Google recently suffered a setback in its efforts to prove that its keyword-triggered advertising program, AdWords, does not infringe trademark owners' rights.

On March 30, 2005, the U.S. District Court for the Northern District of California denied a motion by Google and others to dismiss trademark infringement and related claims by American Blind & Wallpaper Factory: Google Inc. v. American Blind & Wallpaper Factory Inc., 2005 WL 832398 (N.D. Cal. March 30, 2005).

While only a preliminary ruling, the court's order is notable because it holds that Google's trademark-triggered sponsored links satisfy the required element of commercial use to support the claims.

Google initiated this litigation. After receiving threatening letters from American Blind, Google filed a declaratory judgment action, seeking a ruling that its keyword-triggered advertising policy does not infringe the trademarks AMERICAN BLIND & WALLPAPER FACTORY, AMERICAN BLIND FACTORY, and DECORATETODAY.

American Blind filed a counterclaim against Google and joined several of Google's licensees, including AOL, Netscape, CompuServe, Ask Jeeves and Earthlink, alleging trademark infringement, unfair competition, contributory infringement, dilution, and several state law causes of action.

In moving to dismiss American Blinds' infringement and dilution claims, Google and its licensees argued that American Blind had not satisfied the requirement to plead actionable trademark use, because it could not be alleged that Google or the other parties use the American Blind marks to identify the source of their own goods or services.

In rejecting this argument, the court highlighted and followed Playboy Enterprises Inc. v. Netscape Communications Corp., 354 F.3d 1020 (9th Cir. 2004), in which the Ninth Circuit found adequate evidence of initial interest confusion in the appearance of unlabeled banner ads and reversed the district court's summary judgment in favor of two search engines.

Despite Google's arguments to the contrary, the court did not find Playboy distinguishable, even though Playboy did not specifically discuss the issue of trademark use. The court also noted that its ruling was consistent with the preliminary ruling in Government Employees Insurance Co. v. Google Inc., 330 F.Supp.2d 700 (E.D. Va. 2004), on the question of use, and concluded that a resolution of the core infringement issues should await the development of a full factual record.

It is worth noting that the court did grant the defendant's motion to dismiss as to the tortuous interference with prospective business claim. It found that American Blind's expectation of future and prospective sales to repeat customers, with which defendants are alleged to have interfered, was too speculative to support the claim, because the tort applies to interference with existing noncontractual relations.

This case and others dealing with keyword-triggered ads are being closely watched by trademark owners, search engines, their licensees and advertisers, as they have broad and serious implications for what has become a multibillion-dollar industry. The Arent Fox Intellectual Property Group is involved in a number of related matters on behalf of our clients, and we will continue to monitor all future developments.

For more information, contact:

Sheldon H. Klein
202-857-6404
klein.sheldon@arentfox.com

Jason J. Mazur
202-715-8409
mazur.jason@arentfox.com

David S. Modzeleski
202-857-6073
modzeleski.david@arentfox.com