When your AdWords keywords land you in court

2014 U.S. Supreme Court decision offers support to small local firms

Google’s AdWords and other programs can be a boon to small online retailers. For a modest fee, a company reserves a keyword on Google. Whenever that keyword or phrase appears in a search request on Google, the company’s name and advertising are displayed at the top of the search results. 

One common AdWord tactic is to reserve a keyword that relates to your competitor’s products, customers or company.

For example, this time you are a fledgling entrepreneur in Manchester and have just started a shoe company. Your company’s distinguishing characteristics are a retro-style and the use of all-local materials and labor. Your target market, millennials, buys lots of shoes from another small company in San Francisco, Loca-Shoe, that also touts its locally made shoes. Loco has made news already by selling to several celebrities. If you could get your shoes in front of people thinking of buying from Loca, you know you could sell a lot of your sneakers.

AdWords presents the perfect opportunity: You reserve the names of several Loca-Shoe models, and in a matter of months you have increased your online sales by 100 percent and are generating real traction in your social media campaign. 

Things are going swimmingly, until you receive notice in the mail that you have been sued by Loca for trademark infringement. Even worse, you’ve been sued in California. You don’t know anyone there, and certainly not any lawyer, and the expense of litigating in California, rather than in New Hampshire, may prevent you from even trying. What to do? 

This scenario is playing out with increasing frequency. Companies are scouring keywords related to them to see whether competitors have reserved them, and if so, suing for trademark infringement. The mere threat of litigation in a faraway location and the thousands spent on a defense are usually enough to scare small companies into dropping their reserved keywords. A small company finding itself in this quandary has two potential ways out. 

First, recognize that this is a brand new area in trademark law and the courts have not yet set firm rules. Traditionally, trademark infringement occurs when a company’s customer-facing name, logo or symbol (a “mark” in trademark parlance) is similar enough to another’s protected mark that it creates a “likelihood of confusion” – that is, customers might be misled into buying the junior mark holder’s products thinking it made by the senior mark holder or somehow affiliated with the senior mark holder. 

A classic example would be a burger chain named MacDonald’s. It would quickly find itself facing an infringement suit from McDonald’s. 

Some courts (but not all) have concluded AdWords are different. 

First, the allegedly infringing term is the keyword, which isn’t customer-facing but acting behind the scenes to trigger advertising. And the advertising being served up by AdWords usually conveys the advertising company’s name and product, and is careful to avoid the impression that it is associated with the trademark owner.

The second way out of this quandary is challenging the location of the litigation itself. Back to the hypothetical. Is there any way you can make Loca come to New Hampshire? It turns out a 2014 U.S. Supreme Court decision could help you out. 

Usually a party cannot be sued in a state with which it has no connection. The courts in that state (the forum state) are said to have no “personal jurisdiction” over the defendants. 

Before 2014, several courts concluded that a defendant that uses a plaintiff’s mark in an AdWords campaign did focus on the plaintiff’s home state. The theory is that the defendant knowingly caused injury in the forum state by targeting the intellectual property of the plaintiff of that state.

In February 2014, the U.S. Supreme Court decided in Walden v. Fiore that jurisdiction has to be decided based on the defendant’s contacts with the forum state itself, not just contacts with the injured party, the plaintiff, that happens to reside in the forum.

In other words, merely causing injury (even knowingly) in the forum state, therefore, is not enough to be sued in that state.

For instance, in the hypothetical, the New Hampshire shoe company could not be forced into a lawsuit in California merely be reserving AdWords belonging to the San Francisco company.

That’s what a court in Oregon decided just last month. Relying on Walden, the court in Control Solutions v. MicroDAQ.com Ltd. decided it had no jurisdiction over a New Hampshire online retailer accused of using the trademarks of a competitor based in Oregon in an AdWords campaign. 

The result? The local company could defend itself in New Hampshire, not all the way across the country. 

So, when doing any online advertising, through AdWords, banner ads or directly through a website, companies may rely on not only the defense that such advertising does not constitute trademark infringement, but now, after Walden, they are able to dictate where the litigation occurs. 

John-Mark Turner, a shareholder of Sheehan Phinney Bass + Green, is a business litigator with an emphasis on complex, high-stakes cases.