A court gets one (partly) right, holds truthful use of a competitor's trademarks is not infringement

by Greg Beck

Trademark law was designed to protect consumers from being fooled by products that are passed off as something they are not. Too often, however, it is invoked by companies not to protect consumers, but to interfere with lawful competition. For example, in Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), the court found a trademark cause of action for "initial interest confusion" where a website had honestly advertised, using search engine keywords, the fact that it sold its competitor's tanning lotion. Although the defendant had said nothing that was inaccurate or misleading, the Tenth Circuit nevertheless thought that the defendant had “used the goodwill associated with Plaintiffs’ trademarks in such a way that consumers might be lured to the lotions from Plaintiffs’ competitors.” Maybe so, but luring away a competitor's customers is the essence of capitalism. Decisions like Australian Gold turn trademark law away from its consumer-protection function and into a system of corporate welfare.

Occasionally, though, a court will be thoughtful enough to to realize that trademark law is not designed to protect companies from unwanted competition. Ron Coleman of Likelihood of Confusion covers a recent decision where the District of Arizona, in a thoughtful opinion, rejected the Tenth Circuit's Australian Gold decision. The court was not convinced by the plaintiff's argument that truthful advertising infringes its trademark rights, holding that a website could truthfully advertise its sale of the plaintiff's products on the Internet. The court wrote: "[I]f this guileless, informative use of trademarks in metatags and as search-engine keywords constitutes initial interest confusion, then trademark law would be (to the extent it is not already) in the unenviable position of stymying access to the world of goods and services lawfully available on the internet.”

Unfortunately, cases like Australian Gold give companies enough ammunition to scare off competition without even having to go to court. It is the rare defendant that is willing to finance an expensive trademark battle against an aggressive and litigious competitor. Ironically, consumers are the ones who end up paying, in the form of less competition and higher prices.

Update: As other's have mentioned (see here and here), the court allowed an equally anti-competitive copyright claim to go forward. Well, at least the court got it half right.