Should Barnes & Noble be able to pay search engines to have its ad show up on a page when a consumer searches for competing bookseller Borders? The legality of the widespread practice of competitive keyword search advertising is under review in federal courts, and now Utah has passed a law that could limit the practice.
The Trademark Protection Act, which takes effect today, allows companies to register their trademarks for an annual fee of up to $250, then seek damages from search engines and advertisers that use the trademarked name to trigger ads. Thus, Borders would be able to sue both Google, the search engine, and Barnes & Noble, the advertiser, if a paid Barnes & Noble ad appeared in response to a search for Borders, as long as the search originated from Utah.
If enforced, the Utah law could affect advertisers and search engines well beyond the boundaries of Utah, predicts Eric Goldman, assistant professor at the Santa Clara University School of Law and director of the High Technology Law Institute. “The problem is nobody knows how to wall off Utah from the rest of the Internet,” Goldman says. “It has the potential to govern how search engines run their basic businesses around the world.” It could especially affect Google, which allows competitive keyword search advertising and stands to gain the most from the $8.3 billion that eMarketer predicts will be spent this year in U.S. search marketing.
However, Goldman and other experts say the Utah law is not likely to have that kind of impact, in part because it probably will be challenged in court. In fact, the Utah legislature’s own lawyer issued an opinion before the bill was passed saying the law was likely to be thrown out by federal courts because the state would be interfering with interstate commerce.
More significant than the Utah statute may be the cases on the subject working their way through federal courts, says Corynne McSherry, staff attorney at the Electronic Frontier Foundation, a consumer advocacy group focused on Internet-related issues. The case that has gone the farthest involves Rescue.com, a Virginia computer repair company that unsuccessfully sued Google over competitive keyword search advertising. That case now is before the Second U.S. Circuit Court of Appeals. “Everyone is watching closely because it’s before a federal appeals court,” McSherry says.
McSherry says federal courts around the country have ruled differently on the issue of advertising triggered by competitors’ brand names. “It’s really time for the appellate courts to step in and start resolving the issues,” she says.
Further complicating matters for a global medium like the Internet, courts in other countries have weighed in with their own views. Two cases in France were decided in favor of the trademark holders, and that has led Google to adopt a different policy outside of North America, one more favorable to trademark holders, says Struan Robertson, editor of the I.T. and e-commerce law bulletin Out-Law and a technology lawyer with U.K. firm Pinsent Masons. He says some of his clients have complained about their trademarks being used to trigger competitors’ ads, and that Google has taken down the ads.
“What Google has done is apply one policy for North America and one policy for the rest of the world,” Robertson says. “The policy for the rest of the world appears to be influenced by the French ruling.”
Google explains on its AdWords web site that it will not act on complaints about keywords from trademark owners in the U.S. and Canada. However, in other countries, the company will investigate complaints and, if a complaint is deemed valid, tell an advertiser to remove a trademarked term from its keyword list.
Yahoo, Google’s main competitor, says it does not permit direct competitors to place ads next to search results based on trademarked names. That always has been its policy, and the policy was updated last year “to be a little more stringent,” a Yahoo spokesperson tells Internet Retailer. Nonetheless, a recent search on Yahoo for Borders Books led to Yahoo displaying an ad for Barnes & Noble. Informed of that search result, the Yahoo spokesperson said that ad was a violation of company policy and would be taken down.
In another trademark/keyword case pending in U.S. courts, a federal judge last week refused to dismiss a lawsuit against Google brought by American Blinds Wallpaper and More. In that ruling, the judge focused on whether a competitor’s ad served up by Google would confuse a consumer trying to find American Blinds, notes D. Craig Parry, an intellectual property lawyer with the Salt Lake City law firm Parr Waddoups Brown Gee & Loveless. He says American Blinds presented survey data that suggested 29% of those surveyed believed sites listed in the sponsored links section of a Google search page were affiliated with American Blinds.
The American Blinds lawsuit illustrates that online retailers come down on both sides of this issue: Some want to be able to place ads when consumers search for competitors, while others are more concerned with preventing rivals from waylaying their customers.
While the Utah law has provoked widespread criticism and ridicule in the blogosphere, the Senate sponsor of the bill, Republican Dan Eastman, blogged his own defense, saying the bill will put teeth in efforts to curtail “rampant” trademark violations on the Internet. “People who own a trademark or hope to own one will love this new law,” Eastman wrote. “People who want to carjack someone else’s trademark will hate it.”
Despite its effective date of April 30, it is not clear when Utah could begin enforcing its law. The state Commerce Department first has to create an electronic registry to store trademarks that are registered with the state. It also has to flesh out rules, including fees the legislature said should be no more than $250 per year for each trademark registered. If the registry were ever to become operational, a search engine presumably would have to determine if a search originated from Utah and, if it did, then check the registry to see if the term is registered before returning a search result.
Among other things, this raises the question whether search engines could always know whether a request is coming from Utah. Goldman says there are differences of opinion on this question. He believes search engines often can make a good guess as to where a request originates, but the technology is not perfected.
With all the uncertainty, technical and legal, swirling around the issue, what should online retailers do? “The answer,” Goldman says, “may be do nothing until the law actually kicks into effect.”
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