Google derives more than 95% of its revenue from selling keywords, and advertisers have taken to buying those words like ducks to water, many finding it a killer advertising application. So, when the search engine starts getting sued over the practice, the whole marketing world had better sit up and take notice.
In years past, Google policed the sale of keywords to avoid claims of infringement that might result from someone buying a trademarked term. Then, in 2004, however, Google effectively abandoned its clearance process-creating a truly free market, but one that is also open to mischief. The Google free-for-all now finds itself under legal attack in Europe and the U.S., with allegations of trademark infringement and dilution and unfair competition.
While suits in the U.S. have not yet established definitive standards, adverse rulings in Europe, particularly in France, raise serious concerns for advertisers who purchase keywords.
The controversy, long debated in legal circles, has become a matter of concern to CFOs, CMOs and financial analysts as the business community worries about legal liability and the stability of the financial model on which search engine marketers rely.
On March 30, a California federal court refused to dismiss a suit by American Blind for trademark infringement, unfair competition and related actions against Google and other search-engine marketers (SEMs). American Blind, whose primary market is online sales of blinds and window treatments, is challenging the sale of its trademarks to competitors as keywords that direct Web browsers to the competitor rather than American Blind. While the court refused to indicate whether it felt American Blind would prevail at trial, the continuation of the suit has sent chills throughout the SEM business. And perhaps for good reason.
In France, a Court of Appeals upheld a lower court's judgement in favor of a tour operator that successfully sued Google for its key word practices, recovering damages and a continuing fine should the practice continue. Google's French subsidiary also lost a case brought by Louis Vuitton and was ordered to pay 200,000 euros for trademark counterfeiting, unfair competition and misleading advertising. And in another French action by Le Meridien Hotels and Resorts, Google was ordered to cease the practice of selling Le Meridien's trademarks and fined 150 euros per day if it did not comply with the order.
AXA, one of the world's largest insurance companies, has also sued Google in France for its keyword program, seeking millions in damages. Similar suits are pending elsewhere in Europe. While none of these suits are final and may be appealed, the direction of the European courts is clearly far from supportive of free-for-all keyword purchasing.
The stakes are high. If Google is liable to trademark owners, then the keyword buyers may also be liable. If companies like American Blind, Louis Vuitton, AXA and others are successful in enjoining Google and recovering substantial damages, suits against advertisers who engage in such practices are not far away.
Of course, a fine of hundreds of thousands of euros is not going to put a significant dent in Google's earnings. But these verdicts are early in the game. If the trend continues, awards can be expected to rise substantially, perhaps even in the millions of dollars.
violation, or tough competition?
A company engages in trademark infringement when it uses a competitor's trademark (or similar word or phrase) in a fashion that may cause confusion among consumers as to the source of the goods or services offered. Thus, it is improper for a company to use the same or a confusingly similar word or phrase owned by a competitor when selling their goods or services. Trademark dilution occurs when a company uses the famous trademark of a competitor in a fashion that dilutes its goodwill in the marketplace, regardless of whether consumers are confused. Unfair competition occurs when a company diverts a competitor's customers to unwittingly do business with them through misleading or illegal practices.
Does selling keywords on the Internet violate any of these principles? Or is it just tough competition among companies struggling to break through the clutter of millions of searches that browsers enter every day?
The Internet does not easily offer the ability to buy a competing page in a magazine or to air a well-positioned commercial on TV or radio. In a world where experts predict that spending on Internet advertising will soon surpass spending in print, do legal principles established when media was limited and space costs high have any place in the online market?
So advertisers face a conundrum. They can't avoid advertising on the Internet. Purchasing keywords is an effective way to break through to the consumer. Yet there lurks the prospect of millions of dollars in damages should the courts follow the trend in France, and with little chance that SEMs will indemnify keyword purchasers any more than a magazine or TV station will indemnify an advertiser from third party claims.
That's a risk media has refused to accept.
So advertisers are left in a tricky spot. For now they aren't going to abandon a marketing technique as efficient as keywords. But that thinking might change when someone recovers millions in damages-a day that may not be far away.
Felix J. Hofer ...is the former president of the European Region of the Global Advertising Lawyers Alliance (GALA) and founding partner of law firm Hofer L?sch Torricelli.
Douglas J. Wood ...is the chairman of the Global Advertising Lawyers Alliance (GALA) and a partner at law firm Reed Smith.