Publications & Articles
By: David S. Fleming
World Trademark Law Report
In Australian Gold Inc v Hatfield, the US Court of Appeals for the Tenth Circuit has found that improper use of trademarks in metatags and as paid search terms can create a likelihood of initial interest confusion. The court also refused to apply the first sale doctrine because the defendants created the false impression that they were favoured or authorized dealers of the plaintiff's products. The decision affirmed a jury verdict that found trademark infringement, false advertising, tortious interference with distribution agreements and conspiracy to interfere with distribution agreements.
The plaintiff, Australian Gold Inc, manufactures and sells tanning products under the marks AUSTRALIAN GOLD, CARIBBEAN GOLD and SWEDISH BEAUTY. Australian Gold sells its products through a distribution network, and its products are intended to be sold to consumers only through salons. Australian Gold's distribution agreements require salons and distributors to be trained concerning the proper use of its products. These agreements prohibit the sale of Australia Gold's products over the Internet.
The defendants, a number of individuals and companies, operated multiple websites for the sale of tanning and other products directly to consumers. Because they knew Australia Gold objected to Internet sales of its products, the defendants took many steps to actively conceal their activities from Australia Gold and its distributors. For example, they changed the original name of their business from The Internet Marketing Guys to Palm Harbour Tanning and Distributing to make it appear as though they were operating a tanning salon. They used other fictitious names that sounded like the names of tanning salons to place orders from authorized distributors that had been warned not to sell to the defendants. They falsely told one supplier that they operated a network of 10 tanning salons.
The defendants placed Australia Gold's trademarks in metatags on their websites, and they also purchased sponsored listings keyed to Australia Gold's trademarks. Consumers who reached the defendants' websites could purchase Australia Gold's products as well as those of its competitors.
The court expressly recognized initial interest confusion as an actionable form of confusion. It explained that initial interest confusion results when a consumer seeks a particular trademark holder's product and instead is lured to the product of a competitor by the competitor's use of the same or a similar mark. The court analyzed the likelihood of such initial interest confusion using a familiar multi-factor test used in cases involving more traditional types of confusion.
The court found that disclaimers of non-affiliation placed on the defendants' websites would not alleviate any initial interest confusion occurring before users accessed the defendants' sites.
The court also rejected the defendants' reliance on the first sale doctrine. The first sale doctrine recognizes that when a purchaser resells a product under the manufacturer's trademark, and nothing more, there is no actionable infringement or unfair competition. However, the doctrine does not protect resellers who use other entities' trademarks to create the impression that they are favoured or authorized dealers of a product when in fact they are not. In this case, the defendants took active steps to conceal their true identity and to create the impression that they were part of Australia Gold's authorized distribution network.
This article has been reprinted with permission from the March 27, 2006 edition of the World Trademark Law Report.