Seems Google, Inc. will have to face the trademark-infringement lawsuit music after all.
In a unanimous decision, the Second Circuit’s three-judge panel (Judges Leval, Calabresi and Wesley sitting) reversed the US District Court for the Northern District of New York (NDNY), Mordue, Ch. J., overturning that court’s dismissal of this case for failure to state a claim on which relief can be granted (Fed. R. Civ. P. 12(b)(6)) telling the NDNY that it “misunderstood [the] holding of 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 2005) (1-800)… , because [it dismissed the case on the grounds that] … Rescuecom failed to allege that Google’s use of its mark was a “use in commerce” within the meaning of § 45 of the Lanham Act, 15 USC 1127.”
Seems Google had been placing competitors’ sponsored ads in the Sponsored Link column when a search was made on Rescuecom’s registered trademark. Rescuecom had a problem with this and brought suit in the NDNY under the Lanham Act to enjoin Google from using Rescuecom’s registered mark to promote competitors’ businesses by listing the competitors in the Sponsored Links section of the search results page, possibly confusing consumers into believing that the competitors were somehow affiliated with Rescuecom. Google responded with the defense that its use of Rescuecom’s mark was internal and didn’t constitute a “use in commerce.” The NDNY bought that defense and dismissed the case under Fed. R. Civ. P. 12(b)(6), failure to state a claim on which relief can be granted. Rescuecom appealed the 12(b)(6) dismissal.
The Court distinguishes the 1-800 case clearly by recognizing that, among other factors, Google’s sponsored ads are on the same page as, and indeed look very similar to, the organic search results, while the ads in 1-800 were popup ads that displayed the competitor’s mark and were clearly advertisements. Given this distinction, the Court found that 1-800 and Rescuecom are based on materially different facts and therefore the analysis in 1-800 as to whether the ads based on trademarked keyword search terms was misunderstood.
The Court then provides a massive appendix to this case explaining “use in commerce” under the Lanham Act.
Up until now, the courts have held that trademark infringement occurs only when the infringed mark is displayed. Google does not display anyone’s trademark but its own; search terms are kept in a proprietary database, keywords are kept in a proprietary database, and the algorithms used in a GOOGLE® search are closely guarded trade secrets. Therefore, the public has no access to any trademarks lurking in Google’s databases. This, Google argued, does not constitute “use in commerce.”
The Second Circuit disagrees. In its appendix to Rescuecom, the Court notes that the phrase “use in commerce” has different nuances throughout the Lanham Act. § 1127, which defines the phrase states “… that the terms listed shall have the given meanings “unless the contrary is plainly apparent from the context.” ” The Court goes on to note that § 1127 defines “use in commerce” as ““The term ‘use in commerce’ means the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark.” This, the Second Circuit tells us, necessarily means that the full definition of “use in commerce” cannot apply to infringement sections of the Act; the requirement for bona fide use cannot be considered to be a limitation to conduct that might cause infringement liability. Take the case of the infringer who acts in bad faith; bad faith, by definition, does not constitute bona fide use. This lets the bad-faith infringer off the hook if we apply the full meaning of the definition of “use in commerce” to the infringement sections of the code. The infringer who acts in good faith, though, would feel the full weight of the trademark infringement law drop upon his head, since good faith, by its definition, is bona fide use.
This is not the result we want.
Therefore, to get the more reasonable result of holding bad-faith infringers’ feet to the fire, the Court construes the infringement sections of the Act — §§ 1114 and 1125 — as not to include the bona fide use langauge of the definition under the “…unless the contrary is plainly apparent from the context” language of the Act.
Under this construction, Google may need not have shown trademarks of competitors on its search results in order to have infringed trademark. The 2nd Circuit is not the factfinder in this matter and the facts have not yet been found (a 12(b)(6) dismissal is based on the pleadings, which occur at the start of the case), so takes no position on whether Rescuecom can prove that Google infringed its mark under the Lanham Act; this is now a question for the NDNY to decide.