Yesterday, I attended oral argument before the Second Circuit in Rescuecom v. Google. If you know what that means and just want the blow-by-blow, jump ahead. For those just tuning in now, though, here’s a brief synopsis:
If you type any bunch of search terms into Google, you’ll see three things. There’re the “organic” search results, which appear in the main column and come from the guts of the search engine itself. There’s a column of “Sponsored Links” to the right of the organic results. These are ads. So is the single sponsored link at the top (which appears on a yellowish background.)
Google chooses which ads to display based on the words you type in. A search on “pets” brings back different ads than a search on “street racing” does. Google chooses which ads to show based on requests from advertisers; if you want your ad to show at the top or on the right, you need to give Google a list of “keywords” that you’d like to trigger your ad. Every time someone clicks on your ad, you pay Google a few cents. How many? That’s determined by an auction among everyone who’d like to use that keyword. The net result is that advertisers pay Google in exchange for having their ads displayed atop or beside the organic search results for particular keywords.
Businesses have been upset about competitors online for some time. They get especially upset whenever they get the sense that the competitors are luring away customers looking for “their” trademarks. So when they see a competitor’s ads showing up on a Google search for their trademark, they see red—and often sue. It seems reasonably well-established that the competitors can’t in general mention the trademarks in their ad copy (Google and its competitors also have policies to the same effect). The battleground has shifted therefore to ads that are merely triggered by a trademarked keyword, or that happen to appear when a trademarked keyword is used along with another keyword that causes the ad to appear.
Trademark owners have sued both their competitors placing the ads and the search engines—most notably Google—displaying them. And there’s been a very interesting split in the courts. Courts in most parts of the country have been willing to let these suits go forward at the motion to dismiss stage, that is, to let the trademark owners try to prove that consumers were actually confused and diverted by the ads. But courts in the Second Circuit have uniformly rejected such suits. They’ve held that the search engine isn’t “using” the trademark as a trademark. They’ve done so on the authority of a Second Circuit case, 1-800 Contacts v. WhenU.com. That case had to do with a browser add-on that displayed pop-up ads when the user visited certain URLs; the prior Second Circuit panel had held that this form of triggering wasn’t a trademark use of any of the trademarks in the URLs involved.
Enter Rescuecom, an emergency computer repair company, which owns a trademark on the term RESCUECOM. (Snide comments about the distinctiveness of the mark omitted.) They have the usual gripe about competitors’ ads showing up in searches for “Rescuecom” and they sued. They lost before the district court, on the authority of 1-800, but unlike prior plaintiffs in the Second Circuit, pursued their appeal. That’s the oral argument I went to. A Google victory here could turn the tide, and perhaps convince other Circuits to swing in favor of recognizing the trademark use limitation in similar cases. A Rescuecom victory could resolve the split in the opposite direction. So the stakes are high.
If you want more detail, Eric Goldman has an extensive bibliography on the case. If you care about issues such as this one, you really should be following his blog all the time.
Rescuecom’s Opening Argument
Rescuecom’s lawyer, Edmund Gegan, opened by trying to undermine the legitimacy of the trademark use doctrine, which he claimed dated only to WhenU. Judge Leval quickly interrupted to set him straight on the nature of precedent, saying “It exists since WhenU.” This led to a strange digression, in which Gegan pointed out that Google had filed an amicus brief in _WhenU, as though this rendered the result suspect.
Judge Calabresi then took over the questioning, using a hypothetical heavily argued in Google’s brief: a retail store that stocks competing goods immediately next to brand-name ones. Gegan immediately conceded that there were no cases finding that product placement on shelves would be legally problematic. He then argued that the co-shelving case wouldn’t involve trademark use, just use of the product, and that it would much the same as handing out flyers for a restaurant in front of a competing one (presumably legal). Judge Calabresi then brought the trademark back into the hypo, asking what the result would be if the flyers were being handed out in front of a giant sign for Guido’s Pizza. Gegan didn’t get much of a chance to answer, because …
Judge Calabresi then shifted to a different hyopthetical: calling up the phone information service, which gives you the correct phone number and then reads you an ad. Gegan made the tactically prudent reply, that there would be no liability because there’d be no likelihood of confusion.
Judge Leval then rejoined the discussion with questions that seemed design to help out Rescuecom. What if the phone directory sells this right for ad placement? And what if they read you the add instead of giving you the phone number? Or read you the advertiser’s phone number? Or, switching back to the co-shelving hypo, what if they put up a sign with the trademark that points you to the wrong shelf, the one where the competitor’s goods are. Gegan liked the questions, and said they went to the heart of the case.
Judge Leval then turned the question of deceptiveness back on the facts of the case. Had Rescuecom, he asked, alleged that the ad banner at the top of the page (as opposed to the ones on the sidebar) was deceptive because it appeared to be a non-sponsored link? Judge Calabresi jumped back in, emphasizing that the case was before them on a 12(b)(6) motion to dismiss. Gegan said that Rescuecom had alleged that consumers had certain “expectations” and that they were “confused”—not quite the same thing.
In response to a follow-up question, he added that they’d alleged trademark use in the form of “selling” the keyword to a competitor. Judge Calabresi didn’t like that phrasing; he didn’t think that selling the right to put products next to Pepsi was the same thing as selling the right to have customers think that your products were Pepsi. He wasn’t sure that selling the right to be next door was a use. Gegan’s response was strange; he said that Rescuecom wasn’t alleging that it was wrong to be next door or to sell the right to be next door, but that Google was different from offline cases because there were no categories (like there would be in a physical store). If you search on “Rescuecom,” you’re supposed to get only Rescuecom results.
Michael Page then presented argument for Google. He objected to the use of the term “selling,” saying it led to confusion. He emphasized Google’s policy of prohibiting the use of others’ trademarks. I think he was talking about use in ad copy, but he didn’t get to say, because …
Judge Leval returned very quickly to the deceptiveness theme he’d sounded during the opening argument. Wasn’t there an allegation that Google sold the right to placement of sponsored links in a deceptive manner? No, said Page, the complaint said only that consumers expect “related” products, not that they expected that all search roads would “lead to” Rescuecom.
Judge Calabresi asked what result should obtain if Google deceptively sold search placements (organic ones, I assume). Page quickly asserted that under 1-800 Contacts, there would be no liability. Calabresi said, not really to anyone in particular, that 1-800 Contacts didn’t make anything clear; it was just a first cut. Page, sensing a break in the questioning, tried to make an argument that the trademark use doctrine has pre-Internet roots. He didn’t get far into it; there was a quick back-and-forth between Calabresi and Leval, which ended when Leval cooked up an involved hypo involving both an opaque display case with a trademarked term on the outside but no such goods inside and also a deliberate intent to confuse. Page said that it would be a use in commerce because of the appearance of the mark on the outside of the case.
Judge Wesley then made his first entrance to the argument, trying to move the hypo closer to the facts of the case. Was this a mispackaging case or merely shelving together? The latter, Page said. Judge Calabresi asked about a less extreme version: a sign over the shelf saying “Advil,” but a mixture of Advil and Aleve beneath. Trademark use? According to Page, yes, but no one at Google uses the RESCUECOM mark in a way that users see.
This seemed to surprise Judge Wesley a bit. He asked, in essence, how many hits you’d get if you searched on “Rescuecom.” (53,900, I can report.) Page explained how search results go on essentially forever, and then argued that Google simply places results near others asking the same services. Judge Leval pointed out, once more, that this was a 12(b)(6) motion, and accused Page of arguing potential defenses, rather than dealing with the matters alleged in the complaint.
Judge Leval replaced the drugstore shelf with a druggist who takes an order for “Advil” and gives the customer “Aleve.” Use in commerce, Page said. Judge Calabresi pounced. What if someone types in something at an automated drug counter and a box comes out, half Advil and half Aleve? The specific request, said Page, made the response an implied representation. Thus, Calabresi asked, is the difference between that and Google? What would be difficult about saying, “These are some other things, not directly what you asked for?” Ah, Page replied, but that’s what we do with our “Sponsored Links” text. That’s when the trap snapped shut. So, Judge Calabresi said, the status of your “Sponsored Links” disclaimer becomes an issue for summary judgment.
Judge Leval then mapped out his thinking in a bit more detail. Rescuecom has two allegations here, he said. First, that the ads to the right of the search results, which are clearly seen as ads, are confusing. This allegation is doomed to lose at the likelihood-of-confusion stage. Second, that the horizontal ad above the results is not just confusing but deceptive because it looks like the first search result. Users will think that as the top result, it’s the most relevant. If, in relation to this ad, Rescuecom can show likelihood of confusion, why can’t they show trademark use? Page replied that there was no meaningful distinction between the top and side ads, and repeated that the allegation wasn’t that users would think the top link is Rescuecom, merely that users expect relatedness. Judge Leval followed with the cynical question: how is it related, other than through the payment of money to Google? Page gave the technically correct answer—Google never promotes actually unrelated pages to the top bar—but Leval reminded him that this fact wasn’t part of Rescuecom’s complaint.
Rescuecom’s Reply Argument
Gegan admitted that Rescuecom would have a hard time showing confusion as to those ads appearing in the right-hand column, but maintained that they still involved trademark use. Judge Wesley was concerned, and asked whether any result on the page, not just the ads, would constitute a use. No, said Gegan, because there’d been no purchase of the organic results. Judge Wesley pressed him. Isn’t any response a use? Any hit other than Rescuecom itself infringing? That would be getting into the software, said Gegan, and I really don’t know much about it.
Judge Calabresi then asked whether courts should go immediately to confusion, or whether there are some sales of marks that aren’t uses? And do these allegations show use here? What, he asked, isn’t a use? What’s the equivalent of his “on the shelf next to” hypothetical? Gegan replied that there is no “next to” on the Internet. The ads show up nearby to Rescuecom’s own result only because someone pays for them to be there.
Judge Wesley asked the last question: If I type in your URL and you exist, do you you get found on Google? Yes, said Gegan.
To my surprise, this wasn’t the best-argued case of the day. That distinction went to Ollman v. Special Board of Adjustment No. 1063, 05-1706-cv, a labor-law case in which pro bono appointed counsel (for the appellant) and a railroad lawyer (for one of the three appellees) offered clear, cogent, and persuasive arguments that engaged with fine factual distinctions in the case.
Judge Calabresi was clearly sympathetic to Google’s position. His questions seemed to be searching for a principled way to extend the co-shelving principle to online advertising. Judge Leval was, in contrast, concerned with keeping trademark liability at hand to use against genuine deceptions and with not bringing into the decision facts not present in the complaint. I didn’t hear anything said to move either of them much from their positions. Judge Wesley, apart from his concern to keep trademark liability from attaching to organic search results, didn’t say enough to provide a clear reading on his thoughts. That sounds like one vote for Google, one for Rescuecom, and one unknown. But the actual tone in the room was even more favorable to Rescuecom. Though neither lawyer made all that much headway, and a number of Gegan’s answers were off-point or confused, Page had almost no success in convincing the panel that it was important for policy or for the coherence of trademark doctrine that Google win this case now.
Prediction: 3-0 for Rescuecom, Leval authoring, in a narrow opinion that emphasizes the 12(b)(6) rule against incorporating matters not apparent from the face of the complaint. A Calabresi concurrence mentions the narrowness of the holding and explains why, in his view, it does not affect the settled understanding that retail shelving arrangements, handing out flyers in front of billboards, and other common offline practices are not trademark infringements. Neither opinion says much about the implication of the holding for other online businesses.
(Disclaimer: I could be completely wrong about this. Judges are often swayed by arguments in the briefs that they never mention at oral argument. They often give the laywer they more closely agree with the harder time. And sometimes they come up with new rules or tests that are barely even mentioned by the parties. This just just my prediction based on the tone of the oral arguments.)