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15 U.S.C. § 1127, when it (1) includes 1-800's website address, which is almost identical to 1-800's trademark, in an unpublished directory of terms that trigger delivery of WhenU's contextually relevant advertising to C-users; or (2) causes separate, branded pop-up ads to appear on a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.

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 ..

....

[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).

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 Offer—click ? for info." appears in the window frame surrounding the ad, together with a button on the top right of the window frame marked "?" that, when clicked by the C-user, displays a new window containing information about WhenU and its ads,7 as well as instructions for uninstalling the resident SaveNow software. Id. at 478 nn.22 & 23.

Usually there is a "few-second" delay between the moment a user accesses a website, and the point at which a SaveNow pop-up advertisement appears on the [C-user]'s screen.

If a SaveNow user who has accessed the 1-800 Contacts website and has received a WhenU.com pop-up advertisement does not want to view the advertisement or the advertiser's website, the user can click on the visible portion of the [1-800] window..., [which will move] the 1-800 Contacts website ... to the front of the screen display, with the pop-up ad moving behind the website window. Or, ... the [C-user] can close the pop-up website by clicking on its "X," or close, button. If the user clicks on the pop-up ad, the main browser window (containing the 1-800 Contacts website) will be navigated to the website of the advertiser that was featured inside the pop-up advertisement.

Id. at 476-77 (internal citations omitted).

In its complaint, 1-800 alleges that WhenU's conduct infringes 1-800's trademarks, in violation of Sections 32(1) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a), by delivering advertisements of 1-800's competitors (e.g., Vision Direct, Inc.) to C-users who have intentionally accessed 1-800's website. Although somewhat difficult to discern from the complaint, the allegations that pertain specifically to 1-800's trademark claims appear to be as follows: (1) WhenU's pop-up ads appear "on," "over," or "on top of" the 1-800 website without 1-800's authorization, and change its appearance; (2) as a result, the ads impermissibly "appear to be an integral and fully authorized part of [1-800's] website"; (3) in addition, WhenU's unauthorized pop-up ads "interfere with and disrupt the carefully designed display of content" on the website, thereby altering and hindering a C-user's access to 1-800's website; (4) WhenU is thereby "free-riding" and "trad[ing] upon the goodwill and substantial customer recognition associated with the 1-800 Contacts marks"; and (5) WhenU is using 1-800's trademarks in a manner that creates a likelihood of confusion.

Following an evidentiary hearing on 1-800's motion for a preliminary injunction, the district court held that 1-800 had demonstrated a likelihood of success on its trademark infringement claims and issued a preliminary injunction prohibiting WhenU from utilizing 1-800's trademarks.8 1-800 Contacts, 309 F.Supp.2d at 510. WhenU appeals the district court's decision.

WhenU challenges the district court's finding that WhenU "uses" 1-800's trademarks within the meaning of the Lanham Act, 15 U.S.C. § 1127. See 1-800 Contacts, 309 F.Supp.2d at 489. In the alternative, WhenU argues that the district court erred in finding that WhenU's pop-up ads create a likelihood of both source confusion and "initial interest confusion," as to whether WhenU is "somehow associated with [1-800] or that [1-800] has consented to [WhenU's] use of the pop-up ad[s]." Id. at 494; see id. at 503-04. Because we agree with WhenU that it does not "use" 1-800's trademarks, we need not and do not address the issue of likelihood of confusion.

To obtain a preliminary injunction,

a party ... must demonstrate (1) the likelihood of irreparable injury in the absence of such an injunction, and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships tipping decidedly toward the party requesting the preliminary relief.

Fed. Express Corp. v. Fed. Espresso, Inc., 201 F.3d 168, 173 (2d Cir.2000). We review a district court's grant of a preliminary injunction for abuse of discretion. S.C. Johnson & Son, Inc. v. Clorox Co., 241 F.3d 232, 237 (2d Cir.2001). Such abuse will be found if a district court rests its decision on a clearly erroneous finding of fact or makes an error of law. Id.

In order to prevail on a trademark infringement claim for registered trademarks, pursuant to 15 U.S.C. § 1114,9 or unregistered trademarks, pursuant to 15 U.S.C. § 1125(a)(1),10 a plaintiff must establish that (1) it has a valid mark that is entitled to protection under the Lanham Act; and that (2) the defendant used the mark, (3) in commerce, (4) "in connection with the sale ... or advertising of goods or services," 15 U.S.C. § 1114(1)(a), (5), without the plaintiff's consent. See Time, Inc. v. Petersen Publ'g Co., 173 F.3d 113, 117 (2d Cir.1999); Genesee Brewing Co., Inc. v. Stroh Brewing Co., 124 F.3d 137, 142 (2d Cir.1997). In addition, the plaintiff must show that defendant's use of that mark "is likely to cause confusion ... as to the affiliation, connection, or association of [defendant] with [plaintiff], or as to the origin, sponsorship, or approval of [the defendant's] goods, services, or commercial activities by [plaintiff]." 15 U.S.C. § 1125(a)(1)(A); see also Estee Lauder Inc. v. The Gap, Inc., 108 F.3d 1503, 1508-09 (2d Cir.1997); Gruner + Jahr USA Publ'g v. Meredith Corp., 991 F.2d 1072, 1075 (2d Cir.1993).

The only issue before us on appeal is whether the district court abused its discretion when it entered the preliminary injunction against WhenU; specifically, whether the district court erred in finding that 1-800 had demonstrated a likelihood of success on its trademark claims. As a result, the threshold of error required to reverse the district court's decision is higher than it would be were we reviewing a decision on 1-800's trademark claims themselves. That higher threshold is met in this case, however, because the district court erred as a matter of law in finding that WhenU "uses" 1-800's trademark. Because 1-800 cannot establish an essential element of its trademark claims, not only must the preliminary injunction be vacated, but 1-800's trademark infringement claims must be dismissed as well.

The Lanham Act defines "use in commerce," in relevant part, as follows:

.... For purposes of this Chapter, a mark shall be deemed to be in use in commerce —

(1) on goods when —

(A) it is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale, and

(B) the goods are sold or transported in commerce, and

(2) on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce....

15 U.S.C. § 1127.

In issuing the preliminary injunction, the district court held that WhenU

use[s] [1-800]'s mark in two ways. First, in causing pop-up advertisements for Defendant Vision Direct to appear when SaveNow users have specifically attempted to access [1-800]'s website—on which Plaintiff's trademark appears—[WhenU is] displaying Plaintiff's mark "in the ... advertising of" Defendant Vision Direct's services ... [and, t]hus,... [is] "using" Plaintiff's marks that appear on Plaintiff's website.

Second, Defendant WhenU.com includes Plaintiff's [website address], <www.1800contacts. com>, [which incorporates 1-800's trademark,] in the proprietary WhenU.com directory of terms that triggers pop-up advertisements on SaveNow users' computers. In so doing, Defendant WhenU.com "uses" Plaintiff's mark ... to advertise and publicize companies that are in direct competition with Plaintiff.

1-800 Contacts, 309 F.Supp.2d at 489.

Prior to the district court's decision, two other courts had addressed the issue of "use" as it applies to WhenU's specific activities and reached the opposite conclusion. In Wells Fargo & Co. v. WhenU.com, Inc., 293 F.Supp.2d 734 (E.D.Mich. 2003), the district court denied Wells Fargo's motion for a preliminary injunction after finding that WhenU's inclusion of plaintiff Wells Fargo's trademarked website address in WhenU's proprietary directory of keywords was not "use" for purposes of the Lanham Act, and that WhenU did not alter or interfere with Wells Fargo's website in any manner. Id. at 757-61. The district court in U-Haul International, Inc. v. WhenU.com, Inc., 279 F.Supp.2d 723 (E.D.Va.2003), employing a very similar analysis, granted summary judgment in favor of WhenU after concluding that WhenU's inclusion of U-Haul's trademarked website address in the SaveNow directory was not actionable because it was for a "pure machine-linking function" that was not "use" under the Lanham Act. Id. at 728 (internal quotation marks omitted).

In the case before us, the district court's consideration of these two comprehensive decisions on the precise issue at hand was confined to a footnote in which it cited the cases, summarized their holdings in parentheticals, and concluded, without discussion, that it "disagree[d] with, and [was] not bound by these findings." 1-800 Contacts, 309 F.Supp.2d at 490 n. 43. Unlike the district court, we find the thorough analyses set forth in both U-Haul and Wells Fargo to be persuasive and compelling.

The district court held that WhenU's inclusion of 1-800's website address in the SaveNow directory constitutes a prohibited "use" of 1-800's trademark. Id. at 489. We disagree.

At the outset, we note that WhenU does not "use" 1-800's trademark in the manner ordinarily at issue in an infringement claim: it does not "place" 1-800 trademarks on any goods or services in order to pass them off as emanating from or authorized by 1-800. See U-Haul, 279 F.Supp.2d at 728; cf. L.L. Bean, Inc. v. Drake Publishers, Inc., 811 F.2d 26, 32-34 (1st Cir.1987); Societe Comptoir de L'Industrie Cotonniere Etablissements Boussac v. Alexander's Dep't Stores, Inc., 299 F.2d 33, 37 (2d Cir.1962). The fact is that WhenU does not reproduce or display 1-800's trademarks at all, nor does it cause the trademarks to be displayed to a C-user. Rather, WhenU reproduces 1-800's website address, <<www.1800contacts. com.>>, which is similar, but not identical, to 1-800's 1-800CONTACTS trademark. See 1-800 Contacts, 309 F.Supp.2d at 478-79.

The district court found that the differences between 1-800's trademarks and the website address utilized by WhenU were insignificant because they were limited to the addition of the "www." and ".com" and the omission of the hyphen and a space. See id. We conclude that, to the contrary, the differences between the marks are quite significant because they transform 1-800's trademark — which is entitled to protection under the Lanham Act — into a word combination that functions more or less like a public key to 1-800's website.

Moreover, it is plain that WhenU is using 1-800's website address precisely because it is a website address, rather than because it bears any resemblance to 1-800's trademark, because the only place WhenU reproduces the address is in the SaveNow directory. Although the directory resides in the C-user's computer, it is inaccessible to both the C-user and the general public. See id. at 476 (noting that directory is scrambled to preclude access). Thus, the appearance of 1-800's website address in the directory does not create a possibility of visual confusion with 1-800's mark. More important, a WhenU pop-up ad cannot be triggered by a C-user's input of the 1-800 trademark or the appearance of that trademark on a webpage accessed by the c-user. Rather, in order for WhenU to capitalize on the fame and recognition of 1-800's trademark — the improper motivation both 1-800 and the district court ascribe to WhenU — it would have needed to put the actual trademark on the list.11

In contrast to some of its competitors, moreover, WhenU does not disclose the proprietary contents of the SaveNow directory to its advertising clients nor does it permit these clients to request or purchase specified keywords to add to the directory. See GEICO v. Google, Inc., 330 F.Supp.2d 700, 703-04 (E.D.Va.2004) (distinguishing WhenU's conduct from defendants' practice of selling "keywords" to its advertising clients), claim dism'd, Order, Dec. 15, 2004 (dismissing Lanham Act claim following bench trial on finding no likelihood of confusion); see also U-Haul, 279 F.Supp.2d at 728 (discussing other practices).12

A company's internal utilization of a trademark in a way that does not communicate it to the public is analogous to a individual's private thoughts about a trademark. Such conduct simply does not violate the Lanham Act, which is concerned with the use of trademarks in connection with the sale of goods or services in a manner likely to lead to consumer confusion as to the source of such goods or services. See 15 U.S.C. § 1127; see also Louis Altman, 4 Callmann on Unfair Competition, Trademarks and Monopolies § 22:25 n.1 (4th ed. 2004) ("A fortiori, a defendant who does not sell, but merely uses internally within his own company, the trademarked product of another, is not a trademark infringer or unfair competitor by virtue of such use.").

Accordingly, we conclude that WhenU's inclusion of the 1-800 website address in its SaveNow directory does not infringe on 1-800's trademark.

The primary issue to be resolved by this appeal is whether the placement of pop-up ads on a C-user's screen contemporaneously with either the 1-800 website or a list of search results obtained by the C-user's input of the 1-800 website address constitutes "use" under the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a). The district court reasoned that WhenU, by "causing pop-up advertisements for Defendant Vision Direct to appear when SaveNow users have specifically attempted to access [1-800]'s website, ... [is] displaying [1-800]'s mark in the ... advertising of ... Vision Direct's services." 1-800 Contacts, 309 F.Supp.2d at 489.

The fatal flaw with this holding is that WhenU's pop-up ads do not display the 1-800 trademark. The district court's holding, however, appears to have been based on the court's acceptance of 1-800's claim that WhenU's pop-up ads appear "on" and affect 1-800's website. See, e.g., id. at 479 (stating that WhenU has "no relationship with the companies on whose websites the pop-up advertisements appear") (emphasis omitted) (emphasis added). As we explained above, the WhenU pop-up ads appear in a separate window that is prominently branded with the WhenU mark; they have absolutely no tangible effect on the appearance or functionality of the 1-800 website.

More important, the appearance of WhenU's pop-up ad is not contingent upon or related to 1-800's trademark, the trademark's appearance on 1-800's website, or the mark's similarity to 1-800's website address. Rather, the contemporaneous display of the ads and trademarks is the result of the happenstance that 1-800 chose to use a mark similar to its trademark as the address to its web page and to place its trademark on its website. The pop-up ad, which is triggered by the C-user's input of 1-800's website address, would appear even if 1-800's trademarks were not displayed on its website. A pop-up ad could also appear if the C-user typed the 1-800 website address, not as an address, but as a search term in the browser's search engine, and then accessed 1-800's website by using the hyperlink that appeared in the list of search results.13

In addition, 1-800's website address is not the only term in the SaveNow directory that could trigger a Vision Direct ad to "pop up" on 1-800's website. For example, an ad could be triggered if a C-user's searched for "contacts" or "eye care," both terms contained in the directory, and then clicked on the listed hyperlink to 1-800's website.

Exemplifying the conceptual difficulty that inheres in this issue, the district court's decision suggests that the crux of WhenU's wrongdoing — and the primary basis for the district court's finding of "use" — is WhenU's alleged effort to capitalize on a C-user's specific attempt to access the 1-800 website. As the court explained it,

WhenU.com is doing far more than merely "displaying" Plaintiff's mark. WhenU's advertisements are delivered to a SaveNow user when the user directly accesses Plaintiff's website—thus allowing Defendant Vision Direct to profit from the goodwill and reputation in Plaintiff's website that led the user to access Plaintiff's website in the first place.

1-800 Contacts, 309 F.Supp.2d at 490. Absent improper use of 1-800's trademark, however, such conduct does not violate the Lanham Act. See TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001); Kellogg Co. v. Nat'l Biscuit Co., 305 U.S. 111, 122, 59 S.Ct. 109, 83 L.Ed. 73 (1938) (holding that Kellogg's sharing in the goodwill of the unprotected "Shredded Wheat" market was "not unfair"); see also William P. Kratzke, Normative Economic Analysis of Trademark Law, 21 Memphis St. U.L.Rev. 199, 223 (1991) (criticizing importation into trademark law of "unjust enrichment" and "free riding" theories based on a trademark holder's goodwill). Indeed, it is routine for vendors to seek specific "product placement" in retail stores precisely to capitalize on their competitors' name recognition. For example, a drug store typically places its own store-brand generic products next to the trademarked products they emulate in order to induce a customer who has specifically sought out the trademarked product to consider the store's less-expensive alternative. WhenU employs this same marketing strategy by informing C-users who have sought out a specific trademarked product about available coupons, discounts, or alternative products that may be of interest to them.

1-800 disputes this analogy by arguing that unlike a drugstore, only the 1-800 website is displayed when the pop-up ad appears. This response, however, ignores the fact that a C-user who has installed the SaveNow software receives WhenU pop-up ads in a myriad of contexts, the vast majority of which are unlikely to have anything to do with 1-800 or the C-user's input of the 1-800 website address.14

The cases relied on by 1-800 do not alter our analysis. As explained in detail by the court in U-Haul, they are all readily distinguishable because WhenU's conduct does not involve any of the activities those courts found to constitute "use." U-Haul, 279 F.Supp.2d at 728-29 (collecting cases). Significantly, WhenU's activities do not alter or affect 1-800's website in any way. Nor do they divert or misdirect C-users away from 1-800's website, or alter in any way the results a C-user will obtain when searching with the 1-800 trademark or website address. Id. at 728-29. Compare Playboy Enters., Inc. v. Netscape Communications Corp., 354 F.3d 1020, 1024 (9th Cir.2004) (holding that infringement could be based on defendant's insertion of unidentified banner ads on C-user's search-results page); Brookfield Communications v. West Coast Entm't Corp., 174 F.3d 1036 (9th Cir.1999) (holding that defendant's use of trademarks in "metatags," invisible text within websites that search engines use for ranking results, constituted a "use in commerce" under the Lanham Act); see generally Bihari v. Gross, 119 F.Supp.2d 309 (S.D.N.Y. 2000) (discussing Brookfield and similar cases).15

In addition, unlike several other internet advertising companies, WhenU does not "sell" keyword trademarks to its customers or otherwise manipulate which category-related advertisement will pop up in response to any particular terms on the internal directory. See, e.g., GEICO, 330 F.Supp.2d at 703-04 (finding that Google's sale to advertisers of right to use specific trademarks as "keywords" to trigger their ads constituted "use in commerce"). In other words, WhenU does not link trademarks to any particular competitor's ads, and a customer cannot pay to have its pop-up ad appear on any specific website or in connection with any particular trademark. See id. at 704 (distinguishing WhenU's conduct on this basis). Instead, the SaveNow directory terms trigger categorical associations (e.g., www.1800Contacts. com might trigger the category of "eye care"), at which point, the software will randomly select one of the pop-up ads contained in the eye-care category to send to the C-user's desktop.

Perhaps because ultimately 1-800 is unable to explain precisely how WhenU "uses" its trademark, it resorts to bootstrapping a finding of "use" by alleging other elements of a trademark claim. For example, 1-800 invariably refers to WhenU's pop-up ads as "unauthorized" in an effort, it would seem, to establish by sheer force of repetition the element of unauthorized use of a trademark. Not surprisingly, 1-800 cites no legal authority for the proposition that advertisements, software applications, or any other visual image that can appear on a C-user's computer screen must be authorized by the owner of any website that will appear contemporaneously with that image. The fact is that WhenU does not need 1-800's authorization to display a separate window containing an ad any more than Corel would need authorization from Microsoft to display its WordPerfect word-processor in a window contemporaneously with a Word word-processing window. Moreover, contrary to 1-800's repeated admonitions, WhenU's pop-up ads are authorized — if unwittingly — by the C-user who has downloaded the SaveNow software.

1-800 also argues that WhenU's conduct is "use" because it is likely to confuse C-users as to the source of the ad. It buttresses this claim with a survey it submitted to the district court that purportedly demonstrates, inter alia, that (1) a majority of C-users believe that pop-up ads that appear on websites are sponsored by those websites, and (2) numerous C-users are unaware that they have downloaded the SaveNow software. 1-800 also relies on several cases in which the court seemingly based a finding of trademark "use" on the confusion such "use" was likely to cause. See, e.g., Bihari, 119 F.Supp.2d at 318 (holding that defendant's use of trademarks in metatags constituted a "use in commerce" under the Lanham Act in part because the hyperlinks "effectively act[ed] as a conduit, steering potential customers away from Bihari Interiors and toward its competitors"); GEICO, 330 F.Supp.2d at 703-04 (finding that Google's sale to advertisers of right to have specific trademarks trigger their ads was "use in commerce" because it created likelihood of confusion that Google had the trademark holder's authority to do so). Again, this rationale puts the cart before the horse. Not only are "use," "in commerce," and "likelihood of confusion" three distinct elements of a trademark infringement claim, but "use" must be decided as a threshold matter because, while any number of activities may be "in commerce" or create a likelihood of confusion, no such activity is actionable under the Lanham Act absent the "use" of a trademark. 15 U.S.C. § 1114; see People for the Ethical Treatment of Animals v. Doughney, 263 F.3d 359, 364 (4th Cir.2001). Because 1-800 has failed to establish such "use," its trademark infringement claims fail.

In issuing the preliminary injunction, the district court expressly confined its findings in support of the injunction to 1-800's trademark infringement. Accordingly, 1-800's remaining claims, as to which we express no view, will be the subject of further proceedings on remand.

For the foregoing reasons, 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.

Playboy Enterprises International, Inc. (PEI) appeals from the district court's grant of summary judgment in favor of Netscape Communications Corporation and Excite, Inc. PEI sued defendants for trademark infringement and dilution. We have jurisdiction pursuant to 28 U.S.C. § 1291. Because we conclude that genuine issues of material fact preclude summary judgment on both the trademark infringement and dilution claims, we reverse and remand.

This case involves a practice called "keying" that defendants use on their Internet search engines. Keying allows advertisers to target individuals with certain interests by linking advertisements to pre-identified terms. To take an innocuous example, a person who searches for a term related to gardening may be a likely customer for a company selling seeds. Thus, a seed company might pay to have its advertisement displayed when searchers enter terms related to gardening. After paying a fee to defendants, that company could have its advertisements appear on the page listing the search results for gardening-related terms: the ad would be "keyed" to gardening-related terms. Advertisements appearing on search result pages are called "banner ads" because they run along the top or side of a page much like a banner.1

Defendants have various lists of terms to which they key advertisers' banner ads. Those lists include the one at issue in this case, a list containing terms related to sex and adult-oriented entertainment. Among the over-400 terms in this list are two for which PEI holds trademarks: "playboy" and "playmate."2 Defendants require adult-oriented companies to link their ads to this set of words. Thus, when a user types in "playboy," "playmate," or one of the other listed terms, those companies' banner ads appear on the search results page.3

PEI introduced evidence that the adult-oriented banner ads displayed on defendants' search results pages are often graphic in nature and are confusingly labeled or not labeled at all. In addition, the parties do not dispute that buttons on the banner ads say "click here." When a searcher complies, the search results page disappears, and the searcher finds him or herself at the advertiser's website. PEI presented uncontroverted evidence that defendants monitor "click rates," the ratio between the number of times searchers click on banner ads and the number of times the ads are shown. Defendants use click rate statistics to convince advertisers to renew their keyword contracts. The higher the click rate, the more successful they deem a banner ad.

PEI sued defendants, asserting that they were using PEI's marks in a manner that infringed upon and diluted them. The district court denied PEI's request for a preliminary injunction, and this court affirmed in an unpublished disposition.4 On remand, the parties filed cross-motions for summary judgment. The district court granted summary judgment in favor of defendants. We reverse.

We review the district court's grant of summary judgment de novo.5 Viewing the evidence in the light most favorable to PEI, and drawing all reasonable inferences in PEI's favor, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law.6 The moving party — in this case, the defendants — bears the "initial burden of identifying for the court the portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact."7 If the moving party meets its initial burden, the burden shifts to the non-moving party to "set forth, by affidavit or as otherwise provided by Rule 56, `specific facts showing that there is a genuine issue for trial.'"8 We may not weigh the evidence or determine the truth of the matter but may only determine whether there is a genuine issue for trial.9

With regard to PEI's trademark infringement claim, the parties disagree on three points. First, the parties dispute whether a direct or a contributory theory of liability applies to defendants' actions. We conclude that defendants are potentially liable under one theory and that we need not decide which one. Second, the parties disagree regarding whether PEI has successfully shown that a genuine issue of material fact exists regarding the likelihood of consumer confusion resulting from defendants' use of PEI's marks. We conclude that a genuine issue of material fact does exist. Finally, the parties dispute whether any affirmative defenses apply. We conclude that no defenses apply. We will address each dispute in turn.

1. Theory of liability.

Whether the defendants are directly or merely contributorily liable proves to be a tricky question. However, we need not decide that question here. We conclude that defendants are either directly or contributorily liable. Under either theory, PEI's case may proceed. Thus, we need not decide this issue.

2. PEI's case for trademark infringement.

The "core element of trademark infringement," the likelihood of confusion, lies at the center of this case.10 No dispute exists regarding the other requirements set forth by the statute: PEI clearly holds the marks in question and defendants used the marks in commerce11 without PEI's permission.12

PEI's strongest argument for a likelihood of confusion is for a certain kind of confusion: initial interest confusion.13 Initial interest confusion is customer confusion that creates initial interest in a competitor's product.14 Although dispelled before an actual sale occurs, initial interest confusion impermissibly capitalizes on the goodwill associated with a mark and is therefore actionable trademark infringement.15

PEI asserts that, by keying adult-oriented advertisements to PEI's trademarks, defendants actively create initial interest confusion in the following manner. Because banner advertisements appear immediately after users type in PEI's marks, PEI asserts that users are likely to be confused regarding the sponsorship of un-labeled banner advertisements.16 In addition, many of the advertisements instruct users to "click here." Because of their confusion, users may follow the instruction, believing they will be connected to a PEI cite. Even if they realize "immediately upon accessing" the competitor's site that they have reached a site "wholly unrelated to" PEI's, the damage has been done: Through initial consumer confusion, the competitor "will still have gained a customer by appropriating the goodwill that [PEI] has developed in its [] mark."17

PEI's theory strongly resembles the theory adopted by this court in Brookfield Communications, Inc. v. West Coast Entertainment Corporation.18 In Brookfield, a video rental company, West Coast Entertainment Corporation, planned on using "moviebuff.com" as a domain name for its website and using a similar term in the metatags for the site.19 Brookfield had trademarked the term "MovieBuff," however, and sued West Coast for trademark infringement.20 The court ruled in favor of Brookfield. It reasoned that Internet users entering Brookfield's mark (plus ".com") or searching for Brookfield's mark on search engines using metatags, would find themselves at West Coast's website. Although they might "realize, immediately upon accessing `moviebuff.com,' that they have reached a site operated by West Coast and wholly unrelated to Brookfield," some customers who were originally seeking Brookfield's website "may be perfectly content with West Coast's database (especially as it is offered free of charge)."21 Because those customers would have found West Coast's site due to West Coast's "misappropriation of Brookfield's goodwill" in its mark, the court concluded that Brookfield withstood summary judgment.22

In this case, PEI claims that defendants, in conjunction with advertisers, have misappropriated the goodwill of PEI's marks by leading Internet users to competitors' websites just as West Coast video misappropriated the goodwill of Brookfield's mark. Some consumers, initially seeking PEI's sites, may initially believe that unlabeled banner advertisements are links to PEI's sites or to sites affiliated with PEI. Once they follow the instructions to "click here," and they access the site, they may well realize that they are not at a PEI-sponsored site. However, they may be perfectly happy to remain on the competitor's site, just as the Brookfield court surmised that some searchers initially seeking Brookfield's site would happily remain on West Coast's site. The Internet user will have reached the site because of defendants' use of PEI's mark. Such use is actionable.23

Although analogies to Brookfield suggest that PEI will be able to show a likelihood of confusion sufficient to defeat summary judgment, we must test PEI's theory using this circuit's well-established eight-factor test for the likelihood of confusion to be certain. Accordingly, we turn to that test now.

The Ninth Circuit employs an eight-factor test, originally set forth in AMF Inc. v. Sleekcraft Boats,24 to determine the likelihood of confusion. The eight factors are:

1. strength of the mark;

2. proximity of the goods;

3. similarity of the marks;

4. evidence of actual confusion;

5. marketing channels used;

6. type of goods and the degree of care likely to be exercised by the purchaser;

7. defendant's intent in selecting the mark; and

8. likelihood of expansion of the product lines.25

In the Internet context, courts must be flexible in applying the factors, as some may not apply.26 Moreover, some factors are more important than others. For example, a showing of actual confusion among significant numbers of consumers provides strong support for the likelihood of confusion.27 For that reason, we turn first to an examination of factor four: evidence of actual confusion.

The expert study PEI introduced establishes a strong likelihood of initial interest confusion among consumers. Thus, factor four alone probably suffices to reverse the grant of summary judgment.

PEI's expert, Dr. Ford, concluded that a statistically significant number of Internet users searching for the terms "playboy" and "playmate" would think that PEI, or an affiliate, sponsored banner ads containing adult content that appear on the search results page. When study participants were shown search results for the term "playboy," 51% believed that PEI sponsored or was otherwise associated with the adult-content banner ad displayed.28 When shown results for the term "playmate," 31% held the same belief. Using control groups, Dr. Ford also concluded that for 29% of those participants viewing "playboy" searches and 22% of those viewing "playmate" searches, the confusion stemmed from the targeting of the banner advertisements. The individuals were not confused by random, un-targeted advertisements.

Defendants criticize Dr. Ford's procedures and conclusions. They offer their own interpretations of his data, with significantly lower rates of confusion. Defendants cite cases identifying probabilities of confusion of 7.6% and less as de minimis and then argue that Dr. Ford's results showed de minimis confusion as well. Their critique of Dr. Ford's methods and interpretations formed the basis of a motion to exclude his expert testimony and report before the district court. The district court denied that motion, however, and allowed the introduction of the evidence.

Defendants may have valid criticism of Dr. Ford's methods and conclusions, and their critique may justify reducing the weight eventually afforded Dr. Ford's expert report. The district court's evidentiary ruling is not before us on appeal, however, and weighing admissible evidence at this stage is improper.29 Defendants' arguments prove the point that a genuine issue of material fact exists regarding actual confusion. The presence of Dr. Ford's criticized (but uncontradicted) report, with its strong conclusions that a high likelihood of initial interest confusion exists among consumers, thus generates a genuine issue of material fact on the actual confusion issue.

Because actual confusion is at the heart of the likelihood of confusion analysis,30 Dr. Ford's report alone probably precludes summary judgment. In the interest of being thorough, however, we will examine the other seven Sleekcraft factors. On balance, they also support PEI.

PEI has established that strong secondary meanings for its descriptive marks exist, and that a genuine issue of material fact exists as to whether it created the secondary meanings.31 Thus, the first Sleekcraft factor favors PEI.

At this point, defendants concede that they use the marks for their secondary meanings.32 Thus, they concede that the marks have secondary meanings. They offer only a weak argument regarding the strength of the meanings.33 Given that defendants themselves use the terms precisely because they believe that Internet searchers associate the terms with their secondary meanings, disputing the strength of the secondary meanings is somewhat farfetched. The only meaningful dispute is whether PEI created the strong secondary meanings associated with the mark.

PEI offered evidence, in the form of expert reports, tending to show that PEI did create the secondary meanings of "playboy" and "playmate." PEI's expert evidence countered the defendants' expert evidence to the contrary, and suffices to generate a genuine issue of material fact on this issue.

From an Internet searcher's perspective, the relevant "goods" are the links to the websites being sought and the goods or services available at those sites. The proximity between PEI's and its competitor's goods provides the reason Netscape keys PEI's marks to competitor's banner advertisements in the first place. Accordingly, this factor favors PEI as well.

No doubt exists regarding this factor. Aside from their lack of capitalization, their font, and the fact that defendants use the plural form of "playmate," the terms defendants use are identical to PEI's marks. Thus, they are certainly similar.33

This factor is equivocal. PEI and the advertisers use identical marketing channels: the Internet. More specifically, each of their sites appears on defendants' search results pages. Given the broad use of the Internet today, the same could be said for countless companies. Thus, this factor merits little weight.

This factor favors PEI. Consumer care for inexpensive products is expected to be quite low.34 Low consumer care, in turn, increases the likelihood of confusion.35

In addition to price, the content in question may affect consumer care as well. We presume that the average searcher seeking adult-oriented materials on the Internet is easily diverted from a specific product he or she is seeking if other options, particularly graphic ones, appear more quickly. Thus, the adult-oriented and graphic nature of the materials weighs in PEI's favor as well.

This factor favors PEI somewhat. A defendant's intent to confuse constitutes probative evidence of likely confusion:36 Courts assume that the defendant's intentions were carried out successfully. In this case, the evidence does not definitively establish defendants' intent. At a minimum, however, it does suggest that defendants do nothing to prevent click-throughs37 that result from confusion. Moreover, they profit from such click-throughs.

Defendants monitor "click-through" rates on the advertisements they display. That is, they monitor the number of times consumers are diverted to their advertisers' sites. They use the click-through rates as a way to gauge the success of the advertisements and to keep advertisers coming back to their services. Although some click-throughs may be the result of legitimate consumer interest, not confusion, some may be expected to result from confusion. Defendants will profit from both kinds of click-throughs. And they do nothing to ensure that only click-throughs based on legitimate interest, as opposed to confusion, occur.

PEI introduced evidence suggesting that labeling the advertisements would reduce click-through rates. It would also reduce confusion. However, although defendants control the content of advertisements in other contexts, defendants do not require that advertisers identify themselves on their banner ads. Moreover, they do not label the advertisements themselves. Perhaps even more telling, defendants refuse to remove the highly-rated terms "playboy" and "playmate" from their lists of keywords, even when advertisers request that they do so.38

The above evidence suggests, at a minimum, that defendants do nothing to alleviate confusion, even when asked to do so by their advertisers, and that they profit from confusion. Although not definitive, this factor provides some evidence of an intent to confuse on the part of defendants. This factor thus favors PEI.

Because the advertisers' goods and PEI's are already related, as discussed within factor two, this factor is irrelevant.

Having examined all of the Sleekcraft factors, we conclude that the majority favor PEI. Accordingly, we conclude that a genuine issue of material fact exists as to the substantial likelihood of confusion. We now proceed to the defenses advanced by defendants.

3. Defenses.

Defendants assert three defenses: fair use, nominative use, and functional use. Because we have found that a genuine issue of fact exists as to likelihood of confusion under Sleekcraft, we must deny summary judgment as to the fair use defense. A fair use may not be a confusing use.39 Accordingly, we turn to defendants' other asserted defenses.

Defendants assert that they make a nominative use of PEI's marks. We apply a slightly different test for confusion in the nominative use, as opposed to the fair use, context.40 To be considered a nominative use, the use of a mark must meet the following three-factor test:

First, the product or service in question must be one not readily identifiable without use of the trademark; second, only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and third, the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.41

Before we apply this test to the facts at hand, we would like to emphasize what facts are not at hand. We note that defendants' use of PEI's marks to trigger the listing of PEI sites, and other sites that legitimately use PEI's marks,42 is not at issue here. In addition, we note that we are not addressing a situation in which a banner advertisement clearly identifies its source with its sponsor's name,43 or in which a search engine clearly identifies a banner advertisement's source. We are also not addressing a situation in which advertisers or defendants overtly compare PEI's products to a competitor's — saying, for example "if you are interested in Playboy, you may also be interested in the following message from[a different, named company]." Rather, we are evaluating a situation in which defendants display competitors' unlabeled banner advertisements, with no label or overt comparison to PEI, after Internet users type in PEI's trademarks.

The situation with which we are dealing runs afoul of the first requirement for nominative use. Accordingly, we do not consider the other prongs.

Defendants could use other words, besides PEI's marks, to trigger adult-oriented banner advertisements. Indeed, they already do so. The list they sell to advertisers includes over 400 terms besides PEI's marks. There is nothing indispensable, in this context, about PEI's marks.44 Defendants do not wish to identify PEI or its products when they key banner advertisements to PEI's marks.45 Rather, they wish to identify consumers who are interested in adult-oriented entertainment so they can draw them to competitors' websites. Accordingly, their use is not nominative. Thus, we reverse the district court's grant of summary judgment based on nominative use.

Defendants' final asserted defense, functional use, also fails. Defendants appear not to have raised this defense before the district court. Even if they have not waived the defense, however, it fails. Under the functional use doctrine, parts of a design that have a functional use may not receive trademark protection.46 We do not have such a case here.

Nothing about the marks used to identify PEI's products is a functional part of the design of those products. PEI could easily have called its magazine and its models entirely different things without losing any of their intended function. Thus, the marks are not functional and may be granted trademark protection.47

The fact that the marks make defendants' computer program more functional is irrelevant. Defendants designed their program to identify consumers interested in adult-oriented entertainment so that some percentage of those consumers might be attracted to competitors' websites, thereby helping defendants generate advertising revenue. Thus, defendants might conceivably be unable to trademark some of the terms used in their program because those terms are functional within that program. Because we are not dealing with defendants' wish to trademark their computer program, but with PEI's ability to protect the trademarks it already uses to identify its products, the doctrine of functional use does not help defendants here.

We hold that genuine issues of material fact exist with respect to defendants' keying practices. Thus, we conclude that summary judgment was inappropriate on the trademark infringement claim.

We reverse the district court's grant of summary judgment on PEI's second cause of action, trademark dilution,48 and remand for further proceedings. We conclude that PEI has established that genuine issues of material fact exist regarding two of the three elements that the parties dispute: the famousness of the marks and defendants' commercial use of the mark.49 We will address each of the three disputed elements in turn.

1. Famousness of the mark.

The federal dilution statute provides eight factors courts may use, along with other relevant factors, "[i]n determining whether a mark is distinctive and famous."50 Those eight factors are:

(A) the degree of inherent or acquired distinctiveness of the mark;

(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;

(C) the duration and extent of advertising and publicity of the mark;

(D) the geographical extent of the trading area in which the mark is used;

(E) the channels of trade for the goods or services with which the mark is used;

(F) the degree of recognition of the mark in the trading areas and channels of trade used by the marks' owner and the person against whom the injunction is sought; (G) the nature and extent of use of the same or similar marks by third parties; and

(H) whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.51

No grounds exist to contest factors (B), (C), (D), (E), and (H), all of which favor PEI. Defendants directly contest only factor (G): "the nature and extent of use of the same or similar marks by third parties."52 We conclude that PEI has established a genuine issue of material fact regarding factor (G). Accordingly, the first contested requirement of trademark dilution favors PEI for purposes of summary judgment.

Defendants introduced evidence that more than forty third-party trademark registrations exist for the terms "playboy" and "playmate," as well as evidence that hundreds of companies use the terms within their company names. Plaintiffs countered, however, by showing that: (a) many of the companies cited by defendants are active infringers whom PEI is diligently pursuing; (b) others are merely companies who have applied for similar marks but who have not yet received them; and (c) still others are listed several times. The remainder, PEI asserts, are in different fields or in localized areas and should not be counted, at least not when considering whether PEI's marks are famous within their market.53

Thus, defendants introduced evidence of third-party use and PEI disputed the evidence with evidence of its own showing that defendants' list was substantially over-inclusive. A dispute of material fact thus exists as to the only factor relevant to the famousness of the marks that defendants contest. Accordingly, the first contested requirement of dilution favors PEI on summary judgment.

2. Defendants' commercial use of the mark.

Congress intended to limit only commercial speech, as opposed to political or other more closely protected speech, when it passed the dilution statute; thus, it included the requirement that the use be a commercial one.54 A successful argument that defendants make no commercial use of the marks, then, would be an argument that the speech associated with their actions was political, not commercial. Defendants do not make such an argument, and it would be difficult to do so in light of the clear evidence of the commercial nature of their enterprise. Accordingly, PEI has satisfied the second disputed requirement of dilution.

3. Dilution of distinctive quality of marks.

We conclude that the district court erred when it held, applying the standard then in force,55 that PEI had shown no likelihood of dilution. However, because the Supreme Court recently clarified the standard for withstanding summary judgment on dilution claims, we vacate the district court's decision on this point and remand with instructions to re-open discovery to allow the parties to introduce evidence that may satisfy, or undermine, the new standard.56

Under the old standard, PEI established a genuine issue of material fact regarding likelihood of dilution. With respect to blurring,57 PEI introduced evidence suggesting that a significant number of Internet users assume that advertisements are sponsored or somehow affiliated with PEI after a search using PEI's trademarked terms. Defendants did not counter that evidence. With respect to tranishment,58 plaintiffs introduced evidence tending to show that consumers consider the materials in the banner ads to be inferior to the materials offered by PEI and that consumers are confused regarding sponsorship of the banner ads. Defendants also did not counter that evidence.

Defendants argue that dilution cannot be found because they do not label their own goods with PEI's marks. However, when one considers things from the consumers' perspective, defendants' argument fails. According to PEI's evidence, in the minds of consumers, defendants implicitly label the goods of PEI's competitors with its marks.

Finding fault with the methods used to collect and evaluate PEI's evidence regarding Internet searchers' association between the keyed advertisements and PEI, defendants criticize PEI's evidence regarding the likelihood of blurring. As with the evidence regarding the likelihood of confusion in the infringement claim, however, defendants' critique of PEI's evidence pointed to a genuine issue of fact on this issue, not to summary judgment.

Defendants did not counter PEI's evidentiary showing in support of tarnishment. Accordingly, PEI showed a likelihood of tarnishment as well.

Because we conclude that the district court erred under the traditional theories of dilution, we need not reach the parties' arguments regarding whether Panavision International, L.P. v. Toeppen59 applies, whether it created a new species of dilution, or whether it remains valid after Congress enacted the Anticybersquatting Consumer Protection Act of 1999.60 Accordingly, if the old standard applied, we would reverse and remand for post-summary judgment proceedings.

Because the old standard, requiring a showing of a mere likelihood of dilution, no longer applies, we vacate the district court's decision as to the third element of the dilution claim and remand in order to allow the district court to apply the proper standard.61 Under that standard, to withstand summary judgment, a party must show that actual dilution has occurred.62 PEI's current evidence does not establish actual dilution. Thus, we remand with instructions to re-open discovery and to allow motions directed at the new standard.

Genuine issues of material fact preclude summary judgment on PEI's dilution claim. The fame of the marks and the likelihood of dilution are in dispute, thereby precluding summary judgment.

Genuine issues of material fact exist as to PEI's trademark infringement and dilution claims. Accordingly, we reverse the district court's grant of summary judgment in favor of defendants and remand for further proceedings.

REVERSED AND REMANDED.

BERZON, Circuit Judge, concurring.

I concur in Judge Nelson's careful opinion in this case, as it is fully consistent with the applicable precedents. I write separately, however, to express concern that one of those precedents was wrongly decided and may one day, if not now, need to be reconsidered en banc.

I am struck by how analytically similar keyed advertisements are to the metatags found infringing in Brookfield Communications v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir.1999). In Brookfield, the court held that the defendant could not use the trademarked term "moviebuff" as one of its metatags. Metatags are part of the HTML code of a web page, and therefore are invisible to internet users. Search engines use these metatags to pull out websites applicable to search terms. See also Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812-13 (7th Cir.2002) (adopting the Brookfield holding).

Specifically, Brookfield held that the use of the trademarked terms in metatags violated the Lanham Act because it caused "initial interest confusion." Brookfield, 174 F.3d at 1062-66. The court explained that even though "there is no source confusion in the sense that consumers know[who] they are patronizing, ... there is nevertheless initial interest confusion in the sense that, by using `moviebuff.com' or `MovieBuff' to divert people looking for `MovieBuff' to its website, [the defendant] improperly benefits from the goodwill that [the plaintiff] developed in its mark." Id. at 1062.

As applied to this case, Brookfield might suggest that there could be a Lanham Act violation even if the banner advertisements were clearly labeled, either by the advertiser or by the search engine. I do not believe that to be so. So read, the metatag holding in Brookfield would expand the reach of initial interest confusion from situations in which a party is initially confused to situations in which a party is never confused. I do not think it is reasonable to find 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.

There is a big difference between hijacking a customer to another website by making the customer think he or she is visiting the trademark holder's website (even if only briefly), which is what may be happening in this case when the banner advertisements are not labeled, and just distracting a potential customer with another choice, when it is clear that it is a choice. True, when the search engine list generated by the search for the trademark ensconced in a metatag comes up, an internet user might choose to visit westcoastvideo.com, the defendant's website in Brookfield, instead of the plaintiff's moviebuff.com website, but such choices do not constitute trademark infringement off the internet, and I cannot understand why they should on the internet.

For example, consider the following scenario: I walk into Macy's and ask for the Calvin Klein section and am directed upstairs to the second floor. Once I get to the second floor, on my way to the Calvin Klein section, I notice a more prominently displayed line of Charter Club clothes, Macy's own brand, designed to appeal to the same people attracted by the style of Calvin Klein's latest line of clothes. Let's say I get diverted from my goal of reaching the Calvin Klein section, the Charter Club stuff looks good enough to me, and I purchase some Charter Club shirts instead. Has Charter Club or Macy's infringed Calvin Klein's trademark, simply by having another product more prominently displayed before one reaches the Klein line? Certainly not. See Gregory Shea, Note, Trademarks and Keyword Banner Advertising, 75 S. CAL. L. REV. 529, 554 (2002) (comparing keyed banner advertisements to a customer entering a supermarket, requesting Tylenol, and then being directed to the pain reliever section which includes generic Acetaminophen, along with other generic and name-brand pain relievers); Julie A. Rajzer, Comment, Misunderstanding the Internet: How Courts are Overprotecting Trademarks Used in Metatags, 2001 L. REV. MICH. ST. U.C.L. 427, 462-63 (2001) (highlighting the brick-and-mortar world in which Kellogg's Raisin Bran and Post Raisin Bran both appear next to one another on the same aisle).

Similarly, suppose a customer walks into a bookstore and asks for Playboy magazine and is then directed to the adult magazine section, where he or she sees Penthouse or Hustler up front on the rack while Playboy is buried in back. One would not say that Penthouse or Hustler had violated Playboy's trademark. This conclusion holds true even if Hustler paid the store owner to put its magazines in front of Playboy's.

One can test these analogies with an on-line example: If I went to Macy's website and did a search for a Calvin Klein shirt, would Macy's violate Calvin Klein's trademark if it responded (as does Amazon.com, for example) with the requested shirt and pictures of other shirts I might like to consider as well? I very much doubt it.

Accordingly, I simply cannot understand the broad principle set forth in Brookfield. Even the main analogy given in Brookfield belies its conclusion. The Court gives an example of Blockbuster misdirecting customers from a competing video store, West Coast Video, by putting up a highway billboard sign giving directions to Blockbuster but telling customers that a West Coast Video store is located there. Brookfield, 174 F.3d at 1064. Even though customers who arrive at the Blockbuster realize that it is not West Coast Video, they were initially misled and confused. Id.

But there was no similar misdirection in Brookfield, nor would there be similar misdirection in this case were the banner ads labeled or otherwise identified. The Brookfield defendant's website was described by the court as being accurately listed as westcoastvideo.com in the applicable search results. Consumers were free to choose the official moviebuff.com website and were not hijacked or misdirected elsewhere. I note that the billboard analogy has been widely criticized as inapplicable to the internet situation, given both the fact that customers were not misdirected and the minimal inconvenience in directing one's web browser back to the original list of search results. See J. THOMAS McCARTHY, McCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 25:69 (4th ed.2003); Shea, supra at 552.

The degree to which this questionable aspect of Brookfield affects this case is not clear to me. Our opinion limits the present holding to situations in which the banner advertisements are not labeled or identified. See ante at 1029-1030. Whether, on remand, the case will remain so limited is questionable. PEI may seek to reach labeled advertisements as well.

There will be time enough to address the continuing vitality of Brookfield should the labeled advertisement issue arise later. I wanted to flag the issue, however, as another case based on the metatag aspect of Brookfield was decided recently, Horphag Research Ltd. v. Pellegrini, 337 F.3d 1036 (9th Cir.2003), so the issue is a recurring one. Should the question arise again, in this case or some other, this court needs to consider whether we want to continue to apply an insupportable rule.