Network Automation, Inc. v. Advanced Systems Concepts, Inc.: Ninth Circuit Vacates Injunction in Keyword Advertising Case

Network Automation, Inc. v. Advanced Systems Concepts, Inc., No. 10-55840 (9th Cir. Mar. 8, 2011) Slip Opinion

The Ninth Circuit vacated the preliminary injunction granted by the district court to Advance Systems Concepts (“Systems”) in a trademark infringement case involving the use of keyword advertising.

The court found that the lower court erred in its analysis of whether Network Automation’s keyword advertising, which targeted the name of its competitor Systems’ software, created a likelihood of consumer confusion. The district court had prioritized the “Internet troika” factors that were emphasized by this court in Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1054 (9th Cir. 1999). The circuit court disagreed with this approach, holding that the “troika” factors should not be the controlling factors for all cases of trademark infringement that involve the internet, and added that the “troika” factors may only be appropriate for domain name disputes. In so holding, the court emphasized that “[w]e must be acutely aware of excessive rigidity in applying the law in the Internet context; emerging technologies require a flexible approach.”

IP Law Chat gives an overview of the case. Public Citizen and Eric Goldman provide thorough analyses of the decision.

Network Automation (“Network”) and Systems sell competing job scheduling and management software. Network sells its product using the mark AutoMate, while Systems sells its software using the registered trademark ActiveBatch. To advertise its product, Network bought “ActiveBatch” as a keyword from both Google and Bing. As a result, these services would present consumers who search for Network’s competing product with a page that displays Network’s site as a sponsored link alongside the standard search results.

After receiving two cease-and-desist letters from Systems, Network filed a lawsuit seeking declaratory judgment of noninfringment. Systems counterclaimed, alleging trademark infringement under the Lanham Act and moved for a preliminary injunction. The district court held that Network’s keyword use created a likelihood of confusion and granted the injunction on April 30, 2010. Network appealed.

Writing for the Ninth Circuit, Judge Wardlaw explained that under § 1114, a party claiming trademark infringement “must prove: (1) that it has a protectable ownership interest in the mark; and (2) that the defendant’s use of the mark is likely to cause consumer confusion.” With no dispute over the ownership of the ActiveBatch mark, the case turned on the second factor. Following its traditional eight-factor trademark infringement analysis from AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979), the court identified the most important factors for determining the likelihood of consumer confusion in a dispute over keyword advertising: (1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of care likely to be exercised by the consumer; and (4) the labeling and appearance of the advertisements and the surrounding context on the search results page. Because the lower court wrongly relied on the “Internet troika” instead of these factors, the Ninth Circuit reversed and vacated the injunction.

In holding as it did, the court concluded that “the use of a trademark as a search engine keyword that triggers the display of a competitor’s advertisement is a ‘use in commerce’ under the Lanham Act,” agreeing with the Second Circuit’s decision in Rescuecom Corp. v. Google Inc., 562 F.3d 123, 127 (2d Cir. 2009). In applying the eight-factor Sleekcraft test, the court discounted the importance of the fifth factor – whether or not the marketing channels of the two products converge – because it felt that most commercial retailers today advertise online, and when the same can be said for countless other parties, the “shared use of a ubiquitous marketing channel does not shed much light on the likelihood of consumer confusion.” Further, the court rejected earlier conclusions that internet users in general exercise low consumer care and are subject to a greater risk of confusion, stating that “the default degree of consumer care is becoming more heightened as the novelty of the Internet evaporates and online commerce becomes commonplace.” In particular, the court noted that consumers who would purchase expensive business software would be more likely to understand the mechanics of internet search engines and thus less apt to be confused by sponsored links for competing products.

This decision is significant because it clarifies the test for trademark infringement in cases involving the internet. By rejecting the application of the “Internet troika” analysis to all internet cases, the court emphasizes that the traditional eight Sleekcraft factors should be applied in a flexible manner depending on the specific context. The holding is also important because it implies that the purchase of keyword advertisements using trademarked terms does not inherently constitute trademark infringement. Michael Atkins, in his blog Seattle Trademark Lawyer, notes that the decision "seems to bode well for Google and other search engine providers."

Kaethin Prizer is a 1L at the Harvard Law School.