Merck v. Mediplan

Citation: Merck & Co. v. Mediplan Health Consulting, Inc., 425 F.Supp.2d 402 (S.D.N.Y. 2006) (defendants' motions to dismiss); 431 F.Supp.2d 425 (S.D.N.Y. 2006) (Merck's request for reconsideration).

Factual Background
Merck makes a popular cholesterol medication under the federally registered mark ZOCOR. Merck sued various Canadian online pharmacies selling generic versions of the patented ZOCOR drug to U.S. consumers. The pharmacies also sold genuine ZOCOR made by plaintiff's Canadian affiliates. Most of the pharmacies identified these products as "generic ZOCOR" or something similar, and some used the ZOCOR logo. Several pharmacies purchased "ZOCOR" keywords from Google and Yahoo! so that searches for "ZOCOR" returned "sponsored" links or ads for the pharmacies in addition to the regular web search results.

Trial Court Proceedings
Merck sued the pharmacies for patent infringement; trademark infringement for use of the ZOCOR word mark and logo on the websites and for purchase of ZOCOR keywords; dilution for use of the ZOCOR word mark and logo on the websites; and for false advertising.

Certain defendants filed motions to dismiss for failure to state a claim or for judgment on the pleadings regarding the non-patent claims. The court denied the motions regarding trademark infringement regarding use of the ZOCOR word mark and logo on the websites. Defendants argued that their uses of ZOCOR were permissible under classic fair use (i.e., descriptive fair use), nominative fair use, and/or comparative advertising.

The court rejected the classic fair use defense because defendants were not using the ZOCOR mark in a descriptive manner. Regarding nominative fair use and comparative advertising, although the court suggested that defendants could use the ZOCOR mark to refer to Merck's products, the court could not conclude that use of the word "generic" near the ZOCOR mark "[could not] give rise to consumer confusion as to the origin or sponsorship of the product." However, the court granted the motions as to the purchase of "ZOCOR" keywords, finding that this "internal use" of ZOCOR "as a keyword to trigger the display of sponsored links [was] not use of the mark in a trademark sense," relying on the Second Circuit decisions in ‘’1-800 Contacts,’’ ‘’Wells Fargo,’’ and ‘’U-Haul’’ holding that use of a trademark in an internal directory to trigger pop-up ads did not constitute use of the mark.

The court noted the conflicting decisions in ‘’Geico’’ and ‘’Google v. American Blind,’’ but did not comment on them. The court also found it “significant” that the defendants' websites sold branded ZOCOR products made by Merck's Canadian affiliates. The court concluded that "[u]nder these circumstances, there [was] nothing improper with defendants' purchase of sponsored links to their websites from searches of the keyword 'Zocor.'"

Regarding dilution, the court denied the defendants' motions because it was possible that identifying Merck's products as "ZOCOR generic" could cause "the ZOCOR mark to lose its ability to serve as a unique identifier of plaintiffs' product." Finally, regarding false advertising, Merck alleged that use of the ZOCOR mark on the websites falsely implied that defendants' generic products were: (1) legally authorized by the FDA for sale in the United States, or (2) approved by Merck because consumers understood that only Merck's ZOCOR branded product could be lawfully sold in the U.S. The court granted defendants' motions regarding claim (1) based on decisions holding that allegations of implied governmental approval, absent explicit claims, are not actionable. Here, none of the defendants made any such explicit misrepresentations as to FDA approval of their generics. However, the court denied defendants' motions as to claim (2) regarding a likelihood of confusion with Merck for the reasons discussed above as to trademark infringement.

Subsequent Trial Court Proceedings
Less than two months later, the court addressed Merck's request for reconsideration of the court's earlier decision to grant defendants' motion to dismiss Merck's trademark infringement claim regarding defendants' purchase of the mark ZOCOR as a search-engine keyword. Merck moved for reconsideration on two grounds. First, Merck argued that the court did not consider ‘’Edina Realty, Inc. v. TheMLSonline.com,’’ a case decided just ten days before this court's decision, in which the District Court of Minnesota held that the purchase of the plaintiff's mark EDINA REALTY as a keyword from Internet search engines qualified as "use in commerce" under the Lanham Act. The court here reiterated its disagreement with the line of cases relied on by the ‘’Edina Realty’’ court, and emphasized its agreement with the Second Circuit's decision in ‘’1-800 Contacts, Inc. v. WhenU.com, Inc.,’’ because defendants here neither placed the ZOCOR mark on its "products, containers, displays, or associated goods" nor used the ZOCOR mark to "indicate source or sponsorship."

Second, Merck argued that the court "overlooked" the differences between the keywords at issue in this case and the pop-up advertisements at issue in ‘’1-800 Contacts.’’ The court disagreed, stating that it understood the distinction between the two but found no meaningful difference between them as a matter of law. Ultimately, the court found that defendants' purchase of keywords included in the search engines' internal directories of keywords was similar to the use of the 1-800-CONTACTS mark in an unpublished, internal directory of URLs used to trigger pop-up ads. According to the court, "This internal use of the keyword 'Zocor' is not use of the ZOCOR mark to indicate source or sponsorship." In fact, the court observed that "if anything, keywording is less intrusive than pop-up ads, as it involves no aggressive overlaying of an advertisement on top of a trademark owner's webpage."

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