• The Battle Over UNIX: SCO v. Linux, AIX And The Open Source Community
• Limits To The Copying Of Digital Content: Where We've Been And Where We're Going
• Connecting The Dots: Strategies For Effective Domain Name Portfolio Management
• New Suits May Stop Search Engines From Selling Marks To The Highest Bidder

Mr. Goldman is an assistant professor and Mr. Faulker is a law student at Marquette Law School in Milwaukee, WI.

In the past year, the battle over UNIX has generated significant litigation and lots of anxiety among the open source community and software users alike. However, the multi-front battle is complex, making it hard to understand what's going on and what's at stake. This article explains the disputes, summarizes the latest status, and offers some possible lessons to learn.

The battle involves UNIX, a computer operating system software program. The term "UNIX" describes a family of software products that conform to certain common standards promulgated by the Open Group. The "original" version of UNIX was developed by Bell Labs in 1969. Since then, UNIX's efficiency and reliability have made it a very popular software program, spawning a wide variety of compatible versions. For example, IBM has a version of UNIX called "AIX," which traces its lineage to the original Bell Labs software. Another UNIX-compatible program is "Linux," an open source project that includes some code contributed from AIX by IBM.

Last year, Caldera Systems, Inc., dba The SCO Group ("SCO"), announced that it was going to assert ownership over the original Bell Labs' version of UNIX source code and all derivations of it. SCO's claims sent shock waves through the software community. Given UNIX's ubiquity, SCO's claims potentially implicate anyone using AIX, Linux, and other variations of UNIX.

Indeed, SCO has sparked a war over UNIX, which has resulted in four interrelated lawsuits. The war started when SCO sued IBM for providing AIX to the open source community to enhance Linux. In response to SCO's lawsuit against IBM, Novell declared that it had some rights to the UNIX code, which raised questions about SCO's ownership of the UNIX code. SCO responded by suing Novell for publicly disparaging SCO's title to UNIX.

Realizing that SCO's claims threatened its business (and spooked its customers), Red Hat, a software vendor that markets a Linux version, sued SCO for a declaratory judgment of non-infringement and asserted that SCO's ownership claim misleads Linux consumers.

Finally, SCO took its claims to their logical conclusion by suing two end users of Linux and AIX, AutoZone and DaimlerChrysler.

The war over UNIX has divided the software industry in two. The anti-SCO forces include IBM, Novell, Red Hat and the open source community. The open source community has been particularly active in challenging SCO's claims, generating evidence to contradict them and raising money for a legal defense fund for Linux users.

However, some software industry participants have sided with SCO. A prominent ally is Microsoft, which appears to have helped SCO raise $50 million by introducing SCO to a funding source called BayStar Capital. SCO recently bought out that investment, but the buyout status is presently being disputed. Microsoft's interests in the matter may result from the strong competitive threat that Linux has posed to Microsoft's software program.

This article summarizes the events associated with the battle over UNIX. First, this article discusses the chain of title to the UNIX code. Second, the article summarizes the various litigations and the software community's response to SCO's efforts. Finally, the article offers some lessons that might be learned from these battles.

Who Owns UNIX?
The UNIX code has a complex ownership history. To understand SCO's claim to own the original UNIX code, we need to trace the chain of title that's illustrated by this flow chart:

Unix Code Chain of Title

Bell Laboratories originally developed and owned the UNIX code. In 1984, a court order broke up Bell Systems, and AT&T received ownership of the UNIX code. In February 1985, AT&T granted to IBM a non-exclusive license to the UNIX System V source code. AT&T also had a similar contract with Sequent, later acquired by IBM, which licensed Sequent's version of UNIX (called Dynix/ptx).

In 1990, AT&T reorganized its business and transferred title to UNIX System Laboratories, Inc. ("USL"), a new wholly-owned subsidiary. In 1991, Novell and USL formed a joint venture called Univel, and USL contributed its rights to UNIX to the joint venture. Two years later, Novell bought out USL's interest in Univel and renamed it the Novell UNIX Systems Group. In 1994, Novell transferred the UNIX trademark to X/Open (now called The Open Group). In 1995, Novell sold UNIXWare (Novell's variation of UNIX) and the original Bell Labs version of UNIX to SCO. In 2001, SCO sold the SCO brand, SCO OpenServer (SCO's version of UNIX) and the Bell Labs version of UNIX to Caldera, which now does business under the SCO name.

Through this series of transactions, SCO believes that it acquired all of the rights to the UNIX code and has assumed all of the licensing and sublicensing agreements granting third party rights to UNIX. For example, SCO believes it has assumed AT&T's rights under the licensing agreement between IBM and AT&T from 1985.

However, there remain significant disputes over what rights SCO acquired and how Linux infringes those rights. Twice, SCO has offered proof that Linux contains code copied from the original Bell Laboratories UNIX code base. The first time, SCO showed Linux code that appears identical to UNIX, even including developer comments and spelling errors from the original UNIX code. In December 2003, SCO claimed that portions of 72 Linux files had been "copied verbatim" from SCO's "copyrighted UNIX code base." In response to each SCO offer of proof, the open source community declared that SCO does not own the code it claims was copied and, even if it did, the code was traceable to other legal UNIX sources.

SCO's rights may also be limited by the terms of a confidential 1993 settlement agreement that derives from a lawsuit SCO's predecessors (USL and Novell) brought against the University of California at Berkeley and Berkeley Systems Development (among others) over another variation of UNIX called 4-4BSD. Because the case file was sealed, we do not know what USL/Novell agreed to, but the continued public availability of BSD may favorably impact other variations of UNIX as well.

IBM Litigation
SCO's lawsuit against IBM alleges that IBM exceeded the scope of its 1985 license with AT&T by providing UNIX code for incorporation into Linux. However, SCO has inconsistently pled its complaint against IBM. Initially, SCO asserted that IBM breached the contract, misappropriated trade secrets, and infringed SCO's copyrights and patents. SCO also claimed that IBM engaged in unfair trade practices because IBM undertook these efforts to increase the sales of its new Linux services business and to destroy UNIX's value by boosting the free alternative Linux. SCO later hedged on its copyright infringement claim, suggesting that it was only pursuing a breach of contract action.

Most recently, however, SCO reasserted that IBM infringed its copyrights. SCO filed a second amendment to its complaint, once again claiming copyright infringment. In that amendment, SCO dropped the trade secret misappropriation claim, a logical move given that SCO distributed Linux and posted some UNIX code, in 2002, to its own website. The court allowed the amendment because IBM did not object.

SCO now claims that the 1985 AT&T/IBM license agreement gives SCO ownership over any derivative work made from the UNIX code. If SCO owns the derivative works made by IBM, then IBM breached its contract and infringed SCO's copyright. SCO has revoked the license and is now demanding damages of $5 billion. SCO further claims that IBM has also breached the contracts with Sequent (now owned by IBM). IBM also entered into an October 1996 agreement, a royalty buyout known as Amendment X, that places further restrictions on IBM's use of the software. SCO claims that IBM has breached those provisions too.

IBM has denied virtually all of SCO's claims. IBM has raised the following affirmative defenses: lack of standing, statute of limitations, the economic-loss and independent-duty doctrines, laches, delay, unclean hands, waiver, estoppel, federal law preemption, and improper venue. In IBM's first counterclaim, it alleged that SCO breached the same contracts and engaged in unfair competition and patent and copyright infringement. In its most recent amended counterclaim, IBM dropped one of its claims of patent infringement by SCO.

On March 24, 2004, SCO filed a motion to bifurcate the patent claims into a separate case from the other legal claims, effectively splitting the lawsuit into two independent matters. In response, IBM sought a declaratory judgment ruling that "IBM does not infringe, induce the infringement of or contribute to the infringement of any SCO copyright through its Linux activities, including its use, reproduction and improvement of Linux, and that some or all of SCO's purported copyrights in Unix are invalid and unenforceable."

On June 10, 2004, a federal trial court in Salt Lake City, Utah denied SCO's motion to bifurcate the trial. At the same time, the court pushed the five-week trial, scheduled for April 2005, back to November 2005.

Novell Litigation
Believing that its asset sale to SCO left it with some ownership of UNIX, on May 28, 2003, Novell sent a letter to SCO asking them to verify the allegations SCO made in its complaint against IBM. SCO responded by producing Amendment #2 to the 1995 SCO-Novell Asset Purchase Agreement, but Novell claims to have no record of this amendment.

After Novell publicly questioned SCO's claim to own UNIX, SCO sued Novell on January 20, 2004. SCO claims that Novell slandered SCO's title to UNIX, which has damaged SCO's reputation and relationship with potential customers by claiming to own part of the UNIX code. Novell has moved to dismiss the case, and SCO has opposed the motion. Also, in an unusual procedural move, SCO asked to move the Novell lawsuit from federal to state court.

On June 9, 2004, the judge denied SCO's request to move the case to state court. The judge granted Novell's motion to dismiss the slander of title claim but gave SCO the opportunity to refile the claim if it can more precisely allege the damages it suffered from Novell's actions.

Meanwhile, Novell has recently acquired SuSE, a Linux distributor. By putting Novell in the Linux business, this acquisition gives Novell even more motivation to disprove SCO's claim that it owns all UNIX rights.

End Users Targeted, and Red Hat and Other Vendors Respond
SCO initially targeted IBM but also repeatedly threatened to sue individual users of both Linux and AIX. In December 2003, SCO raised the stakes by sending letters to some of the largest companies in the world, informing them that Linux is an "unauthorized derivative of UNIX." On March 2, 2004, SCO made good on these threats, suing AutoZone for copyright infringement based on AutoZone's use of Linux. (This action is presently stayed.) The next day, SCO sued DaimlerChrysler for breaching a UNIX System V licensing agreement and possibly contributing UNIX source code to Linux. (The bulk of the DaimlerChrysler case was recently dismissed.)

Using a bug in Microsoft Word that exposes a file's "metadata," it was discovered that SCO initially planned to sue Bank of America instead of DaimlerChrysler. No explanation has been offered for why SCO changed its mind.

Recognizing its end users' potential liability, Linux distributor Red Hat sued SCO. Red Hat claims that its software does not infringe and SCO's claims of ownership amount to false advertising, deceptive trade practices, unfair competition, and trade libel. SCO moved to dismiss the complaint, but SCO's motion was denied. Instead, the judge has put the case on hold until the SCO/IBM litigation is resolved.

To assuage customer fears, several software vendors, including Novell, Red Hat, IBM and Hewlett-Packard, have promised to indemnify their customers for SCO's claims. An industry-wide legal defense fund, established by the Open Source Development Labs consortium, is raising $10 million from companies like Intel, IBM and MontaVista Software.

Open Source Community Rallies Against SCO
The open source community consists of software programmers who voluntarily donate their time and skills to make software programs freely available to everyone to use. This community has rallied against SCO for at least five reasons.

First, many community members subscribe to the philosophy that "information wants to be free." SCO's attempts to appropriate UNIX for itself, and in the process remove some UNIX variations from the public domain, runs directly contrary to that philosophy.

Second, should SCO win, the software industry will lose control over a widely-used program. Furthermore, the many hours invested by the open source community in Linux and other infringing UNIX variations may be lost.

Third, the lawsuit injects the specter of legal liability into the operation of the open source community. The open source community is premised on the free exchange of software, which works only if everyone contributing to the collective storehouse has sufficient intellectual property rights to make the contribution. Instead, if even one developer contributes infringing works to the storehouse, all downstream users run the risk of being sued for infringement. This risk of infringement reduces user willingness to adopt open source software. Thus, the SCO litigation jeopardizes the entire open source model by undercutting the attractiveness of the software it produces.

Fourth, Caldera Systems, the corporate entity now trading as SCO, originated as an open source company (originally, its only product was a Linux version). The open source community feels betrayed by a company that formerly supported and marketed open source products.

Finally, many community members feel personally attacked by SCO's actions. One open source programmer commented that the SCO complaint "slandered open source developers in passing, with SCO asserting that the Linux operating system had been worthless junk produced by incompetents before IBM injected stolen SCO technology into it."

Clearly, SCO's actions pose a significant challenge to the open source community. It is a challenge they are not taking lightly.

Lessons to Learn
Users of open source software may not be able to defend against a copyright infringement claim if a contribution to the software was infringing. A person can commit copyright infringement even without knowing that the work was subject to copyright, so even unintentional infringers do not get a free pass under copyright law. Thus, the open source community's success requires that every contributor understand copyright law and provide only non-infringing code. A single bad apple can spoil the barrel.

Before releasing software to the open source community, a company needs to make sure that it has the rights to do so. In this case, Linux's usability depends upon IBM's judgment to contribute some AIX code to it. If IBM misjudged its legal rights to make that contribution, all downstream users of Linux may bear the consequences.

Software end users take on some legal risk of infringement in every software license they make. However, while a software vendor has significant financial incentive to manage this risk, the open source community's diffuseness makes it harder for open source end users to know what they are getting. Therefore, end users of open source software need to choose their software knowingly.

IBM's role in the dispute also prompts a lesson. If IBM contributed code to Linux but lacked the legal rights to do so, it has unwittingly exposed itself to legal liability. Proper diligence of software is necessary before deciding to contribute software to the open source community.

SCO's actions suggest two other lessons. First, a company procuring title to software needs to make sure the chain of title is clean. SCO purchased assets with a complex chain of title. While this is not inherently a problem, the messy history does raise the possibility that one or more of the transactions along the way did not transfer all of the rights to the code, leaving SCO with some risk that its lawsuit will unravel as more questions are asked about each step in the chain of title. Therefore, thorough diligence is warranted before bringing a lawsuit over assets with a complex past.

Second, posting source code to a website will significantly reduce or eliminate any ability to claim trade secret protection for that code. SCO's claim that UNIX is protected by a trade secret is substantially undercut by prior distributions of the purportedly secret code. Thus, decisions to post source code to the web should be considered for their consequence on intellectual property protection.

In light of these lessons, regardless of who wins or loses the lawsuits, we may all be a little wiser about managing software assets and using open source software based on the war over UNIX.

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Before the ubiquity of the Internet, technology prognosticators spoke longingly of "digital convergence" – a future in which computers would be as likely to play music, record a television show or place a phone call as they were to balance a checkbook or print a letter. To a surprising extent, their predictions are coming true. But while technologists may have been well prepared, lawmakers seem to have been caught by surprise. Statutes and legal rulings simply did not anticipate the scope or speed of this sea change, leaving widespread uncertainty about how the law treats digital information.

Nowhere is this uncertainty more evident than in the entertainment industry. Widespread broadband Internet access, recordable CDs and DVDs, and increasingly powerful PCs have given the public the tools necessary to copy and distribute their music and movie libraries with pristine perfection. But confusion about the legality of doing so abounds, with industry executives taking every opportunity to denounce such activities as illegal.

Rules regarding the right to copy songs and movies may seem complex and inconsistent. But although the law in this area is still developing, there are some answers to be had. They usually derive from one of three sources: the "fair use" doctrine ensconced in the federal Copyright Act, the Digital Millennium Copyright Act of 1998 ("DMCA"), and the Audio Home Recording Act of 1992 ("AHRA").

The source that provides the most direct guidance is also the narrowest in reach: the AHRA. It was enacted in 1992 in response to the development of the digital audio tape ("DAT"), a media that, for the first time, permitted consumers to make exact digital audio recordings. The Act was intended as a compromise between those who wanted to codify a consumer's right to home taping of music, and those who wanted to ensure that the advent of perfect digital copies did not bring about industry-crippling piracy. The Act offers consumers and digital audio equipment manufacturers immunity from suit for noncommercial copying of music, but requires that digital audio recording devices incorporate technical measures to permit only "first generation" copies of digital music files. In other words, the devices must not allow copies of copies to be made.

The AHRA, which preceded the commercialization of the Internet and the recordable CD, failed to provide a lasting solution to the digital recording quandary, however. Its limitations became evident in a 1999 case challenging the legality of the first portable MP3 player. Examining definitional language in the act, the U.S. Court of Appeals for the Ninth Circuit in Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys., Inc. concluded that the AHRA did not apply to music stored on computer hard drives because the "primary purpose" of computers was not to make digital audio recordings and the hard drives contained computer programs in addition to music files. As a result, the AHRA does not legally require computers to incorporate circuitry preventing them from making additional copies of music stored on their hard drives. By extension, individuals who use computers to duplicate digital music files presumably do not enjoy the AHRA's immunity from suit. Because virtually all copies of digital music today have been "ripped" or downloaded onto computer hard drives, the AHRA has been left with little role to play in today's digital tumult.

While the AHRA has provided little return for the music industry, the movie industry has had more luck in its backing of the DMCA. Controversial since its inception, a key aspect of the DMCA restricts the use and distribution of devices designed to bypass encryption schemes or other "technological means" which limit access to copyrighted content.

Most commercial DVDs employ an encryption scheme known as "CSS" (for "Content Scrambling System"), which is intended to prevent the movies on the discs from being copied or played on unauthorized machines. The encryption scheme is weak, and was cracked by a Norwegian teenager in 1999. Movie studios argued that, although the teen's "DeCSS" decryption software made it technically possible to unscramble DVDs, using it (even simply to watch, and not copy, a DVD) was illegal under the DMCA. In 2000, a New York judge sitting in the case of Universal City Studios, Inc. v. Reimerdes bought the argument, and enjoined a web site from posting the decryption software and making it available to the public. Reimerdes and decisions following it have effectively kept the tools to decrypt DVDs out of the hands of all but the most technically savvy computer users.

The third source of guidance, that embodied in the doctrine of "fair use," is perhaps the least clear but most sweeping. It is this doctrine that says that some degree of unauthorized copying, in the appropriate circumstances, is permissible under federal copyright law. Fair use exists in both commercial and noncommercial contexts, although it is given much more latitude in the latter than the former. In the entertainment arena, fair use took a huge leap forward in 1984, when the U.S. Supreme Court reached its decision in Sony Corp. of Am. v. Universal City Studios, Inc. The High Court in that case held that the public's use of VCRs to tape television broadcasts qualified as fair use, because it amounted to no more than "time shifting" the content to a period more convenient for the viewer. In Diamond Multimedia, the Ninth Circuit took that a step further, suggesting that the ripping of CDs and the transferring of the resulting music files to a portable MP3 player would qualify as fair use because it amounted to mere "space shifting."

Fair use has its limits, however, and courts have been loathe to allow large-scale copying and sharing of copyrighted content on the Internet. In one early case, UMG Recordings, Inc. v. MP3.Com, Inc., a federal trial judge in New York rejected a "fair use" argument from a company that had purchased thousands of music CDs and copied them to its servers without permission. The idea was to "stream" the songs over the Internet to users who had previously "proved" they owned the music in question by registering their CDs with the defendant's system. The New York court dismissed as irrelevant the argument that the copying was acceptable because the songs were heard only by individuals who had already purchased them.

Similarly, in two series of judicial opinions addressing the legality of online file sharing services – the Napster decisions and the Grokster decisions – the courts had little trouble concluding that the anonymous sharing of music between individuals using those systems constituted illegal infringement. Those cases instead turned on whether the defendant companies could be held responsible for their users' infringing behavior. In the A&M Records, Inc. v. Napster, Inc. line of decisions, the Ninth Circuit concluded that Napster's involvement was sufficiently direct to make the company liable. While Napster did not actually store or copy the music files being illegally traded, the company's servers did maintain and manage the index of available songs and provided a central hub to which all users connected. This was an important factor in the Court's decision essentially to shut the business down.

In contrast, the federal trial court in MGM Studios, Inc. v. Grokster, Ltd. found that the defendants were more removed from the sharing and trading process. Consequently, that court concluded that the defendants were not responsible for infringing activity that took place on their networks. (This ruling is on appeal.)

A picture is finally beginning to emerge, although it is not yet in focus. The entertainment industry is looking to both technology and the law to limit the bite that piracy takes out of its bottom line. For protected content (such as CSS-scrambled DVDs and copy-protected CDs), the DMCA provides a strong club for copyright owners to use to limit unauthorized copying – even in a noncommercial setting. The music industry is still struggling to find a copy-protection technique compatible with the millions of CD players already in the hands of consumers, however. That leaves music largely unprotected by the DMCA, and open to questions of fair use. While there may be support for the proposition that some private duplication of music will qualify as fair use (such as taping a CD to permit it to be played in a car's cassette player, or creating a "mix" of songs already owned by the consumer), it likely will be up to the courts to define the limits of these activities.

(Originally published by Gesmer Updegrove LLP. Reprinted with permission.)

Ms. Holmes is Cott's global intellectual property counsel, based in Tampa, FL. Ms. Yates is an associate at Troutman in Atlanta, GA.

When does the domain name registration for your Internet website expire? Do you own <www.yourcompanyname.biz>? Has a disgruntled employee or customer registered <yourcompanybites.com>? If you don't know the answers to these questions, surely you can reconcile the status with a quick call to your company's information technology department. Or your in-house legal team? Outside counsel, perhaps?

Domain names are widely recognized as Internet addresses, but they are equally important and essential as effective advertising and promotional vehicles. Still, many companies are uncertain as to which domain name registrations they own. Moreover, they may not have considered whether newly emerging domain name registrations should be added to their current portfolios.

In summer 2003, the domain name extensions ".pro," ".la," and ".kids.us" were introduced, adding to the host of generic, restricted, country code, and internationalized domain names that were previously available. Because the broad array of domain name extensions may appear to be overwhelming, your company may have settled on a ".com" domain name and gladly resigned itself not to keeping up with the latest domain name introductions. That strategy (or lack thereof), however, could prove detrimental. Does your company have an effective plan for domain name portfolio management?

At best, without a domain name organizing system, your company may miss the opportunity to capitalize on audiences who seek your products or services, or information about your company, at a particular domain name. At worst, left to the devices of cybersquatters or disgruntled employees and customers, domain names can be manipulated to tarnish your company's trademarks and diminish its public goodwill. So, with an ever-growing population of domain name extensions, how do you "connect the dots?"

Consider the following suggestions:

1. Identify all of your company's domain name registrations. Some may be apparent. Others may require sleuthing. Designate a domain name "czar" to contact your information technology team, attorneys, business managers, advertising staff, and others in your organization who may have registered domain names on behalf of the company. Certain domain name registrars can assist in identifying your registrations through software tools, which reconcile trademarks to domain names, search for domain names by owner, and identify domain names that contain key words. As you compile a comprehensive list of your company's domain name registrations, note their expiration dates. Moving forward, the czar can serve as a gatekeeper for portfolio information, additional registrations, and updates to your company's current portfolio.
   
   
2. Decide which registrations to maintain and which to abandon. Consider which domain names solicit the most Internet traffic. Which ones fit with your company's forward-looking marketing strategies? Are there registrations that are necessary only for a finite time span and in a limited geographic area? Keeping in mind that different extensions merit different registration fees, how many domain names will your company's budget allow?
   
   
3. Choose new domain names to register. If there are alternate spellings or common misspellings of your company's name or trademark, consider registering those domain names to avoid "typosquatting." Be aware that, when domain names incorporate hyphens, each word will be read separately by Internet search engines. This could result in higher rankings among search engine results. Do disparaging variants of your company's most popular trademarks merit defensive registrations? Does your company offer products or services outside of the United States? If so, be sensitive that some populations strongly prefer domain name extensions that are country code specific (for example, ".co.uk," ".de," and ".ar") in lieu of the generic ".com" or ".net" variants. Also, internationalized domain names are an option to attract consumers who prefer a non-English language. Whatever domain names your company decides to add to its portfolio, ensure that each of them directs traffic to your company's web site or an effective alternative site.
   
   
4. Adopt a registrar that offers portfolio management services. For example, ask whether the registrar can set auto-renewals for your company's domain names to prevent inadvertent registration lapses. Request services that allow your company easily to update registration information for all of its domain names at once. Also, be certain that the registrar can accommodate your company's expanding portfolio by evaluating whether it can host diverse domain name extensions, including country code domain names. Seek free educational services such as bulletins or seminars to keep you abreast of new domain name extensions as they become available. In keeping with this, inquire whether the registrar regularly participates in "sunrise" registration periods to assist trademark owners in pre-registering emerging domain names before they become available to the public.
   
   
5. Create an email address such as <domainnames@yourcompany.com> for receiving information about your company's domain name registrations. Make certain that the email account can be accessed by more than one person. This failsafe helps to ensure that important information will be received by someone in your organization, even if the "czar" should leave the company.
   
   
6. In compiling the list of domain names that your company owns, you may identify some registrations that it would like to acquire, and yet others that were registered without its permission. The Internet Corporation for Assigned Names and Numbers has established the Uniform Dispute Resolution Policy as an efficient means for resolving disagreements about domain name ownership. Moreover, the federal Anticybersquatting Consumer Protection Act is an alternate domain name dispute resolution vehicle, which was enacted to protect trademark owners. Another measure, should your company opt not to take legal action, is to establish a domain name monitoring account so that it can register desired domain names as soon as they become available.

Take affirmative steps to identify and organize your company's domain names. Use resources such as legal counsel, information technology professionals, and registrars to keep abreast of news and developments that affect your company's domain names and trademarks. Adopting and maintaining an effective management strategy will help your company to keep connecting the ever-extending domain name dots.

(Prior version published by Troutman Sanders LLP. Reprinted with permission.)

The newest battle in the Internet trademark war involves search engines' practice of selling to the highest bidders "keywords" that consist of others' trademarks. For example, a used car dealership might buy the keyword "Honda," so that its advertisement or website will appear prominently whenever someone searches for Hondas using a search engine. This marketing technique comes in two basic forms: "key banner advertising" and "paid placement." Both forms finance search engines' services, but both also present trademark infringement issues.

You may have seen key banner advertisements on your search results page. Some search engines, including Google and Yahoo!, sell keywords to advertisers who want their advertisements to appear when an Internet user searches for a particular term. For example, a recent Google search for "Honda" (also a trademark of Honda Motor Company) produced, in addition to the search results, four "Sponsored Links" appearing on the right side of the screen. These banner advertisements were not for Honda Motor Company, but for pricequotes.com, carsdirect.com, myCarQuote.com, and eBay – each with a direct link to that website.

Paid placement operates similarly. Search engines generally rank search results by relevance according to the number of times a keyword appears on the website or in its hidden "metatags." Paid placement lets a company have its website appear prominently when an Internet user searches for a particular keyword, regardless of how many times the keyword appears on the website or in its metatags. For example, a recent search for "Honda" in yahoo.com produced the following top four results: carpricesecrets.com, autoweb.com, autos.yahoo.com, and pricequotes.com. The official Honda website appeared in fifth place.

Arguably, these examples may not constitute infringement if websites like carsdirect.com sell Honda brand cars. But what if the Ford Motor Company paid google.com or yahoo.com for the keyword "Honda," so that each time an Internet user keyed in the term "Honda," Ford Motor Company's advertisements and website were displayed more prominently than Honda's official website? Can the search engine's act of selling a trademark as a keyword constitute trademark infringement? Will consumers be confused by banner ads and paid placements? Recently, three trademark owners filed suit in federal court against search engines for selling their trademarks as keywords.

First, Mark Nutritionals, owner of the trademark BODY SOLUTIONS for dietary products, sued Internet search engines Overture and Alta Vista. Mark Nutritionals alleged that the search engines committed trademark infringement by allowing advertisers and competitors to purchase the keyword "body solutions." Mark Nutritionals complained that when searchers ran "body solutions" through Overture or Alta Vista, they were led to competitors' websites and advertisements instead of the real Body Solutions website.

Mark Nutritionals dismissed this case after it filed for bankruptcy. But then American Blind and Wallpaper took up the fight. In January 2004, American Blind made similar claims against Google for trademark infringement in a case initially filed in federal court in the Southern District of New York and later refilled in the Northern District of California. American Blind claims that when Internet users search google.com for the keywords "American" and "blind" or "wallpaper," the top results include names and links to American Blind's competitors who have allegedly paid google.com for the keywords.

Most recently, on May 4, 2004, Geico joined the fight with a similar suit against Google and Overture in the Eastern District of Virginia for selling its GEICO trademark as a keyword.

American Blind's and Geico's cases each present a novel issue, but the outcome may be affected by courts' prior holdings that the use of trademarks in "metatags" can constitute infringement. "Metatags" are hidden keywords that website designers embed into their websites. Search engines home in on metatags when an Internet user searches for a keyword in an effort to produce a relevant search result. A metatag consisting of a competitor's trademark can be infringing if it is inserted intentionally and in a bad-faith effort to divert Internet users to the metatagger's website.

American Blind and Geico may argue that paid placement and key banner advertising are simply different forms of metatagging. Instead of flooding websites with metatags consisting of American Blind's and Geico's trademarks in order to divert Internet traffic, the plaintiffs' competitors have purchased their trademarks as keywords. Under this theory, paid placement and key banner advertising are likely to cause confusion because Internet users expect their keyword search results to appear in order of relevance, not according to advertising expenditures. In addition, American Blind recently amended its complaint to allege that Google has encouraged trademark infringement by soliciting American Blind's competitors with offers to link their brands with American Blind's trademarks through the purchase of keywords.

A recent U.S. Court of Appeals, Ninth Circuit, decision may also help American Blind and Geico. In Playboy Enterprises, Inc. v. Netscape Communications Corp., Playboy sued Internet search engine companies Netscape and Excite for trademark infringement and dilution for allowing advertisers to post pornographic banner advertisements that appeared when Internet users searched for the keywords "playboy" and "playmate." The court denied summary judgment for the search engines, finding that a genuine issue of material fact existed as to whether Internet users were likely to be confused when they encountered the pornographic advertisements.

In response to American Blind's lawsuit, and the potential it has created for similar suits, Google has asked a California federal court to declare that its key banner advertising and paid placement services are legal and do not infringe on American Blind's trademark. Google has moved to dismiss both these cases on a theory that Google does not use American Blind's or Geico's trademarks in interstate commerce. Oral arguments on that issue are scheduled for the beginning of September and end of August 2004, respectively.

American Blind's and Geico's cases may define search engines' liability, if any, for selling trademarks as keywords to the highest bidders.