Google suffered a setback in a legal battle over how it auctions search terms. How would eventual defeat affect the Web search market?
It's vexing for a company to see its brand name disparaged. It can be downright infuriating when that brand is used to drum up business for a rival.
So some companies are up in arms over a practice by Google that lets advertisers use a competing brand name in efforts to attract customers. Google's opponents won a legal victory recently that could presage limits on how Internet companies use brand names to sell search-related ads.
On Apr. 3, the U.S. Circuit Court of Appeals for the Second Circuit reinstated a suit filed by computer repair firm Rescuecom, which alleges that Google's practice of letting competitors bid for each others' names as search keywords infringes its trademark. Consumers who searched the term "Rescuecom" have been shown ads of rival computer repair companies.
The setback for Google (GOOG) highlights simmering questions about the rules of the road for advertisements linked to Internet search. At issue is the practice of letting marketers bid on and purchase the right to use trademarked names—even when those brands belong to a competitor—as part of online ad campaigns. Yahoo! (YHOO) is embroiled in similar litigation.
litigation spans the Atlantic
While businesses have flocked to place paid ads on Internet search pages, some have challenged Google's policy on trademarks. Around the globe, Google will block the use of trademarked terms in the actual text of a display ad if the trademark owner complains. In most of the world, even Google will also bar use of someone else's trademark as an unseen keyword to trigger an ad's display. But in the U.S.—as well as in Canada, Britain, and Ireland—Google's stated policy is to allow rivals to vie for each other's trademarked names or terms.
The approaches differ, explains Rose Hagan, Google's senior trademark attorney, because the law in many jurisdictions outside the U.S. is friendlier toward trademark owners. Still, the issue has spawned litigation on both sides of the Atlantic and the law remains unsettled.
The Rescuecom ruling merely allows the company's case against Google to go forward in U.S. District Court for the Northern District of New York. To prevail, Rescuecom must still prove at trial that consumers will be confused if they are drawn to the Web sites of rivals. In an e-mail, Google spokesman Andrew Pederson said that Rescuecom's claims are "without merit." Adds Hagan: "We think consumers are smart and are not confused when they see ads running in response to a query."
Risk of "Scam Ads"?
As Internet search has become the arbiter of much of what consumers know and where they shop, concern has increased over how search engines choose what to present in both paid and unpaid listings. Advertising Age noted in March that big media companies are upset that in free searches for information on a topic, their expensively produced content often ends up buried under Wikipedia entries and Twitter tweets. The Associated Press has threatened to take legal action against sites that it says unlawfully reproduce large sections of its news stories. Frustrated by what it considers Google's tendency to point readers toward nonauthoritative information sources, the AP also plans its own news aggregation pages.
Like Rescuecom, a number of companies are unhappy that their own brands can be bought by others for the purpose of placing an ad on Google. Under Google's Adwords program, bidders agree to pay Google a certain amount each time a user clicks on an ad. A high bidder has a better chance of having its ads displayed more prominently than those that pay less, though Google does also consider how relevant the ad is to the search query. For instance, search "1800 Contacts," the name of an online retailer of contact lenses, and "sponsored links" that appear typically include many competitors that have outbid 1800 for its own name. That's particularly troublesome to a company whose online name is essentially its storefront. Says 1800's general counsel Joe Zeidner: "It's the same as if someone came and just plastered their sign over our store."
The lens retailer is a member of an organization called Alliance Against Bait & Click, which seeks to publicize what it says are the risks to consumers of "scam ads" that may land them at an unintended Web site. Other members include Delta's (DAL) Northwest Airlines and Marriott International (MAR), which are unhappy that searches for their names commonly generate ads for travel consolidators that can direct travelers to competitors. 1800 has also pushed for legislation in its home state of Utah to bar advertisers from using rivals' trademarks to trigger ads. Google and others, including Microsoft (MSFT), Time Warner's (TWX) AOL, and Yahoo, opposed the measure, which died in the state senate in March.
Yahoo bars use by competitors
Efforts by trademark holders to win redress in the courts have met with mixed results. Some cases have involved claims filed directly against Google or Yahoo. In others, a company has sued whomever purchased its trademarked term as a keyword. One thing a claimant must prove to win an infringement case is that its trademark was used in commerce without its permission. Courts have divided as to whether buying a keyword is such a "use" under the trademark statute. In the Apr. 6 Rescuecom ruling concluding that it was, the federal appeals court included an 18-page appendix discussing the question.
The law's uncertain state is reflected in the fact that Yahoo's trademark policy differs significantly from Google's. Yahoo permits advertisers to bid on search terms that are trademarks of others, and it allows these trademarked terms to appear in the text of an ad. But there's a huge exception: Competitors are not allowed to do this. American Airlines (AMR) sued Google and Yahoo for trademark infringement in 2007. It settled its suit with Google for undisclosed terms last year, but its case against Yahoo continues. Yahoo says its approach is a legitimate "fair use." A search of "American Airlines" on both sites currently yields no ads.
In Europe, keyword cases have also met with mixed results. Even though businesses there can ask Google to remove trademarked keywords, some have filed suit anyway, alleging violation of unfair-competition laws as well as trademark. They "feel like they don't need to go through our [complaint] procedure and they just sue us in court," Hagan says. Google is currently appealing a French court's 2006 award of €300,000 ($398,000) to LVMH Moët Hennessy Louis Vuitton in an infringement case filed by the luxury goods company. Google has prevailed in similar cases in Germany, however, and courts in both countries have now asked Europe's highest tribunal, the European Court of Justice, to rule on the issue. A decision is likely by yearend.