1-800 Contacts, Inc. v. Whenu.Com, Inc.

• Decision Date: 27 June 2005
• Docket Number: Docket No. 04-0026-CV(L).,Docket No. 04-0446-CV(CON).
• Citation: 414 F.3d 400
• Parties: 1-800 CONTACTS, INC., Plaintiff-Appellee, v. WHENU.COM, INC. and VISION DIRECT, INC., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

414 F.3d 400

1-800 CONTACTS, INC., Plaintiff-Appellee, v. WHENU.COM, INC. and VISION DIRECT, INC., Defendants-Appellants.

Docket No. 04-0026-CV(L).

Docket No. 04-0446-CV(CON).

United States Court of Appeals, Second Circuit.

Argued April 5, 2004.

Decided June 27, 2005.

Terence P. Ross, Gibson, Dunn & Crutcher, L.L.P. (Rachel A. Clark, Prasanth R. Akkapeddi, and Amy E. Barrier, on the brief), Washington, DC, for Plaintiff-Appellee 1-800 Contacts, Inc.

Celia Goldwag Barenholtz, Kronish, Lieb, Weiner & Hellman (Michael D. Paley, Jason M. Koral, and Ian Ross Shapiro, on the brief), New York, NY, for Defendant-Appellant WhenU.Com, Inc.

Jeffrey E. Ostrow, Simpson Thacher & Bartlett LLP (Patrick E. King and Theodore J. McEvoy, on the brief), New York, NY, for Defendant-Appellant Vision Direct, Inc.

Mark A. Lemley, Keker & Van Nest, LLP, San Francisco, CA, for amicus curiae Google Inc. urging reversal of the district court.

Thomas C. Morrison, Christine H. Miller, Eden Doniger, Patterson, Belknap, Webb & Tyler LLP (Peter J. Brann, Kevin Beal, Brann & Isaacson, LLP; Daniel G. Clodfelter, Thomas E. Graham, Moore & Van Allen, PLLC; Richard R. Hays, David

J. Stewart, Alston & Bird, LLP; Jennifer G. Altman, Boies, Schiller & Flexner, LLP, of counsel), New York, NY, for amici curiae The Hertz Corporation, L.L. Bean, Inc., Lending Tree, Inc., Six Continents Hotels, Inc., Inter-Continental Hotels Corporation, and TigerDirect, Inc. in support of Plaintiff-Appellee 1-800 Contacts, Inc.

Professor Eric Goldman, Marquette University Law School, Milwaukee, WI; Cindy Cohn, Fred von Lohmann, Electronic Frontier Foundation, San Francisco, CA, for amicus curiae Electronic Frontier Foundation urging reversal of the district court.

Before: WALKER, Chief Judge, and STRAUB, Circuit Judge.¹

JOHN M. WALKER, JR., Chief Judge.

Defendant-appellant WhenU.com, Inc. ("WhenU") is an internet marketing company that uses a proprietary software called "SaveNow" to monitor a computer user's internet activity in order to provide the computer user ("C-user") with advertising, in the form of "pop-up ads," that is relevant to that activity. Plaintiff-appellee 1-800 Contacts, Inc. ("1-800") is a distributor that sells contact lenses and related products by mail, telephone, and internet website. At the time 1-800 filed this action in the United States District Court for the Southern District of New York (Deborah A. Batts, District Judge), it owned a registered trademark in the service mark "WE DELIVER. YOU SAVE." and had filed applications with the United States Patent and Trademark Office on July 8, 1999, to register the service mark "1-800CONTACTS",² and on October 2, 2000, to register the service mark of "1-800CONTACTS" in a specific color-blocked design logo.³

1-800 filed a complaint alleging, inter alia,⁴ that WhenU was infringing 1-800's trademarks, in violation of the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a)(1), by causing pop-up ads of 1-800's competitors to appear on a C-user's desktop when the C-user has accessed 1-800's website. In an Opinion entered January 7, 2004, the district court granted 1-800's motion for a preliminary injunction as it related to 1-800's trademark claims,⁵ and enjoined WhenU from using or otherwise displaying 1-800's trademarks, or anything confusingly similar to such trademarks, in connection with WhenU's contextually relevant advertising. 1-800 Contacts, Inc. v. WhenU.com, 309 F.Supp.2d 467 (S.D.N.Y. 2003) ("1-800 Contacts"). WhenU has filed this interlocutory appeal.⁶

We hold that, as a matter of law, WhenU does not "use" 1-800's trademarks within the meaning of the Lanham Act, 15 U.S.C. § 1127, when it (1) includes 1-800's website address, which is almost identical to 1-800's trademark, in an unpublished directory of terms that trigger delivery of WhenU's contextually relevant advertising to C-users; or (2) causes separate, branded pop-up ads to appear on a C-user's computer screen either above, below, or along the bottom edge of the 1-800 website window. Accordingly, we reverse the district court's entry of a preliminary injunction and remand with instructions to (1) dismiss with prejudice 1-800's trademark infringement claims against WhenU, and (2) proceed with 1-800's remaining claims.

BACKGROUND

I. The Internet and Windows

By way of introduction to this case we incorporate the district court's helpful tutorial on the internet and the Microsoft Windows operating environment as it pertains to this litigation:

The Internet is a global network of millions of interconnected computers.... [A C-user] can access ... information that is stored on the Internet in repositories called "servers." Much of the information stored in servers on the Internet can be viewed ... in the form of "webpages," which are collections of pictures and information, retrieved from the Internet and assembled on the [C-user]'s computer screen. "Websites" are collection[s] of [related] webpages that are organized and linked together to allow a [C-user] to move from webpage to webpage easily....

[A C-user] generally connects to the Internet using an internet service provider ("ISP")¹⁰ ..., which allows the [C-user]'s computer to communicate with the Internet. Once a connection to the Internet has been established ..., a [C-user] may "browse" or "surf" the Internet by using a software program called an Internet browser ("browser"). Microsoft Internet Explorer is one example of a browser program.¹¹ ...

¹⁰ Examples of ISPs include Earthlink, Verizon, NetZero, America Online.

¹¹ Other examples of browser programs include Netscape Navigator, Opera, and Mozilla; in addition, many residential ISPs like Earthlink and America Online provide their own proprietary browsers.

To retrieve information from the Internet, a [C-user] may type [a specific] address[, called a domain name,]¹³ of a website into the [address line of a] web browser ....

¹³ .... Sporty's Farm L.L.C. v. Sportsman's Market, Inc., 202 F.3d 489, 492-93 (2d Cir. 2000) [providing detailed explanation of domain names].

....

[Alternatively,] ... a [C-user] can use [a "search engine"] to find information [by] ... typ[ing] in a word or words describing what is sought, and the search engine will identify websites and webpages that contain those words.

1-800 Contacts, 309 F.Supp.2d at 474-75 (internal citations and some footnotes omitted).

The district court further explained that [m]any [C-users] access the Internet with computers that use the Microsoft Windows operating system ("Windows"). Windows allows a [C-user] to work in numerous software applications simultaneously. In Windows, the background screen is called the "desktop." When a software program is launched, a "window" appears on the desktop, within which the functions of that program are displayed and operate. A [C-user] may open multiple windows simultaneously, allowing the [C-user] to launch and use more than one software application at the same time. Individual windows may be moved around the desktop, and because the computer screen is two-dimensional, one window may obscure another window, thus appearing to be "in front of" another window.

Id. at 475 (internal citations omitted). Some programs on a C-user's computer, such as a calendar or e-mail application, may cause windows to open on the C-user's desktop independently of any contemporaneous action by the C-user. See Wells Fargo & Co. v. WhenU.com, Inc., 293 F.Supp.2d 734, 743 ¶ 53 (E.D.Mich. 2003); see generally id. at 740-43 (providing in-depth description of how software applications and web browsers operate in the Windows environment, and noting that Windows is currently used on approximately 95% of personal computers).

II. The Challenged Conduct

The specific conduct at issue in this case has been described in detail by the district court, see 1-800 Contacts, 309 F.Supp.2d at 476-78, as well as other courts that have addressed similar claims against WhenU, see Wells Fargo, 293 F.Supp.2d at 738-40, 743-46; U-Haul Int'l, Inc. v. WhenU.com, Inc., 279 F.Supp.2d 723, 725-26 (E.D.Va. 2003). Accordingly, we recite only those facts relevant to this appeal.

WhenU provides a proprietary software called "SaveNow" without charge to individual C-users, usually as part of a bundle of software that the C-user voluntarily downloads from the internet. "Once installed, the SaveNow software requires no action by the [C-user] to activate its operations; instead, the SaveNow software responds to a [C-user]'s `in-the-moment' activities by generating pop-up advertisement windows" that are relevant to those specific activities. 1-800 Contacts, 309 F.Supp.2d at 477. To deliver contextually relevant advertising to C-users, the SaveNow software employs an internal directory comprising "approximately 32,000 [website addresses] and [address] fragments, 29,000 search terms and 1,200 keyword algorithms," Wells Fargo, 293 F.Supp.2d at 743 ¶ 58, that correlate with particular consumer interests to screen the words a C-user types into a web browser or search engine or that appear within the internet sites a C-user visits.

When the SaveNow software recognizes a term, it randomly selects an advertisement from the corresponding product or service category to deliver to the C-user's computer screen at roughly the same time the website or search result sought by the C-user appears. As the district court explained,

The SaveNow software generates at least three kinds of ads—an ad may be a small `pop-up' ... [that appears] in the bottom right-hand corner of a [C-user]'s screen; it may be a `pop-under' advertisement that appears behind the webpage the [C-user] initially visited; or it may be a `panoramic' ad[] that stretches across the bottom of the [C-user]'s computer screen.

1-800 Contacts, 309 F.Supp.2d at 478. Each type of ad appears in a window that is separate from the particular website or search-results page the C-user has accessed. Id. In addition, a label stating "A WhenU...