The lawsuit was brought by Texas real estate company First Call Properties, which alleges that it began advertising on Craigslist's Corpus Christi site in March. The company alleges that shortly after it began placing ads on Craigslist, rival AAA Apartment Locating began posting Craigslist ads that use the phrases "first call," "call first," and "call us first."

First Call alleges that those ads were placed in a deliberate attempt to confuse consumers. The company also asserts that Craigslist knew that AAA was using the First Call trademark and failed to stop the ads from appearing.

The lawsuit, quietly filed in Nueces County in May, was transferred to federal court in the southern district of Texas late last week. First Call named Craigslist, AAA and two individuals as defendants. Before the case was sent to federal court, a state court judge issued a preliminary order banning Craigslist and AAA from using "Call First," "First Call Properties," or "Call Us First," or similar terms.

In some respects, the lawsuit appears similar to actions accusing Google of trademark infringement for allowing trademarked terms to trigger search ads and/or appear in the ad copy. Many of those cases have not progressed far in court, but at least one -- a lawsuit brought by insurance company Geico -- resulted in a settlement regarding trademarked terms in the ad copy. (Google prevailed on the major portion of that case, when the court found that using Geico's trademark to trigger a rival's search ad didn't cause confusion.)

If the AAA ads are found to infringe on First Call's trademark, Craigslist might be able to argue that it's an "innocent infringer" and not liable for monetary damages. Federal law provides that some publishers are not liable for damages when they run paid ads with copy that infringes on trademark. Instead, trademark owners can only obtain injunctions banning publishers from running such ads in the future.

But it's not clear whether that protection would apply in this case because Craigslist doesn't charge for real estate ads in Texas.

First Call also raises other allegations, including that the ads are libelous. One ad, attached to the court papers, allegedly said: "First Call Properties is a Scam." But Craigslist seems to have a clear defense to those charges because Section 230 of the Communications Decency Act says sites can't be sued for libel based on content created by users.

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