• by Wendy Davis  @wendyndavis, March 16, 2009

Handing Yahoo a defeat, a federal appellate court ruled that American Airlines' trademark infringement lawsuit should remain in the airline's hometown of Fort Worth, Texas.

The Fifth Circuit Court of Appeals rejected Yahoo's contention that the airline, which is also an advertiser, was bound by its search marketing contract to litigate all matters with Yahoo in California. The court ruled that the trademark dispute wasn't related to the search marketing agreement between the companies.

"American's claims against Yahoo are based on trademark infringement allegedly occurring through relationships between Yahoo and third parties. The claims do not depend on the contractual relationship between American and Yahoo," the appellate court wrote.

American Airlines sued Yahoo last October, alleging that the search company violated the airline's trademark by allowing rivals to use its name to trigger search ads.

Yahoo asked U.S. District Court Judge John McBryde to transfer the case to California, arguing that American had previously agreed that all disputes relating to search ads would be heard in that state. McBryde rejected that request, calling Yahoo's argument "complete nonsense."

The decision to keep the case in Texas could bode poorly for Yahoo, because the judge presiding over the case in that state, John McBryde, previously refused to dismiss a nearly identical trademark infringement lawsuit that American Airlines brought against Google. That case eventually was resolved with a confidential settlement.

A Yahoo spokesperson declined to comment on the appellate court ruling. "We don't have a comment on the ongoing legal process, but we're confident about defending our trademark policies in Texas."

Last November, Yahoo filed its own lawsuit against American Airlines in federal district court in California. The Web company argues that it's lawful to use trademarks to trigger search ads, and is seeking declaratory judgment against the airline.

A number of companies have sued search engines for trademark infringement on the theory that the use of a trademark to trigger an ad infringes the owner's rights. So far, no search engine has definitively lost such a case after trial.

In the best-known example, Google prevailed after a trial in a lawsuit brought by insurance company Geico. In that case, a federal district court judge found that Geico had not proven that consumers were confused when they entered "Geico" as a search term and the results page included paid ads for Geico rivals. (Google and Geico reached a settlement about another portion of the case.) Yahoo also was a defendant in that case, but Yahoo and Geico settled before trial.

Recently, another U.S. District Court judge in Texas, John Rainey, dismissed a search-related lawsuit against Yahoo brought by retailer Heartbrand Beef. In that case, a rival company used the term "Akaushi" to trigger ads. Heartbrand unsuccessfully argued that it was the only U.S. seller of "Akaushi" beef--or beef from cattle that were descended from a breed originally from Kumamoto, Japan--and that the rival's use of the term as a keyword was unlawful.