Implications Of Google Adwords Class Actions

http://ip.law360.com/print_article/110364

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Implications Of Google AdWords Class Actions

Law360, New York (July 30, 2009) -- In an unusual move, perhaps brought on by a
recent Second Circuit opinion in the Rescuecom v. Google[1] case, two trademark
infringement class actions were recently filed in federal court against Google based on
its AdWords and Keyword Suggestion Tool programs.
If all the procedural hurdles are cleared and the cases proceed as class actions, the
potential damage claims could amount to hundreds of millions of dollars, change the
way trademarks are sold for Internet advertising and affect the rights of hundreds of
thousands of owners of federally registered U.S. trademarks.
In addition to Google, named in at least one of the actions as defendants are You Tube
LLC (a Google company), AOL LLC, Turner Broadcasting System Inc., Rupert Murdock’s
My Space Inc. and the Internet Web site conglomerate IAC/InteractiveCorp.[2] The
common nexus among these parties is their use of Google’s keyword-based advertising
program AdWords.
While the two actions filed have different plaintiffs named as class representatives, both
were actually filed by the same attorneys in the same court — the U.S. District Court for
the Eastern District of Texas, located in Marshall, Texas.
The Eastern District of Texas has been the venue for a number of high-profile
intellectual property cases and has commonly been considered a court where cases can
be filed and proceed to trial relatively quickly.[3]
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However, this timing can vary among cases as a result of the high number of filings in
that district over the past few years. U.S. District Judge John Ward is presiding in both
actions.
Both actions claim that Google and the other defendants infringe and trade upon the
reputation and goodwill of the registered trademarks of the plaintiffs and members of
the class.
Specifically, the allegations assert that the acts of defendants in selling to competitors
advertising triggered by keywords — that are also federally registered trademarks of the
plaintiffs — are uses of the trademarks by the defendants that are likely to result in
consumer confusion.
This article seeks to provide a reference tool and discussion points for trademark owners
and purchasers of keywords (referred to herein as “Competitors”), as to the potential
effect of these two actions on each group’s respective rights.
In seeking to accomplish this, the article first explains Google’s advertising programs
and how the Second Circuit’s opinion in Rescuecom v. Google likely provided the
impetus for the plaintiffs to bring these two class actions.
It then provides an overview of the allegations contained in the complaints, discusses
some of the hurdles the plaintiff class members must overcome in these actions — both
class action and trademark, and then summarizes some of the potential issues and
consequences of the two actions for trademark owners and their Competitors.
Google’s AdWords and Keywords Suggestions Tool Programs
AdWords allows Competitors to purchase preferred advertising space and placement on
the Web pages that display Google’s search results. The Competitors’ ads are triggered
by “keywords,” which are selected by the advertiser.[4] Under the programs, the
keywords can be a generic word (like “blenders”) or a trademark (like “Oster”).
Based on the keywords selected by the Competitor for association with the advertising,
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Google’s Keywords Suggestions Tool may recommend other keywords, including other
registered trademarks, for purchase. Thus, a Competitor can purchase advertising space
from Google that is triggered by a keyword consisting of another’s trademark.
The display of the Competitor’s ad occurs when a Google user uses the keyword as a
search term. Google then displays the Competitor’s advertisement and Internet link on
the user’s search results page.
The Competitor’s advertisement actually appears in a list separate from the normal
search result list and typically under the heading “Sponsored Links” at the top of the
search results page or on the right hand side.
The Competitor provides the text that accompanies the Sponsored Link to Google.
Generally the owner’s trademark does not appear in the Competitor’s ad, but some
owners have complained that some Competitors’ ads do list registered trademarks.
Google is paid by Competitors for the advertising triggered by the keywords and for
display of the Competitor’s link and advertising content on the search results page.
Google also charges the Competitor a fee based on the number of times that Google
users “click” on the Sponsored Link and are directed to the Competitor’s Web page. It is
these revenue streams that the plaintiffs in the two actions seek to disgorge from
Google and the other defendants.
Rescuecom v. Google: The Watershed Opinion
The allegations contained in the complaints in these two actions and their respective
theories of liability rely, in large part, on the decision and reasoning of the U.S. Court of
Appeals for the Second Circuit’s recent opinion in Rescuecom Corp. v. Google Inc.[5]
In Rescuecom, the Second Circuit held that the plaintiff, Rescuecom, had adequately
alleged that Google “uses” Rescuecom’s mark “in commerce” as required by the Lanham
Act by displaying it — and even suggesting it — to potential purchasers of
advertisements through the Google AdWords and Keywords Suggestions Tool programs.
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The Rescuecom court rejected Google’s argument that it never “used” the plaintiff’s
mark “in commerce” because consumers were not privy to the transaction where Google
sold the keywords to Rescuecom’s rival. Thus, the Rescuecom court rejected a threshold
defense that Google had asserted as a universal bar to such suits.
While the Rescuecom decision is not binding on the federal district court in Texas, and
leaves open the issue of likelihood of consumer confusion for the trial court, the timing
of these two class actions suggests that the plaintiffs’ class counsel viewed the
Rescuecom v. Google opinion as providing a basis to press forward with an all-
encompassing lawsuit on behalf of all trademark owners.
Whether this strategy will result in large fee awards for class counsel remains to be
determined but it certainly raises issues for trademark owners and Competitors.
The Two Class Action Complaints
Plaintiff PFX LLC, which does business as Firepond, brought the first of the class actions.
Firepond is a small software company residing in Marshall, Texas, and the class it
purports to represent comprises all Texas-based owners of federally registered
trademarks.
The plaintiff in the second action, brought just three days after the first, is John Beck
Amazing Profits LLC, a small company located in Van Nuys, Calif., that offers educational
materials for a real estate investment system.
John Beck purports to represent a much larger class — all U.S.-based owners of
federally registered trademarks. Both classes are limited to trademark owners that have
a federally registered trademark that Google has sold as a keyword for advertising
during the four year period (2005–2009).
Class counsels’ rationale for bringing two separate actions consisting of two different but
overlapping classes, one for all Texas U.S. trademark holders and one for all U.S.
trademark holders, is unclear.
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At their core, the two class action complaints’ allegations are similar. Both contain
detailed allegations concerning the workings of the Google AdWords program.
These descriptions are augmented with allegations that Google’s act of allowing
Competitors to buy advertising space triggered by “AdWords” (keywords) consisting of a
registered trademark is to allow Competitors to intercept and divert consumers who
were looking for the trademark owner’s Web site or goods.
The complaints posit that Google’s purpose is to maximize its advertising revenue by
trading on the goodwill associated with the classes’ trademarks by allowing Competitors
to purchase those trademarks and sometimes even suggesting trademarks for purchase
through Google’s Keyword Suggestion Tool. The plaintiffs allege that such use is likely to
result in consumer confusion.
The plaintiffs in the actions seek to hold Google (and the other named defendants)
directly liable for trademark infringement, as well as liable for contributory trademark
infringement, inducement of trademark infringement and related claims.
The putative class seeks a declaration and an injunction against any likely confusing use
by Google of any of the classes’ trademarks as AdWords and keywords. The putative
classes also seek money for corrective advertising, actual damages, punitive damages,
treble damages, an accounting and disgorgement of defendants’ profits, attorneys’ fees,
interest and costs.
Key Substantive and Procedural Issues in These Purported Class
Action Suits
Even if the court entertaining these putative class actions were to follow the Rescuecom
decision, it would have to resolve several other substantive issues in the classes’ favor
for the classes to prevail in their claims of direct trademark infringement. At least three
significant issues come to mind.
First, a plaintiff in trademark cases must prove that it owns a protectable mark. That is,
it must prove that it (and not somebody else) owns the mark and that the mark
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functions as an indicator of the source of their goods or services, as opposed to simply
describing the product in some way.
Second, it must prove that the contested use (here, the “Sponsored Link” ad triggered
by their mark) is likely to cause consumer confusion as to the source of the goods or
services.
This, in turn requires a detailed assessment of the marks, the Sponsored Links, the
businesses of the mark owner and of the party that placed the Sponsored Link (the
Competitor) and their respective consumer groups — all with an eye toward how these
factors bear on the likelihood of confusion.
Third, Google (and possibly one or more intervening defendants) could raise a “fair use”
defense, claiming, for example, that the individual AdWords and keywords at issue are
being used only for nonconfusing comparative advertising or other permissible uses.
An additional issue is implicated in the separate claims that Google is secondarily liable
for the infringement of its AdWords purchasers (the Competitors), as opposed to the
claims that Google itself infringed.
In these secondary liability claims, the issues are whether Google “intentionally induced”
the Competitors to infringe or whether Google continued to display the Sponsor Link
after obtaining knowledge that it was being used for infringing purposes.[6]
Assuming the actions go forward, this theory of liability will be hotly contested because
it appears that the content of the Sponsored Link — which is likely to be the source of
any resulting confusion — is not something that Google currently exerts control over.
Generally, courts assessing this indirect liability theory focus on the extent of control
exercised by the defendant over the means of infringement, which in these cases would
likely focus on Google’s degree of involvement in the triggering, placement and content
of the Sponsor Link ads.[7]
These substantive issues may have procedural repercussions for the putative class as
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well. For a case to proceed as a class action, rule 23(c)(1) requires that the district court
before whom the cases are pending must “certify” that the case is appropriate to
proceed as a class action.
To certify a class, the court must find that all four requirements of rule 23(a) are
satisfied and that the case falls into one of the established categories of class actions in
rule 23(b). This typically requires a detailed assessment of the types of facts and legal
issues that will likely arise in the case.
Rule 23(a)(3)’s “typicality” requirement may prove a substantial, and possible
insurmountable, hurdle in this case.
Courts dealing with individual cases of trademark infringement over the decades have
been in agreement that the substantive issue listed above — the distinctiveness of the
mark that is alleged to be infringed, whether the allegedly infringing ad is likely to cause
confusion as to the source of the product, and whether the challenged use is a “fair use”
— are all uniquely fact-intensive issues that are to be decided on a case-by-case basis.
[8]
It is easy to foresee that these cases will be subject to strong attacks that there cannot,
in these circumstances, be any finding that any class members’ claim is “typical” of the
claims of the rest of the class. For similar reasons, whether the class is certifiable under
rule 23(b)(3) appears to be highly questionable.
Given the extraordinarily fact-intensive assessment required to determine infringement,
any attempt to demonstrate that class-wide issues “predominate” over individual issues
and that a class action is “superior” to individual suits would face almost insurmountable
hurdles.
While not unheard of, trademark class actions are highly unusual. But in one of the few
recent decisions concerning whether a trademark infringement suit was suitable for
class-wide treatment (coincidentally concerning another aspect of Google’s business), a
federal court in Illinois refused to certify a class action because the individual issues
outlined above (protectability, likelihood of confusion, possible fair use defenses) were
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so staggering that class action treatment would have been unmanageable.[9]
Potential Implications for Registered Trademarks Owners and
Competitors
While there is no doubt that these two class actions are highly unusual and subject to
substantial procedural hurdles before the court can address the cases on their
substantive merits, all registered trademark owners should watch the development of
these actions carefully for a number of reasons.
First, these actions could adjudicate the rights of all Texas, or perhaps even all U.S.,
trademark owners, if a class is successfully certified and the owners do not thereafter
opt out.
Certainly, many trademark owners, especially owners of multiple and well-recognized
marks, are likely to determine that staying in the class is simply not an option owing to
the loss of control over the litigation by virtue of being one of many class members.
Even if the majority of U.S.-based owners of registered trademarks did opt out in the
action purporting to be brought on their behalf, that would still leaves thousands (and
maybe tens of thousands) of class members.
Of course, for trademark owners who opt in, the lawsuit seeks to obtain a finding of
liability and damages on behalf of the entire class. If successful, any damages would
then be split between the class members on some equitable basis.
On the other hand, by remaining in the class, those trademark owners run a substantial
risk that they would be bound by any final adverse decisions in these cases, which might
later preclude enforcement of their trademarks in separate actions against Google or the
other defendants based on use of the owners’ trademarks in keyword advertising.
As to Competitors, who are purchasers of trademarks through Google’s AdWords
program and who might also be owners of other trademarks, they might object to the
classes’ efforts to enjoin Google’s use of trademarks in the AdWords program, or
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otherwise limit AdWords’ use of trademarks as keywords. Those Competitors are
certainly likely to want to opt out of the class.
As to all Competitors who purchase trademarks for keyword advertising, they also face
the possibility of being named as defendants in future litigation if the class members
here succeed against Google for trademark infringement.
Some Competitors, especially those with significant purchasing power, may also attempt
to negotiate indemnification provisions into keyword purchasing agreements to minimize
this risk.
While the eventual outcome of these two class actions is open to debate and likely will
involve intense litigation, the cases could enhance trademark protection for owners, or
give Competitors what amounts to a broad license to purchase and use others’
trademarks as triggers for keyword advertising.
At the appropriate time, each trademark owner will need to decide whether to undertake
its own due diligence analysis to determine how these actions might affect their rights.
Similarly, Competitors will need to decide whether to undertake a similar due diligence
to determine what, if any, measures to take to minimize risks.
--By Gregory T. Casamento (pictured), Paul C. Van Slyke, Thomas G. Yoxall and Thomas
L. Casagrande, Locke Lord Bissell & Liddell LLP
Gregory Casamento is a partner With Locke Lord Bissell & Liddell in the firm's New York
office. Paul Van Slyke is a partner with the firm in the Houston office. Thomas Yoxall is a
partner in the firm's Dallas office and co-chair of the firm’s business litigation and
arbitration group. Thomas Casagrande is of counsel with the firm in the Houston office.
The opinions expressed are those of the authors and do not necessarily reflect the views
of Portfolio Media, publisher of Law360.
[1] 562 F.3d 123 (2d Cir. 2009).
[2] The other defendants are alleged to have incorporated the Google AdWords program
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into their own Web sites.
[3] According to the Administrative Office of the U.S. Courts’ most recent official
statistics, as of March 31, 2008, the filing-to-trial period for cases in the Eastern District
of Texas averaged about 18 months. See Table C-5, Federal Judicial Caseload Statistics
(March 31, 2008), available at www.uscourts.gov/caseload2008/tables/C05Mar08.pdf.
The trial settings assigned to more recently filed cases, however, suggest that the filing-
to-trial period may be expanding as a result of the number of intellectual property cases
filed in the Eastern District over the last few years.
[4] Google states publicly they do not sell keywords, only advertising space triggered by
keywords.
[5] 562 F.3d 123 (2d Cir. 2009); See Influential New York Federal Appeals Court
Revives Lanham Act Trademark Infringement Suit Against Google’s “AdWords” and
“Keyword Suggestion Tool” Programs, April 6, 2009, Client Alert, Locke Lord Bissell &
Liddell LLP.
[6] See Inwood Labs. Inc. v. Ives Labs. Inc., 456 U.S. 844, 854 (1982) (discussing the
elements of a claim of secondary liability under the trademark laws).
[7] See, e.g., Lockheed Martin Corp. v. Network Solutions Inc., 194 F.3d 980, 984-85
(9th Cir. 1999).
[8] See, e.g., Johnny Blastoff v. Los Angeles Rams Football, 188 F.3d 427, 436 (7th Cir.
1999) (likelihood of confusion fact-intensive); Vulcan Golf LLC v. Google Inc., 254 F.R.D.
521 (N.D. Ill. 2008) (denying class certification of a trademark suit in part because the
defenses, which included a “fair use” defense, were so fact-intensive for each
defendant).
[9] See Vulcan Golf LLC v. Google Inc., 254 F.R.D. 521 (N.D. Ill. 2008).
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