AOL Mulls Options in Playboy Case

America Online suffered a legal setback this week when an appeals court reinstated Playboy Enterprise’s trademark lawsuit against the ISP’s Netscape subsidiary.

In an action first brought in 1999, Hugh Hefner’s adult entertainment empire claims Netscape infringed and diluted its trademark by presenting ads for rival companies when users entered “playboy” or “playmate” as keywords. The words were among 400 that triggered adult ads.

Chicago-based Playboy asserts that users could wrongly assume that the banner ads — especially those that were poorly labeled or unlabeled — were associated with Playboy, and click through because of that mistaken impression.

Excite, which filed for bankruptcy protection in 2001, is also named as a defendant in the case because its technology was used by Mountain View, Calif.-based Netscape.

Previously, a lower court judge dismissed the case. But this week a three-judge panel of the 9th Circuit of the U.S. Court of Appeals disagreed, determining that Playboy’s case is strong enough to proceed.

The lawsuit has been remanded to the trial court. A new trial date has not been set, but the case will be closely followed by Internet service providers and advertisers who want to be sure their practices are in harmony with current legal rulings. Although the case involves banner ads, the case has major implications for the booming market for paid search listings.

“We are in the process of reviewing the ruling and its implications,” an AOL spokesman told internetnews.com. “Obviously, We’re disappointed and are considering our legal options.”

In cases like this, defendants have three choices: proceed to trial; ask for the case to be heard “En Banc,” or by the full panel of appeals court judges; or make a settlement offer.

A spokeswoman for Playboy was not immediately available for comment.

For AOL, a the online arm of Time Warner , the legal tangle is an inherited one. The case predates the company’s March 1999 acquisition of browser software maker Netscape, a source for the Dulles, Va., ISP said.

The company stopped using “playboy” and “playmate” to trigger adult ads. In addition, it screens for other trademarks in keywords, the source said.