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In these consolidated cases, Playboy Enterprises, Inc. (“PEI”) sued Netscape and Excite for trademark infringement and dilution stemming from defendants’ practice of “keying” or programming banner ads for PEI’s competitors to run on the results pages of defendants’ search-engine sites when the words “playboy” and “playmate” were searched on the sites.  In the first phase of the case, the district court held that PEI could not show the likelihood of success on the merits required to obtain a preliminary injunction.  First, the court found that PEI could not demonstrate that defendants used the marks in commerce because merely typing the words “playboy,” “playboy’s,” or “playmate” into a search engine did not necessarily constitute use of the words in their trademark sense.  Other uses of the words “playboy” and “playmate” were possible, and PEI failed to prove that users of defendants’ site were using the words as identifiers of PEI’s adult-entertainment goods and services.  Similarly, PEI failed to prove that the advertisers were using the words “playboy” and “playmate” in their trademark sense when choosing keywords.  The court further found that, even if defendants were using the terms “playboy” and “playmate” in their trademark sense, PEI had not shown a likelihood of confusion as a result of defendants’ activities.  In so ruling, the court distinguished this case from the Ninth Circuit’s decision in Brookfield and rejected PEI’s contention that defendants’ use of the words “playboy” and “playmate” caused initial-interest confusion by capturing PEI’s potential site visitors through its metatags.  Unlike Brookfield, where the term “MovieBuff” was a unique word that served as a trademark, the terms “playboy” and “playmate” were common English terms.  The court further noted that in this case the defendants were merely selling banner ads, not operating a competing website or intercepting potential customers looking for PEI’s site.  Finally, the court ruled that PEI failed to show how the “keying” either blurred or tarnished PEI’s marks, thus defeating PEI’s dilution claim.  The Ninth Circuit summarily affirmed the district court’s denial of PEI’s motion.

In the next phase of the case, the district court granted defendants’ motions for summary judgment on PEI’s infringement and dilution claims and entered judgment for defendants.  Initially, the court noted that the trademark laws did not apply to a “nontrademark” use of another’s mark.  Here, defendants’ use of plaintiff’s trademarks PLAYBOY and PLAYMATE “in their search engines were not as trademarks and did not equate to commercial exploitation of plaintiff’s . . . trademarks.”  Moreover, there was no evidence in the record that consumers would confuse PEI’s products with defendants’ services.  As to PEI’s dilution-by-blurring claim, the court noted, “Blurring requires that the defendant make use of the mark on its products - there is simply no evidence that either Excite or Netscape have done so here.”  Also, in rejecting PEI’s dilution-by-tarnishment claim, the court remarked that PEI’s marks are “constantly associated with other forms of adult entertainment.”

On appeal, the Ninth Circuit reversed the grant of summary judgment in defendants’ favor and remanded the case for further proceedings because genuine issues of material fact existed regarding PEI’s infringement and dilution claims.  Initially, the appeals court decided that it was not necessary to resolve the parties’ dispute about whether a direct or contributory theory of liability applied to defendants’ actions because PEI’s case could proceed under either theory.  Regarding PEI’s infringement claim, the Ninth Circuit stated that PEI’s strongest claim was for initial-interest confusion as adopted by the court in Brookfield.  Specifically, the Ninth Circuit suggested that if the competitive banner ads were not properly labeled (i.e., the search engines did not label the banners as advertisements, or the advertiser did no identify itself in the ad), users may click on the ad and link to the competitor’s site, which could result in initial-interest confusion.

Applying the traditional Sleekcraft likelihood-of-confusion factors, the court concluded that most favored PEI.  On the actual-confusion factor, PEI introduced an uncontradicted survey showing that significant numbers of respondents mistakenly believed that PEI sponsored or was otherwise associated with the third-party banner ads.  Although the survey was possibly flawed, it alone was probably enough to preclude summary judgment given the high levels of confusion.  A balancing of the remaining factors also favored PEI: PEI’s marks had acquired secondary meaning; the parties’ services were the same; the marks were identical; both parties used the Internet to market their services (although this factor merited “little weight” due to broad use of the Internet); the services were inexpensive and users searching for adult-oriented content were likely to be easily diverted; and there was “some evidence” of an intent to confuse by defendants because they “did nothing to alleviate confusion” such as labeling the banners as ads and requiring that advertisers identify themselves in the ads, and defendants refused to remove the “playboy” and “playmate” keywords even when some advertisers requested that they do so.  The Ninth Circuit then turned to defendants’ infringement defenses.  First, it rejected defendants’ “fair use” defense because “[a] fair use may not be a confusing one.”  Second, defendants’ actions did not satisfy the first prong on its “nominative use” defense because defendants did not need to use PEI’s marks to identify PEI or its products when it keyed banner ads to PEI’s marks.  The court emphasized, however, that it was not addressing various other nominative-use situations, including where: (a) a banner ad clearly identified its source with the advertiser’s name, (b) the search engine clearly identified the banner ad’s source, or (c) advertisers or defendants overtly compared PEI’s products to a competitor’s.  Third, defendants’ “functional use” defense failed because PEI’s marks were not functional.  Regarding PEI’s dilution claim, PEI established genuine issues on the fame of PEI’s marks (particularly niche-market fame) and whether defendants made commercial use of the marks.  The Ninth Circuit remanded the dilution claim with instructions to reopen discovery and to allow motions directed at the actual-dilution standard established in Moseley, which was decided after the district court’s grant of summary judgment.  Finally, Judge Berzon concurred with the majority’s decision, but expressed concern that Brookfield was wrongly decided to the extent that it would find a Lanham Act violation “even if the banner advertisements were clearly labeled, either by the advertiser or by the search engine.”