A magistrate judge recommended granting McNeil's motion. The magistrate judge construed Adler's claims as based solely on McNeil's purchase of the Adler marks as keywords for search-engine advertisements. He found that the allegations regarding a bait-and-switch scheme were "conclusory."
The magistrate judge also concluded that Adler could not plead a likelihood of confusion as a matter of law because McNeil's advertisements are generic and do not incorporate the Adler marks. He recommended that the district court decline to exercise supplemental jurisdiction over Adler's state law claims.
Adler objected to the magistrate judge's findings, conclusions, and recommendation. Adler also filed a motion for leave to amend the complaint and a proposed second amended complaint. In that motion, Adler explained that he commissioned a double-blind survey of 400 Texas residents. That survey purportedly shows that "between 34% and 44% of participants clicked McNeil's ad believing it to be put out by, affiliated or associated with, or approved by Adler."
The district court adopted the findings, conclusions, and recommendation of the magistrate judge and dismissed the complaint. The court denied Adler's motion for leave to amend the complaint on the grounds of futility. The court concluded that the Lanham Act claims in the proposed second amended complaint would fail as a matter of law, even if amended, because they would be "based solely on the purchase of [Adler's] trademarks as keywords for search engine advertising" and because they did not visibly incorporate Adler's trademarks. Adler appealed.
Reversed — [W]hether an advertisement incorporates a trademark that is visible to the consumer is a relevant but not dispositive factor in determining a likelihood of confusion in search-engine advertising cases.
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As a threshold issue, Adler argues that because the likelihood of confusion element requires a fact-dependent evaluation, whether it has been alleged cannot be decided on a motion to dismiss. We agree that the likelihood of confusion element requires a fact-specific and contextual inquiry, see Xtreme Lashes, LLC, 576 F.3d at 227, but that does not mean that it can never be decided at the motion to dismiss stage. Where the factual allegations regarding consumer confusion are implausible, for example, a district court may dismiss a complaint on the basis that a plaintiff failed to allege a likelihood of confusion. See, e.g., Eastland Music Grp., LLC v. Lionsgate Ent., Inc., 707 F.3d 869, 871 (7th Cir. 2013); Murray v. Cable Nat'l Broad. Co., 86 F.3d 858, 860-61 (9th Cir. 1996).
This is not such a case. Adler alleges that McNeil's advertisements use generic text and are not clearly labeled as belonging to McNeil. When McNeil's advertisements appear in response to an internet search of the Adler marks, Adler alleges that a consumer is likely to believe that the unlabeled advertisements belong to or are affiliated with Adler.
Adler further alleges that McNeil's use of click-to-call advertisements exacerbates this confusion. Instead of being directed to a clearly labeled website, users who click on McNeil's advertisement are connected by telephone to a call center. McNeil employees answer the phone without identifying who they are, then seek to build a rapport with the customer before disclosing McNeil's identity. Thus, for the initial portion of the conversation, callers are unaware that they are not talking to an Adler representative.
In determining that Adler's claims failed, the district court first concluded that Adler's claims were based "solely on the purchase of Plaintiffs' trademarks as keywords for search engine advertising." The court determined that the allegations regarding the bait-and-switch scheme were conclusory and, apparently for that reason, declined to consider them. We disagree and find that Adler made specific factual allegations describing how the use of the Adler marks as keyword terms — combined with generic, unlabeled advertisements and misleading call-center practices — caused initial interest confusion. This pleading included factual matter beyond the mere purchase of trademarks as keywords for search-engine advertising, and the district court should have considered those allegations.
Third, the district court concluded that Adler's claims fail as a matter of law because McNeil's use of the Adler marks is not visible to the consumer. We find no Fifth Circuit authority for such a rule of law, and we disagree with it. Such a rule would undermine the requirement that, in evaluating whether use of a trademark creates a likelihood of confusion, no single factor is dispositive. See Xtreme Lashes, LLC, 576 F.3d at 227.
In support of its conclusion that the use of a trademark must be visible to a consumer, the district court relied on 1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1242-49 (10th Cir. 2013). In that case, though, the Tenth Circuit explicitly avoided deciding whether a Lanham Act claim requires that the use of a trademark be visible to the consumer. The district court in the case had observed that a user who sees sponsored advertisements has no way of knowing whether the defendant reserved a trademark or a generic term. Id. at 1242-43. The district court explained that "it would be anomalous to hold a competitor liable simply because it purchased a trademarked keyword when the advertisement generated by the keyword is the exact same from a consumer's perspective as one generated by a generic keyword." Id. at 1243.
The Tenth Circuit noted that the argument had "some attraction" but then stated that "if confusion does indeed arise, the advertiser's choice of keyword may make a difference to the infringement analysis even if the consumer cannot discern that choice." Id. The Tenth Circuit's reasoning reflects that the absence of the trademark could be one but not the only factor to consider in evaluating the likelihood of confusion. Ultimately, that court concluded that it "need not resolve the matter because 1-800's direct-infringement claim fails for lack of adequate evidence of initial-interest confusion." Id.
We conclude that whether an advertisement incorporates a trademark that is visible to the consumer is a relevant but not dispositive factor in determining a likelihood of confusion in search-engine advertising cases.
Adler's complaint contains sufficient factual matter, accepted as true, to state a Lanham Act claim that is plausible on its face. See Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. We express no opinion on the merits of Adler's claims, which would require, among other things, an evaluation of the digits of confusion and any other relevant factors. See Xtreme Lashes, LLC, 576 F.3d at 227.
THIS CASEBOOK contains a selection of U. S. Court of Appeals decisions that analyze and discuss issues surrounding trademark infringement claims. Volume 1 of the casebook covers the District of Columbia Circuit and the First through the Fifth Circuit Court of Appeals.