2d Cir. Rejects Trademark Claims Against Pop-up Ad Firm

Using a company's Web address in the internal workings of a pop-up advertising program is not a "use" of a trademark under the Lanham Act, so the trademark claims of a contact lens seller against pop-up ad firm WhenU.com Inc. must be dismissed, a 2d Circuit panel has ruled.

The panel faulted the lower court for ignoring two trial court rulings in other similar cases against WhenU in which the trial courts found no trademark violations. This is the first time a federal appellate court has addressed the legality of WhenU's practices.

WhenU offers "contextual advertising" services by means of a computer program called SaveNow that is bundled with free software applications such as file-sharing programs and screen savers. Users consent to install SaveNow when they agree to install the free program on which it "piggybacks," although opponents of programs like SaveNow have argued that users are not clearly informed that they are loading a "spyware" program onto their computers.

When the SaveNow program is installed and running on a user's computer, it tracks the user's Internet activity and causes relevant pop-up advertisements from WhenU's customers to be displayed. If a user searches for "mortgages," for example, the SaveNow software would display ads from WhenU's customers that provide mortgage services.

In the scenario that forms the basis for this case, computer users who have installed SaveNow and visit www.1800contacts.com, the Web site belonging to plaintiff 1-800 Contacts Inc. will sometimes see pop-up ads for Vision Direct Inc., a competitor of 1-800 Contacts.

The plaintiff sued WhenU and Vision Direct in the U.S. District Court for the Southern District of New York, alleging trademark and copyright infringement as well as violation of the Anticybersquatting Consumer Protection Act, and moved for a preliminary injunction, which was granted.

1-800 Contacts complained that the Vision Direct pop-up ads diverted people who were seeking 1-800 Contacts' Web site and that the ads interfered with the display of the company's Web site.

In an 88-page ruling, U.S. District Judge Deborah A. Batts said 1-800 Contacts likely would prevail on its trademark-infringement and cybersquatting claims but not on its copyright-infringement claims. 1-800 Contacts Inc. v. WhenU.com et al., No. 02 Civ. 8043, 2003 WL 22999270 (S.D.N.Y. Dec. 22, 2003).

WhenU "uses" 1-800 Contacts' trademarks within the meaning of the Lanham Act when SaveNow causes pop-up ads to be displayed in response to users who type the plaintiff's trademarks into their browsers in an attempt to reach the plaintiff's Web site, the judge said, noting that a finding of such use is required to sustain a claim under the Lanham Act.

WhenU appealed to the U.S. Court of Appeals for the 2d Circuit, which reversed in an opinion written by Chief Judge John M. Walker and joined by Circuit Judge Chester J. Straub. The third panel member, Circuit Judge Ellsworth Van Graafeiland, died after oral arguments took place, but the opinion was issued anyway because the remaining panel members agreed on the outcome.

Because the panel found no "use" of 1-800 Contacts' trademark by WhenU, it reversed the preliminary injunction and ordered the plaintiff's trademark claims, including the cybersquatting claim, dismissed with prejudice. The plaintiff's remaining claims will proceed.

In its appeal brief, WhenU argued it does not "use" the plaintiff's trademark within the meaning of the Lanham Act because the mark does not identify the source of goods or services. Instead, it argued, it uses 1-800 Contacts' Web address, which is similar but not identical to its trademark, only in an internal directory of the SaveNow program, where it cannot be seen by those who use the software.

The appeals panel agreed, noting that the WhenU pop-up ads never display 1-800 Contacts' trademarks and that the ads appear randomly. Unlike other pop-up ad firms, WhenU does not allow its customers to purchase other companies' trademarks as "keywords" to trigger display of an ad. Here, the panel explained, the SaveNow software evaluates the user's Internet activity, determines which category of ad is appropriate and then sends a random ad from that category. Vision Direct's ads can appear in response to other search terms such as "contact lenses" or "eye care," the panel noted.

The panel likened WhenU's ads to the common retail practice of stores placing their own generic products next to their brand-name competitors, in hopes that consumers will opt for the less-expensive generic version.

"WhenU employs this same marketing strategy by informing [computer users] who have sought out a specific trademarked product about available coupons, discounts or alternative products that may be of interest to them," the appeals court said.

The court also said the lower court should have paid more attention to two trial court rulings in other similar cases against WhenU in which the courts found no Lanham Act "use" of the plaintiffs' trademarks. Those cases are Wells Fargo & Co. v. WhenU.com Inc., 293 F. Supp. 2d 734 (E.D. Mich. 2003), in which the court denied Wells Fargo a preliminary injunction, and U-Haul International Inc. v. WhenU.com Inc., 279 F. Supp. 2d 723 (E.D. Va. 2003), in which the court granted summary judgment in favor of WhenU.

"Unlike the District Court, we find the thorough analyses set forth in both U-Haul and Wells Fargo to be persuasive and compelling," the panel said.