The ruling, delivered Monday by the 2nd U.S. Court of Appeals, reversedthat confined WhenU from selling pop-ups triggered by 1-800-Contacts' trademarks, in violation of the Lanham Act, the U.S. trademark act.
"We hold that, as a matter of law, WhenU does not 'use' 1-800's trademarks within the meaning of the Lanham Act when it includes 1-800's Web site address in an unpublished directory of terms that trigger delivery of WhenU's (ads) to computer users," according to the ruling.
The case is a victory for WhenU and could be a benchmark for other advertising software makers that rely on trademarks as a means to sell advertising.
It could also stand to affect the lucrative search advertising market dominated by Google, which similarly sells text ads by allowing marketers to bid on branded or trademarked keywords. Googleof several complaints related to its advertising practices.
Legal experts say it's ultimately a win for consumers.
"The court made it clear that trademark owners cannot use trademark law to interfere with a consumer's choice about how to organize their desktop or the tools consumers use to find information," said Eric Goldman, assistant professor of law at Marquette University Law School who worked with the Electronic Frontier Foundation on the amicus brief in support of WhenU.
WhenU CEO Bill Day applauded the decision and said it will give the company more credibility with advertisers. "There was some lack of clarity (legally) that caused some advertisers pause. Now we'll be able to approach them with confidence," he said.
A legal representative for 1-800 declined to comment.
WhenU makes downloadable software that displays ads on an estimated 12 million users' PCs, according to the company. The software is often distributed with popular free downloads such as screensavers or peer-to-peer file-sharing applications like BearShare so that both parties can profit from consumer usage. Once downloaded, a consumer might receive a WhenU ad promoting Target.com while he or she is visiting Walmart.com, for example. Advertising fees are split among partners.
However, some advertisers have compared the practice to theft, saying it preys on the intellectual property rights of major brand names. WhenU has fielded legal complaints from other companies including Wells Fargo.
WhenU has defended its practices by saying that it does not allow marketers to openly buy ads based on rival trademarks. Rather it uses an internal system, containing different Web site addresses and keyword search terms, to randomly display ads that are relevant to a Web surfer's actions.
In contrast, Google allows marketers to bid on the trademarks of rivals in order to appear in keyword-related search results.
In Monday's court filing, the judge said that because WhenU did not use the plaintiff's trademark in ads, nor openly sell the trademark name as a trigger word, it was not in violation of the law.
1-800 originally filed its lawsuit in December 2003. It charged WhenU and rival Vision Direct with infringement when the adware maker displayed pop-up ads of its competitor while Web surfers visited the 1-800 Web site.
In an early blow to WhenU, a New York district court granted a preliminary injunction in January 2004 prohibiting WhenU from triggering pop-ups when people visit 1-800-Contacts' Web site.