• by Wendy Davis  @wendyndavis, April 16, 2009

A court has ruled that online jewelry retailer Blue Nile will face a trademark infringement lawsuit for using the name of a diamond company to trigger search ads.

U.S. District Court Judge Nancy Gertner in Boston found that Blue Nile potentially confused consumers when it arranged for the phrase "Hearts on Fire" to trigger search ads. Hearts on Fire is a diamond wholesaler. While Blue Nile sells diamond jewelry, the site isn't an authorized seller of Hearts on Fire diamonds.

"A consumer who had just entered a search for Hearts on Fire diamonds might easily believe that the defendant was (an) authorized retailer when presented with Blue Nile's sponsored link," Gertner wrote in a decision denying Seattle-based Blue Nile's motion to dismiss the case before trial.

Boston-based Hearts on Fire filed a complaint against Blue Nile last July. The wholesaler alleged that Blue Nile infringed on its trademark by arranging for the term "hearts on fire" to trigger a Blue Nile ad on webcrawler.com, a meta search engine that returns search results from Google, Yahoo, and other search engines. The wholesaler also alleged that Blue Nile's on-site search engine directed users who typed in "hearts on fire" to Blue Nile products.

Hearts on Fire alleged that this use of its name misappropriated its goodwill and was "highly likely to cause confusion, mistake and deception among the general public as to the origin of Blue Nile's goods."

Blue Nile asked the court to dismiss the case, on the theory that the words "hearts" and "on" and "fire" are generic and don't necessarily refer to the wholesaler's products. "Blue Nile sells numerous pieces of heart shaped jewelry, and fire is a common term that refers to the brilliance of diamonds," the company argued.

Late last month, Gertner quietly ruled that the case should proceed to trial. Separately, several days later, an appellate court in New York ruled that Google would also have to face trial for trademark infringement stemming from search ads. In that case, brought by computer repair shop Rescuecom, the Second Circuit Court of Appeals ruled that using a trademark to trigger a search ad is a "use in commerce." Rescuecom will still have to prove that consumers were confused by the ads before it can prevail in the case.