Court Opinion

ID: 4710393
Source: CourtListenerOpinion
Date Created: 2021-08-11 00:00:59.667799+00
Date Added: 2024-06-11T08:07:03.051351
License: Public Domain

Case: 20-10936      Document: 00515973104         Page: 1     Date Filed: 08/10/2021

           United States Court of Appeals
                for the Fifth Circuit
                                                                        United States Court of Appeals
                                                                                 Fifth Circuit

                                                                               FILED
                                                                         August 10, 2021
                                   No. 20-10936                           Lyle W. Cayce
                                                                               Clerk

   Jim S. Adler, P.C.; Jim Adler,

                                                            Plaintiffs—Appellants,

                                       versus

   McNeil Consultants, L.L.C., doing business as Accident
   Injury Legal Center; Lauren Von McNeil; Quintessa
   Marketing, L.L.C., doing business as Accident Injury Legal
   Center,

                                                          Defendants—Appellees.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                           USDC No. 3:19-CV-2025

   Before Jones, Southwick, and Costa, Circuit Judges.
   Leslie H. Southwick, Circuit Judge:
          Plaintiffs allege that Defendants purchased trademark terms as
   keywords for search-engine advertising, then placed generic advertisements
   that confused customers as to whether the advertisements belonged to or
   were affiliated with the Plaintiffs. The district court dismissed the complaint
   for failure to state a claim and denied Plaintiffs’ motion for leave to amend
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                                     No. 20-10936

   the complaint. We REVERSE the dismissal, VACATE the denial of leave
   to amend, and REMAND for further proceedings.

               FACTUAL AND PROCEDURAL BACKGROUND
          Because this is an appeal from a Rule 12(b)(6) dismissal, we recount
   the facts as alleged in Plaintiffs’ complaint. Plaintiffs are Jim S. Adler P.C., a
   personal injury law firm in Texas, and Jim Adler, the firm’s founder and lead
   attorney (collectively, “Adler”). Adler has offices in Houston, Dallas, San
   Antonio, and Channelview and employs approximately 300 people, including
   27 lawyers.
          Adler spends significant amounts of money to market his law practice.
   In his marketing on television, radio, and billboards, Adler has consistently
   used several trademarks, including JIM ADLER, THE HAMMER, TEXAS
   HAMMER, and EL MARTILLO TEJANO (collectively, the “Adler
   marks”).
          Adler also uses these marks in internet advertisements.             Adler
   purchases Google “keyword ads” using the Adler marks as search terms.
   When a consumer performs a Google search using an Adler mark as a search
   term, Adler’s advertisements appear alongside the results produced by the
   search engine’s algorithm.
          The Defendants are two entities, McNeil Consultants, LLC and
   Quintessa Marketing, LLC, both of which do business as Accident Injury
   Legal Center, and their sole owner, Lauren Von McNeil (collectively,
   “McNeil”). McNeil operates a lawyer-referral website and call center.
   McNeil solicits and refers personal injury cases to lawyers with whom
   McNeil has a referral agreement that provides for compensation for referrals.

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          Like Adler, McNeil advertises on the internet. Also like Adler,
   McNeil purchases Google keyword ads for the Adler marks. This ensures
   that an advertisement for McNeil’s services appears when a user performs a
   Google search using an Adler mark as a search term.              McNeil bids
   increasingly higher amounts to ensure that her advertisements appear next to
   or before Adler’s advertisements. McNeil’s advertisements “do not identify
   a particular lawyer or law firm as the source of the advertisement. Instead,
   the advertisements are designed to display generic terms that consumers
   might associate with any personal injury firm.”
          McNeil purchases what is known as a “click-to-call” advertisement.
   If a user clicks on the advertisement using a mobile phone, the advertisement
   causes the user’s phone to make a call rather than visit a website. McNeil’s
   representatives answer the telephone using a generic greeting.            The
   complaint alleges that the ads “keep confused consumers, who were
   specifically searching for Jim Adler and the Adler Firm, on the phone and
   talking to [McNeil’s] employees as long as possible in a bait-and-switch effort
   to build rapport with the consumer and ultimately convince [the consumer]
   to engage lawyers referred through [McNeil] instead.”
          Adler sued McNeil, alleging claims for trademark infringement in
   violation of the Lanham Act and claims under Texas law. McNeil moved to
   dismiss the complaint for failure to state a claim.
          A magistrate judge recommended granting McNeil’s motion. The
   magistrate judge construed Adler’s claims as based solely on McNeil’s
   purchase of the Adler marks as keywords for search-engine advertisements.
   He found that the allegations regarding the bait-and-switch scheme were
   “conclusory.”
          The magistrate judge also concluded that Adler could not plead a
   likelihood of confusion as a matter of law because McNeil’s advertisements

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   are generic and do not incorporate the Adler marks. He recommended that
   the district court decline to exercise supplemental jurisdiction over Adler’s
   state law claims.
          Adler objected to the magistrate judge’s findings, conclusions, and
   recommendation. Adler also filed a motion for leave to amend the complaint
   and a proposed second amended complaint. In that motion, Adler explained
   that he commissioned a double-blind survey of 400 Texas residents. That
   survey purportedly shows that “between 34% and 44% of participants clicked
   McNeil’s ad believing it to be put out by, affiliated or associated with, or
   approved by Adler.”
          The district court adopted the findings, conclusions, and
   recommendation of the magistrate judge and dismissed the complaint. The
   court denied Adler’s motion for leave to amend the complaint on the grounds
   of futility. The court concluded that the Lanham Act claims in the proposed
   second amended complaint would fail as a matter of law, even if amended,
   because they would be “based solely on the purchase of [Adler’s] trademarks
   as keywords for search engine advertising” and because they did not visibly
   incorporate Adler’s trademarks. Adler appealed.

                                  DISCUSSION
   I.     Dismissal
          We review de novo a district court’s ruling on a motion to dismiss
   under Rule 12(b)(6). Wampler v. S.W. Bell Tel. Co., 597 F.3d 741, 744 (5th
   Cir. 2010). In our review, we “accept all well-pleaded facts as true and draw
   all reasonable inferences in favor of the nonmoving party.” Morgan v.
   Swanson, 659 F.3d 359, 370 (5th Cir. 2011) (en banc). To survive a motion to
   dismiss, a complaint must “contain sufficient factual matter, accepted as

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   true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,
   556 U.S. 662, 678 (2009) (quotation marks and citation omitted).
          Adler has alleged claims for trademark infringement in violation of
   Sections 32 and 43 of the Lanham Act, which are codified at 15 U.S.C.
   § 1114(1) and 15 U.S.C. § 1125(a). Section 32 creates a cause of action for
   infringement of registered marks; Section 43 creates a cause of action for
   infringement of unregistered marks. Amazing Spaces, Inc. v. Metro Mini
   Storage, 608 F.3d 225, 236 n.8 (5th Cir. 2010). The same elements apply to
   both causes of action. Id. at 235–36 & n.8.
          To plead a claim for trademark infringement in violation of the
   Lanham Act, a plaintiff must allege that: “(1) [the plaintiff] possesses a legally
   protectable trademark and (2) [the defendant’s] use of this trademark
   ‘creates a likelihood of confusion as to source, affiliation, or sponsorship.’”
   Streamline Prod. Sys., Inc. v. Streamline Mfg., Inc., 851 F.3d 440, 450 (5th Cir.
   2017) (quoting Nola Spice Designs, L.L.C. v. Haydel Enters., Inc., 783 F.3d
   527, 536 (5th Cir. 2015)). For purposes of the motion to dismiss, McNeil
   does not dispute the ownership or validity of the Adler marks, nor does
   McNeil dispute the use of the Adler marks. The sole issue is whether Adler
   adequately alleged a likelihood of confusion.
          A.      Likelihood of confusion and search-engine advertising
          A likelihood of confusion is “[t]he gravamen for any action of
   trademark infringement.” Soc’y of Fin. Exam’rs v. Nat’l Ass’n of Certified
   Fraud Exam’rs Inc., 41 F.3d 223, 225 (5th Cir. 1995) (quoting Marathon Mfg.
   Co. v. Enerlite Prods., 767 F.2d 214, 217 (5th Cir. 1985)). To evaluate whether
   there is a likelihood of confusion, our circuit uses a non-exhaustive list of
   factors known as the “digits of confusion.” Xtreme Lashes, LLC v. Xtended
   Beauty, Inc., 576 F.3d 221, 227 (5th Cir. 2009). The initially identified digits
   are: “(1) the type of trademark; (2) mark similarity; (3) product similarity;

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   (4) outlet and purchaser identity; (5) advertising media identity; (6)
   defendant’s intent; (7) actual confusion; and (8) care exercised by potential
   purchasers.” Id. Besides being simply examples, those eight digits also are
   fact-specific and flexible, and “[n]o digit is dispositive.” Id.
           For trademark infringement claims in the context of internet searches,
   plaintiffs often allege a specific type of confusion known as initial interest
   confusion, as Adler has done here. Initial interest confusion is confusion that
   “creates initial consumer interest, even though no actual sale is finally
   completed as a result of the confusion.” Elvis Presley Enters., Inc. v. Capece,
   141 F.3d 188, 204 (5th Cir. 1998). We have held that initial interest confusion
   is actionable under the Lanham Act. Id. at 193, 204.
           We have not yet had an opportunity to analyze initial interest
   confusion in the context of search-engine advertising, but we find some
   useful guidance. In one nonprecedential opinion, 1 we analyzed initial interest
   confusion in the context of so-called “meta tags,” which are “essentially
   programming code instructions given to on-line search engines.” Southwest
   Recreational Indus., Inc. v. FieldTurf, Inc., No. 01-50073, 2002 WL 32783971,
   at *7 & n.27 (5th Cir. Aug. 13, 2002). Meta tags are “normally invisible to
   the Internet user,” but they “are detected by search engines and increase the
   likelihood that a user searching for a particular topic will be directed to that
   Web designer’s page.” Id. at *7 n.27 (quoting Nat’l A-1 Adver., Inc. v.
   Network Sols., Inc., 121 F. Supp. 2d 156, 164 (D.N.H. 2000)). Because meta
   tags direct internet traffic and are invisible to the internet user (absent the
   user taking additional steps), meta tags are similar to keyword advertising.

           1
              We discuss Southwest Recreational here notwithstanding its nonprecedential
   value. We do so because of the dearth of relevant cases — published or unpublished — in
   this circuit, and the nuances of the opinion’s discussion of the issues are informative. For
   similar reasons, we also discuss a few Ninth Circuit opinions.

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   See Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020, 1034 (9th
   Cir. 2004) (Berzon, J., concurring).
          The claim in Southwest Recreational was that the defendant’s use of
   trademark terms in meta tags on its website violated the Lanham Act because
   such use created initial interest confusion. Southwest Recreational Indus., Inc.,
   2002 WL 32783971, at *7. A jury found against the plaintiff on this claim,
   and the district court denied the plaintiff’s request for a permanent
   injunction. Id. at *2. On appeal, the plaintiff argued that the district court
   erred because “meta tagging another company’s trademark necessarily
   constitutes trademark infringement.” Id. at *7. We rejected that argument.
   In support, we cited Ninth Circuit cases and explained that “[t]he meta tag
   cases in which our sister circuits have found trademark infringement involve
   either evidence of customer confusion or evidence that the meta tags were
   used illegitimately.” Id. (discussing Brookfield Commc’ns, Inc. v. W. Coast
   Ent. Corp., 174 F.3d 1036, 1061–65 (9th Cir. 1999) and Playboy Enters., Inc. v.
   Welles, 279 F.3d 796, 804 (9th Cir. 2002)). Finding no evidence of either, a
   panel of this court held that “the district court’s refusal to find trademark
   infringement was not clearly erroneous.” Id. at *8.
          Since then, the Ninth Circuit has continued to refine its
   understanding of confusion in the context of internet-search cases. In one
   opinion, that court held that the use of trademarks as keywords for search-
   engine advertisements could create initial interest confusion if consumers
   searching for trademark terms initially believe that “unlabeled banner
   advertisements” are links to sites that belong to or are affiliated with the
   trademark owner. Playboy Enters., Inc., 354 F.3d at 1025–27. A separate
   concurrence urged the court to distinguish between claims alleging confusion
   and those alleging distraction:
         There is a big difference between hijacking a customer to
         another website by making the customer think he or she is

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          visiting the trademark holder’s website (even if only briefly),
          which is what may be happening in this case when the banner
          advertisements are not labeled, and just distracting a potential
          customer with another choice, when it is clear that it is a choice.
   Id. at 1035 (Berzon, J., concurring).
          The Ninth Circuit eventually adopted Judge Berzon’s concurrence,
   concluding that “it would be wrong to expand the initial interest confusion
   theory of infringement beyond the realm of the misleading and deceptive to
   the context of legitimate comparative and contextual advertising.” Network
   Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1148 (9th Cir.
   2011). The author of a leading treatise also agrees with this approach. See J.
   THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR
   COMPETITION § 25A:8 (5th ed. 2021 Update). That author offered an
   analogy:
          [A]ssume that [a] person shopping for a car types in a search
          engine the word TOYOTA and finds on the search results web
          page a clearly labeled advertisement for VOLKSWAGEN.
          This occurred because, hypothetically, Volkswagen purchased
          from the search engine the keyword “Toyota.” If that
          computer user then ultimately decides to buy a
          VOLKSWAGEN instead of a TOYOTA, that is not a purchase
          made by mistake or as a result of confusion. If that ad and link
          is clearly labeled as an advertisement for VOLKSWAGEN, it
          is hard to see how the web user and potential car buyer is likely
          to be confused by the advertising link.
   Id. Conversely, “[i]nitial interest confusion could occur only if the web user
   mistakenly thought she was going to a web site about TOYOTA cars when
   she clicked on the keyword link for VOLKSWAGEN. That would depend
   on how clearly labeled was the advertising link for VOLKSWAGEN.” Id.
          We agree with Southwest Recreational, the Ninth Circuit opinions, and
   the treatise author that in the context of internet searches and search-engine

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   advertising in particular, the critical issue is whether there is consumer
   confusion. Distraction is insufficient.
          B.     Adler’s claims
          We now turn to Adler’s trademark infringement claims.             As a
   threshold issue, Adler argues that because the likelihood of confusion
   element requires a fact-dependent evaluation, whether it has been alleged
   cannot be decided on a motion to dismiss. We agree that the likelihood of
   confusion element requires a fact-specific and contextual inquiry, see Xtreme
   Lashes, LLC, 576 F.3d at 227, but that does not mean that it can never be
   decided at the motion to dismiss stage. Where the factual allegations
   regarding consumer confusion are implausible, for example, a district court
   may dismiss a complaint on the basis that a plaintiff failed to allege a
   likelihood of confusion. See, e.g., Eastland Music Grp., LLC v. Lionsgate Ent.,
   Inc., 707 F.3d 869, 871 (7th Cir. 2013); Murray v. Cable Nat’l Broad. Co., 86
   F.3d 858, 860-61 (9th Cir. 1996).
          This is not such a case. Adler alleges that McNeil’s advertisements
   use generic text and are not clearly labeled as belonging to McNeil. When
   McNeil’s advertisements appear in response to an internet search of the
   Adler marks, Adler alleges that a consumer is likely to believe that the
   unlabeled advertisements belong to or are affiliated with Adler.
          Adler further alleges that McNeil’s use of click-to-call advertisements
   exacerbates this confusion. Instead of being directed to a clearly labeled
   website, users who click on McNeil’s advertisement are connected by
   telephone to a call center. McNeil employees answer the phone without
   identifying who they are, then seek to build a rapport with the customer
   before disclosing McNeil’s identity. Thus, for the initial portion of the
   conversation, callers are unaware that they are not talking to an Adler
   representative.

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          In determining that Adler’s claims failed, the district court first
   concluded that Adler’s claims were based “solely on the purchase of
   Plaintiffs’ trademarks as keywords for search engine advertising.” The court
   determined that the allegations regarding the bait-and-switch scheme were
   conclusory and, apparently for that reason, declined to consider them. We
   disagree and find that Adler made specific factual allegations describing how
   the use of the Adler marks as keyword terms — combined with generic,
   unlabeled advertisements and misleading call-center practices — caused
   initial interest confusion. This pleading included factual matter beyond the
   mere purchase of trademarks as keywords for search-engine advertising, and
   the district court should have considered those allegations.
          Second, the district court concluded that Adler could not plead a
   likelihood of confusion as a matter of law because McNeil’s advertisements
   were generic. It is true that the Lanham Act does not protect generic terms
   against infringement. See Small Bus. Assistance Corp. v. Clear Channel Broad.,
   Inc., 210 F.3d 278, 279 (5th Cir. 2000). Adler, though, has not alleged
   trademark infringement solely on the basis of the generic text of the
   advertisements. Instead, he has alleged trademark infringement based on
   McNeil’s use of the Adler marks, the ownership and validity of which is not
   disputed. The generic nature of McNeil’s advertisements is relevant because
   it enhances rather than dispels the likelihood of initial interest confusion.
          Third, the district court concluded that Adler’s claims fail as a matter
   of law because McNeil’s use of the Adler marks is not visible to the
   consumer. We find no Fifth Circuit authority for such a rule of law, and we
   disagree with it. Such a rule would undermine the requirement that, in
   evaluating whether use of a trademark creates a likelihood of confusion, no
   single factor is dispositive. See Xtreme Lashes, LLC, 576 F.3d at 227.

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          In support of its conclusion that the use of a trademark must be visible
   to a consumer, the district court 2 relied on 1-800 Contacts, Inc. v. Lens.com,
   Inc., 722 F.3d 1229, 1242–49 (10th Cir. 2013). In that case, though, the Tenth
   Circuit explicitly avoided deciding whether a Lanham Act claim requires that
   the use of a trademark be visible to the consumer. The district court in the
   case had observed that a user who sees sponsored advertisements has no way
   of knowing whether the defendant reserved a trademark or a generic term.
   Id. at 1242–43. The district court explained that “it would be anomalous to
   hold a competitor liable simply because it purchased a trademarked keyword
   when the advertisement generated by the keyword is the exact same from a
   consumer’s perspective as one generated by a generic keyword.” Id. at 1243.
          The Tenth Circuit noted that the argument had “some attraction”
   but then stated that “if confusion does indeed arise, the advertiser’s choice
   of keyword may make a difference to the infringement analysis even if the
   consumer cannot discern that choice.” Id. The Tenth Circuit’s reasoning
   reflects that the absence of the trademark could be one but not the only factor
   to consider in evaluating the likelihood of confusion. Ultimately, that court
   concluded that it “need not resolve the matter because 1–800’s direct-
   infringement claim fails for lack of adequate evidence of initial-interest
   confusion.” Id.
          We conclude that whether an advertisement incorporates a trademark
   that is visible to the consumer is a relevant but not dispositive factor in
   determining a likelihood of confusion in search-engine advertising cases.
          Adler’s complaint contains sufficient factual matter, accepted as true,
   to state a Lanham Act claim that is plausible on its face. See Iqbal, 556 U.S.

          2
             The discussion of 1-800 Contacts appears in the magistrate’s findings,
   conclusions, and recommendation, which the district court adopted.

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   at 678. We express no opinion on the merits of Adler’s claims, which would
   require, among other things, an evaluation of the digits of confusion and any
   other relevant factors. See Xtreme Lashes, LLC, 576 F.3d at 227.
   II.    Motion for leave to amend
          Where a district court denies leave to amend on the basis of futility, as
   the district court did here, we review that decision de novo. Thomas v. Chevron
   U.S.A., Inc., 832 F.3d 586, 590 (5th Cir. 2016).
          Adler requested leave to amend his complaint to add evidence of
   actual consumer confusion. The district court denied the motion for leave to
   amend, concluding that any amendment would be futile because Adler’s
   claims failed as a matter of law. In light of our conclusion as to the sufficiency
   of the current complaint, we VACATE the order denying leave to amend.
   Whether an amendment is still requested is a decision for Adler, and whether
   to allow it is for the district court to reconsider.
          We REVERSE the order dismissing the complaint under Rule
   12(b)(6), VACATE the order denying leave to amend, and REMAND for
   further proceedings.

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