Sunday, August 17, 2008

Eroded logic: keyword claim wins in soil erosion case

Soilworks, LLC v. Midwest Industrial Supply, Inc., 2008 WL 3286975 (D. Ariz.)

The parties compete in the market for soil erosion and dust control products. Soilworks makes Durasoil and Soiltac, while Midwest makes EK35, EnviroKleen, and Soil-Sement. In 2006, Midwest received two patents for EK35 and EnviroKleen. A month before the patents issued, Midwest sent Soilworks a letter about the pending patent applications, expresing concern that Durasoil infringed. Soilworks replied that it did not see any reason to fear infringement. After the patent issued, Midwest sent letters to a Soilworks customer regarding possible infringement, and also issued a press release.

Soilworks sued for false advertising, a declaratory judgment of patent invalidity and noninfringement, and the usual state-law claims; Midwest counterclaimed for patent and trademark infringement, false advertising, and the usual state-law claims.

On the Soilworks false advertising claim against Midwest: given that the allegedly false claims involve patent rights, Soilworks needed to show bad faith. This rule balances patent rights against the right to fair competition. The letters sent to Soilworks’ client said that a patent had issued, that Midwest had “invented the category of synthetic organic dust control agents” [comment: synthetic organic?], that no competitors could have the same formulation or method, and that the patent allowed Midwest to pursue anyone who sold “knock-off or imitators” of EK35 or EnviroKleen. Moreover, Midwest’s press release alegedly represented that competitors couldn’t design around the patent, making Midwest the exclusive source of synthetic organic dust control products.

Midwest argued that, as a matter of law, the letters couldn’t support a finding of bad faith, simply a legally accurate summary of Midwest’s rights. Case law establishes that bad faith allegations of patent infringement and of competitors’ inability to desing around a patent can be false advertising. In fact, the latter “exclusive source” statements are “inherently suspect,” both because most patents can be designed around and because such statements are nearly impossible to confirm before the fact.

The court agreed that the press release reasonably could be construed as making exclusive source statements; it stated that Midwest had gained “exclusive control” over the products and methods that define the synthetic organic dust control category, giving it the “exclusive rights” to sell such products. It further suggested an inability to desing around: “Midwest’s competitors may claim to offer synthetic organic dust control technology, but only Midwest can offer the products and methods that define this technology. Those competitors are either not supplying synthetic organic dust control technology ... or they are infringing Midwest’s patents.” This made bad faith inappropriate for resolution on summary judgment. While pre-litigation statements to a competitor may only be bad faith if they were objectively baseless, statements to the relevant consuming public are judged under a less defendant-favorable standard.

The statements were also sufficiently alleged to be false or misleading; case law establishes that false exclusive source claims can violate the Lanham Act. Moreover, the press release was disseminated sufficiently to the relevant purchasing public to constitute commercial advertisement.

Midwest, however, prevailed on a portion of its counterclaim for trademark infringement based on Soilworks’ use of Midwest’s trademarked term Soil-Sement in keyword ads on search engines and in metatags on its site. Under Ninth Circuit precedent, the court felt compelled to rule that the mere presence of the trademarks in keyword buys and metatags was infringing, because “Soilworks thus capitalizes on Midwest’s ‘Soil-Sement’ trademark to attract clients to its websites,” creating initial interest confusion. Though Ninth Circuit panels, shockingly, have been inconsistent in their use of IIC, it’s generally not in a defendant’s favor. The three “key” internet factors under one of the main cases,, Inc. v. Walt Disney Co., 202 F.3d 1199, 1205 (9th Cir. 2000)—similarity of marks, relatedness of the goods, and the use of the internet as a marketing channel—will condemn any competitive use of a trademark.

Here, Soilworks uses “soil sement” to buy ads on Google; uses “sement soil” in metatags for one of its site; and uses “sement” and “soil” “in close proximity” in a metatag for another site. “When used in Internet searches as metatags, they clearly are designed to divert persons interested in Midwest’s mark to Soilworks’ websites.” According to the three key factors, Soilworks’ use of metatags and keyword ads “has the effect of connecting web customers familiar with Midwest’s Soil-Sement mark to Soilworks’ websites.” Thus, though there’s no hint of source confusion, there’s initial interest “diver[sion]”—not even confusion—and therefore Lanham Act liability, though the court deferred any consideration of remedies.

The court rejected Soilworks’ argument that Lanham Act liability ought to require—get this—deception:

[T]he wrong in a metatag initial interest confusion case is not that the consumer is deceived into believing that he is purchasing the plaintiff’s products when in fact he is purchasing defendant’s, but instead is the diversion of the consumer’s initial attention to the defendant’s website using the plaintiff’s trademark and goodwill. When accomplished through the use of key words or metatags on the Internet, this wrongful conduct may involve no deception of the consumer. The consumer is simply led to the defendant’s website through the unseen keywords and metatags the defendant has purchased [sic] on the web….

To the extent that the doctrine adopted in Brookfield requires a showing of initial confusion-- that the consumer’s initial attention was diverted to the defendant’s website through confusion--the Court concludes that it has been established here. A person typing “soil sement” into a search engine presumably would be somewhat familiar with Midwest’s product and would be looking for the product or its maker, and yet would be directed by the keywords and metatags to Soilworks’ websites. The confusion--thinking one would be connected to Midwest when in fact Soilworks’ websites also appear in the search results--would entirely be caused by Soilworks’ use of Midwest’s mark. (emphasis added to the key words that make this doctrine crazy, without even getting into the factless presumptions about the consumer’s intent)

The court distinguished Designer Skin, from the same district, because that case involved metatags that informed searchers where they could find Designer Skin products (from an unauthorized source). Fine, but if there is a word in the above-quoted paragraphs that doesn’t apply to straight-up comparative advertising, I didn’t see it.

You know, I am just as depressed as Eric Goldman about this. The premise of the rest of the lawsuit—which, let us not forget, is proceeding—is that the parties’ goods are comparable. It’s not wrong to let consumers compare them. As Mark Lemley says, “unfair competition” is not redundant. Given these terrible cases, why don’t businesses put the indisputably legal “compare to X” statement in their metatags? (For keyword-triggered ads, the answer is: Google won’t let you use that as your ad text. This is an understandable rule from Google’s perspective, but it makes bad law worse from a competitive perspective.)

Separately, Midwest argued that Soilworks had engaged in false advertising by claiming that it’s the “innovator” and “manufacturer” of Durasoil; that Durasoil is “synthetic” and “oil-sheen free”; and that Durasoil is made from “proprietary ingredients” and represents “revolutionary state-of-the-art innovation.”

The court concluded that the “innovator,” “proprietary ingredients,” and “revolutionary state-of-the-art innovation” statements were mere puffery, too general, vague and unspecified to trigger a reasonable consumer’s reliance. The “manufacturer” claim was specific enough to be falsified; the testimony on whether it was true was conflicting. However, there was no evidence of materiality, and no particular reason (such as a deliberately false comparative claim, or the expenditure of substantial funds to promote the claim) to think that consumers cared about whether Soilworks was the manufacturer of Durasoil. Nonetheless, while barring Midwest from recovering damages on the claim because it failed to show causation and injury, the court allowed its injunctive relief request to proceed.

Materiality was not a problem for the “synthetic” claim; the evidence showed that this was important to consumers. Midwest didn’t produce a general definition of “synthetic” for the industry. Instead, it relied on one Soilworks principal’s testimony that he didn’t know whether Durasoil was synthetic and the fact that one of Soilworks’ suppliers wouldn’t consider it synthetic. That witness defined synthetic as something that isn’t “natural or naturally occurring,” and testified that, according to that definition, Durasoil was synthetic, because it contains a refined, non-natural product. The court thought this was more support for truth than falsity. With no triable issue of fact, the court granted summary judgment to Soilworks.

Soilworks also called Durasoil “oil-sheen free,” meaning it doesn’t leave a film on the surface of water. Midwest argued that Soilworks’ failure to test this attribute renders the claim false. But there was no evidence that consumers had been deceived, and no affirmative evidence that Durasoil left a sheen. (Also, this gets to the divide between “tests prove” and other claims; unless there’s evidence that consumers presume that tests stand behind a factual claim, in general an advertiser is free to make non-test-supported claims.) Summary judgment for Soilworks on this claim.


Bruce Boyden said...

[I]f there is a word in the above-quoted paragraphs that doesn’t apply to straight-up comparative advertising, I didn’t see it.

I'm not a fan of IIC, but why isn't the distinction that there needs to be some sort of confusion? IIC is basically a version of bait and switch, using someone else's trademark as the bait. If the trademark is not the bait, it's not actionable. So "Coke is better than Pepsi -- come here to buy some Coke" is not IIC if put up by Coke. It is if it's down by RC.

RT said...

I'd agree, if that's what IIC were about in the cases, and I'd have no objection to a true rule against bait and switch. But look at those paragraphs again: attention, diversion, direction, "no deception." IIC as we know it, unfortunately, isn't about bait and switch. There was no reason in this case to think that, based on the search results, any consumer would assume that by clicking on a link--sponsored or not--she'd end up on the Soil-Sement site. There's no discussion of what the link text actually said, and for all that it appears the visible text didn't use "Soil-Sement" (Google wouldn't have allowed that in a sponsored link). What the court condemns is targeting Pepsi searchers with an ad that says "Coke is better!" Or, in other words: where in the court's analysis do you see any room for comparative advertising?

Bruce Boyden said...

I agree the 1st paragraph of the 2 you quoted looks pretty scary. But the 2nd grudgingly admits Brookfield might govern, and concludes that the "confusion" element can be met here. So there's the confusion, although it's not clear to me how the judge is finding that consumers are confused, as opposed to the judge him or herself.