One of the hottest questions in trademark law today concerns the issue of whether Internet search engine providers, such as Google and Overture Services (Yahoo!’s commercial search engine division), are liable for infringement when they sell a party’s trademark for use in keyword-triggered advertising – often by a competitor – which appears at the top of search result pages when the trademark is one of the terms being searched.

An increasing number of trademark owners complain that the sale of their trademarks as keywords, and the resulting placement of competitor ads on search result pages, is an improper attempt to profit from the goodwill of their marks and constitutes, among other things, trademark infringement, trademark dilution, and unfair competition.

What Is Keyword Advertising?

Keyword advertising allows advertisers to select, for each of their ads, keywords that will cause those ads to appear on search result pages. The ads are often comprised of an enticing catch-phrase and/or a brief description of the advertiser’s goods or services, with an underlined “title” that serves as a hyperlink to the advertiser’s Web site.

In Google, the ads are displayed under the heading “Sponsored Links” while, in Yahoo!, the ads appear under the heading “Sponsored Results.” Both Google and Yahoo! display the ads to the right of, and above, the regular search results. The ads that appear above the regular search results are displayed in a lightly shaded box to help distinguish the ads (and draw attention to them).

In most keyword advertising programs, more than one advertiser is allowed to bid on a particular keyword. Advertisers bid on a keyword by indicating the maximum price they are willing to pay each time a user clicks on the ad. According to Google, the actual price charged to the advertiser is a function of that maximum bid, together with the bids of other advertisers.

If more than one advertiser bids on a particular keyword, Google claims, the placement of the ads (which are presented in descending order) is a function not only of the bid, but also of certain factors that “increase relevance.” The highest bidder, therefore, does not always get the highest ranking.

Why Keyword Advertising Is Such A Hot Topic – Business Considerations Of Search Engines

Keyword advertising is a significant revenue generator for search engines, and in fact has become a multibillion-dollar industry. Google, for example, derives more than 90 percent of its revenue from keyword advertising, with hundreds of thousands of advertisers participating in its program.

It is therefore not surprising that search engines, like Google, are expected to vigorously fight lawsuits that seek to limit their ability to provide this type of service.

Search Engine Policies On Use Of Trademarks In Keyword Advertising

Two of the largest providers of keyword advertising, Google and Overture, have diverging policies governing what they deem to be acceptable use of trademarks in keyword advertising. Google’s more permissive and hands-off policy allows advertisers to bid on any keyword, including trademarks.

Google is responsive only to trademark complaints regarding the content of the advertisements (including the underlined “title” of the ads). Overture, however, has adopted a policy that is more responsive to trademark owners’ concerns regarding the sale of the keywords themselves, but less responsive to concerns about the content of the ads themselves.

Google’s Trademark Policy

U.S. and Canadian Policy

Under Google’s current policy, it will not disable keywords in response to a trademark complaint. Advertisers are permitted to bid on any keyword, including trademarks. When Google receives a complaint from a trademark owner, it will only investigate whether the advertisement itself contains the trademark in the content of the advertisement.

If it does, Google will require the advertiser to remove the trademark from the content and prevent the advertiser from using the trademark in such content in the future. According to Google, this is the case even if the advertiser claims that the mark’s use is “fair use or otherwise lawful,” e.g., use that is descriptive or in the context of non-confusing comparative advertising.

In general, Google’s position is that it does not arbitrate trademark disputes between advertisers and trademark owners. Google encourages trademark owners to resolve their disputes directly with advertisers, particularly because the advertisers may have similar advertisements on other Web sites.

Google’s Policy Outside the U.S. and Canada

In the rest of the world, Google honors trademark owners’ requests that their trademarks not be sold as keywords to other advertisers. When Google receives a complaint from a trademark owner, it conducts a “limited review” to ensure that the advertisement is using a term corresponding to the trademark in the ad content or as a keyword trigger. In such cases, Google requires the advertiser to remove the trademark from the ad content or keyword list and prevents the advertiser from using the trademark in the future. As in the United States and Canada, it appears that is the case even if the advertiser claims that the mark’s use is fair use or otherwise lawful.

Also, like the United States and Canada policy, Google’s terms of use outside these countries requires advertisers to represent and warrant that they “hold and grant Google and Partners all rights to copy, distribute and display [the user’s] ads” and that this, as well as Web sites linked from the ads (including services or products offered on the Web sites) “will not violate or encourage violation of any applicable laws.”

Overture’s Trademark Policy

Overture has adopted a worldwide policy more favorable, in some respects, to trademark owners than Google’s U.S. and Canada policy. Overture requires advertisers to agree that their keyword search terms, ad titles and content, and the content of their Web sites, do not violate the trademark rights of others.

In cases in which an advertiser has bid on a term that may be the trademark of another, Overture will allow the bid if the advertiser presents content on its Web site that (a) refers to the trademark or its owner or related product in a permissible nominative (fair use) manner without creating a likelihood of consumer confusion or (b) uses the term in a generic or merely descriptive manner. Unlike Google, therefore, Overture does not forbid all uses of trademarks in ads.

Does The Sale And Use of Trademarks As Keywords Violate U.S. Trademark And Unfair Competition Laws?

The Position of Trademark Owners

In general, trademark owners contend that the search engines are exploiting their trademarks for profit without authorization and thereby being unjustly enriched. None of the revenue derived from the search for the trademark is paid to the trademark owner; rather, the revenue goes to the search engine and, if a sale is made, the advertiser.

When the competitor’s ad that then appears on the search results page contains the trademark, the harm to the trademark owner is compounded. Specifically, trademark owners claim that a search engine’s auction and sale of their trademarks to trigger third-party advertisements, and the act of triggering itself, constitutes trademark infringement, unfair competition, and dilution under the Lanham Act and state law.

Trademark owners argue that the elements for trademark infringement and unfair competition are met because search engines have used their mark in commerce in connection with the sale, offering for sale, distribution, or advertising of goods and services in a manner that is likely to cause confusion. In short, trademark owners believe that both keyword sales and keyword advertising constitute “use” of the trademark in commerce.

Additionally, trademark owners maintain that the “likelihood of confusion” prong of a trademark infringement and unfair competition claim is met. They assert that consumers can be and are easily confused by keyword triggered advertising, a situation which is exacerbated when the paid placement nature of the sponsored link is unclear, or where it is not readily apparent who actually is sponsoring a given link.

In fact, trademark owners believe that, at times, consumers may not know what entity is doing the advertising, and consumers might believe they are securing the services of the trademark owner when, in fact, they end up doing business with a competitor who has taken advantage of the owner’s trademark and goodwill. This is a classic likelihood of confusion situation.

Finally, at the very least, trademark owners assert that search engines should be held liable for (a) indirect infringement for intentionally inducing and facilitating the advertisers’ infringements, and (b) vicarious infringement, which occurs when a defendant and infringer have an apparent or actual partnership and have authority to bind one another in transactions with third parties or exercise joint ownership or control over the infringing product.

The Position of Search Engines

Search engines such as Google, on the other hand, argue that their keyword advertising service is no different from advertising that is perfectly acceptable in more traditional contexts outside of the Internet, where consumers are regularly presented with choices among competitors. In other words, according to search engines, deliberately targeting an ad to customers who are buying, considering buying, or seeking information about a competitor’s product or service does not constitute a trademark violation.

In the trademark infringement context, search engines maintain that their keyword advertising service does not constitute actionable “use” of a trademark. They argue that the service utilizes trademarks only as a trigger for the display of advertisements, not to identify the source of goods or services.

Google’s position is that use of a trademark as a keyword does not constitute trademark use at all, so long as the resulting advertisement does not use the trademark to identify the source of goods and services or, in other words, so long as the ads themselves do not deceive the user into thinking that the ad is for, or sponsored by, the trademark owner. Additionally, search engines argue that there is no likelihood of confusion because the advertisers use their own names to identify the source of their goods or services.

Moreover, because there is no direct infringement, search engines argue that they are not indirectly liable for contributory or vicarious infringement or inducement to infringe arising out of the purchase of keywords by advertisers, even where the text of the ads contains a trademark and may be confusing.

Active U.S. Litigation

There are currently several pending federal cases in which trademark owners have alleged that the sale of trademarks as search engine keywords, as well as allowing third party paid results ads that display others’ trademarks, violates U.S. trademark and unfair competition laws and other laws.

Geico v. Google

The lawsuit that has received the most attention recently is Government Employees Ins. Co. v. Google Inc., Civ. No. 1:04-cv-507 (E.D. Va. May 4, 2004). In that case, plaintiff Geico alleges that Google and Overture’s sale of the marks GEICO and GEICO DIRECT as keywords constitutes trademark infringement, unfair competition, and dilution, among other claims.

Notably, the complaint was filed only weeks after Google announced its change in policy in April 2004 to allow trademarks to be sold as keywords. Geico argued that the policy change constituted a deliberate decision to use the registered trademarks of other companies, including Geico, for the financial benefit of Google and to the detriment of trademark owners. Geico sought damages and an injunction against Google’s and Overture’s use of Geico’s marks in their advertising programs.

Court Initially Sides with Geico

In August 2004, the district court denied Google’s and Overture’s motion to dismiss the essential counts of the complaint. The court held that Geico had alleged facts sufficient to support its claims that advertisers make trademark use of Geico’s marks and that Google and Overture may be liable for direct, contributory, and/or vicarious trademark infringement, as well as unfair competition and dilution under the Lanham Act, and unfair competition under Virginia state law.

The court noted that the relevant inquiry is whether the defendants’ actions, as alleged, constituted “trademark use,” i.e., use of a mark in commerce in connection with the sale, offering for sale, distribution, or advertising of goods or services, sufficient to satisfy a threshold requirement for Lanham Act liability, as interpreted by the U.S. Court of Appeals for the Fourth Circuit.

In dealing with this issue, the defendants found support from recent cases that involved pop-up Internet advertising and web page addresses. Ultimately, however, the court held that the search engines’ activities, as alleged in the complaint, do constitute trademark use. In short, according to the court, the use of Geico’s trademarks to sell advertising and subsequent linking of advertising to results of searches, qualifies as trademark use.

Not surprisingly, Google later filed a motion for summary judgment, arguing that Geico had produced no evidence to prove that the use of Geico’s marks as keywords caused a likelihood of confusion. Google also argued that Geico had presented no evidence that Google induced trademark infringement, or that it continued to do business with an advertiser that Google knew was particularly likely to infringe Geico’s marks. The district court denied this motion on November 19, 2004, without issuing a written opinion.

Geico Settles with Overture

Shortly after the court denied Google’s motion for summary judgment, Geico and Overture reached a settlement. On November 29, 2004, the court entered a stipulated order dismissing with prejudice all claims asserted by Geico and Overture. While the terms of the settlement agreement are confidential, a spokesman for Overture has reportedly said that Overture is not expected to change its business practices.

Court Halts Trial and Directs a Partial Verdict in Favor of Google

Geico’s case against Google went to trial on December 13, 2004. After Geico rested its case on December 15, 2004, Judge Leonie M. Brinkema ruled from the bench that, as a matter of law, Geico had not presented sufficient evidence that Google’s sale of Geico’s trademarks to others as keywords, triggering ads for competitors and others on the Google search results page, constituted trademark infringement because there was “no evidence that that activity standing alone causes confusion.” The ruling is limited to situations where the ads themselves do not include the trademarks, but rather, where the marks only serve as mechanisms to trigger the ads. The judge also handed Geico a victory (not widely reported in the press), stating that where the competitors’ ads do display the GEICO trademarks in a manner that is likely to cause confusion that constitutes trademark infringement, at least by the advertiser.

Judge Brinkema adjourned the trial, stating that she would issue an opinion and then resume the trial on Geico’s outstanding claim that when the ads do display the trademarks, Google should be held liable for contributory trademark infringement, unfair competition, and trademark dilution.

If such liability were found, the court would then have to determine what remedies, if any, Geico should be awarded. Google claims that, in such cases, it merely acts as a publisher and should not be responsible. The judge urged the parties to use the recess to try to settle the case. This is where the case stands as of this writing.

Significance of Ruling

Judge Brinkema’s partial directed verdict is an important victory for Google and a blow to trademark owners, though it not binding on other trial courts that are considering similar claims by other trademark owners against Google.

Nevertheless, other courts may take this ruling into account (and Google will certainly urge them to do so). An appeal is also possible if the case is not settled.

Google v. American Blind and Wallpaper Factory

Google initiated this litigation. After receiving threatening letters from American Blind, Google filed a declaratory judgment action, seeking a ruling that its keyword-triggered advertising policy does not infringe the trademarks AMERICAN BLIND & WALLPAPER FACTORY, AMERICAN BLIND FACTORY, and DECORATETODAY. See Google, Inc. v. American Blind and Wallpaper Factory, Inc., Civ. No. 03-cv-05340 (N.D. Cal. Nov. 26, 2003).

American Blind filed a counterclaim against Google and joined several of Google’s licensees, including AOL, Netscape, CompuServe, Ask Jeeves and Earthlink, alleging trademark infringement, unfair competition, contributory infringement, dilution, and several state law causes of action.

In moving to dismiss American Blind’s infringement and dilution claims, Google and its licensees argued that American Blind had not satisfied the requirement to plead actionable trademark “use,” because it could not be alleged that Google or the other parties use the American Blind marks to identify the source of their own goods or services.

In rejecting this argument, the court highlighted and followed Playboy Enterprises Inc. v. Netscape Communications Corp., 354 F.3d 1020 (9th Cir. 2004), in which the Ninth Circuit found adequate evidence of initial interest confusion in the appearance of unlabeled banner ads and reversed the district court’s summary judgment in favor of two search engines.

Despite Google’s arguments to the contrary, the court did not find Playboy distinguishable, even though Playboy did not specifically discuss the issue of trademark use. The court also noted that its ruling was consistent with the preliminary ruling in Government Employees Insurance Co. v. Google Inc., 330 F.Supp.2d 700 (E.D. Va. 2004), on the question of use, and concluded that a resolution of the core infringement issues should await the development of a full factual record.

It is worth noting that the court did grant the defendants’ motion to dismiss as to the tortuous interference with prospective business claim. It found that American Blind’s expectation of “future and prospective sales” to “repeat customers,” with which defendants are alleged to have interfered, was too speculative to support the claim, because the tort applies to interference with existing noncontractual relations.

Novak v. Overture

In Novak v. Overture Services Inc., Case No. 2:02CV05164 (E.D.N.Y. Oct. 10, 2002), an individual named Robert Novak, doing business as PetsWarehouse and PetsWarehouse.com, filed a complaint in the Eastern District of New York against Overture, Google, and others.

Mr. Novak claimed that the defendants unlawfully sold keyword advertising tied to his registered trademark PETS WAREHOUSE. In March 2004, the court denied the defendants’ motions to dismiss the lawsuit. Specifically, the court rejected the defendants’ argument that PETS WAREHOUSE was generic and unprotectable, finding that the issue of genericness raised a fact question that could not be determined on a motion to dismiss. While the court has dismissed the complaints as to certain of the defendants, the case remains pending as to Google and Overture.

800-JR-Cigar v. Overture

In 800-JR-Cigar Inc. v. Overture Services Inc., Case No. 2:00-cv-03179 (D. N.J. Oct. 2, 2000), JR Cigar sued Overture for trademark infringement, dilution, and unfair competition for allowing competitors to purchase the term JR CIGAR as a keyword. The parties have filed motions for summary judgment, which are pending before the court. The case remains pending in the District of New Jersey.

Other U.S. Litigation

Other lawsuits have been filed against search engines for their keyword advertising practices, but these were settled or dismissed before judgment. These cases include Playboy Enterprises Inc. v. Netscape Comm. Corp., 354 F.3d 1020 (9th Cir. 2004), where defendants Netscape and Excite, both search engines, allowed adult advertisers to link their targeted banner ads to search results for the trademarks PLAYBOY and PLAYMATE. Defendants had created numerous lists of terms to which they keyed their customers’ banner ads.

Each list was relevant to a particular subject matter. The list for adult-oriented content, which contained over 400 terms, included PLAYBOY and PLAYMATE. Defendants actually required the adult-oriented advertisers to link their ads to this list of words, and even refused to remove these terms from its keyword list when asked to do so by advertisers.

The banner ads themselves ran along the top or side of the search results page. The ads were often sexually explicit, stated “click here,” and did not identify their source in any manner by specifying, for example, the advertiser’s name.

Playboy asserted that consumers who saw unclearly labeled ads were likely to be confused as to whether Playboy sponsored the ads and argued that these actions caused “initial interest confusion,” or “temporary” confusion that is eradicated before any sale is made.

The Ninth Circuit reversed the lower court’s grant of summary judgment in favor of Netscape and Excite, ruling that there was a genuine issue of fact as to whether these actions constituted trademark infringement and dilution.

In its opinion, the Ninth Circuit relied heavily on the initial interest confusion analysis in Brookfield Communications Inc. v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir. 1999), and noted that if the banner ad clearly identified its source with the sponsor’s name, this “might eliminate the likelihood of initial interest confusion that exists in this case.” After the Ninth Circuit’s decision in January 2004, Netscape and Excite settled under undisclosed terms.

Foreign Litigation

Defeats for Google in France

Google has suffered a string of losses concerning the legality of its keyword-triggered advertising program in France. In December, 2004, for example, the court in Societe des Hotels Meridien v. S.A.R.L. Google France ruled that Google’s French subsidiary infringed the trademarks of Le Meridien by allowing competitors to bid on these marks as keywords and have ads appear prominently in search results.

Similarly, earlier in 2004, two French travel agencies, Luteciel and Viaticum, successfully sued Google for trademark infringement for this practice. Most recently, a Paris district court in Louis Vuitton Malletier v. Google ruled that Google and its French subsidiary infringed the trademarks of Louis Vuitton by permitting third parties to bid on Louis Vuitton’s trademarks as keywords, then allowing advertisements for these parties to appear in the search results.

Victories for Google in Germany

Google has enjoyed better fortune in defending its keyword-triggered advertising program in Germany. The German company Metaspinner Media, which operates a comparison-shopping Web site, for example, sued Google Germany in 2003 for selling its trademark PREISPIRATEN as a keyword. Metaspinner argued that Google’s practices allowed other companies to take advantage of its brand name and the court ultimately declined the company’s request to issue a permanent injunction against Google in the case.

Similarly, in December 2003, the district court of Munich in Nemetschek AG v. Google held that Google was not liable for allowing advertisers to use a trademark as a keyword. The court declined to find liability since Google did not use the mark for advertising and was not responsible for the keywords chosen by the advertisers.

The court also explained that Google did not have a duty to constantly check the keywords it sold to assess whether they were trademarks owned by a third party because to do so would be overly burdensome.

Conclusion — What Should Trademark Owners Do?

The recent Geico ruling for a partial directed verdict in favor of Google seems to run counter to the trend of preliminary court rulings in Novak and Playboy, as well as the Geico case itself (with Judge Brinkema’s refusal to grant the search engines’ motions to dismiss and for summary judgment).

For the present, the Geico case stands for the view that the practice of facilitating the use of another’s trademark to direct consumers to a competitor’s Web site may not constitute direct or contributory trademark infringement, although allowing use of the mark in the resulting ad may generate liability. But, even considering the recent order entered in American Blind denying Google’s motion to dismiss the central trademark infringement claims, the issue is by no means settled.

In order to preserve the distinctiveness and value of a company’s trademarks, trademark owners should probably continue to lodge objections with search engines and advertisers who use their marks improperly in search-related advertising. Given the recent rulings in the Ninth Circuit, trademark owners would arguably fare best by litigating in that circuit.

Of course direct action against the advertisers may be a better option in many cases. However, owners should not expect Google to prevent third parties from bidding on trademarks per se.

At the same time, trademark owners should seriously consider utilizing keyword advertising tied to their own marks or to generic words, in view of the apparent effectiveness of this marketing tool.

 

Sheldon Klein
202.857.6404
klein.sheldon@arentfox.com

Jason Mazur
202-715-8409
mazur.jason@arentfox.com

David Modzeleski
202.857.6073
modzeleski.david@arentfox.com