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Internet Litigation: The Legalities of Lead Aggregation
by Robert J. Mendes
The internet marketing revolution is upon us. As with any revolution, online advertising brings with it previously unconsidered challenges as legislatures and courts work to establish appropriate legal boundaries to fit the developing landscape.
Recently, there have been lawsuits filed – including one in the Middle District of Tennessee – which seek damages from internet-based lead aggregation businesses. Lead aggregators attract commercial internet traffic to their websites for sale to others. Plaintiffs in the recent lawsuits are companies who allege that aggregators have unlawfully snatched internet traffic that should have been theirs. This article examines lead aggregation and the elements that may lead to controversy, explores the arguments raised in such disputes, and offers guidance for navigating this developing area of the law.
I. What is Lead Aggregation?
When a lead aggregator attracts internet traffic to its website, users can submit information about themselves, including their name, contact information, and the product they are interested in purchasing. The lead aggregator then takes that information and sells it to companies that sell the product that the internet user desires to purchase. Via the lead aggregator, the companies that sell the product receive contact information about the internet user, and vice versa. In doing so, the lead aggregator often acts like a broker or "middle man," matching internet users and prospective sellers based on a variety of factors, including geographic proximity, characteristics of the internet user, and the seller's stated preferences as to the types of customers they seek. A well-known lead aggregator in the home mortgage business is Lendingtree.com. 1
The insurance industry uses lead aggregators too. Suppose an internet user in Chicago finds his way to a lead aggregator's website and submits personal information for the purpose of purchasing automobile insurance. Our hypothetical shopper is a twenty-year-old single man with a poor driving record. The aggregator would take that information and "match" him to insurance agents in his part of Chicago who can provide automobile insurance to twenty-year-old single men with poor driving records. By contrast, if a forty-five-year-old married mother of three with a perfect driving record living in an affluent Atlanta suburb submits information about herself, she would receive very different "matches." In this way, the aggregator varies the results based on insurance agents' stated preferences about the types of leads they want and insurance companies' underwriting guidelines.
To make its business model work, naturally, an aggregator must attract internet users to its website. The more traffic it attracts, the more leads it can obtain and sell. Thus, aggregators engage in a variety of marketing tactics designed to generate traffic to their sites. One of the tactics, and the one at issue in the recent lawsuits, is "pay-per-click advertising" through the use of "sponsored links" on search engines, such as Google, Yahoo!, and MSN.
Search engines typically generate two different kinds of results: "natural links" and "sponsored links." Natural links are the results similar to a search in Westlaw or Lexis in that they are an objective result. As long as the web pages corresponding to the natural links do not change, the search results for a particular search query should remain the same – no matter the time of day, the geographic location of the internet user, or any other variable. When returning a search result, internet search engines typically display natural links on the left side of the user's computer screen. The results are usually displayed by relevance (as determined by each search engine's algorithm).
It is the "sponsored links" that are at issue in the recent lawsuits. Sponsored links, as the name suggests, are bought and paid for by companies trying to drive traffic to certain websites. Search engines typically display sponsored links on the right side of the user's computer screen and/or above the natural links. The search engines' algorithms for sponsored links may be proprietary, but they appear to include variables for the time of day, the geographic location of the internet user, a randomizer, and – of course – how much the sponsor of the link paid the company that owns the search engine.
To illustrate, suppose Yahoo! sold sponsored links to the search term "widgets," which is a product that consumers often research and purchase on the internet. There could be dozens, hundreds, or thousands of sponsors of the search term "widgets" all over the world, but for any given search, Yahoo! displays only eight sponsored links. Which eight does Yahoo! display? And once it determines which eight to display, how does Yahoo! determine the order in which to display them? The answers depend on many factors, including the time of day, the geographic location of the internet user, how much all of the dozens, hundreds, or thousands of sponsors paid – and there is a randomizer too. So if one of the sponsors distributes its widgets in, for example, California, and if that sponsor believes that people are more likely to purchase widgets in the evening than any other time of day, that sponsor may arrange to purchase a link from Yahoo! that is returned only to California users and that is three times more likely to be returned in the evening than any other time of day.
Consequently, sponsored results (unlike natural results) will vary, and an internet user can search "widgets" on Yahoo! and get one set of sponsored links, then run the same search on Yahoo! ten seconds later and get a different set of sponsored links. Likewise, an internet user in Texas can search "widgets" on Yahoo! at the exact moment that an internet user in Canada runs the same search and get different results.
II. The Problem: Searches with both Trademarked and Non-Trademarked Terms
A complication is that many internet search queries contain both trademarked and non-trademarked terms. For example, suppose an internet user wants to purchase a truck online. The internet user might go to a search engine and type in the word "truck," which is not and cannot be trademarked. Many people and companies will have purchased sponsored links associated with the word "truck," and the search engine will return the sponsored links along with the natural links, as discussed previously.
If the user is interested in a Toyota truck, he might run a search for "Toyota." If the plaintiffs in recent lawsuits are correct that it is a violation of trademark law for anyone other than the trademark holder to purchase a sponsored link associated with a trademarked term, then the search engine should return only one sponsored link.
But suppose the internet user combines the two searches and runs a search for "Toyota truck" so that the search query contains both a trademarked term and a non-trademarked term. Again, assuming the plaintiffs' position is correct (i.e., that it is a trademark violation for anyone other than the trademark holder to purchase a sponsored link associated with a trademarked term), then the "Toyota" part of "Toyota truck" would not generate any sponsored links other than www.toyota.com.
This does not reflect reality, however; because untold hundreds or thousands of advertisers all over the world will have purchased the term "truck," a search for "Toyota truck" will return sponsored links other than www.toyota.com simply because the word "truck" was included in the search. In this scenario, it is the internet user or the search engine – not the sponsor of the link – who used the trademarked term "Toyota."
III. The Arguments
A. A Plaintiff's Argument
The plaintiffs in the recent lawsuits are parties that own the trademarked terms that are included in an internet user's search, which then results in the appearance of sponsored links to entities other than the owner of the trademarked term. So, in the hypothetical situation above, the plaintiff would be Toyota and it would be suing any lead aggregator whose sponsored link appeared after an internet user ran a search for "Toyota truck."
Lawyers can be creative and exhaustive in coming up with multiple causes of action for a single bad act. The causes of action that were alleged in the Middle District of Tennessee lead aggregation case were: (1) federal trademark infringement, (2) federal unfair competition, (3) federal trademark dilution, (4) trademark dilution under the Tennessee Trademark Act of 2000, (5) common law unfair competition, (6) violations of the Tennessee Consumer Protection Act, and (7) interference with prospective or existing business and contractual relations. With these theories, plaintiffs ask for relief including compensatory damages, punitive damages, treble damages, injunctive relief, and attorneys' fees.
Put simply, a plaintiff argues that it does not matter whether the lead aggregator only purchased the right to be a sponsored link for a non-trademarked term like "truck." If the use of its mark generates a sponsored link, the plaintiff may argue that the aggregator is violating the plaintiff's intellectual property rights.
B. An Aggregator's Response
There are two categories of responses to these suits by lead aggregators –a legal response and a business response. For the legal response, aggregators hotly contest that there is anything unlawful about purchasing the right to be a sponsored link when someone searches a non-trademarked term. The defenses range from technical to constitutional.
On the technical front, aggregators seek to educate the parties and the court about how their business works. Specifically, an aggregator may never actually use the trademarked term. Although each search engine's algorithm is different, when an internet user searches for "truck" or "Toyota truck" or "great truck," there may well be sponsored links for an aggregator that only has purchased the term "truck." It is not clear how an aggregator who only purchased the use of the term "truck" could have liability.
Aggregators have also asserted free speech and fair use defenses. Moreover, proving a trademark infringement case is not simple. A plaintiff must show that there is a likelihood of confusion regarding the origin of the goods or services. This requires a balancing test that includes at least the following: (1) the strength of the plaintiff's mark, (2) relatedness of the goods or services, (3) similarity of the marks, (4) evidence of actual confusion, (5) marketing channels used, (6) likely degree of purchaser care, (7) the defendant's intent in selecting its mark, and (8) likelihood of expansion of the parties' product lines.
In a lead aggregation lawsuit, it might be challenging for plaintiffs to demonstrate evidence of actual confusion. Short of finding a potential internet customer that had been actually confused and went to a competitor's web site as a result, it is not immediately obvious how to prove actual confusion. Also, regarding the likelihood of confusion generally, a plaintiff would have to overcome that fact that search engines like Google clearly identify certain portions of its web pages as containing "Sponsored Links."
Aside from these legal responses, aggregators can attempt a business resolution. Specifically, in some instances, it has been satisfactory for a plaintiff if the aggregator simply commits to not purchase terms that are trademarked or confusingly similar to trademarks (like misspellings or alternate spellings of the mark in question).
IV. Conclusion
It would be difficult for a plaintiff to prevail in a full-blown fight over these issues. However, in the lawsuits to date, it appears that parties have chosen not to fight and have instead reached agreed resolutions. Lead aggregators can maximize their chances for a positive result by engaging counsel that can exploit the difficult proof issues that plaintiffs face.
Some lead aggregators have made the business decision simply to concede the battle on the theory that there is plenty of business on the internet and it is not worth fighting with the few trademark owners that are pursing these types of claims. If this is the choice, aggregators still should involve counsel to be sure that any settlement agreement does not unduly restrict the aggregator in conducting its business going forward.
1 To the knowledge of the author, none of the companies referenced in this article are involved in any litigation whatsoever related to lead aggregation. The examples provided are just that – examples – there is no suggestion being made that any particular practice by any particular company is in any way inappropriate. |
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