June 1, 2007, 12:00 AM

The battle heats up over trademarks and Google search ads

There aren’t many clouds in Google’s sky these days, but there is a wisp of a threat to the search engine’s practice of allowing advertisers to buy keyword search terms trademarked by competitors. A federal judge has refused to dismiss a lawsuit against Google on the issue, and a new Utah law could limit the sale of trademarked terms as search keywords.

There aren’t many clouds in Google’s sky these days, but there is a wisp of a threat to the search engine’s practice of allowing advertisers to buy keyword search terms trademarked by competitors. That allows, for instance, Burger King to present an ad when a consumer searches for McDonald’s.

A federal judge last month refused to dismiss a lawsuit against Google on the issue, and a Utah law took effect April 30 that could limit the sale of trademarked terms as triggers for paid search ads.

But that doesn’t mean the practice will end. Google has prevailed in similar lawsuits, at least in the U.S., and Utah put its law on hold after Google and other search companies objected.

Still, the issue does not seem to be going away. And Google has lost on the question in French courts, leading the company to take a more conciliatory stance to trademark holders outside of the U.S.

That raises the question: What would happen if companies could not use as ad keywords the trademarks of their competitors?

Google only knows

In theory, the price of those keywords would go down, since at least some bidders could no longer bid on those terms, says Greg Sterling of Sterling Market Intelligence, a research firm covering Internet advertising. But Sterling and others agree it is hard to say how much prices would go down, because only Google knows how much bidding there is on competitors’ trademarks, and they’re not saying.

Nor would it be easy to say who could bid on a trademark, such as Honda, Sterling notes. Could dealers use that well-known brand name to trigger their ads? What about companies that sell accessories for Honda cars? An automated system like Google’s AdWords might have trouble making those calls, Sterling says.

“You get into situations where it’s not going to be clear from a machine standpoint who’s authorized to buy what terms,” he says. “It just adds complexity and slows down the process.”

The issue mainly affects Google, which accounted for nearly 59% of the $7 billion in U.S. paid search advertising in 2006, according to research firm eMarketer. That’s because Yahoo, which accounted for another 15% of paid search advertising, has a policy of not selling companies trademarked keywords of their rivals.

However, Google was not alone in objecting to the Trademark Protection Act passed in Utah this year. That law would allow companies to register their trademarks and then sue competitors and the search engines if they displayed ads against those trademarked terms. Google was joined by Yahoo, Microsoft (owner of search engine MSN) and AOL, as well as by other companies with Internet interests in a late April meeting that convinced Utah officials to back off enforcement of the law.

Also critical of efforts to limit keyword search advertising is the Electronic Frontier Foundation, a nonprofit organization that defends consumers’ online interests. The foundation argues that consumers benefit from information provided by competitors and others, pointing to a Florida organization of low-wage workers that advertised on search pages brought up by the term McDonald’s to publicize its campaign for improved wages and working conditions at the fast food chain.

While the Utah law took effect April 30, it cannot be enforced until Utah creates a database for companies wanting to register their trademark. Utah has agreed to purposely move slowly in setting up that registry while it tries to find a middle ground with the search engines, says State Rep. David Clark, one of the backers of the legislation.

Clark insists Utah remains committed to protecting the investment companies make in building their brand names. But Sterling, a lawyer by training, says trademark law is not just designed to protect trademark owners, it’s largely aimed at preventing consumer confusion.

American Blinds case

That has emerged as an important issue in the lawsuit against Google by American Blind & Wallpaper Factory Inc., a reseller of window blinds that complained about Google displaying ads for competitors when consumers searched for American Blinds. The company 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.

U.S. District Court Judge Jeremy Fogel last month refused Google’s motion to dismiss the case and scheduled a jury trial to begin Nov. 9 in San Jose. Google attorney Catherine Lacavera said, “Judge Fogel rightfully concluded that they had not proven that two of their marks are protectable, and we are confident that they will be unable to prove their remaining claims at trial.”

Further along in the legal process is a similar lawsuit filed by Rescuecom, a Virginia computer repair company. Google won at the lower court level, and the case is now before the Second U.S. Circuit Court of Appeals. “Everyone is watching closely because it’s before a federal appeals court,” says Corynne McSherry, a staff attorney at the Electronic Frontier Foundation.

While Google has prevailed so far in U.S. courts, two cases in France went in favor of the trademark holder, says Struan Robertson, editor of the IT and e-commerce law bulletin Out-Law and a technology lawyer with UK firm Pinsent Masons. He says some of his clients subsequently complained about their trademarks being used to trigger competitors’ ads and that Google took 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.

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.

With Google’s U.S. policy under attack in court and from at least one state, the potential exists for confusion until a higher authority clarifies the law, says McSherry of the Eletronic Frontier Foundation. “It’s really time,” she says, “for the appellate courts to step in and start resolving the issues.”


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