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The Playboy bunny hopped out of the nation’s largest appellate court Wednesday with a ruling that could put a wrinkle in one Internet advertising business model. The 9th U.S. Circuit Court of Appeals — with the reservations of at least one judge on the unanimous panel — ruled that search engines are barred from displaying advertising related to trademarked search terms. In other words, you can’t point customers in the direction of one company if they’re searching for another. “The Internet user will have reached the site because of defendant’s use of [the] mark,” Senior Judge Thomas G. Nelson wrote. “Such use is actionable.” Senior Judge Betty Fletcher and Judge Marsha Berzon joined Nelson. Playboy Enterprises Inc. sued Netscape Communications Corp. and Excite Inc. for selling advertisers the use of the trademarked terms “playboy” and “playmate” to generate banner ads on the search engine’s Web site. Playboy is upset that the use of their marks triggers ads featuring explicit content. The process, called “keying,” helps Web sites generate revenue by increasing the number of times Internet surfers click on the advertisement. Playboy Enterprises v. Netscape Communications, 04 C.D.O.S. 317, echoes 1999′s Brookfield Communications v. West Coast Entertainment Corp., 174 F.3d 1076. In a concurrence, however, Berzon wrote that Judge Diarmuid O’Scannlain’s 5-year-old Brookfield decision needs to be revisited, since it leads to trademark violations where an ad is clearly labeled as something other than Playboy. “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,” Berzon wrote, declaring Brookfield wrong and inviting an attempt to overturn it en banc. Used to attract attention from search engines, metatags are embedded in the HTML code of a Web page. The 9th Circuit remanded the case so the parties can fight over a study commissioned by Playboy showing that most Internet surfers believe ads generated by trademarked search terms come from the company owning the term. If the defendants can show that the confusion is minimal, Playboy’s case could presumably be tossed. Barry Felder, a partner at New York’s Brown Raysman Millstein Felder & Steiner who represented Playboy, was happy with the result. “The decision below suggested that the sale of trademarks in keyword packages simply was not a trademark violation,” Felder said. “This decision makes clear that was incorrect.” Jere Webb, a partner in Stoel Rives’ Portland office, said Wednesday’s decision — even without en banc review — seems to limit Brookfield. He pointed to a passage making clear that the panel is not addressing a situation where a banner ad clearly identifies its source. Brookfield, he added, contains no such caveat. “That’s a dramatic limitation of Brookfield, and they don’t even acknowledge it,” said Webb, who is not involved in the case. Webb said the law in this area is murky and evolving. For example, he said it might be unlawful for a Web site to use a competitor’s trademarked metatags to attract customers, even if a company can otherwise use the terms to compare its product to the competition. “Am I prohibited from putting in metatags what I put on the front page of my Web site?” Webb said. Brookfield has been controversial, with critics saying it went too far in extending trademark law into cyberspace. “Obviously, Judge Berzon did not like the Brookfield decision,” Felder said, adding that it is regarded as a leading decision in the field. “I’m not advocating that Brookfield be limited in any way.” It is at least the second time Playboy has gone to the 9th Circuit to protect its marks. In 2002, the court allowed former Playmate of the Year Terri Welles to use the “playboy” and “playmate” metatags for her personal Web site, saying there was no alternative to describe herself. Jeffer, Mangels, Butler & Marmaro partner Jeffrey Riffer, a lawyer for Netscape and Excite, said he hasn’t decided on the en banc invitation, but added, “We think we can win this case at trial.” He, too, felt that the decision chipped away at Brookfield. “I think a fair reading of this case is that Brookfield was written too broadly, and even this case is starting to hem it in,” Riffer said. “Targeted advertising is here to stay. The only nuance in this case is that advertisers should use their name in the ad.”

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