The Second Circuit decided to celebrate the one year anniversary of the oral argument in Rescuecom v. Google by issuing its long-awaited opinion. The court reversed the district court’s dismissal of the trademark owner’s Lanham Act claims, holding that “Google’s recommendation and sale of Rescuecom’s mark to Google’s advertisers, so as to trigger the appearance of their advertisements and links in a manner likely to cause consumer confusion when a Google user launches a search of Rescuecom’s trademark, properly alleges a claim under the Lanham Act.”

In an opinion written by Judge Leval (with Judges Calabresi and Wesley), the court rejected the district court’s reliance on the court’s previous ruling in 1-800 Contacts, Inc. v., Inc., 414 F.3d 400 (2d Cir. 2005) as dispositive. In that case, the court ruled that the use of trademark terms in a software program that generated “pop-up” advertisements on a user’s computer did not constitute a “use in commerce” because, among other things, the program distributor did not sell trademark terms to advertising clients nor even disclose to them which keywords (trademark terms or otherwise) it used to generate the pop-up advertisements.

The court in Rescuecom pointed out that in contrast, Google, via its AdWords program and Keyword Suggestion Tool, “is recommending and selling to its advertisers” the Rescuecom trademark. The court also noted that in contrast to the facts in the 1-800-Contacts case, Google “displays, offers and sells Rescuecom’s mark to Google’s advertising customers when selling its advertising services,” and “encourages the purchase of Rescuecom’s mark through its Keyword Suggestion Tool.”

The court rejected the argument advanced by Google and its amici (a group of law professors including Prof. Eric Goldman) and accepted by a number of district court in the Second Circuit, that the inclusion of a trademark in an internal computer directory cannot constitute trademark use:

First, regardless of whether Google’s use of Rescuecom’s mark in its internal search algorithm could constitute an actionable trademark use, Google’s recommendation and sale of Rescuecom’s mark to its advertising customers are not internal uses. Furthermore, 1-800 did not imply that use of a trademark in a software program’s internal directory precludes a finding of trademark use. Rather, influenced by the fact that the defendant was not using the plaintiff’s trademark at all, much less using it as the basis of a commercial transaction, the court asserted that the particular use before it did not constitute a use in commerce. See 1-800, 414 F.3d at 409-12. We did not imply in 1-800 that an alleged infringer’s use of a trademark in an internal software program insulates the alleged infringer from a charge of infringement, no matter how likely the use is to cause confusion in the marketplace. If we were to adopt Google and its amici’s argument, the operators of search engines would be free to use trademarks in ways designed to deceive and cause consumer confusion.   This is surely neither within the intention nor the letter of the Lanham Act.

The court also rejected the analogy advanced by Google and the amici that Google’s use of the Rescuecom’s trademark is the same as the use of product placement by retail vendors, where, for example, a generic product is placed next to a trademark product:

From the fact that proper, non-deceptive product placement does not result in liability under the Lanham Act, it does not follow that the label “product placement” is a magic shield against liability, so that even a deceptive plan of product placement designed to confuse consumers would similarly escape liability. It is not by reason of absence of a use of a mark in commerce that benign product placement escapes liability; it escapes liability because it is a benign practice which does not cause a likelihood of consumer confusion. In contrast, if a retail seller were to be paid by an off-brand purveyor to arrange product display and delivery in such a way that customers seeking to purchase a famous brand would receive the off-brand, believing they had gotten the brand they were seeking, we see no reason to believe the practice would escape liability merely because it could claim the mantle of “product placement.” The practices attributed to Google by the Complaint, which at this stage we must accept as true, are significantly different from benign product placement that does not violate the Act.

The court emphasized that it took no position on whether Rescuecom could prove that Google’s use of its trademark in the AdWords program causes likelihood of confusion or mistake, but it is going to get the opportunity to do so. The case was remanded for further proceedings.

Finally, there is an Appendix to the ruling that opines further “On the Meaning of ‘Use in Commerce’ in Sections 23 and 43 of the Lanham Act,” which discusses at length what the court considers to be ambiguity with respect to the statutory language in these provisions. The Appendix also includes a notation that the judges who sat on the panel in 1-800-Contacts case “read this Appendix and have authorized us to state that they agree with it.” However, there is also a notation that the discussion “is therefore dictum and not a binding opinion of the court. It would be helpful for Congress to study and clear up this ambiguity.”