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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

1-800 Contacts, Inc. v. WhenU.Com and Vision Direct, Inc.

309 F.Supp.2d 467 (S.D.N.Y., Dec. 22, 2003), reversed in part and remanded, -- F.3d -- (2d. Cir., June 27, 2005)

Finding plaintiff likely to prevail on its claims of trademark infringement, the District court issued a preliminary injunction, enjoining the pop-up advertiser WhenU from delivering ads which are triggered by a consumer's entry of plaintiff's domain name in either his browser or a search engine, or from including plaintiff's domain name in defendant's proprietary directory, which is used to identify the ads to be delivered to consumers.  Defendant WhenU delivered pop-up ads of plaintiff's competitor to computer users when they typed plaintiff's domain name into either their browser or a search engine.  The court found such conduct likely to cause actionable "initial interest confusion" and to allow defendants to divert consumers seeking plaintiff's products to their own offerings, and thereby unfairly profit from plaintiff's goodwill.  Applying the eight factor Polaroid test, the court found that consumers were likely to be confused by defendants' actions, despite the branding of defendant's advertisements as "a WhenU offer."  As such, the court held that plaintiff was likely to prevail on its trademark infringement claims, and enjoined defendants from continuing to use plaintiff's domain name as a trigger for the delivery of advertisements. 

The court also held that plaintiff was unlikely to prevail on its copyright infringement claims, which arose out of the delivery of pop-up advertisements in a "window" which partially covered the 'window' in which plaintiff's site appeared on a consumer's computer screen.  The court found that this conduct neither violated plaintiff's right to display its copyrighted website, nor its right to create derivative works therefrom.  This later ruling was premised on the court's determination that defendant's ads are not sufficiently fixed to constitute an infringing derivative work.

The court's holding on plaintiff's trademark infringement claims is at odds with that reached by two other district courts - the District Court for the Eastern District of Virginia in U-Haul International, Inc. v. WhenU.com, 279 F.Supp. 2d 723 (E.D.Va. 2003), and the District Court for the Eastern District of Michigan in Wells Fargo & Co. v. WhenU., 2003 WL 22808692 (E.D. Mich. 2003), each of which refused to issue similar injunctive relief.  As the Southern District of New York court noted, "this Court disagrees with, and is not bound by these findings."

Plaintiff 1-800 Contacts, Inc. is a retailer of replacement contact lenses.  It sells these products at its website, located at www.1800contacts.com.  It has filed for registration of the mark "1-800 Contacts" which phone number is also used in plaintiff's retailing activities.  Defendant Vision Direct, Inc. is a direct competitor of plaintiff, which also sells replacement contact lenses to the public.

Defendant WhenU's principal business is the delivery of advertisements via the Internet to computer users on behalf of its clientele.  WhenU uses its software program 'SaveNow' to deliver these ads.  Typically, this software is downloaded by consumers as part of a bundle of software applications the consumer receives at no cost.  As part of this download process, the consumer is required to consent to the operation of the SaveNow program on his computer, and its delivery of ads to him.  In this process, the consumer is informed that "Save Now ads/offers are delivered independently from the site the user happens to be visiting when they see a SaveNow ad/offer and are not endorsed or affiliated with anyone other than WhenU."

SaveNow ads are triggered by the consumer's internet activity.  The SaveNow software compares the URLs and search terms the consumer types into his browser with a propriety directory created by SaveNow.  If there is a match, the SaveNow software will retrieve a pop-up ad from a server over the Internet, and display it on the consumer's computer.  This ad will be displayed in a WhenU branded window that informs the consumer it is a "WhenU offer," and appears on his screen simultaneously with whatever other programs he is operating in other computer "windows."  If a consumer seeks additional information as to the source of the ad, a link from the ad takes the consumer to a screen that further explains that the "offer is brought to you by WhenU.com."

The delivered ad is selected from a category of ads into which the typed URL is classified by WhenU.  WhenU's clientele can only purchase the right to have their ad included with those that are displayed when a consumer selects a particular information category - they cannot purchase the right to have an ad displayed when a consumer types in a particular domain name, such as that of the plaintiff.

WhenU included plaintiff's domain name 1800Contacts.com in the eye-care category of its proprietary directory.  When a consumer typed plaintiff's URL in his browser, the SaveNow program delivered an ad from one of WhenU's clients that had purchased the right to have their ads displayed when a consumer displayed interest in the eye care category, which included plaintiff's competitor Vision Direct.

Shortly before this litigation was commenced, Vision Direct instructed WhenU "to cease placing 'pop-up' ads on plaintiff's website."  In addition, Vision Direct commenced a lawsuit against WhenU arising out of WhenU's delivery to consumers of pop-up ads for a third eye-care company, Coastal Contacts, which partially obscured Vision Direct's own site via conduct substantially similar to that at issue here.

Objecting to defendants' conduct, plaintiff brought this suit, asserting claims of trademark and copyright infringement, as well as tradename dilution and unfair competition.  Plaintiff also asserted a claim under the Anticybersquatting Consumer Protect Act ("ACPA") against defendant Vision Direct, arising out of its registration of the domain name www.www1800contacts.com.

Plaintiff moved for a preliminary injunction, enjoining defendants from continuing to use plaintiff's domain name, www.1800contacts.com, as a trigger for the delivery of pop-up ads.  Finding plaintiff likely to prevail on its trademark infringement claim, the court granted plaintiff a preliminary injunction enjoining such use of plaintiff's domain name.  At the same time, the court held it was unlikely that plaintiff would prevail on its copyright infringement claims.

"To establish a claim for trademark infringement under the Lanham Act, the plaintiff must show the use in commerce by defendant without consent, of any registered mark in connection with the sale, offering for sale, distribution or advertising of any goods in a way that is likely to cause confusion.  15 U.S.C. §1114(1)(a)."

"A trademark is 'used in commerce' for purposes of the Lanham Act, 'when it issued or displayed in the sale or advertising of services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country and the person rendering the services is engaged in commerce in connection with the services."  15 U.S.C. §1127.

The court held that defendant is using plaintiff's mark in commerce both by causing pop-up ads to appear when a consumer types plaintiff's domain name into either a browser or search engine, and by including plaintiff's domain name in the directory used by SaveNow to trigger the delivery of pop-up ads.  Said the Court:

[B]y causing pop-up advertisements to appear when SaveNow users have specifically attempted to find or access Plaintiff's website, Defendants are "using" Plaintiff's marks that appear on Plaintiff's website.  15 U.S.C. § 1127.

Second, Defendant WhenU.com includes Plaintiff's URL, <www.1800contacts.com>, in the proprietary WhenU.com directory of terms that triggers pop-up advertisements on SaveNow users' computers.  (Tr. at 134.)  In so doing, Defendant WhenU.com "uses" Plaintiff's mark, by including a version of Plaintiff's 1-800 contacts mark, to advertise and publicize companies that are in direct competition with Plaintiff.  Accordingly, the Court finds that Defendants have used plaintiff's mark in commerce.

In reaching this conclusion, the Court rejected defendant WhenU's contention that to use a mark in commerce, the defendant must be using the mark to identify or distinguish products or services.  The Court's conclusion was also at odds with the courts in U-Haul Intern, Inc. v. WhenU.Com, 279 F.Supp. 2d 723 (E.D.Va. 2003) and Wells Fargo & Co. v. WhenU., 2003 WL 2280692 (E.D. Mich. 2003) which held that defendant WhenU's activities do not constitute a use of a mark in commerce.  Noting this, the court stated that "this Court disagrees with, and is not bound by these findings."

The court went on to hold that defendants' use of plaintiff's mark in this fashion was prohibited by application of the "initial interest confusion" doctrine.  This doctrine prohibits a defendant from using plaintiff's mark, and the goodwill associated therewith, to attract and divert customers seeking plaintiff to defendant's website.  The doctrine recognizes that plaintiff can be harmed by such 'pre-sale' conduct, even if the consumer subsequently recognizes that the party he is doing business with is the defendant, and not the plaintiff, prior to consummating his transaction.  Said the Court:

[T]he harm that flows from initial interest confusion … arises when consumers' interest is diverted from Plaintiff's products by association of Plaintiff's trademark with Defendants' products. … [T]he harm from initial interest confusion does not depend on actual confusion …

*          *          *

The fact that Defendants' pop-up advertisement for competing Internet contact lenses retailers appears shortly after a consumer types into the browser bar Plaintiff's trademarked name and accesses Plaintiff's homepage increases the likelihood that a consumer might assume Defendants' pop-up advertisements are endorsed or licensed by Plaintiff, since the user will first see the 1-800 Contacts website, with logos and graphics, and then will see the pop-up advertisement.

*          *          *

Even if a consumer who clicked on Defendants' pop-up advertisements and accessed Defendant Vision Direct's website eventually realized  prior to purchasing anything - that Vision Direct's website was not related to Plaintiff, the consumer might then proceed to purchase replacement contacts on Vision Direct's website, instead of taking the steps necessary to return to Plaintiff's website.

Applying the eight factor Polaroid test, the court found that consumers were likely, initially, to be confused by defendants' activities, and either believe that defendant Vision Direct's products were associated with, or endorsed by, plaintiff.  In reach this result, the court relied on the fact that plaintiff possessed a strong mark, which had been extensively marketed, and which had produced strong sales, that defendant had used plaintiff's mark in it's activities, that defendant Vision Direct was a direct competitor of plaintiff, and that defendants acted in bad faith by linking defendant Vision Direct's ads to its competitor's website.

The court rejected defendant's claim that the branding of its ads as "a WhenU offer," combined with the fact that ads did not contain plaintiff's mark, and the presence of plaintiff's own site on a consumer's computer screen at the same time as the pop-up ad in question, eliminated the possibility of any consumer confusion.  While acknowledging that the Second Circuit has "found the use of disclaimers to be an adequate remedy when they are sufficient to avoid substantially the risk of consumer confusion," the court held WhenU's disclaimers inadequate, particularly in light of the applicability of the initial interest confusion doctrine.  Again, this conclusion is at odds with the court's decision in Wells Fargo v. WhenU.com, where the court held that the evidence submitted by plaintiff in that case was insufficient to establish that consumers would be confused by defendant's actions or believe that plaintiff was the source of the ads in question.  It should be noted that in Wells Fargo, the court did not apply the initial interest confusion doctrine.

Based on the foregoing, the court held that plaintiff was likely to prevail on its trademark infringement claim, and issued a preliminary injunction, enjoining defendant WhenU from using plaintiff's domain name in its directory, or using plaintiff's domain name to trigger the delivery of pop-up ads.

The court also determined that plaintiff was not likely to prevail on its copyright infringement claims.  Here, the court's decision is in accord with those of the courts in both Wells Fargo & Co. v. WhenU.com, (E.D. Mich., Nov. 19, 2003) and U-Haul Intl. v. WhenU.com, 279 F.Supp.2d 723 (E.D. Va., Sept. 5, 2003).

To establish a prima facie case of copyright infringement, a plaintiff must show ownership of a valid copyright, together with a violation by the defendant of one of the exclusive rights granted to the copyrighted owner of a work.  Plaintiff claimed that by causing a pop-up ad to be displayed in a window on a consumer's computer screen that partially obscured that containing plaintiff's own site, defendant infringed plaintiff's exclusive rights to display its copyrighted materials and to make derivative works therefrom.

The court rejected both of these contentions.  As to the display right, the Court stated:

For this Court to hold that computer users are limited in their use of Plaintiff's website to viewing the website without any obstructing windows or programs would be to subject countless computer users and software developers to liability for copyright infringement and contributory copyright infringement, since the modern computer environment in which Plaintiff's website exists allows users to obscure, cover and change the appearance of browser windows containing Plaintiff's website.

Without authority or evidence for the claim that users exceed their license to view the copyrighted 1-800 Contacts website when they obscure the website with other browser windows (including pop-up ads generated by the SaveNow program), Plaintiff has little basis for its claim that Defendants have infringed its display right.

The court similarly rejected plaintiff's claim that defendant, by its activities, created a derivative work from plaintiff's copyrighted website.  The court reached this conclusion because the computer screen on which defendant's pop-up ad was displayed was not sufficiently fixed to constitute a derivative work.  To be a work subject to copyright protection, the work must be "fixed in any tangible medium of expression. . . .".  "A work is fixed in a tangible medium of expression . . . when its embodiment . . . is sufficiently permanent or stable, to permit it to be perceived, reproduced or otherwise communicated for a period of more than transitory duration."  The court held that defendant's display of pop-up ads did not meet this fixation requirement.

Applying the "fixation" requirement here, Plaintiff has filed to show that its website, and Defendants' pop-up advertisements are "sufficiently permanent or stable to permit it to be perceived, reproduced or otherwise communicated for a period of more than transitory duration."  17 U.S.C. § 101.  Indeed, Defendants' pop-up windows may be moved, obscured, or "closed" entirely - thus completely disappearing from perception, with a single click of a mouse.  (Tr. at 63-64.)  Moreover, to the extent pop-up advertisements fit the description of "transmitted images," they are not "fixed" works, since there is no evidence that a fixation is made "simultaneously with" the pop-up advertisements' "transmission" to the viewer of the website.  18 U.S.C § 101.

Given that the screen display of the 1-800 Contacts website with Defendant's pop-up ads is not "fixed in any medium," it is not sufficiently "original" to qualify as a derivative work under the second sentence of 17 U.S.C. § 101

As a result, the court found that plaintiff was not likely to prevail on its copyright infringement claim.

Finally, the court held that plaintiff was likely to prevail on its ACPA claim as a result of defendant Vision Direct's registration of the www.www1800contacts.com domain because it had no intellectual property rights in that name, and had never used it, in business or otherwise.  The court accordingly directed Vision Direct to cancel its registration of this domain name.

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