Tenth Circuit Rules on Keyword Advertising in 1-800-Contacts Case

The blurry state of the law regarding keyword advertising got a little clearer last month when the US Court of Appeals for the Tenth Circuit held that purchasing search engine keywords containing third party trademarks does not inherently infringe those marks (1-800 Contacts, Inc. v. Lens.com, Inc., 2013 WL 3665627).

The dispute began in 2005 when 1-800 Contacts, the world’s leading retailer of contact lenses, discovered that Google search results for its trademark 1800CONTACTS directed users to sponsored ads for its competitor, Lens.com. Subsequent investigations revealed that Lens.com bid on nine separate keywords containing slight variations of the 1800CONTACTS mark. Unbeknownst to Lens.com, several third party affiliates that it hired to promote the brand online also purchased similar keyword advertisements — some contained “1800 Contacts” in the ad copy (in its own sponsored ads, Lens.com did not reference its competitor).

1-800 Contacts filed suit, alleging that Lens.com’s activities constituted an infringement and caused initial interest confusion. On a summary judgment motion, the District Court of Utah disagreed and held that 1-800 Contacts failed to establish a likelihood of initial interest confusion and deemed the evidence insufficient to hold Lens.com secondarily liable for the conduct of its affiliates. On appeal, the Tenth Circuit upheld the District Court’s holding that there was no likelihood of confusion. Evidentiary issues factored heavily into the decision. Actual marketplace data revealed keyword advertising diverted a relatively small number of consumers — approximately 1.5 percent. The Court also expressed concerns about procedural flaws that undermined the legitimacy of a confusion survey that 1-800 Contacts submitted.

However, the Tenth Circuit reversed the lower court’s decision regarding Lens.com’s possible secondary liability, and remanded that issue back to the District Court. Although Lens.com did not intentionally induce its affiliates to publish ads that contained the 1800CONTACTS mark, the Court concluded that a rational juror could find that Lens.com failed to take appropriate corrective action when notified of the issue.

The Tenth Circuit’s decision, coupled with Google’s recent decision to liberalize its international trademark AdWords policy, suggests that it will become more difficult for trademark owners to object when third parties — including direct competitors — use trademarks as keywords to trigger sponsored ads. As was the case in the 1-800 Contacts litigation, the issue of liability may hinge upon the specific circumstances of the case, including if and how a third party trademark is used in the sponsored ad.

The ongoing and gradual evolution of this area of the law makes it imperative that all companies — brand owners and those that participate in keyword advertising — closely monitor legal developments to ensure that they know their rights and do not run afoul of changes in the law.