Se trata del caso Kingspan v. Rockwool.
WARDLAW, link Circuit Judge:
“We must be acutely aware of excessive rigidity when applying the law in the Internet context; emerging technologies require a flexible approach.”
Network Automation (“Network”) and Advanced Systems Concepts (“Systems”) are both in the business of selling job scheduling and management software, and both advertise on the Internet. Network sells its software under the mark Auto-Mate, while Systems’ product is sold under the registered trademark
The district court was confronted with the question whether Network’s use of ActiveBatch to advertise its products was a clever and legitimate use of readily available technology, such as Google’s AdWords, or a likely violation of the Lanham Act, 15 U.S.C. § 1114. The court found a likelihood of initial interest confusion by applying the eight factors we established more than three decades ago in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979), and reasoning that the three most important factors in “cases involving the Internet” are (1) the similarity of the marks; (2) the relatedness of the goods; and (3) the marketing channel used. The court therefore issued a preliminary injunction against Network’s use of the mark ActiveBatch.
Mindful that [HN2] the sine qua non
I. Factual and Procedural Background
Systems is a software engineering and consulting firm founded in 1981. It has used the ActiveBatch trademark since 2000, and it procured federal registration of the mark in 2001. Systems markets ActiveBatch software to businesses, which use the product to centralize and manage disparate tasks. Network is a software company founded in 1997 under the name Unisyn. Its signature product, AutoMate, also provides businesses with job scheduling, event monitoring, and related services. Network has approximately 15,000 total customers, and between 4,000 and 5,000 active customers, including Fortune 500 companies and mid-sized and small firms. The cost of a license to use AutoMate typically ranges from $995 to $10,995. There is no dispute that Network and Systems are direct competitors, or that ActiveBatch and
Google AdWords is a program through which the search engine sells “keywords,” or search terms that trigger the display of a sponsor’s advertisement. When a user enters a keyword, Google displays the links generated by its own algorithm in the main part of the page, along with the advertisements in a separate “sponsored links” section next to or above the objective results. See Appendix A. 1 Multiple advertisers can purchase the same keyword, and Google charges sponsors based on the number of times users click on an ad to travel from the search results page to the advertiser’s own website. Network purchased “ActiveBatch” as a keyword from Google AdWords and a comparable program offered by Microsoft’s Bing search engine.
1 Appendix A presents a compilation of exhibits from the district court record showing results pages displayed when users search for “ActiveBatch” on Google or Bing.
As a result, consumers searching for business software who enter “ActiveBatch” as a search term would locate a results page where the top objective results are links to Systems’ own website and various articles about the product. See Appendix A. In the “Sponsored Links”
On November 16, 2009, Systems demanded that Network cease and desist from using the ActiveBatch mark in its search engine advertising, as it was not “authorized to use these marks in commerce.” In a second letter, Systems explained that Network’s use of ActiveBatch in its Google AdWords keyword advertising infringed Systems’ trademark rights by deceiving customers into believing that Network’s software products were affiliated with Systems’ products. Systems threatened litigation unless Network immediately ceased all use of Systems’ mark, including removing the mark from the Google AdWords Program. Network responded that its use of the ActiveBatch mark was non-infringing as a matter of law, and filed this lawsuit
The district court granted injunctive relief on April 30, 2010. Noting that the parties did not dispute the validity or ownership of the ActiveBatch mark, the district court ruled that Systems was likely to succeed in satisfying the Lanham Act’s “use in commerce” requirement by showing that Network “used” the mark when it purchased advertisements from search engines triggered by the term “ActiveBatch.” Applying the eight-factor Sleekcraft test for source confusion, 2 the district court emphasized three factors it viewed as significant for “cases involving the Internet”: the similarity of the marks, relatedness of the goods or services, and simultaneous use of the Web as a marketing channel. The district court concluded that all three factors favored Systems: Network used the identical mark to sell a directly competing product, and both advertised on the Internet.
2 The eight factors we identified in Sleekcraft were: “
The district court also concluded that Systems’ mark was strong because, as a federally registered trademark, ActiveBatch is presumptively distinctive. It concluded that the degree of consumer care suggested likely confusion because “there is generally a low degree of care exercised by Internet consumers.” Moreover, Network intentionally used Systems’ mark to advertise its own product. Finally, the district court noted that neither party introduced evidence of actual confusion, and that the likelihood of product expansion was not relevant.
The district court also analyzed whether Network infringed Systems’ mark by creating [HN3] initial interest confusion — as opposed to source confusion — which “occurs when the defendant uses the plaintiff’s trademark in a manner calculated to capture initial consumer attention, even though no actual sale is finally
Based on its analysis of the Sleekcraft factors and its finding of likely initial interest confusion, the district court concluded that Systems had a strong likelihood of success on the merits of its trademark infringement claim. It then presumed a likelihood of irreparable harm, and concluded that the balance of hardships and the public interest favored Systems. Following entry of the preliminary injunction, Network timely appealed.
II. Jurisdiction and Standard of Review
We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1). [HN4] We review the grant of a preliminary injunction for abuse of discretion. See Advertise.com, Inc. v. AOL Advertising, Inc., 616 F.3d 974, 976 (9th Cir. 2010). “The district court ‘should be reversed if [it] based its decision on an erroneous
[HN5] “A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 129 S. Ct. 365, 374, 172 L. Ed. 2d 249 (2008). Network argues that the district court erred by ruling that Systems was likely to succeed on the merits of its trademark claim, and by then presuming a likelihood of irreparable injury. It also contends that the preliminary injunction is overbroad.
[HN6] To prevail on a claim of trademark infringement under the Lanham Act, 15 U.S.C. § 1114, a party “must prove: (1) that it has a protectible ownership interest in the mark; and (2) that the defendant’s use of the mark is likely to cause consumer confusion.” Dep’t of Parks & Recreation v. Bazaar Del Mundo Inc., 448 F.3d 1118, 1124 (9th Cir. 2006).
Network does not contest the ownership or its use of the mark. We note
This case, therefore, turns on whether Network’s use of Systems’ trademark is likely to cause
In Sleekcraft, we analyzed the likelihood of consumer source confusion between boats that were sold under the marks “Sleekcraft” and “Slickcraft.” We noted that [HN8] “[w]hen the goods produced by the alleged infringer compete for sales with those of the trademark owner, infringement usually will be found if the marks are sufficiently similar that confusion can be expected.” 599 F.2d at 348. Although both boats were designed for towing water skiers, and despite a potential overlap in the markets, we concluded that because “Slickcraft” boats appealed to consumers desiring family recreation and “Sleekcraft”
[HN9] We identified eight “relevant” factors for determining whether consumers would likely be confused by related goods: “ strength of the mark;  proximity of the goods;  similarity of the marks;  evidence of actual confusion;  marketing channels used;  type of goods and the degree of care likely to be exercised by the purchaser;  defendant’s intent in selecting the mark; and  likelihood of expansion of the product lines.” Id. at 348-49. We also noted that “the list is not exhaustive,” and that “[o]ther variables may come into play depending on the particular facts presented.” Id. at 348, 348 n.11.
The Sleekcraft factors are intended as an adaptable proxy for consumer confusion, not a rote checklist. See, e.g., Fortune Dynamic, Inc. v. Victoria’s Secret Stores Brand Mgmt., Inc., 618 F.3d 1025, 1030 (9th Cir. 2010) (“This eight-factor analysis is ‘pliant,’ illustrative rather than exhaustive, and
When we first confronted issues of trademark infringement and consumer confusion in the Internet context over a decade ago in Brookfield, we noted that [HN10] “[w]e must be acutely aware of excessive rigidity when applying the law in the Internet context; emerging technologies require a flexible approach.” 174 F.3d at 1054. There, Brookfield, a software company, marketed an entertainment database program under the mark MovieBuff. It sold the software, and offered access to the database, on its website, moviebuffonline.com. Id. at 1041-42. West Coast, a video retailer, had registered the mark The Movie Buff’s Movie Store. West Coast operated a website using the domain name moviebuff.com, which included a film database that competed with Brookfield’s product. Id. at 1043.
We held that Brookfield
3 Modern search engines such as Google no longer use metatags. Instead they rely on their own algorithms to find websites. See McCarthy at § 25:69.
Finding no source confusion, we nonetheless concluded that West Coast’s use of MovieBuff in its metatags was likely to cause initial interest confusion. That is, by using Brookfield’s mark MovieBuff to direct persons searching for Brookfield’s product to the West Coast site, West Coast derived an improper benefit from the goodwill Brookfield developed in its mark. Id.
Five years later in Playboy, we considered the practice of “keying” — another situation analogous to that here. Netscape operated a search engine that offered an early version of a keyword advertising program. It sold lists of terms to sponsors, and when users searched for the keywords on the list, the sponsor’s advertisement would be displayed on the results page. 354 F.3d at 1022. Netscape required its advertisers from the adult entertainment industry to link their ads to one such list that contained more than 400 terms,
We reversed, holding that summary judgment was inappropriate because genuine issues of material fact existed as to whether Netscape’s keying practices constituted actionable infringement. Id. at 1031. Following Brookfield, we analyzed the keying issue in terms of initial interest confusion, “find[ing] insufficient evidence to defeat summary judgment on any other theory.” Id. at 1024 n.13. Playboy claimed that Netscape “misappropriated the goodwill of [its] marks by leading Internet users to competitors’ websites just as West Coast . . . misappropriated the goodwill of Brookfield’s mark.” Id. at 1025. In framing the initial interest confusion inquiry, we stressed that Playboy’s infringement claim relied on the fact that the linked banner advertisements were “unlabeled,” and were, therefore, more likely to mislead consumers into believing they had followed a link to Playboy’s own website. Id.
In Playboy, as in Brookfield, we applied the Sleekcraft test flexibly, determining
Concurring, Judge Berzon was struck by how analytically similar the keyed advertisements in Playboy were to the infringing metatags in Brookfield. We agree, and also find similarity to the use of the keyword “ActiveBatch” in this case. Judge Berzon cautioned that a broad reading of Brookfield‘s metatags holding could result in a finding of initial interest confusion “when a consumer is never confused as to source or affiliation, but instead knows, or should know, from the outset that a product or web link is not related to that of the trademark holder because the list produced by the search engine so informs him.” Id. at 1034-35 (Berzon, J., concurring). She clarified that the Playboy panel’s holding was limited to “situations in which the banner advertisements are not labeled or identified.” Id. at 1036.
Judge Berzon analogized the experience of browsing clearly labeled keyword advertisements to shopping at Macy’s, explaining that if a shopper en route to the Calvin Klein section is diverted by a prominently displayed Charter Club (Macy’s own brand) collection and never reaches the Calvin Klein collection, it could not be said that Macy’s had infringed
Here we consider whether the use of another’s trademark as a search engine keyword to trigger one’s own product advertisement violates the Lanham Act. We begin by examining the Sleekcraft factors that are most relevant to the determination whether the use is likely to cause initial interest confusion. 4 While the district court analyzed each of the Sleekcraft factors, it identified the three most important factors as (1) the similarity of the marks, (2) the relatedness of the goods or services, and (3) the simultaneous use of the Web as a marketing channel, for any case addressing trademark infringement on the Internet. For this proposition the district court cited GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199 (9th Cir. 2000), which followed Brookfield in emphasizing these three factors. See GoTo.com, 202 F.3d at 1205; Brookfield, 174 F.3d at 1054 n.16.
However, [HN13] we did not intend Brookfield to be read so expansively as to forever enshrine these three factors — now often referred to as the “Internet trinity” or “Internet troika” — as the test for trademark infringement on the Internet. Brookfield was the first to present a claim of initial interest confusion on the Internet; we recognized at the time it would not be the last, and so emphasized flexibility over rigidity. Depending on the facts of each specific case arising on the Internet, other factors may emerge as more illuminating on the question of consumer confusion. In Brookfield, we used the “troika” factors to analyze the risk of source confusion generated by similar domain names, but we did not wholesale adopt them in the metatag analysis. 174 F.3d at 1054-55. Subsequent courts similarly have found the “troika” helpful to resolve disputes involving websites with similar names or appearances. See, e.g., Internet Specialties West, Inc. v. Milon-DiGiorgio Enters., Inc., 559 F.3d 985, 988-89 (9th Cir. 2009); Perfumebay.com Inc. v. eBay Inc., 506 F.3d 1165, 1169, 1173 (9th Cir. 2007);
[HN14] Given the multifaceted nature of the Internet and the ever-expanding ways in which we all use the technology, however, it makes no sense to prioritize the same three factors for every type of potential online commercial activity. The “troika” is a particularly poor fit for the question presented here. See Jonathan Moskin, Virtual Trademark Use — The Parallel World of Keyword Ads, 98 Trademark Reporter 873, 892-93 (2008) (arguing that the “troika” is inadequate for analyzing trademark infringement claims based on search engine keyword advertising because it omits important factors). The potential infringement in this context arises from the risk that while using Systems’ mark to search for information about its product, a consumer might be confused by a results page that shows a competitor’s advertisement on the same screen, when that advertisement does not clearly identify the source or its product.
[HN15] In determining the proper inquiry
We turn to an examination of each Sleekcraft factor to analyze whether there is a likelihood of consumer confusion in this case, assigning each factor appropriate weight in accordance with its relevance to the factual circumstances presented here.
1. Strength of the Mark
[HN16] “The stronger a mark — meaning the more likely it is to be remembered and associated in the public mind with the mark’s owner — the greater the protection it is accorded by the trademark laws.” Brookfield, 174 F.3d at 1058. Two relevant measurements are conceptual strength and commercial strength. Conceptual strength involves classification of a mark “along a spectrum of generally increasing inherent distinctiveness as generic, descriptive, suggestive, arbitrary, or fanciful.” Id. “A mark’s conceptual
This factor is probative of confusion here because a consumer searching for a generic term is more likely to be searching for a product category. See id. at 1058 n.19 ([HN17] “Generic terms are those used by the public to refer generally to the product rather than a particular brand of the product.”). That consumer is more likely to expect to encounter links and advertisements from a variety of sources. By contrast, a user searching for a distinctive term is more likely to
The district court acknowledged that the parties failed to address the strength of the mark, but it concluded that the factor favors Systems. It reasoned that ActiveBatch is a suggestive mark because it “requires a mental leap from the mark to the product,” (quoting Brookfield, 174 F.3d at 1058), and as a registered trademark it is “inherently distinctive.” We agree. Because the mark is both Systems’ product name and a suggestive
2. Proximity of the Goods
[HN18] “Related goods are generally more likely than unrelated goods to confuse the public as to the producers of the goods.” Brookfield, 174 F.3d at 1055. “[T]he danger presented is that the public will mistakenly assume there is an association between the producers of the related goods, though no such association exists.” Sleekcraft, 599 F.2d at 350. The proximity of goods is measured by whether the products are: (1) complementary; (2) sold to the same class of purchasers; and (3) similar in use and function. Id.
The proximity of the goods was relevant in Playboy, where unsophisticated consumers were confronted with unlabeled banner advertisements that touted adult-oriented material very similar to Playboy’s own products.
Because the products at issue here are virtually interchangeable, this factor may be helpful, but it must be considered in conjunction with the labeling and appearance of the advertisements and the degree of care exercised by the consumers of the ActiveBatch software. By weighing this factor in isolation and failing to consider whether the parties’ status as direct competitors would actually lead to a likelihood of confusion, the district court allowed this factor to weigh too heavily in the analysis.
3. Similarity of the Marks
[HN20] “[T]he more similar the marks in terms of appearance, sound, and
In Sleekcraft, we concluded that the marks “Sleekcraft” and “Slickcraft” were similar in terms of sight, sound, and meaning by examining the actual situations in which consumers were likely to read, hear, and consider the meaning of the terms. Id. at 351-52. Such an inquiry is impossible here where the consumer does not confront two distinct trademarks. Rather, after entering one company’s mark as a search term, the consumer sees a competitor’s sponsored link that displays neither company’s trademarks. The district court erroneously treated “ActiveBatch,” the keyword purchased by Network, as conceptually separate from ActiveBatch the trademark owned by Systems. This is an artificial distinction that does not reflect what consumers “encountered in the marketplace.” Again, however, because the consumer keys in Systems’ trademark,
4. Evidence of Actual Confusion
[HN21] “[A] showing of actual confusion among significant numbers of consumers provides strong support for the likelihood of confusion.” Playboy, 354 F.3d at 1026 (citing Thane Int’l, Inc. v. Trek Bicycle Corp., 305 F.3d 894, 902 (9th Cir. 2002) (“Evidence of actual confusion constitutes persuasive proof that future confusion is likely . . . . If enough people have been actually confused, then a likelihood that people are confused is established.”). However, “actual confusion is not necessary to a finding of likelihood of confusion under the Lanham Act.” Academy of Motion Picture Arts & Sciences v. Creative House Promotions, Inc., 944 F.2d 1446, 1456 (9th Cir. 1991) (citing American Int’l Group, Inc. v. American Int’l Bank, 926 F.2d 829, 832 (9th Cir. 1991)). Indeed, “[p]roving actual confusion is difficult . . . and the courts have often discounted such evidence because it was unclear
In Playboy, the expert report showing a significant number of users were confused by the keying practice at issue was strong evidence that Playboy’s infringement claim should be allowed to proceed. 354 F.3d at 1027. Playboy, however, was decided at the summary judgment stage, whereas here we examine a sparse record supporting preliminary injunctive relief. As the district court noted, neither Network nor Systems provided evidence regarding actual confusion, which is not surprising given the procedural posture. Therefore, while this is a relevant factor for determining the likelihood of confusion in keyword advertising cases, its importance is diminished at the preliminary injunction stage of the proceedings. The district court correctly concluded that this factor should be accorded no weight.
5. Marketing Channels
[HN22] “Convergent marketing channels increase the likelihood of confusion.” Sleekcraft, 599 F.2d at 353. In Sleekcraft, the two products were sold in niche marketplaces, including boat shows, specialty retail outlets, and trade magazines. Id. at 353. However, this factor becomes less important when the marketing channel is less obscure.
Therefore, the district court’s determination that because both parties advertise on the Internet this factor weighed in favor of Systems was incorrect.
6. Type of Goods and Degree of Care
[HN23] “Low consumer care . . . increases the likelihood of confusion.” Playboy, 354 F.3d at 1028. “In assessing the likelihood of confusion to the public, the standard used by the courts is the typical buyer exercising ordinary caution . . . . When the buyer has expertise in the field, a higher standard is proper though it will not preclude a finding that confusion is likely. Similarly, when the goods are expensive, the buyer can be expected to exercise greater care in his purchases; again, though, confusion may still be likely.” Sleekcraft, 599 F.2d at 353 (citations omitted).
[HN24] The nature of the goods and the type of consumer is highly relevant to determining
In Brookfield, the websites were visited by both sophisticated entertainment industry professionals and amateur film fans, which supported the conclusion that at least some of the consumers were likely to exercise a low degree of care. Id. at 1056. In Playboy, the relevant consumer was looking for cheap, interchangeable adult-oriented material, which similarly led to our court’s finding that the consumers at issue would exercise a low degree of care. 354 F.3d at 1029.
We have recently acknowledged that the default degree of consumer care is becoming more heightened as the novelty of the Internet evaporates and online commerce becomes commonplace. In Toyota Motor Sales v. Tabari, 610 F.3d 1171 (9th Cir. 2010), we vacated a preliminary injunction that prohibited a pair of automobile brokers from using Toyota’s “Lexus” mark in their domain names. 5 We determined that it was unlikely that a reasonably prudent consumer would be confused into believing that a domain name that included a product name would necessarily have a formal affiliation with the maker of the product, as “[c]onsumers who use the internet for shopping are generally quite sophisticated about such matters.” Id. at 1178. The Tabari panel reasoned,
[I]n the age of FIOS, cable modems, DSL and T1 lines, reasonable, prudent and experienced internet consumers are accustomed to such exploration by trial and error. They skip from site to site, ready to hit the back button whenever they’re not satisfied with a site’s contents. They fully expect to find some sites that aren’t
Id. at 1179 (citations omitted).
5 The Tabari court applied the nominative fair use test rather than the Sleekcraft factors, but it explained that Sleekcraft‘s consumer confusion inquiry was “analogous.” Id. at 1176. Network has not argued that nominative fair use applies here. We find the initial interest confusion analysis more appropriate for the circumstances of this case. Cf. New Kids on the Block v. News Am. Publ’g, Inc., 971 F.2d 302, 308 (9th Cir. 1992) (explaining that nominative fair use applies when “the only word reasonably available to describe a particular thing is pressed into service”).
We further explained that [HN26] we expect consumers searching for expensive products online to be even more sophisticated. Id. at 1176 (“Unreasonable, imprudent and inexperienced web-shoppers are not relevant.”).
Therefore the district court improperly concluded that this factor weighed in Systems’
7. Defendant’s Intent
[HN27] “When the alleged infringer knowingly adopts a mark similar to another’s, reviewing courts presume that the defendant can accomplish his purpose: that is, that the public will be deceived.” Sleekcraft, 599 F.2d at 354. Nevertheless, we have also “recognized that liability for infringement may not be imposed for using a registered trademark in connection with truthful comparative advertising.” Lindy Pen Co., Inc. v. Bic Pen Corp., 725 F.2d 1240, 1248 (9th Cir. 1984).
Therefore, much like the proximity of the goods, the defendant’s intent may be relevant here, but only insofar as it bolsters a finding that the use of the trademark serves to mislead consumers rather than truthfully inform them of their choice of products. The district court incorrectly considered the intent factor in isolation, and concluded that it weighed in Systems’ favor without first determining that Network intended
8. Likelihood of Expansion of the Product Lines
[HN28] “Inasmuch as a trademark owner is afforded greater protection against competing goods, a ‘strong possibility’ that either party may expand his business to compete with the other will weigh in favor of finding that the present use is infringing. When goods are closely related, any expansion is likely to result in direct competition.” Sleekcraft, 599 F.2d at 354 (citations omitted). Where two companies are direct competitors, this factor is unimportant. Cf. Brookfield, 174 F.3d at 1060. Therefore, the district court correctly declined to consider the likelihood of expansion.
9. Other Relevant Factors
[HN29] The eight Sleekcraft factors are “not exhaustive. Other variables may come into play depending on the particular facts presented.” Sleekcraft, 599 F.2d at 348 n.11. In the keyword advertising context the “likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context.” Hearts on Fire Co. v. Blue Nile, Inc., 603 F. Supp. 2d 274, 289 (D. Mass. 2009). 6 In Playboy, we found it important that the consumers saw banner
6 The Hearts on Fire court identified a new seven-factor test to determine whether there is a likelihood of consumer confusion arising from a firm’s use of a competitor’s trademark as a search engine keyword triggering its own sponsored links. 603 F. Supp. 2d at 289. Network urges us to adopt the Hearts on Fire factors. While we agree that the decision’s reasoning is useful, we decline to add another multi-factor test to the extant eight-factor Sleekcraft test.
The appearance of the advertisements and their surrounding context on the user’s screen are similarly important here. The district court correctly examined the text of Network’s sponsored links, concluding that the advertisements did not clearly identify their source. However, the district court did not consider the surrounding context. In Playboy, we also found it important that Netscape’s search engine did not clearly segregate the sponsored advertisements from the objective results. 354 F.3d at 1030. Here,
Given the nature of the alleged infringement here, the most relevant factors to the analysis of the likelihood of confusion are: (1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.
The district court did not weigh the Sleekcraft factors flexibly to match the specific facts of this case. It relied on [HN30] the Internet “troika,” which is highly illuminating in the context of domain names, but which fails to discern whether there is a likelihood of confusion in a keywords case. Because the linchpin of trademark infringement is consumer confusion, the district court abused its discretion
We REVERSE the district court’s order granting Systems’ motion for a preliminary injunction, VACATE the injunction, and REMAND for further proceedings consistent with this opinion.
[SEE FIGURES IN ORIGINAL]
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
601 F.3d 1311; 2010 U.S. App. LEXIS 7163; 94 U.S.P.Q.2D (BNA) 1368
April 7, 2010, Decided
Appeal from the United States District Court for the Eastern District of Virginia in case no. 2:07-CV-582, Judge Jerome B. Friedman.
Bid for Position, LLC v. AOL, LLC, 2008 U.S. Dist. LEXIS 112629 (E.D. Va., Oct. 15, 2008)
Bid for Position, LLC v. AOL, LLC, 2008 U.S. Dist. LEXIS 108391 (E.D. Va., July 11, 2008)
COUNSEL: Gregory S. Dovel, Dovel & Luner, LLP, of Santa Monica, California, argued for plaintiff-appellant. Of counsel was David E. Rosen, Murphy Rosen & Meylan, LLP, of Santa Monica, California.
Charles K. Verhoeven, Quinn Emanuel Urquhart Oliver & Hedges LLP, of San Francisco, California, argued for defendants-appellees. With him on the brief were David A. Perlson and Jamie L. Lisagor.
JUDGES: Before NEWMAN, BRYSON, and MOORE, Circuit Judges.
OPINION BY: BRYSON
[*1312] BRYSON, Circuit Judge.
Plaintiff Bid for Position, LLC, appeals from a final judgment of noninfringement entered in its patent infringement suit against defendants Google, Inc., and AOL, LLC. The patent-in-suit, U.S. Patent No. 7,225,151 B1, describes a method for conducting a continuous auction, such as a consumers’ auction on the internet for goods or services, or a vendors’ auction for positions in an internet advertising display. The claimed method allows a bidder to select a position of priority in the auction and automatically adjusts the bidder’s bid so as to maintain that chosen priority status. The accused system [**2] is Google’s internet advertising system, AdWords, which runs continuous auctions to determine the placement of advertisements on Google’s search results pages. 1
1 AOL’s system, AOL Search Marketplace, is a rebranded version of Google’s AdWords that does not contain the Position Preference feature. Google’s AdSense for Content is also a rebranded version that places advertisements on Google’s partner sites.
In the accused AdWords system, advertisers choose keywords to trigger the display of their advertisements. When a keyword is used in a search performed on Google.com, AdWords runs an auction to determine the order in which the advertisements will be placed next to the search results. Each advertiser submits a bid in the form of a Maximum Cost-Per-Click (“CPC”), i.e., the maximum price the advertiser is willing to pay each time its advertisement is “clicked” by a user of the search engine. AdWords then multiplies each bid by a “Quality Score,” also known as the estimated Click Through Rate (“eCTR”), which predicts the likelihood that a user searching for the designated keyword will click on the subject advertisement, based on a confidential algorithm that considers various historical [**3] factors.
The product of the bid (Maximum CPC) and the Quality Score (eCTR) yields an “Ad Rank” for each advertisement. The Ad Ranks are then used to sort and place advertisements in descending order on the corresponding results page. Once the advertisements have been sorted, the actual cost paid by an advertiser per click is discounted to the lowest price the advertiser [*1313] could have bid to achieve the same position, using a formula known as generalized second-price auction. Those computations are repeated each time a new search is conducted.
AdWords also offers a “Position Preference” feature that allows advertisers to specify a preferred position or range of positions for the placement of their advertisements. The Position Preference feature enables advertisers to select a position or range of positions for AdWords to target, such as position 4, positions 1 through 5, or positions 5 through 10. If the advertiser activates the Position Preference feature, AdWords ensures that the advertisement will never appear below the lowest preferred position, although it may appear above the highest preferred position. AdWords monitors the advertisement’s average position over a period of time, as [**4] auctions are triggered by relevant keyword searches, and it submits an adjusted proxy bid every 24 hours as needed to keep the advertisement at or above the target position. Other than the periodic substitution of a new proxy bid, the auctions are conducted in the same manner whether or not the Position Preference feature is activated.
The ‘151 patent builds on prior art involving continuous auctions for priority placement in internet search results. An early search engine called Goto.com offered auctions in which advertisers could compete for the top positions on the search results for any given keyword. The highest bidder would appear first in the search results, and each successive entry would be awarded to the next highest bidder. The purported novelty of the ‘151 patent is that it enables bidders to pursue positions other than the highest available position. It does so by determining whether a bidder’s bid is too high for a specific position of priority that the bidder wishes to maintain in the auction. If it is, the system automatically reduces the bidder’s bid to avoid exceeding the amount necessary to maintain the bidder’s desired position of priority. If the bidder’s bid is [**5] too low for a specific position of priority that the bidder wishes to maintain, the system automatically increases the bidder’s bid, up to a maximum level set by the bidder. Thus, even though the auction is continuous, the process allows the bidder to maintain a relatively constant position over time, as long as the bidder’s maximum bid is not exceeded.
The two claims at issue in this appeal are a method claim and a corresponding system claim. Claim 1 of the ‘151 patent reads as follows (emphases added):
A method for automatically managing an auction for determining relative priority for a service in a system wherein priority is based on the relative value of related bids, comprising:
receiving bid management data from a first bidder for managing bidding by the first bidder in the auction, the auction having at least two or more positions of priority, the received bid management data including information for selecting one of the two or more positions of priority that the first bidder wishes to maintain in the auction;
checking for if a second bidder holds the selected position of priority, and checking for whether a first bid from the first bidder exceeds a second bid from the second [**6] bidder in the auction for determining continuing priority for providing an ongoing service for the first and second bidder, wherein the relative position of priority for providing the service for the first bidder is dependent on whether the value of the first bid exceeds the value of the second bid, and wherein the relative position of priority for providing the service for the second [*1314] bidder is dependent on whether the value of the second bid exceeds the value of the first bid;
according to the bid management data received from the first bidder, automatically incrementing the first bid to a value exceeding the second bid if the first bid does not exceed the second bid, to thereby maintain the selected position of priority for providing the service for the first bidder;
checking for whether the first bid is higher than needed to maintain the selected position of priority that the first bidder wishes to maintain in the auction, and
if the first bid is higher than needed to maintain the selected position of priority that the first bidder wishes to maintain in the auction, automatically reducing the first bid to a minimum which allows the bidder to keep the selected position of priority.
Claim [**7] 11, the system claim, is identical to claim 1 in all relevant respects except that in the first subparagraph, claim 11 reads, “the received bid management data including selected one of the two or more positions of priority,” while claim 1 reads, “the received bid management data including information for selecting one of the two or more positions of priority.” 2
2 The district court did not distinguish between the two variations of the clause. The defendants argue in passing that the use of “selected” in the past tense carries some independent significance. The prosecution history indicates, however, that the difference in language does not reflect any difference in claim scope, but is merely the result of a scrivener’s error in failing to modify the claim language correctly when the clause “bid management information including a selected position of priority” was amended to read “bid management data including information for selecting one of the two or more positions of priority.”
Following a Markman hearing, the district court issued a claim construction order on July 11, 2008. Only three clauses in the claims are relevant to this appeal: (1) “information for selecting one of the [**8] two or more positions of priority that the first bidder wishes to maintain in the auction” (claim 1) and “selected one of the two or more positions of priority that the first bidder wishes to maintain in the auction” (claim 11); (2) “wherein the relative position of priority for providing the service for the first bidder is dependent upon whether the value of the first bid exceeds the value of the second bid”; and (3) “the auction for determining continuing priority for providing an ongoing service.”
The district court interpreted the first clause to mean that the bidder, not the system, chooses the desired position of priority in the auction. The court found support for that conclusion in the claim language, which stated that the bid management data is “received” from the bidder and that it is the bidder who selects the position of priority to maintain in the auction. The court also pointed to the specification and the prosecution history as indicating that it is the bidder who enters the bid management data.
The dispute over the second clause turned entirely on the construction of the term “value.” Plaintiff Bid for Position requested that the court construe that term to mean “relative [**9] worth, utility, or importance.” The district court, however, observed that “value” is used in reference to “bid,” and that “bid” was agreed to mean “an offer of a price.” The court therefore defined the “value” of a bid to mean simply the monetary amount set forth in the bid.
The district court’s construction of the third clause focused on the term “continuing priority” and whether that term includes a temporal aspect, i.e., whether the [*1315] priority status must be maintained for a meaningful period of time. The court observed that the main purpose of the patent is to maintain the bidder’s desired position of priority for a period of time until it is no longer possible to maintain that position without exceeding the maximum bid amount. Accordingly, the court concluded that “continuing priority” requires the bidder to maintain the position of priority for some period of time.
On October 15, 2008, the district court granted summary judgment in favor of the defendants. With respect to AdWords without Position Preference, the court found non-infringement as to each of the three contested limitations.
First, the court found that whereas the ‘151 patent requires bidders to select the position of [**10] priority, the AdWords system controls the assignment of positions based on Ad Rank. Because AdWords determines what Quality Score to assign to each advertisement, the court concluded that “[t]he multiplying of the bid with the Quality Score means the advertiser loses control to determine the placement of the advertisement, and a higher bid does not mean a higher placement.” Bid for Position, LLC v. AOL, LLC, No. 07-CV-582, 2008 U.S. Dist. LEXIS 112629, *23 (E.D. Va. Oct. 15, 2008). The court also rejected Bid for Position’s argument that not activating the Position Preference feature is an implicit choice by the bidder for the highest possible position of priority. That argument, the court explained, “would essentially nullify the position of priority feature of the ‘151 patent because all auctions would involve positions of priority, and bidders would be choosing positions of priority in every auction simply by submitting a bid.” 2008 U.S. Dist. LEXIS 112629 at *24.
Second, the district court held that the ‘151 patent compares bids and ranks them by bid amount, while AdWords multiplies each bid by a subjective Quality Score to rank ads by relevance rather than by bid amount. Accordingly, a higher bidding advertisement might be [**11] placed below a lower bidding advertisement because the latter is deemed more relevant and is given a higher Quality Score.
Bid for Position argued that the Quality Score (or estimated click-through rate) is simply a mechanical conversion factor that converts each bid from cost-per-click to “cost-per-impression,” i.e., the cost for each time the advertisement is displayed. The district court rejected that argument on the ground that Ad Rank is not a “bid,” and therefore AdWords does not compare bid amounts. The court characterized the Quality Score as a subjective judgment controlled by Google and thus entirely distinct from the bid information submitted by the bidder. The court explained that
[t]he Quality Score is a judgment made of the advertisement and the keyword attributed to that advertisement to determine the likelihood that an individual will find that advertisement useful when it conducts a search with that keyword. The ‘151 patent does not assess or evaluate the advertisements of the bidders when determining their ranking.
Bid for Position, 2008 U.S. Dist. LEXIS 112629 at *31. For that reason, the court rejected Bid for Position’s argument that converting a bid into an Ad Rank is a simple conversion [**12] of equivalent values, such as the conversion of one currency into another. To the contrary, the court ruled that converting a bid into an Ad Rank is based on a particularized evaluation by the auction system, rather than on a known and objectively determined conversion factor.
Third, the district court found that the ‘151 patent requires priority to be maintained for some period of time, while AdWords calculates a new Quality Score [*1316] and Ad Rank each time a search is conducted, without consideration of positions assigned in prior auctions. The court noted that “[w]hile it is possible for the advertisement to have the same Ad Rank and position from one auction to the next, it is a result of mathematical chance, not the deliberate action of AdWords to ensure that the advertisement has the same position from one auction to the next.” Bid for Position, 2008 U.S. Dist. LEXIS 112629 at *35. The court added that holding a position for a single auction is insufficient to satisfy the “continuing priority” limitation because the ‘151 patent uses the idea of “continuing priority” to mean “that the bidder is able to keep his position of priority through multiple auctions, and the system will manage the bidding to ensure [**13] that the bidder keeps that position through multiple auctions.” 2008 U.S. Dist. LEXIS 112629 at *35. The court therefore held that AdWords without Position Preference does not infringe the ‘151 patent.
As to AdWords with Position Preference, the court first ruled that the Position Preference feature does not alter the fact that “AdWords does not determine priority or rank advertisements based upon bid amounts.” Bid for Position, 2008 U.S. Dist. LEXIS 112629 at *38. The court explained that while the Position Preference feature “allows a bidder to enter a range of preferred positions, it is AdWords that still determines the advertisement’s position based upon the Ad Rank.” Id. The court also concluded that selecting the Position Preference feature does not alter the fact that the AdWords system does not ensure continuing priority, since “a new auction is still run for each search, and a new Ad Rank and position are calculated each search.” 2008 U.S. Dist. LEXIS 112629 at *38.
With respect to the issue of comparing bid amounts, the court acknowledged that the Position Preference feature computes new proxy bids when it is necessary to maintain the advertiser’s preferred position, but it concluded that the system does so by examining the advertisement’s individual [**14] performance over the previous 24 hours, without any consideration of the other advertisers’ bids. Thus, the district court concluded that the Position Preference feature does not “compare bids” to determine which is greater, and hence does not infringe the ‘151 patent.
We affirm the district court’s ruling that AdWords without Position Preference does not infringe, because we agree with the court that the ‘151 patent does not read on a system that simply selects the highest ranking position of priority that is available for the offered bid, which is what AdWords does when the Position Preference feature is not activated. Bid for Position’s argument to the contrary is barred by the claim language, particularly when read in light of the prosecution history.
The claims recite that the bidder must submit information for selecting a priority position that the bidder wishes to maintain in the auction. That language suggests that the bidder must select a particular position, not simply accept whatever position its bid will support. The prosecution history confirms that the patent does not cover a system in which the bidder simply bids for the “best available” position. During prosecution, [**15] the patent examiner issued a rejection stating that the prior art already taught “selecting a bidding position, specifically the highest ranking bid position,” and then “automatically reducing the first bid to a minimum which allows the bidder to keep the selected position of priority.”
In response to the examiner’s rejection, and to avoid the prior art cited by the examiner, the inventor amended the claims to require the entry of information regarding the specific position of priority that the [*1317] bidder wishes to maintain. Accordingly, it is clear that the inventor disclaimed the subject matter of selecting, through inaction, the highest available priority position. See Seachange Int’l, Inc. v. C-COR, Inc., 413 F.3d 1361, 1372-73 (Fed. Cir. 2005). Because that is how AdWords functions without the Position Preference feature activated, that configuration does not satisfy every limitation of claims 1 and 11, and it therefore does not infringe the ‘151 patent.
We reach the same conclusion with respect to AdWords with the Position Preference feature activated, but for a different reason. While AdWords with Position Preference allows a bidder to select a specific position of priority, it does [**16] not satisfy the limitation of the ‘151 patent that states: “the relative position of priority for providing the service for the first bidder is dependent on whether the value of the first bid exceeds the value of the second bid.”
The district court interpreted the “value” of a bid, as used in the patent, to mean the monetary “amount” of the bid, i.e., the price offered by the bidder. Bid for Position contends that the term “value” includes equivalents of the monetary amount of the bid. Bid for Position further argues that the Quality Score in the AdWords system is obtained simply through a mechanical conversion of the bid amount (i.e., the Maximum CPC), akin to a currency exchange conversion. Therefore, according to Bid for Position, the “value” of the bid, as that term is used in the ‘151 patent, includes the Ad Rank that results from adjusting the bid by the Quality Score.
The flaw in Bid for Position’s argument is that the order of the bidders’ bid amounts, arranged according to Maximum CPC, can be entirely different from the order of the bidders’ Ad Ranks. If the conversion of bids to Ad Ranks were simply substitutions of equivalent values, the same order of positions would obtain [**17] after the conversions. Instead, the application of the Quality Score creates rankings that have no consistent mapping to the original bids.
Bid for Position is also incorrect in arguing for a construction of “value” that is distinct from the amount or price of the bid. The claim language uses the terms “bid” and “value of the bid” interchangeably, such that the two cannot be read to have separate meanings. Claim 1 recites, in a single subparagraph, the step of “checking for whether a first bid from the first bidder exceeds a second bid from the second bidder,” wherein the bidders’ relative position of priority “is dependent on whether the value of the first bid exceeds the value of the second bid.” ‘151 patent, col. 14, ll. 15-16, 20-22 (emphases added). Under that formulation, it is clear that checking for whether the first bid exceeds the second bid has the function of determining whether the value of the first bid exceeds the value of the second bid, and thus that there is no distinction between the comparison of “bids” and the comparison of “bid values.”
The next step in claim 1 recites “incrementing the first bid to a value exceeding the second bid if the first bid does not exceed [**18] the second bid.” That step would make no sense if the “value” of the bid for purposes of the patent were different from the amount of the bid submitted by the bidder. It would be meaningless to refer to the “value” of the first bid “exceeding the second bid” if the value of a bid meant something different from the amount of the bid.
The specification supplies further evidence that the terms “bid” and “value of the bid” mean the same thing in the ‘151 patent. In the detailed description of the first preferred embodiment, for example, the patent provides that a bidder may enter maximum bids into the system and [*1318] that the system will increase the bidder’s lower bids “until they reach desired bidding positions entered by the bidders as long as the bids do not exceed maximum values entered by the respective bidders.” The system will ensure relative priority for the bidder “as long as the maximum bid is not exceeded.” ‘151 patent, col. 3, ll. 40-52. As applied to AdWords, the “maximum values entered by the respective bidders” cannot refer to the Ad Ranks, since the bidders do not know what Quality Score the system might assign to their advertisements. Instead, “value,” as used in that passage, [**19] can only refer to the bid amount, a quantity that the bidders do control.
The same theme is repeated in several of the other embodiments. In the embodiment relating to an auction for a priority position for a website, the specification states that the system “checks for whether the bidder’s bid exceeds all other bids in the auction for determining continuing priority for listing the bidder’s web page.” ‘151 patent, col. 4, ll. 52-55. Thus, it is the comparison of the bids (i.e., the bid amounts submitted by the bidders) that determines the position of priority, not the comparison of a separately determined “value” of the bids, as calculated by the system. The specification likewise equates the bidders’ bids with the “value” of those bids when it describes an auction for golf tee times as determining priority “based on the relative value of related bids” and checking “for whether the golfer’s bid exceeds all other bids in the auction.” Id., col. 6, ll. 37-38, 48-49. The same formulation is employed in the description of each of the other embodiments. See id., col. 8, ll. 37-38, 48-50 (in an auction for frequent flyer airline seats, “wherein priority is based on the relative value of [**20] related bids,” the system “checks for whether the frequent flyer’s bid exceeds all other bids in the auction for determining priority for preferred seating”); id., col. 10, ll. 43-44, 55-57 (in an auction for priority position for online vendors, “wherein sales are based on the relative value of related bids,” the system “checks for whether the vendor’s bid is lower than all other bids in the auction”). In each instance, the “value” of the bid is equated with the bid itself, i.e., the amount of the bid as offered by the bidder.
The consistent use of the term “value” throughout the patent thus confirms that the ‘151 patent does not read on AdWords with Position Preference, which bases the award of priority on something other than a comparison of the bid amounts. The district court therefore correctly entered summary judgment of no literal infringement with respect to AdWords with Position Preference.
Apart from literal infringement, Bid for Position also argues briefly that the AdWords system infringes the “position of priority” limitation under the doctrine of equivalents. The district court held that a reasonable fact-finder could not conclude that the “ranking of advertisements based [**21] upon their Ad Rank is substantially similar to the ranking of advertisements based upon their bid amounts.” Bid for Position, 2008 U.S. Dist. LEXIS 112629 at *31. The court explained that the advertiser controls the ranking of its advertisements when the ranking is based on the bid amount, but not when it is based on Ad Rank. An Ad Rank “is not the monetary amount of the bid, and the conversion of a bid to an Ad Rank changes the nature or status of the bid from a monetary amount into a nonmonetary quantity.” 2008 U.S. Dist. LEXIS 112629 at *32.
We agree that the method recited in the ‘151 patent, in which the amount of the bidder’s bid determines the placement of the advertisement, is substantially different from AdWords, with or without Position Preference. In the method of the ‘151 patent, the ultimate placement of an advertisement is purely a function of the relative [*1319] amounts of the competing advertisers’ bids, whereas in AdWords the ultimate placement of an advertisement is dictated by the product of the bid amount and the Quality Score that AdWords assigns. Thus, AdWords is not a pure bidding system, such as the system recited in the ‘151 patent, but instead operates in a quite different manner that enables the bid recipient, [**22] i.e., Google, to exercise substantial control over the outcome of the auction. That difference is sufficiently fundamental that we conclude, as did the district court, that a trier of fact could not properly find the AdWords system to be equivalent to the system recited in the ‘151 patent.