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The Court of Appeals for the Tenth Circuit recently shed light on an increasingly common Internet business practice. In 1-800 Contacts, Inc. v. Lens.com, Inc., a panel of the court held that the use of a competitor's trademark to trigger a paid advertisement is unlikely to constitute trademark infringement, provided that the text of the advertisement does not contain the competitor's mark. This decision establishes that, in most circumstances, a company may engage in the practice of keyword advertising by using another company's trademark for the purpose of boosting its own website traffic.

This case involves two competing contact lens retailers. The plaintiff, 1-800 Contacts, owns the federally registered trademark 1800CONTACTS. 1-800 Contacts monitors third party use of the 1800CONTACTS trademark by searching for its mark via the Internet search engine Google. In 2005, 1-800 Contacts noticed that paid ads for defendant Lens.com started appearing among the search results. Significantly, Lens.com never incorporated 1800CONTACTS into the actual text of its sponsored links.

Lens.com advertises through AdWords, Google's keyword advertising program. A company participating in the AdWords program pays Google to display its advertisement as a sponsored link on a page of search results. In this case, Lens.com bid on a number of terms, or keywords, including nine variations of the mark 1800CONTACTS. When an Internet user typed one of these variations into a Google search, a paid advertisement for Lens.com appeared as a sponsored link in the search results.

After several failed attempts to stop Lens.com from using keywords that resembled its 1800CONTACTS mark, 1-800 Contacts filed a lawsuit. Its primary claim was that Lens.com infringed on its trademark rights by purchasing search terms similar to 1800CONTACTS, thus creating "initial interest confusion." Such confusion results where a consumer who is looking specifically for one company's product gets diverted to another company's product and becomes confused as to the source of these goods.

The Tenth Circuit focused on empirical evidence presented by the parties. In particular, the AdWords program keeps track of how often a sponsored link is generated and the number of times an Internet user actually clicks on the link. Here, the AdWords data provided a "click-through rate" of 1.5 percent for Lens.com advertisements. In other words, Internet users clicked on Lens.com sponsored links only 1.5 percent of the time the links appeared as a result of searching for variations of 1800CONTACTS. The Court found this rate too low to demonstrate that consumers were being lured away from 1-800 Contacts' website.

In addition, the Lens.com advertisements were presented in such a way that Internet users were not likely to be confused as to the source of the advertised goods. Google displays paid advertisements in a shaded box labeled "Sponsored Links," apart from the organic search results. Relying heavily on the appearance of such advertisements is consistent with recent keyword advertising decisions, including the Ninth Circuit's landmark case Network Automation, Inc. v. Advanced Systems Concepts, Inc. The Tenth Circuit found that this evidence showed a lack of potential and actual confusion among relevant Internet users.

The Tenth Circuit's recent decision potentially has broad implications. The case establishes that the practice of keyword advertising involving a competitor's trademark typically will not infringe on the trademark owner's rights where the competitor's mark is not used in the sponsored link.