Angie’s List Inc. alleges in a federal lawsuit that its trademarked name is being misused by a Colorado competitor to intercept people conducting Google searches for the Indianapolis-based contractor-ratings service.

The lawsuit filed June 1 in U.S. District Court in Indianapolis alleges Golden, Colo.-based ServiceMagic Inc. bought advertisements, known as sponsored links, “intended to deceive Angie’s List members and potential members.”

Angie’s List’s complaint includes a screen shot of a Google ad, running below its own ad, titled, “Angie’s List Chicago – Bids from ServiceMagic Contractors.”

Underneath is the link to www.servicemagic.com.

The suit cites another sponsored link that runs near the top of the Google results page titled:  “Why Pay for Her List? Our Service is Free.” 

“ServiceMagic profits from attempting to lure away home owners who otherwise use or would use Angie’s List’s website,” states the complaint. “Angie’s List believes it has lost members and/or potential members to ServiceMagic and  … has incurred and continues to incur unnecessary and excessive expenses to combat and mitigate the effects” of the alleged misconduct.

Angie’s List also alleges that ServiceMagic, in a comparison table on its website,  inflated the monthly cost of Angie’s List service in the Denver market—at $13.75 instead of the actual $3.25.

The complaint alleges trademark infringement, unfair competition, trade disparagement, trademark dilution and unjust enrichment.

Angie's List seeks unspecified monetary damages and an injunction to stop ServiceMagic’s ads.

ServiceMagic only recently became aware of the suit, said its spokeswoman, Brooke Gabbert.  “I can’t comment on the lawsuit since the litigation is pending,” she said.

There’s nothing illegal, per se, about purchasing ad words or about comparative advertising, said Marshall Leaffer, a scholar in intellectual property law at Indiana University’s Maurer School of Law.

But one issue is whether the use of the ad word causes confusion to consumers. “It’s how you use the ad word that’s critical,” said Leaffer.

Courts have generally held companies to the standard of whether a reasonably informed consumer can make distinctions and not be confused.  

Angie’s complaint makes several references to consumers being confused, saying ServiceMagic’s link “was intended to and likely to confuse members who saw the term ‘Angie’s List’ and quickly clicked on the link.”

But whether a court will buy such a claim is anybody’s guess. ServiceMagic’s web address is clearly visible below the sponsored ads’ headline.

The legal concept of “reasonably informed” consumer has changed over the past 20 years as newer forms of media emerge, such as advertising over the Internet.  Some rulings have recognized that “the Internet shopper is much more savvy,” Leaffer added.

Angie’s List, founded in 1995, has about 1.2 million paid members in 186 local markets.  It compiles ratings of contractors in hundreds of categories such as plumbers, automotive service and health care.  Members pay a subscription fee.

The company went public late last year and has been using proceeds on a television advertising blitz and to enter new markets.

ServiceMagic operates a website that connects consumers with 80,000 local service providers it says are screened and pre-approved.

The Colorado company claims nearly 4 million unique visitors to its website each month. Service Magic has purchased broadcast ads in the Indianapolis market.