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Network Automation, Inc. v. Advanced Systems Concepts

March 8, 2011

NETWORK AUTOMATION, INC., A CALIFORNIA CORPORATION, PLAINTIFF-COUNTER-DEFENDANT-APPELLANT,
v.
ADVANCED SYSTEMS CONCEPTS, INC., A NEW JERSEY CORPORATION, DEFENDANT-COUNTER-CLAIMANT-APPELLEE.



D.C. No.2:10-cv-00484-Appeal from the United States District Court for the Central District of California Consuelo B. Marshall, Senior District Judge, Presiding

The opinion of the court was delivered by: Judge Wardlaw

FOR PUBLICATION

Argued and Submitted December 8, 2010-Pasadena, California

Before: Stephen S. Trott and Kim McLane Wardlaw, Circuit Judges, and Michael W. Mosman, District Judge.*fn1

OPINION

"We must be acutely aware of excessive rigidity when applying the law in the Internet context; emerging technologies require a flexible approach."

Brookfield Commc'ns, Inc. v. West Coast Entm't Corp., 174 F.3d 1036, 1054 (9th Cir. 1999).

Network Automation ("Network") and Advanced Systems Concepts ("Systems") are both in the business of selling job scheduling and management software, and both advertise on the Internet. Network sells its software under the mark AutoMate, while Systems' product is sold under the registered trademark ActiveBatch. Network decided to advertise its product by purchasing certain keywords, such as "Active-Batch," which when keyed into various search engines, most prominently Google and Microsoft Bing, produce a results page showing "www.NetworkAutomation.com" as a sponsored link. Systems' objection to Network's use of its trademark to interest viewers in Network's website gave rise to this trademark infringement action.

The district court was confronted with the question whether Network's use of ActiveBatch to advertise its products was a clever and legitimate use of readily available technology, such as Google's AdWords, or a likely violation of the Lanham Act, 15 U.S.C. § 1114. The court found a likelihood of initial interest confusion by applying the eight factors we established more than three decades ago in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979), and reasoning that the three most important factors in "cases involving the Internet" are (1) the similarity of the marks; (2) the relatedness of the goods; and (3) the marketing channel used. The court therefore issued a preliminary injunction against Network's use of the mark ActiveBatch.

Mindful that the sine qua non of trademark infringement is consumer confusion, and that the Sleekcraft factors are but a nonexhaustive list of factors relevant to determining the likelihood of consumer confusion, we conclude that Systems' showing of a likelihood of confusion was insufficient to support injunctive relief. Therefore, we vacate the injunction and reverse and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND

Systems is a software engineering and consulting firm founded in 1981. It has used the ActiveBatch trademark since 2000, and it procured federal registration of the mark in 2001. Systems markets ActiveBatch software to businesses, which use the product to centralize and manage disparate tasks. Network is a software company founded in 1997 under the name Unisyn. Its signature product, AutoMate, also provides businesses with job scheduling, event monitoring, and related services. Network has approximately 15,000 total customers, and between 4,000 and 5,000 active customers, including Fortune 500 companies and mid-sized and small firms. The cost of a license to use AutoMate typically ranges from $995 to $10,995. There is no dispute that Network and Systems are direct competitors, or that ActiveBatch and AutoMate are directly competing products.

Google AdWords is a program through which the search engine sells "keywords," or search terms that trigger the display of a sponsor's advertisement. When a user enters a keyword, Google displays the links generated by its own algorithm in the main part of the page, along with the advertisements in a separate "sponsored links" section next to or above the objective results. See Appendix A.*fn2 Multiple advertisers can purchase the same keyword, and Google charges sponsors based on the number of times users click on an ad to travel from the search results page to the advertiser's own website. Network purchased "ActiveBatch" as a keyword from Google AdWords and a comparable program offered by Microsoft's Bing search engine.

As a result, consumers searching for business software who enter "ActiveBatch" as a search term would locate a results page where the top objective results are links to Systems' own website and various articles about the product. See Appendix A. In the "Sponsored Links" or "Sponsored Sites" section of the page, above or to the right of the regular results, users see Network's advertisement, either alone or alongside Systems' own sponsored link. The text of Network's advertisements begin with phrases such as "Job Scheduler," "Intuitive Job Scheduler," or "Batch Job Scheduling," and end with the company's web site address, www.NetworkAutomation.com. The middle line reads: "Windows Job Scheduling Much More. Easy to Deploy, Scalable. D/L Trial."

On November 16, 2009, Systems demanded that Network cease and desist from using the ActiveBatch mark in its search engine advertising, as it was not "authorized to use these marks in commerce." In a second letter, Systems explained that Network's use of ActiveBatch in its Google AdWords keyword advertising infringed Systems' trademark rights by deceiving customers into believing that Network's software products were affiliated with Systems' products. Systems threatened litigation unless Network immediately ceased all use of Systems' mark, including removing the mark from the Google AdWords Program. Network responded that its use of the ActiveBatch mark was non-infringing as a matter of law, and filed this lawsuit seeking a declaratory judgment of non-infringement. Systems counterclaimed on February 22, 2010, alleging trademark infringement under the Lanham Act, 15 U.S.C. § 1114(1), and moved for a preliminary injunction against Network's use of the ActiveBatch mark pending trial.

The district court granted injunctive relief on April 30, 2010. Noting that the parties did not dispute the validity or ownership of the ActiveBatch mark, the district court ruled that Systems was likely to succeed in satisfying the Lanham Act's "use in commerce" requirement by showing that Network "used" the mark when it purchased advertisements from search engines triggered by the term "ActiveBatch." Applying the eight-factor Sleekcraft test for source confusion,*fn3 the district court emphasized three factors it viewed as significant for "cases involving the Internet": the similarity of the marks, relatedness of the goods or services, and simultaneous use of the Web as a marketing channel. The district court concluded that all three factors favored Systems: Network used the identical mark to sell a directly competing product, and both advertised on the Internet.

The district court also concluded that Systems' mark was strong because, as a federally registered trademark, Active-Batch is presumptively distinctive. It concluded that the degree of consumer care suggested likely confusion because "there is generally a low degree of care exercised by Internet consumers." Moreover, Network intentionally used Systems' mark to advertise its own product. Finally, the district court noted that neither party introduced evidence of actual confusion, and that the likelihood of product expansion was not relevant.

The district court also analyzed whether Network infringed Systems' mark by creating initial interest confusion - as opposed to source confusion - which "occurs when the defendant uses the plaintiff's trademark in a manner calculated to capture initial consumer attention, even though no actual sale is finally completed as a result of the confusion." (quoting Nissan Motor Co. v. Nissan Computer Co., 378 F.3d 1002, 1018 (9th Cir. 2004) (internal quotations omitted)). Because the district court found that Network's advertisements did not clearly divulge their source, it concluded that consumers might be confused into unwittingly visiting Network's website, allowing the company to "impermissibly capitalize[ ] on [Systems'] goodwill."

Based on its analysis of the Sleekcraft factors and its finding of likely initial interest confusion, the district court concluded that Systems had a strong likelihood of success on the merits of its trademark infringement claim. It then presumed a likelihood of irreparable harm, and concluded that the balance of hardships and the public interest favored Systems. Following entry of the preliminary injunction, Network timely appealed.

II. JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1). We review the grant of a preliminary injunction for abuse of discretion. See Advertise.com, Inc. v. AOL Advertising, Inc., 616 F.3d 974, 976 (9th Cir. 2010). "The district court 'should be reversed if [it] based its decision on an erroneous legal standard or on clearly erroneous findings of fact.' " Id. (quoting Stormans, Inc. v. Selecky, 586 F.3d 1109, 1119 (9th Cir. 2009) (quotation marks omitted)).

III. DISCUSSION

"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 129 S. Ct. 365, 374 (2008). Network argues that the district court erred by ruling that Systems was likely to succeed on the merits of its trademark claim, and by then presuming a likelihood of irreparable injury. It also contends that the preliminary injunction is overbroad.

[1] To prevail on a claim of trademark infringement under the Lanham Act, 15 U.S.C. § 1114, a party "must prove: (1) that it has a protectible ownership interest in the mark; and (2) that the defendant's use of the mark is likely to cause consumer confusion." Dep't of Parks & Recreation v. Bazaar Del Mundo Inc., 448 F.3d 1118, 1124 (9th Cir. 2006).

[2] Network does not contest the ownership or its use of the mark. We note that the district court correctly found the prerequisite "use in commerce" in Network's use of the mark to purchase keywords to advertise its products for sale on the Internet. Previously we have assumed, without expressly deciding, 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. See Playboy Enters., Inc. v. Netscape Commc'ns Corp., 354 F.3d 1020, 1024 (9th Cir. 2004); Brookfield, 174 F.3d at 1053; see also Finance Express LLC v. Nowcom Corp., 564 F. Supp. 2d 1160, 1172-73 (C.D. Cal. 2008). We now agree with the Second Circuit that such use is a "use in commerce" under the Lanham Act. See Rescuecom Corp. v. Google Inc., 562 F.3d 123, 127 (2d Cir. 2009) (holding that Google's sale of trademarks as search engine keywords is a use in commerce); see also J. Thomas McCarthy, McCarthy on Trademarks & Unfair Competition §§ 23:11.50, 25:70:25 (4th ed. 2010) (suggesting that cases taking a more restrictive view of "use" in this context are based on an erroneous interpretation of the Lanham Act).

[3] This case, therefore, turns on whether Network's use of Systems' trademark is likely to cause consumer confusion. Network argues that its use of Systems' mark is legitimate "comparative, contextual advertising" which presents sophisticated consumers with clear choices. Systems characterizes Network's behavior differently, accusing it of misleading consumers by hijacking their attention with intentionally unclear advertisements. To resolve this dispute we must apply the Sleekcraft test in a flexible manner, keeping in mind that the eight ...


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