• by Wendy Davis  @wendyndavis, March 8, 2011

  In a ruling that could affect a large swath of search marketers, a federal appeals court on Tuesday vacated an injunction banning a software vendor from using a rival's name as a keyword that triggers pay-per-click ads.

The 9th Circuit Court of Appeals held that Advanced Systems Concepts, which had sought the injunction, had not shown that Web users would likely be misled when its brand name, ActiveBatch, was used by rival Network Automation to trigger ads on search engines. Both companies sell job management and scheduling software.

"Because the linchpin of trademark infringement is consumer confusion, the district court abused its discretion in issuing the injunction," the appellate court wrote.

The ruling reversed a decision by U.S. District Court Judge Consuelo Marshall that banned Network Automation from continuing to use ActiveBatch as a search keyword. Marshall ruled last April that Network's search ad wasn't a "clearly labeled advertisement" even though it appeared under a heading on Google that read "sponsored advertisement." Therefore, Marshall reasoned, the ad could dupe consumers into thinking they were clicking on a page associated with Advanced Systems. In addition, Network "impermissibly capitalizes on [Advance System's] goodwill by using the ActiveBatch mark," the judge wrote.

But the 9th Circuit found that even if the text accompanying Network's pay-per-click link didn't include the word "advertisement," its appearance on the search result pages alerted consumers that they were viewing an ad. "Google and Bing have partitioned their search results pages so that the advertisements appear in separately labeled sections for "sponsored' links," the court wrote.

The appeals court sent the case back to the trial judge for further proceedings.

Trademark attorney Martin Schwimmer says the decision could affect many trademark owners as well as search marketers who purchase trademarks. "This case makes it harder for trademark owners to stop a neutral keyword ad," says Schwimmer, a partner in Leason Ellis.

He adds that the ruling shows that the 9th Circuit doesn't think that a company misleads consumers simply by using a rival's trademark to trigger a search ad. "What the court is saying is: It's not clear to us whether people are clicking on to Network Automation's ad by mistake."

Eric Goldman, director of the High Tech Law Institute at Santa Clara University, adds that ruling shows that the 9th Circuit "competitive, comparative keyword advertising can be legitimate."

Questions about whether search marketers infringe rivals' trademarks by using them as keywords have spurred a host of lawsuits and decisions by trial judges, but very few appellate court rulings. In general, only appellate rulings set precedent that is followed by other courts.

Another federal appeals court is considering a similar issue in a case involving Google. In that matter, language learning company Rosetta Stone sued Google for trademark infringement for allowing others to use Rosetta Stone's trade name to trigger search ads. A district court judge ruled in favor of Google last year, but Rosetta Stone appealed that decision to the 4th Circuit Court of Appeals.