Avery Labels worked hard to establish its brand among consumers as the premier retailer of label products, as well as providing software solutions through their design-and-print-online tool and one-stop premium printing service, “WePrint.” As a result, when consumers search online for label products, Avery is typically the top-of-mind brand, making Avery the envy of its competitors. A few of those competitors recently attempted to benefit from Avery’s category-leading position by using the Avery trademark on their digital marketing ads without Avery’s permission, which not only drove up Avery’s ad costs and cut into its results, but was a clear case of trademark infringement.
The print-on-demand business is a legally risky one. As I recently blogged, in June a court ruled that Zazzle did not qualify for the DMCA 512 safe harbor. This ruling is even more troubling. Are the days of print-on-demand services numbered, at least any that try to operate without human prescreening of all user uploads?
SunFrog prints user-uploaded designs on T-shirts and other merchandise. Users uploaded Harley-Davidson logos to produce what Harley considered counterfeit T-shirts. The case doesn’t mention if users uploaded any parodic versions of the logos, though the court’s ruling does not distinguish between counterfeits and parodies. (Paging Rebecca Tushnet, who has shown through FOIA requests that our own government can’t make that distinction either). SunFrog claimed it took a number of steps to protect Harley’s marks, but apparently these steps did not satisfy Harley.
As you may recall, the FTC is pursuing 1-800 Contacts for antitrust violations based on 1-800 Contacts having sued and then settled with competitors who bought keyword ads on 1-800 Contacts’ trademarks. Recently, the FTC filed its “Complaint Counsel’s Corrected Pre-Trial Brief and Exhibits” in the Matter of 1-800 Contacts, Inc. This 90 page document, unfortunately swiss-cheesed by numerous redactions, lays out the FTC’s case. It’s a fascinating read, and I encourage you to read the whole thing. In this post, I’ll flag some of the highlights.
The plaintiff has a registered trademark for “CARE EVERYWHERE” for B2B healthcare software. The defendant, YourCareUniverse, also makes healthcare software. It extended its brand to include “YOURCAREEVERYWHERE” and launched a public-facing patient healthcare portal under the extended brand. The plaintiff sued for trademark infringement. The court runs through the standard multi-factor likelihood of consumer confusion test and finds most factors favor the defendant.
That should end the case, but no. As we see far too often with weak marks and weak infringement cases, “Epic attempts to save its claims by relying on the doctrine of ‘initial interest confusion.’” In response, the court issues a major burn: “The facts in this case bear no similarity to those in which a court accepted a theory of initial interest confusion as plausible.”
We still don’t have a consistent (or coherent) definition of initial interest confusion. This court applies the Seventh Circuit jurisprudence, which has historically provided a narrow scope for initial interest confusion. The court defines it as when “the defendant ‘lur[es] potential customers away from [the plaintiff] by initially passing off its goods [or services] as those of the [plaintiff’s] even if confusion as to the source of the goods is dispelled by the time any sales are consummated.’…The Seventh Circuit has summarized initial interest confusion as a “bait and switch” technique, in which a competitor will try to ‘get its foot in the door’ and affect a purchasing decision by confusing the consumer.”
Disclosure note: I provided an expert report in this now-dismissed case, so you might consider my comments to be advocacy. I’ll explain my expert role in a bit.
The Court Opinion
Susan Larsen practices business law in the Denver, Colorado metro area under the name Larsen Law Offices. She claims she’s been using the name since 2003, though she did not register the name as a trademark (and would need to address the obvious secondary meaning issues to do so). David Larson practices estate planning law (and more) in the Denver metro area as well. In 2013, Larson set up a website at the domain name davidlarsonlawoffice.com, and he used the domain name larsonlawoffice.com starting in 2016. In 2016, Larsen sued Larson for trademark infringement, ACPA and more. After the complaint, Larson’s website removed references to Larson Law Offices, adopting the name David M. Larson, PLLC. Larson partially moved to dismiss.
Cybersquatting. The court says “Plaintiff does not allege that Mr. Larson had actual knowledge of Larsen Law Offices’ existence in 2013, or that he has ever conducted a Google search that returned plaintiff’s name.” Further (cites omitted):
In a decision that sets up a potential international comity showdown, a California district court granted Google’s request for a preliminary injunction preventing enforcement in the U.S. of a Canadian court order that compelled Google to globally de-list certain search results of a former distributor that had allegedly used its websites to unlawfully sell the defendant Equustek Solutions’s (“Equustek”) intellectual property. (Google LLC v. Equustek Solutions Inc., 2017 WL 5000834 (N.D. Cal. Nov. 2, 2017)).
Over the course of about a decade starting in 2004, 1-800 Contacts entered into over a dozen settlement agreements with competitors, most of which mutually restricted both parties from buying keyword ads triggered to their competitor’s trademarks and sometimes requiring the use of negative keywords. The FTC challenged this practice as anti-competitive via the FTC’s administrative adjudication process. In a behemoth 215 page opinion peppered with annoying redactions, the ALJ agrees with the FTC. The opinion’s summary:
Complaint Counsel has met its burden of proving that the Challenged Agreements unreasonably restrain trade in violation of Section 5 of the FTC Act. Contrary to Respondent’s argument, FTC v. Actavis, 133 S. Ct. 2223 (2013), is not authority for the proposition that trademark settlement agreements are immune from antitrust scrutiny.
The evidence in this case demonstrates that the advertising restraints imposed by the Challenged Agreements cause harm to consumers and competition in the market for the sale of contact lenses online. This is sufficient to establish Complaint Counsel’s prima facie case that the agreements are anticompetitive. The evidence fails to prove that the Challenged Agreements have countervailing procompetitive benefits that outweigh or justify the demonstrated anticompetitive effects of the Challenged Agreements. Accordingly, the Challenged Agreements violate Section 5 of the FTC Act.
This opinion is chock-full of goodies. Normally I’d recommend reading the whole thing. However, at a hefty 215 pages, it would take you a long time to do so. Here are some of the highlights I saw.
Lasoff owns Ingrass, which makes artificial turf. He claims he’s losing business to “cheaper, counterfeit” versions of Ingrass. (The opinion uses the term “counterfeit,” though it probably means knockoffs). He objects to the fact that Amazon runs keyword ads for “Ingrass” at the search engines and in promotional emails that are algorithmically programmed for remarketing (i.e., promoting products the email recipient viewed on Amazon but didn’t buy). The promotional email ad copy comes from third party sources. Prospective customers who saw these ads for “Ingrass” were directed to the Amazon product pages containing listings from the alleged counterfeiters.
Section 230
Citing the Ninth Circuit’s ccBill v. Perfect 10 ruling, the court cleans out all of the state law claims (unfair competition, state trademark infringement, tortious interference, negligence and unjust enrichment) due to Section 230. The court says:
A venerable and classic Internet Law question: when a consumer uses a trademark as a search term, what are they looking for? If they are seeking the trademark owner–and only the trademark owner–then competitive keyword advertisers may encroach on the trademark owner’s goodwill and “steal” the trademark owner’s customers (and the search engine/ad network may be profiting from this “theft”). In contrast, if consumers have heterogeneous search objectives when using a trademarked search query, trademark law would overreach–in ways that would significantly harm social welfare–if it prevented ads from parties other than the trademark owner.
A new empirical study, Jeffrey P. Dotson et al, Brand Attitudes and Search Engine Queries, 37 Journal of Interactive Marketing 105 (2016), provides further support for this conclusion. The study is based on a rich dataset: a time-series of actual Google search queries in the cellphone and automotive categories by opted-in consumers. The authors don’t consider the legal questions, but their conclusions buttress the perspective that consumers have heterogeneous motivations when they use trademarks in their search queries.
The Federal Trade Commission has sued online retailer 1-800 Contacts, saying the company illegally restrained competitors from buying search advertisements. It’s a dramatic move that could mold the shape of online trademark law for years to come.
