Monday, February 01, 2010

Knitigation

You know nothing gets my former-lawyer juices flowing like a knitting-related lawsuit. I just found out that at the end of 2009, Cascade Yarns (maker of such well-loved products as Cascade 220) has filed a federal lawsuit against Crafts Americana Group, Inc. (a/k/a "Knit Picks").

From a lawyer's standpoint, the Cascade v. KnitPicks lawsuit is interesting because it involves an area of the law that is just beginning to evolve. You're no doubt familiar with the way that an internet search (using a search engine like Google or Yahoo) works: you go to the search bar, type in what you're looking for, and the search engine gives you results. The results usually appear in a numbered list. You may also have noticed that in addition to the numbered search results, you also get a bunch of ads at the top of the screen and along the side(s).

I'm going to oversimplify a bit, but a search engine generates these two kinds of search results -- the list of results (sometimes called the "organic" results) and the paid ads that go with them, in two different ways. The organic search results are derived by the search engine using some complicated method of searching the web for words and phrases, applying a formula or algorithm, and then generating a list of what the search engine thinks are the most relevant results. The search engines are very careful to keep secret the exact formulas that they use to calculate their organic search results.

But the paid ads that you see (sometimes called "Sponsored Links" or something like that), along the top or side of the screen, are different. For the paid ads, search engines like Google let advertisers pick words that the advertiser wants to trigger its ad; whenever the ad is clicked on by a user, the advertiser has to pay a specified amount (sometimes this is called "pay per click" advertising). The search engines may use a kind of auction to dole out the ads; the advertiser who agrees to pay the most per-click will get the ad space and the top ranking. So if I sell a brand of hay for people to feed to their pet rabbits, my company might bid on words or phrases like "house rabbit", "pet bunny", "bunny food" and "rabbit hay." If I bid enough, then whenever someone does a search for any of those terms, the search engine will display my ads along the top or side, accompanying the actual search results. If the searcher then sees my ad and clicks on it, I pay a certain amount for that click.

The idea behind all this is simple. I want to identify only the people who are interested in my type of product (in my example, I want to find people who own pet bunny rabbits and are looking for hay to feed to them). Targeting search terms is a shorthand way to narrow down the huge number of internet users to those who seem interested in what I am selling. That way I can pay only for advertising to those people. It's a way of targeting my advertising dollars to the places where I think they will do the most good.*

How does all this relate to the Cascade v. KnitPicks lawsuit?

Well, Cascade is alleging that KnitPicks bid on "Cascade Yarns", "Cascade 220" and/or "220 Superwash" -- three phrases that are trademarks of Cascade -- so that when someone types in a search for, say, "Cascade 220", a KnitPicks ad would show up at the top or on the side, with a heading that says "Cascade Yarn" or something like that. (see Paragraph 17 of the Complaint) But KnitPicks does not sell Cascade Yarn -- it only sells its own brands of yarn. Cascade is alleging that KnitPicks is improperly using Cascade's trademarked phrases to get consumers to go to KnitPicks' website (where Cascade Yarn is NOT sold), or to "free ride" off Cascade's alleged reputation for quality, or to create confusion in the customer's mind. (Paragraphs 18-26 of the Complaint)

Think about this from the consumer's perspective. Say you want to purchase Happy Brand Hay for your pet bunny. You don't know where you can buy it. So you go to Google and type in "Happy Brand Hay." At the top of the page, above your numbered search results, you see an ad that says "Happy Brand Hay ON SALE". You click on the ad, thinking you'll find a deal on the brand of hay you want to purchase. How would you feel if you ended up at an online shop that didn't even sell Happy Brand Hay, but sold other competing brands? Would you be irked, because you really wanted Happy Brand, and this advertiser didn't even sell it? Would you not care if you found an alternative to Happy Brand that was cheaper or seemed better? Would you go back to the search engine and do research on Happy Brand vs. the other brand you encountered, pleased that you now can compare two products to see which is better for you?

Now think about it from the pet shop's perspective. If you sell hay for pet rabbits, you might be interested in reaching out to anyone who has manifested an interest in buying rabbit hay on line. You might not care if they appear to be interested in a brand of hay you don't carry; once you get them to your website, you may feel that your prices, or your selection, or your free shipping, or your fabulous interactive web design, will get that consumer to buy one of the hay brands you do sell. Pay-per-click bidding on any and every brand name of rabbit hay may seem like a sensible way to target your ads.

Now think about it from the Happy Brand Hay perspective. You've spent a lot of time and money building up your brand name. You've gone out of your way to produce very high quality hay. You honestly believe your hay is the best hay on the market. You've invested in advertising and research about what kinds of hay are best. Now a company that doesn't even sell your hay is reaching out to people who have searched for your own brand of hay. That company wants to pull those people over to its website and sell them another brand of hay. Do you think this is unfair? Do you think it might confuse consumers who are looking for your hay?

In other words, like so many things in life, this legal issue is complicated .

One of the things that is fascinating from a legal standpoint about this lawsuit is that it involves a brand-new area of the law. The internet hasn't been around that long, and it's created all sorts of new fact situations that the law hasn't caught up with yet. This pay-per-click advertising using key words that are trademarked is one of those relatively untested situations. Intellectual property attorneys will be watching this case to see whether the court creates any new precedents. There have been other cases brought using similar legal theories; you can read more about some of them here.

If you'd like to read the complaint in full, you can go here. I did some vigorous searching but could not find any record of a response filed by KnitPicks/Crafts Americana.

Feel free to discuss amongst yourselves, but please don't trash either litigant in the comments. And if I've mangled the explanation of pay-per-click advertising, feel free to correct me. Don't forget: play nice.


*Another way that advertisers target their advertising is by bidding on certain specific product names that they sell. So if I am a pet store and I sell Happy Brand Hay, a delightful blend of dried grasses for pet bunnies to nibble on, I might pay a search engine to show my pet store ad every time someone searches for Happy Hay. That way, my ad will end up being displayed to people who have shown an interest in one of the products that I carry. If you search for Happy Hay, and you see my ad, and you click on it, you might end up purchasing it from me, instead of another Happy Hay retailer.

18 comments:

BB said...

I wound up at Knit Picks when I was looking for another yarn (not Cascade 220). I was annoyed. I put in the brand and yarn name, yet wound up at the Knit Picks site claiming to have a sale on that yarn, which they don't carry. As a consumer, I call it deceptive advertising.
It's illegal in some states for B&M stores to do this.

I think Knit Picks should put into the ad a disclaimer: "Looking for Cascade 220? We have a yarn you might like at a price you'll love; take a look."

laura said...

very interesting!

Though, I just googled Cascade 220 and nothing Knit Picks showed up, not even in adverts.

margaret in manhattan said...

brilliant commentary, as usual, Carol - sounds like the old "bait and stitch", eh? ;o)

JelliDonut said...

I always go back to "is it the right thing to do?" Simplistic, yes, but it works for me. Is it right to "trick" people into visiting your site? I say no. To tell you the truth, this makes me feel just a little icky about KnitPicks. Dog-eat-dog doesn't have to be the bottom line to all business practices, does it?

Thanks for explaining this so well.

Kitten With a Whiplash said...

I see two additional points in this dispute: the actions of the search provider and consumer protection. They may not be addressed directly in this lawsuit, but should be considered in the overall debate:

1. Does the search provider even have the right to auction off the top ad spot when tradmarks are used as search terms? Aren't they also profiting unfairly from Cascade's reputation by selling the search results?

Does it matter if the trademark was the only search term, or one of several?

2. Does a store that attracts customers by advertising a product they don't violate "bait and switch" laws? In the example you gave the ad said "Happy Brand Hay ON SALE" but the product was not even offered. That is a practice which is illegal for brick and mortar stores in many, if not all, states. I'm not sure about interstate commerce. Does that form of consumer protection extend to the internet?

Susan said...

funny you should mention it. last week i input Belmont Springs Water in Google and up pops two paid for Poland Springs along with one [in the middle] for Belmont Springs.
that being said, i usually go below the paid ads to begin my search.

subliminalrabbit said...

carol - fascinating! i'd no idea this was going on... and i'm honestly not sure how i'd prefer it to shake out in the end!

thanks so much for sharing - and your thoughtful break-down of the situation!

Sarah said...

This is indeed interesting. I will admit that the parties involved have me a bit more interested than I might be otherwise. Stepping away from those two, it reminds me of nearly every search I have made. It is not usually a sponsored link, but whatever search I make, there will be a result stating that they have (insert search term) for sale. I usually just giggle when I get a return like this when I am consulting Dr. Google to read a bit on something horrible, and a search result promises to sell me that rotten disease.

Knittah said...

Legal geeks unite!

Tikabelle said...

I'm interested to know whether the "ON SALE" part is added by the advertiser or by Google itself because I think that would have some impact in accusing the advertiser of ethical issues. As far as I recall from my PR training, luring people INTO your store isn't an actual bait-and-switch; the person could still walk away with their money (and probably some disgust for the store itself). However, if KP were to advertise and sell Cascade 220 but put their brand equivalent in the box and ship it to the consumer, THAT is a bait-and-switch. There's probably an advertising term for luring people in under false pretenses, but a bait-and-switch, it is not.

I see the legal ramifications of this fight, but I am not sure it's such a gigantic issue in the long run. In general, people are brand-loyal to a surprising degree, so it seems to me that this kind of advertising for search terms is mostly fighting to bring in new consumers. Is it ethical? Probably not. But loooooads of business practices hover just this side of ethical, so that's not the only concern.

Here's one last thing I'm thinking about here: a trademark has specific requirements to make itself (cough) specific. So can KP bid on the search words cascade and 220, but not on the set-aside phrase "Cascade 220"? Because one is a trademark and one is not. Veeeery tricky!

Bridget said...

Personally, I almost always skip the sponsored ads. But that's just me.

It is a complicated issue, but I can also see a lot of people who may have been on the fence about Knit Picks and its products deciding to not deal with them.

I wish I had a bunny to buy for ...

emy said...

Thanks for blogging about this case.

Very interesting for a marketer-knitter.

Nancy said...

If the ad itself does not say "Happy Brand Hay on Sale", then I don't see how there is deceptive advertising under any version of a reasonable consumer test.

Whether or not trademark restricts the ability of Google to sell ads on a trademarked search term is an interesting legal question. But we're nowhere near deceptive advertising here.

Barb B. said...

Very interesting. And well explained. I, too, have had the KP name pop up in ads when searching for products that KP just does not carry.
Perhaps this will tempt some people into the store, and they will end up shopping. It just annoys me (not just KP, it's happened to me with other products)

I hope you let us know how it all turns out.
Barb B.

Roxanne said...

That leaves a bad taste in my mouth about Knit Pick; I think a companies ethics are important and reach the consumer when they least expect it. I want to know too, who dropped the ball about bidding for those words at Cascade? If they were unwilling to be the highest bidder (and it seems to me for words like that they'd want to be) then how can they not be upset another company bid? I personally don't think it's their fault; just posing the question.

Kitten With a Whiplash said...

Here is the wiki on bait and switch since there is some confusion.

http://en.wikipedia.org/wiki/Bait_and_switch

It is advertising a product you don't carry to lure customers. If you conduct a transaction promising one product, then deliver another, that is a dirfferent form of fraud.

Marsha said...

This is an interesting topic.

In my opinion Knitpicks is just doing a logical business practice. You don't have to choose the Knitbpicks link, and you might prefer to see the options.

Amazon has been doing this for a long time. Search practically anything and the banner will come up - find books about "whatever ".

Mercuria said...

The lawsuit seems to be a bit ambiguous with the wording in paragraph 17. I believe it actually means that the page (not the ad) contains the product name, which moves the act out of the reach of "bait and switch."

When this has happened to me, the ads say something more to the effect of "100% wool yarns ON SALE TODAY!" I'd actually argue that the "on sale" part is the lie.