1-800 Contacts, Inc. v. WhenU.com, Inc.
Plaintiff sold replacement contact lenses by telephone and mail order and through its website at "1800Contacts.com." Defendant WhenU.com (WhenU) distributed downloadable software called "SaveNow," which is typically bundled with free software such as screensavers. During the installation of the software with which SaveNow is distributed, users receive a notice stating that SaveNow is part of the download. To proceed with the installation of SaveNow, consumers must affirmatively agree to a license with defendant, which explains what SaveNow is and how it performs. The SaveNow software scans the user's Internet browser activity to determine whether any of the terms, web addresses, or content match the information in defendant's proprietary directory, which is organized much like a yellow-pages directory. If the software finds a match, it identifies an associated product or service category (e.g., moving). The SaveNow program then determines whether the user's computer should receive a pop-up or pop-under advertisement in a WhenU-branded window that is selected at random from defendant's advertising clients that match the category of the user's activity. Unlike some other pop-up providers, however, defendant did not sell URLs to its advertisers, and it did not guarantee to any advertiser that its ad will be shown when a user visits a particular site. Defendant Vision Direct competes with plaintiff and sells replacement contact lenses at its "visiondirect.com" website. Vision Direct also registered the domain name "www1800contacts.com." Plaintiffs sued defendants for cybersquatting, trademark infringement, and copyright infringement and moved for a preliminary injunction because Vision Direct's advertisements appeared when SaveNow users access plaintiff's website. The district court granted plaintiff's motion on the issues of trademark infringement and cybersquatting but denied it as to copyright infringement. Regarding trademark infringement, the court initially held that defendants used plaintiff's mark in commerce in two ways. First, in causing Vision Direct's advertisement to appear when plaintiff's website was accessed, defendants "are displaying plaintiff's mark ‘in the advertising of' . . . Vision Direct's services." Second, WhenU used plaintiff's mark by including it in the proprietary WhenU directory to trigger advertisements for companies that compete with plaintiff. The court acknowledged in a footnote that two other district courts had already ruled that WhenU did not use the complaining parties' marks in commerce but rather used them only for a "pure machine-linking function." But the court, noting it was not bound by those rulings, disagreed with these other courts. The court next held that plaintiff established a likelihood of success on the merits of its infringement claim by showing a likelihood of both source and initial-interest confusion. Regarding initial-interest confusion, the court stated that "[i]t seems likely that a SaveNow user, thinking the Vision Direct pop-up advertisement generated by SaveNow was part of the 1-800 Contacts website, might be lured into clicking on the Vision Direct SaveNow pop-up advertisement, which would result in the user's main browser window shifting the Vision Direct's website, making likely that the consumer's attention and interest would shift to Vision Direct's website, and that ultimately the consumer would purchase products from Vision Direct, instead of from 1-800 Contacts." The court criticized plaintiff's survey evidence, stating that it failed to prove actual confusion because some of the questions were leading, the survey did not ask whether respondents had ever seen a SaveNow advertisement, and it did not distinguish between SaveNow ads and other types of pop-up ads. Despite these criticisms, the court did find that the survey suggested a likelihood of initial-interest confusion, noting that 68% of SaveNow users surveyed did not know that they had the software on their computer, 76% of those who knew SaveNow was on their computer did not know what it did, 59% of SaveNow users thought that pop-up ads were placed on the website by the owner of the site, and 52% of all users thought that pop-up ads had been approved by the website on which they appear. The court rejected WhenU's argument that the branding and voluntary disclaimers appearing on WhenU's ads (i.e., the "SaveNow" and "WhenU" brands, the "?" symbol on the upper right-hand corner of the SaveNow ad that links to a new window explaining the SaveNow software, and the license agreement on installation) were sufficient to avoid a likelihood of confusion. The court stated that confusion caused by the pop-up ads "can hardly be alleviated by WhenU's use of disclaimers with terms that are buried in other web pages, requiring users to scroll down or click on a link." Moreover, WhenU failed to submit any evidence showing that the disclaimer would reduce consumer confusion. Even if WhenU had offered such evidence, however, the court noted that it "would do little to counter Plaintiff's showing of the likelihood of initial interest confusion." The court thus preliminarily enjoined WhenU from using plaintiff's mark and confusingly similar terms in its directory and from causing Vision Direct's pop-up ads to appear when an Internet user accesses plaintiff's website by typing plaintiff's mark or URL into a web browser or search engine. Finally, the district court ruled that plaintiff established a likelihood of success on its cybersquatting claim against Vision Direct because the differences between Vision Direct's domain name "www.1800Contacts.com" and plaintiff's mark 1-800-CONTACTS were insignificant and Vision Direct acted in bad faith because it did not have trademark rights to the domain name, was not identified or known by the domain name, and did not establish a bona fide use of the domain name. The court ordered Vision Direct to cancel its registration of "www1800Contacts.com" within 30 days.
On appeal, the Second Circuit reversed the district court's entry of a preliminary injunction and remanded the case with instructions to dismiss with prejudice plaintiff's trademark infringement claims and to proceed with plaintiff's remaining claims. The appeals court held that the district court erred as a matter of law in finding that WhenU "used" plaintiff's registered trademark under the Lanham Act's definition of "use." As an initial matter, the Second Circuit noted that the court below limited its discussion of the "comprehensive decisions on the precise issue at hand" in Wells Fargo v. WhenU and U-Haul v. WhenU to a footnote in which it simply summarized those holdings in parentheticals and concluded, without any discussion, that it "disagreed" with and was "not bound" by those decisions. The Second Circuit, however, found the "thorough analyses set forth in both U-Haul and Wells Fargo to be persuasive and compelling." Turning to the issue of "use," the Second Circuit first ruled that the use of plaintiff's URL in an "unpublished directory of terms that trigger delivery of WhenU's contextually relevant advertising to [computer users]" did not constitute use in the traditional infringement sense because: (1) WhenU did not place plaintiff's trademark on any of its goods or services in order to pass them off, (2) the differences between plaintiff's trademark and its URL as "used" by defendants in its directory (i.e. the addition of "www." and ".com" and omission of the hyphen and a space) were "quite significant" because it "transform[ed]" plaintiff's mark into "a word combination that functions more or less like a public key to [plaintiff's] website," (3) WhenU reproduced plaintiff's URL only in its proprietary directory, (4) although WhenU's directory was on a computer user's directory, it was inaccessible to both computer users and the general public, (5) a computer user could not trigger a WhenU pop-up ad by inputting plaintiff's mark or accessing a web page bearing the mark; this could be done only if WhenU put plaintiff's actual mark in its directory, which it did not, and (6) WhenU neither disclosed its proprietary directory to its advertising customers nor allowed them to purchase specific keywords and add them to the directory. According to the Second Circuit, "[a] company's internal utilization of a trademark in a way that does not communicate it to the public is analogous to a individual's private thoughts about a trademark. Such conduct simply does not violate the Lanham Act, which is concerned with the use of trademarks in connection with the sale of goods or services in a manner likely to lead to consumer confusion as to the source of such goods or services." Second, the appeals court held that the placement of branded pop-up ads on a user's screen contemporaneously with plaintiff's website or a list of search results resulting from a search for plaintiff's URL did not constitute "use" because: (1) WhenU's pop-up ads did not display plaintiff's mark, (2) WhenU's ads appeared in a separate window that was "prominently branded with the WhenU mark" and thus had "absolutely no tangible effect on the appearance or functionality of [plaintiff's] website," (3) "the appearance of WhenU's pop-up ad [was] not contingent upon or related to [plaintiff's] trademark, the trademark's appearance on [plaintiff's] website, or the mark's similarity to [plaintiff's] website address. Rather, the contemporaneous display of the ads and trademarks is the result of the happenstance that [plaintiff] chose to use a mark similar to its trademark as the address to its web page and to place its trademark on its website," and (4) pop-up ads could also be triggered by other terms in the directory such as "contacts" or "eye care." The appeals court noted that the "crux of WhenU's wrongdoing" as perceived by the district court was WhenU's "alleged effort to capitalize on a [computer user's] specific attempt to access [plaintiff's] website." That conduct, however, did not violate the Lanham Act "[a]bsent improper use of [plaintiff's] trademark." The Second Circuit compared WhenU's "use" of pop-up ads to be similar to another legal "use" where drug stores place generic products next to the trademarked products they emulate. According to the court, "WhenU employ[ed] 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." Plaintiff disputed this analogy by pointing out that only plaintiff's website is displayed when the pop-up ad appears as opposed to multiple products appearing side-by-side in a drugstore. The appeals court responded that plaintiff's argument ignored the fact that pop-up ads occur in many different scenarios, often having nothing to do with plaintiff or the computer user viewing plaintiff's website. In fact, plaintiff's contention that computer users would mistakenly believe that plaintiff sponsored its competitors' pop-up ads "is fairly incredulous given that [computer users] who have downloaded the SaveNow software receive numerous WhenU pop-up ads -- each display[ed] the WhenU brand -- in varying contexts and for a broad range of products." Moreover, the "use" cases relied on by plaintiff were all distinguishable because "WhenU's activities do not alter or affect [plaintiff's] website in any way. Nor do they divert or misdirect [computer users] away from [plaintiff's] website, or alter in any way the results a [computer user] will obtain when searching with the [plaintiff's] trademark or website address." Specifically, unlike the cases relied on by plaintiff, WhenU did not: (1) display unidentified banner ads on a computer user's search results page, (2) use metatags to alter rankings of search engine results, or (3) sell trademarks as keywords to advertisers to trigger specific competitor's ads. The appeals court also rejected plaintiff's efforts to "bootstrapping a finding of ‘use'" by arguing other elements of its trademark claim. Specifically, plaintiff argued that WhenU's pop-up ads were "unauthorized," but plaintiff failed to cite any legal authority that an advertisement, software application, or any other visual image must be approved by the website owner before it can also appear while the website is visible. The court likened this situation to one where Corel would not need authorization from Microsoft to display Corel's WordPerfect program in a window contemporaneously with Micosoft's Word program window. In addition, the computer users who downloaded the SaveNow software authorized WhenU's pop-up ads. Similarly, plaintiff's argument that WhenU's pop-up ads constituted "use" because they were likely to cause confusion had no merit because "use" and likelihood of confusion are two distinct elements of a trademark claim.