Google AdWords Buys as Trademark "Corrective Advertising Damages"

By Thomas O'Toole

This morning I learned about tiny software company in Florida that brought a trademark infringement suit against a software company in Canada, obtaining a million-dollar judgment based on the estimated cost of purchasing seven years' worth of Google AdWords keywords containing the plaintiff's mark and a couple variations of it.

Whether the theory that led to this result will endure is anyone's guess, but the prospect of using Google AdWords to measure trademark infringement damages should certainly be tantalizing to trademark owner plaintiffs. The winning formula here was "Infringement" + "Corrective Advertising" + "Search Engine Optimization" = $1 Million. No need to prove lost sales.

punchclock.com vs. punch-clock.com

The case is Punch Clock Inc. v. Smart Software Development, No. 07-61684 (S.D. Fla., April 7, 2008). The plaintiff owned a federal trademark registration for PUNCH CLOCK, which he used to sell time clock and computer payroll software. According to the complaint, the plaintiff sold its software "primarily" online at http://www.punchclock.com.

The defendant, based in Canada, sold a similar software program called "PunchClock" at http://www.punch-clock.com. From what I could tell by visiting the defendant's Web site, the defendant has quite a few customers (over 9,800), including many prominent businesses, according to this page.

The plaintiff communicated its concerns to the defendant beginning in 2001, they had an unsatisfying exchange of correspondence over a span of several years, and then in 2007 the plaintiff sued. The defendant defaulted, and the court entered a default judgment finding that the defendant had infringed the plaintiff's PUNCH CLOCK mark, in violation of 15 U.S.C. 1114(1)(a), by using the mark in commerce, and had violated the Anti-Cybersquatting Consumer Protection Act, 15 U.S.C. 1125(d), by registering and using the punchclock.com domain name in bad faith.

Corrective Advertising Demanded

The interesting part of the case is the court's discussion of the damages remedy. The plaintiff did not ask to be compensated for lost sales or any other type of actual damages allegedly arising from the defendant's use of the PUNCH CLOCK mark; nor did the plaintiff ask the court to consider the extent to which the defendant profited from its use of the PUNCH CLOCK mark.

Instead, the plaintiff fixed its sights exclusively on the fact that the defendant's Web site ranked higher on Google's search results display and on the Alexa traffic rankings. The plaintiff claimed that it was entitled to "corrective advertising damages" in an amount sufficient to vault its Web site to the top Google's sponsored search results. According to the plaintiff:

[Plaintiff] believes a corrective advertising campaign is necessary to repairing the seven (7) years of damage done by [defendant] on the Internet by [defendant's] high profile placement of the infringing mark on its web site "punch-clock.com." As a result, corrective advertising damages based upon priority search engine placement on Google's sponsored results is the most effective and cost efficient way to repair the damage done by [defendant] while infringing the PUNCH CLOCK mark ... Corrective adverting damages include recognition of [plaintiff's] placement on Google's sponsored search results. Specifically, the use of the top five phrases or words being "bid upon" on the Google search engine are "punch clock," "punch clock software," "punchclock," punch clocks," and "punch time clock." ... To correct the marketplace perception of [Plaintiff's] genuine time keeping software, [Plaintiff] must use these search terms in a corrective advertising campaign to overcome [Defendant's] aggressive (7) year Internet ad campaign. ... [Defendant] started its web site distribution of the infringing goods in 2001 and seven years of corrective advertising damages are required.

Plaintiff's Damages: Poor Google Ranking

The court agreed (to my surprise). If I summarize the court's discussion, readers will think I have left something out, to serve some rhetorical purpose. So I'll set out the court's reasoning in its entirety:

At a cost of approximately $136 per day, Plaintiff can purchase top placement of its Web site on Google search listings for the top five keywords associated with the "Punch Clock" mark: "punch clock," "punch clock software," "punchclock," "punch clocks," and "punch time clock." This corrective advertising will allow Plaintiff's Web site to receive top billing on any Google searches using those terms, above the listing for [Defendant's] Web site, which will help correct the confusion in the marketplace. The Court also finds that seven years of corrective advertising is the appropriate measure of damages, due to the fact that Defendant's willful and blatant infringement of Plaintiff's mark and promotion of its own business with that mark has been ongoing for at least that long. Accordingly, the total corrective advertising compensatory damages that will be awarded to Plaintiff is $347,480.00. Based on the willful nature of the infringement, these damages must be trebled, resulting in a total figure of $1,042.440.00.

All of this struck me as remarkable. I think the court was making some assumptions that might not be true. Is the owner of a small software company in Florida is entitled to have its Web site so closely associated by Google with terms that could apply to many other businesses? For example, punch clock makers? What about other software companies in the same business? "Punch Clock" is awfully generic. Why must the Plaintiff's Web site be displayed at the very top of the Google search results? A lot of trademark owners seem to believe that Google is like a magic lantern: If you rub it and chant "Coca Cola," then a thousand links to cocacola.com should emerge. The court apparently bought into that assumption here.

Also, isn't there more data in Google's page rank calculations than the name of the domain and the words displayed on the page? Surely there must be myriad other reasons -- aside from trademark infringement -- why the Defendant's Web site is higher on Google than the plaintiff's Web site. Links to the site, for example? There must be many search engine optimization techniques that could account for the relative prominence of the defendant's Web site. From what I could tell, the defendant's Web site was more interactive than the plaintiff's, including login functionality for customers; further, it contained listings of the names of the defendant's 9,800 customers. There was no evidence in the plaintiff's submissions or in the court opinion suggesting that the defendant was purchasing Google AdWords.

Why would using the plaintiff's mark cause the defendant's Web site to rank higher than the plaintiff's Web site? There must be other factors at work, right? If not, wouldn't both sites rank the same?

Any why is it that seven years of AdWords purchases are necessary? If the plaintiff's entire complaint is that the defendant's Web site is busier and easier to find than the plaintiff's Web site, then an injunction plus a one-time Google AdWords purchase would compensate the plaintiff entirely. Assuming that trademark infringement was in fact the source of the Plaintiff's market struggles. The court's use of the seven-year also seems problematic because it rewards the plaintiff for sitting on its rights during this period. Finally, I can't how seven years of past infringement plausibly relates to the need to compensate the defendant for seven years into the future. The argument has a sort of barroom appeal, but it doesn't hold up scrutiny.

Zazu Designs: Small Company, Large Corrective Award

In Zazu Designs v. L'Oreal S.A., 979 F.2d 494 (7th Cir. 1992), Judge Easterbrook tossed aside for lack of foundation a $1 million corrective advertising award, in a case involving a tiny hair salon's trademark infringement claim against a global beauty products company, L'Oreal. Several points made by Judge Easterbrook seemed relevant to the Punch Clock case.

First, the $1 million award belongs to the plaintiff to use as it pleases.

Second, corrective advertising is intended to repair damage to the plaintiff's business. An award should not be so high that it exceeds the value of the business itself.

Third, Judge Easterbook wrote, "To justify damages to pay for corrective advertising a plaintiff must show that the confusion caused by the defendant's mark injured the plaintiff and that 'repair' of the old trademark, rather than adoption of a new one, is the least expensive way to proceed."

All of these considerations appear to be present in the Punch Clock case, good reasons for knocking the court's $1 million corrective advertising award down to a reasonable amount. Unfortunately for the defendant, he wasn't in court to raise them.