be present in the Punch Clock case, good reasons for knocking the court's $1 million corrective advertising award down to a reasonable amount. Unfortunately for the defendant, he wasn't in court to raise them.

In the end, Utah's on-again, off-again attempt to repeal a 2007 law that gave trademark owners a cause of action against rivals and search engines for deploying electronic advertising triggered by a trademark turned out to be no more than the latest skirmish between long-time combatants on this issue.

The Utah Senate passed S.B. 151, a bill repealing restrictions on trademark-triggered electronic advertising, on Feb. 6. On March 4, just when it appeared that the Utah House would approve the S.B. 151, a substitute measure was offered and approved. Backers of the substitute measure were seeking to preserve Utah's restrictions on trademark-triggered advertising. Their bill limited the trademark owners' cause of action to suits against direct competitors; additionally, the House-passed bill made changes to address commerce clause concerns and to require advertisers to conspicuously display the phrase "Paid Advertisement" alongside search-triggered advertising.

The competing bills were sent to a conference committee March 5, the final day of the legislative session. Forces seeking to preserve some sort of restriction on trademark-triggered advertising were defeated in the conference committee. The original Senate measure, sponsored by Sen. Dan R. Eastman, eventually emerged from the conference, and both houses quickly approved it. S.B. 151 now awaits the governor's signature.

BNA asked its Utah correspondent Tripp Baltz to find out what happened. Tripp talked to nearly everybody involved in the matter and, while I am not going to give away his story before we publish it, I will say that Utah's struggle to do something about trademark-triggered advertising is longstanding and heartfelt. And it didn't end on March 5.

For the tech industry, lobbyists from Google, Microsoft, Yahoo! and America Online have been working in Utah ever since the state passed the country's first anti-adware legislation in 2004. From what we hear, the tech industry leaned very hard on Sen. Eastman to get S.B. 151 introduced and passed in the Senate. They might have prevailed on Sen. Eastman with reasoned policy arguments, and they might have suggested that Utah's current law was ripe for constitutional challenge.

The other side of the debate was represented most vociferously by 1-800 Contacts of Draper, Utah, and -- behind the scenes -- by Rep. Stephen H. Urquhart, the sponsor and chief defender of Utah's 2004 anti-adware legislation. Both of these folks walked away with nothing March 5. It seems unlikely they will not be heard from again.

Utah politics aside, 1-800 Contacts has also been active in the courts, most notably in the case of 1-800 Contacts, Inc. v. WhenU.com Inc., 414 F.3d 400 (2d Cir. 2005), in which the Second Circuit held that Whenu.com's trademark-triggered display of pop-up ads for rival goods was not an actionable use of the mark. More recently, 1-800 Contacts sued a rival contact lens vendor for purchasing search engine keywords containing its trademarks. See 1-800 CONTACTS Inc. v. LensWorld.com Inc., D. Utah, No. 08–15, complaint filed 1/8/08.

Counsel for 1-800 Contacts told Tripp that American Airlines and American Blinds -- two other companies that have pressed their case against trademark-triggered advertising in court -- also urged legislators to support the House-passed version of S.B. 151.

Earlier today I was foolish enough to predict that the Utah legislature was on the verge of repealing a law  giving Utah-registered trademark owners a cause of action against anyone that used a registered mark to trigger advertising for someone other than the mark owner. The repealer (S.B. 151) had already been approved unanimously by the Utah Senate and was awaiting a final reading in the Utah House.

However, late today S.B. 151 stumbled just short of the finish line. The House passed a substitute measure that appears to preserve the basic thrust of the Utah electronic trademark law, namely to give registered mark owners a means of halting the use of their marks to trigger competitive online advertising. The substitute bill limits the current cause of action to (1) advertisers and advertising companies who have the ability to know in which states their ads are displayed, (2) advertisers who are direct competitors of the mark owner, and (3)  advertisers who fail to prominently display the phrase "Paid Advertisement" with the ad copy.

Still later today, the Senate refused to go along with the House amendments. Tomorrow, March 5, is the final day of the legislative session.

As you can see from the table below, March 4 was a busy one for S.B. 151.

S.B. 151 Second Substitute  Trademark Protection Act Amendments (Eastman, D.)

Prof. Eric Goldman at the Santa Clara University School of Law reported today that the Utah legislature is in the last throes of an embarrassing public retreat from a 2007 law that created an electronic trademark registration barring the use of a registered mark to trigger Internet advertisement for a competitor.

Under the law (S.B. 236), which was never implemented, entities may not cause “the delivery or display” of an advertisement for a business, good or service of the same class as the holder of the registered mark or if the ad is likely to “cause confusion” between the business, good or service of the registered mark and the one being advertised.

The Utah Senate approved the repeal measure (S.B. 151) on Feb. 6. S.B. 151 is set for a third and final reading in the Utah House today, so it seems likely to be passed by the time the state legislature adjourns tomorrow at midnight.

A United Kingdom trial court specializing in intellectual property matters ruled late last month that Yahoo! UK's keyword advertising service did not make a trademark use of the plaintiff's MR. SPICY community trademark when it displayed sponsored ads triggered by searches on the term "spicy."

There was no evidence in the record that Yahoo! UK had sold MR. SPICY as a search keyword. Instead, a pair of businesses (Pricegrabber.com Ltd. and Sainsbury's Supermarket Ltd.) had purchased the term "spicy" as a trigger for their advertisements. Thus, if a Web user searched on the plaintiff's trademark, the Yahoo! search engine would return advertisements tied to the term "spicy."

The court here held that what Yahoo! UK was doing was not an actionable use of the plaintiff's mark. "The trade mark in this case is not used by anyone other than the browser who enters the phrase 'Mr. Spicy' as a search query in the defendants' search engine," Justice Morgan wrote. "In particular, the trade mark is not used by the defendants."

Moreover, the court said, assuming that a trademark use occurred here, such use did not create confusion as to the origin of the advertised goods.

Given that the trademark-use issue has badly divided courts here in the United States, I was surprised how little patience the court had for the plaintiff's claims:

What in fact Mr. Wilson complains about is that if one chooses the words "Mr. Spicy" as a search query and enters them in the Yahoo search engine, one will get certain results.  And on the page which appears on the screen on that occasion Yahoo will speak to the viewer and will say to the viewer, “You can advertise yourself here” so that if another person uses the words “Mr. Spicy” that person will see your advertisement for your goods and services.

Secondly, what the viewer sees is that Yahoo will offer other services and will advertise other features of its services when the page appears on the screen.  In other words, what Yahoo is doing when the browser puts in "Mr. Spicy" is exactly the same as what Yahoo is doing when the browser puts in the word “spicy” or indeed any other word or term or phrase which the browser chooses to use.

It seems to me that this is a million miles away from Yahoo using Mr. Wilson’s mark in relation to goods or services which are identical to those protected by the mark or which are similar to those protected by the mark.  What Yahoo are saying is they are offering services of their own which are  of a radically different character and they are saying to the public generally, who see this screen on conducting a search, that the public generally can place any advertisement for anything the public likes on the Yahoo page and that advertisement will come up and it will come up in particular when the words "Mr. Spicy" are put in.  But that does not appear to me to be even arguably an infringement of anything in Article 9.

The plaintiff was not represented by counsel, and he was in any event the operator of what appears to be a small business. It doesn't seem likely this ruling will be appealed, at least not effectively.

Thank you to the Bird & Bird attorney who provided me with a transcript of the court's ruling. Bird & Bird represented Yahoo! UK in the matter. The case is Wilson v. Yahoo! UK Ltd., No. 1HC 710/07, decided Feb. 20, 2008.

A manufacturer of money clips was found liable for trademark infringement last week, a victim of the "initial interest confusion" doctrine set out by the Ninth Circuit in Playboy Enterprises Inc. v. Netscape Communications Corp., 354 F.3d 1020 (9th Cir. 2004). I am having a hard time understanding the usefulness of this theory of infringement liability, especially online where consumers are "diverted" so easily from one site to another, and this case didn't help matters any.

The plaintiff, Storus Corp., sells money clips with the registered mark SMART MONEY CLIP. The defendant, Aroa Marketing Inc., also sells money clips, and it purchased a Google AdWord that triggered the following advertisement whenever a Google user searched for "smart money clip":

Smart Money Clip
www.steinhausenonline.com Elegant Steinhausen accessories. Perfect to add to any collection.

The plaintiff's evidence showed that this advertisement was displayed 36,164 times during 2006-2007, attracting 1,374 "clicks" by Google users.

The court here wasn't impressed with the defendant's argument that consumers were not confused by the advertisement. Even if consumers were not confused, it said, the trademark infringement claim would still be viable -- because plaintiffs pursuing an initial interest confusion theory need not prove source confusion. All that is necessary, in the Internet context, is for the trademark owner to demonstrate that the defendant's use of the mark "diverted" the consumer to a Web site not operated by the mark owner. The court wrote:

In other words, on 1,374 occasions, consumers who were searching for a website by using Storus' mark were, in fact, "diverted" to an Aroa website selling money clips that compete with Storus' money clips. Such diversion constitutes the "initial interest confusion" prohibited by the Lanham Act.

It was not necessary for the court to decide whether the mere purchase of a keyword containing the plaintiff's mark was infringing, though it likely would have so held, given Brookfield. The prominent display of the plaintiff's mark in the text of the defendant's advertisement was the defendant's undoing here.

Another interesting issue in this case was whether another defendant, Skymall Inc., infringed the plaintiff's trademark when the mall's Web site search mechanism displayed products other than the mark owner's in response to a consumer's search for "smart money clip." The court held that the mark owner was not entitled to summary judgment on this claim, stating that the mark owner had not, at this point in the case, created an adequate recording showing how Skymall's search engine operated.

I think the court could have been a little clearer in its reasoning here. From what I can tell, this court believed that no infringement would occur if Skymall displayed a list of money clips for sale -- including the Storus' Smart Money Clip along with competitors' money clips -- in response to a consumer's search for "smart money clip." The court noted that the defendant's product may very well have been displayed if the  consumer had merely searched for "money clip." However, if the Skymall Web site search engine returned a Web page showing competitors' money clips and containing the phrase "smart money clip" somewhere on the page, then that would be infringing. At least I think that's what the court is saying here, preliminarily.

I can't recall any cases like this one, in which a trademark owner challenges the way in which a run-of-the-mill Web site's searching function operates. Google, Yahoo!, Netscape sure, there are plenty of those cases. But in this case, there is no claim that the defendant purchased anything like a keyword from Skymall. I wonder: Are online sellers considering the possibility that their internal search functionality could be infringing a trademarked term if a search query containing the mark returns (accidentally or intentionally to facilitate comparison shopping) results displaying the mark alongside competing products? Could cdw.com lawfully show me a Hewlett-Packard laptop if my search query was for "Dell"?

The case is Storus Corp. v. Aroa Marketing Inc., No. C-06-2454 (N.D. Cal., Feb. 15, 2008).

Prof. Goldman's Technology & Marketing Law Blog has the news today that 1-800-Contacts Inc. is suing Lensworld.com Inc. for trademark infringement arising from LensWorld's purchase of search engine keywords and sponsored links tied to 1-800-Contacts trademarks.

While it is true, as Goldman points out, that  numerous cases in the Second Circuit have rejected this theory of trademark liability, it is also true that the latest 1-800-Contacts case was brought in federal court in Utah, in the Tenth Circuit. The Tenth Circuit has held, in Australian Gold v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), that the purchase of a competitor's trademark as a search engine advertising trigger is actionable under the Lanham Act. Australian Gold said that this form of advertising created "initial interest confusion" (a controversial doctrine in cyberlaw circles) that unlawfully "used the goodwill associated with Plaintiff's trademarks in such a way that consumers might be lured to the [products] from Plaintiff's competitors. This is a violation of the Lanham Act."

Australian Gold was followed in a recent Utah district court opinion, Trace Minerals Research v. Mineral Resources Int'l, 505 F. Supp.2d 1233 (D. Utah 2007).

Add to these decisions that fact that Utah appears to be the most trademark-owner-friendly locale in the country. Not only has Utah been the birthplace of tough anti-adware and trademark registration laws, but the  trademark owner's jury verdict affirmed in Australian Gold was $5 million! All in all, you have to like 1-800-Contacts' chances in Utah.

Lulu.com lost its bid for an injunction against Hulu.com last week, though in the process Lulu might have secured admissions further limiting the prospects of the much-maligned Hulu venture.

Hulu is the NBC- and News Corp.-funded video distribution site that, some say, is already doomed to failure. NBC executives said last weekend that they were pulling their material entirely from YouTube in favor of distribution on their own site, Hulu. The NBC distribution arrangement is not an exclusive one and Hulu is going to have to start from scratch generating traffic, so right from the beginning Hulu has its work cut out for it.

The Lulu lawsuit promises to make matters worse for Hulu. In papers opposing Lulu's motion for a preliminary injunction shuttering the site, Hulu's lawyers promised to stay out of the user-generated content business. At least for now.

Lulu, online self-publishing service that permits users to publish text, audio, and video (at lulu.tv), alleged in a trademark and cyberpiracy suit against Hulu that their names were confusingly similar and that Lulu and Hulu were in the business: distribution of user-generated content. Lulu alleged that Hulu -- which is still in beta and hasn't done anything yet -- will offer user-uploaded content just like Lulu. Lulu argued that it will be "overrun by the massive resources of Fox and NBC-Universal." Worse, Internet users will assume that Lulu, not Hulu, is the trademark infringer, Lulu's attorneys claimed. Lulu noted that Hulu's trademark registration application covered a wide selection of media businesses and that Hulu's chief executive officer declared in discovery that Hulu intended to engage in all the lines of business mentioned in its trademark registration application.

However, the court said that Lulu was making too much from this evidence. It cited for support a statement in Hulu's brief that "Hulu's business [will be] focused exclusively on premium content -- television shows and films -- via the internet, and it will do that -- and only that -- on launch." With this assertion in mind, the court decided that Lulu had nothing immediate to fear from Hulu, and it denied the injunction for lack of a showing of irreparable harm to Lulu.

The case is Lulu Enterprises v. N-F Newsite a/k/a Hulu LLC, No. 5:07-cv-347 (E.D.N.C. Oct. 19. 2007).