Trade-Marks in Search Engine Advertising 



November 27, 2009 - (ACETECH CEO SnapShots )

ACETECH CEO SnapShots, November 2009 and Terralex's Intellectual Property Newsletter, June 2010

Those involved in the selling or purchasing of "keyword" advertising from major Internet search engines should proceed cautiously as this is an area of the law that has yet to catch up to cyberspace and involves trade-mark issues that could result in costly litigation.

Introduction to Keyword Advertising

Search engines do not only collect information about the content available on the Internet, they also capture data about the terms, ideas, and concepts for which users are searching. Recognizing that this information is incredibly valuable to companies, all of the major search engines engage in some practice of selling "keywords" to advertisers—that is, when a user inputs selected keywords into the search engine, advertisements are displayed amongst the search results. Typically, these paid advertisements appear separate from the actual search results, though often in a prominent location. Certain practices adopted by search engines and advertisers, however, may run afoul of the rights held by trade-mark owners, and recent developments in the industry and in law may significantly alter this practice going forward.

All major search engines permit advertisers to purchase advertisements triggered by keywords consisting of their own trade-marks, or generic and descriptive terms in their industry. This allows a company (SmallCo), to buy prominent space on search engine result pages when users search for "SmallCo" or its goods and services. For example, if SmallCo sells printer cartridges, it might buy the keyword "printer", "cartridge" or "ink" so that a SmallCo advertisement appears when users search for those terms. This is fairly uncontroversial, and is akin to listing oneself in a Yellow Pages® business directory in a certain service area, or in the residential section of a phone book under one's own name.

Google's AdWords Program—Competitive Keywords

Since late 2004, Google Inc., through its search engine advertising platform known as "AdWords" has controversially allowed advertisers in the United States and Canada to purchase keywords consisting of third-party trade-marks. In our example, SmallCo, struggling to capture some market share from a dominant company (BigCo), could purchase the keyword "BigCo" or a keyword consisting of BigCo's trade-marks so that when Google users search for "BigCo" or a BigCo product by its name, an advertisement for SmallCo is displayed. The analogy in phone book terms is this: someone looking in the white pages for a business is presented with several options, including the sought-after business and, prominently, competing businesses. Google's pricing model depends upon the popularity of the search term. Google even has a service that suggests popular search words for purchase in a particular industry, some of which may be trade-marked terms. The more popular a trade-mark as a search term, the more expensive the keyword (and, presumably, the more traffic benefiting the advertiser). However, because the cost is quite low—and also because everybody else seems to be doing it—companies increasingly purchase the keywords of their competitors under the AdWords program. Unsurprisingly, most trade-mark owners take the position that this is an unauthorized use of their trade-marks.

Legally, this activity may be risky both for the search engine (in offering competitive keywords) and for the advertiser (in purchasing competitive keywords), as it potentially infringes the trademark rights of the owner. Google's position on this is simple: it just sells advertising space, the advertisers themselves are responsible for their own choices in advertisements and keywords, and the trade-mark owners and advertisers should fight it out amongst themselves. In fact, as of the time of writing, section 8 of Google's AdWords Terms and Conditions states that the advertisers will indemnify Google for any third-party claim or liability arising out of the use of its AdWords program.

The potential liability for competitive keyword advertising has yet to be tested in Canadian courts, but an analysis can be made using the language of the Trade-Marks Act , which gives a trade-mark owner the following rights:

(a) Exclusive Use . If the trade-mark is registered, the owner has the "exclusive right to the use throughout Canada of the trade-mark in respect of [its] wares or services" (Section 19), meaning the right to prevent others from "selling, distributing or advertising wares or services in association with a confusing trade-mark or trade-name" (Section 20). Trade-mark "use" is legislatively defined in two contexts (Section 4): for goods, it means that the trade-mark is marked on or associated with the goods in a manner that notice of such association is given to the consumer in the course of normal trade; and for services, it means that the trade-mark is used or displayed in the performance or advertising of those services. Competitive keyword advertising could meet this definition of "use" (particularly for services).

(b) Protection of Goodwill . If the trade-mark is registered, the owner has the right to prevent others from using its trade-marks "in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto"(Section 22). This protection is generally viewed as giving a cause of action to owners of well-known trade-marks even where there is no likelihood of confusion. A trade-mark owner could argue that a competitive keyword advertisement diminishes the value of the goodwill in the trademark— if others are allowed to advertise using the mark, the owner would argue that the value of it has decreased. For example, if BigCo is a luxury brand and is only offered at high-end retailers, the use of the BigCo trade-marks in a non-luxury setting could diminish the value of the goodwill.

(c) Passing Off . Whether a trade-mark is registered or unregistered, the owner hasthe right to prevent others from holding out their goods or services as having someassociation or connection with those of another in a manner that causes or is likely to cause confusion (Section 7(b)). This is an already difficult allegation to prove even ignoring the specifics of competitive keyword advertising. Given that keywordadvertisements are usually clearly indicated as paid advertising, it is unlikely that consumers would be confused unless the content of the advertisement (or the website to which it resolved) somehow created the confusion.

Though neglected in Canadian case law, there is an emerging body of law in the United States on the topic of keyword advertising. U.S. federal district courts have issued decisions of varying results on whether competitive keyword advertising consists of "use in commerce" (as required under American law to find trade-mark infringement) of a trade-mark, but a recent decision of the Federal Court of Appeals Second Circuit may have shifted the balance in favour of trademark owners. In Rescuecom Corp. v. Google Inc. , decided April 3, 2009, the court reversed a lower court decision and held that there was a triable issue in whether Google used Rescuecom's trade-marks in commerce when selling "Rescuecom" keywords, and when offering a keyword suggestion tool that suggested the purchase of Rescuecom's trade-marks to advertisers trying to target the computer repair market. The case has now been sent back to trial court for consideration, the ultimate decision of which will no doubt be watched closely by search engines, advertisers and trade-mark owners.

The inevitable wave of follow-up lawsuits have already commenced: on May 11, 2009, a class action suit was filed by FPX, LLC (doing business as Firepond) on behalf of itself and all other trade-mark holders in Texas against Google, YouTube, AOL, Turner Broadcasting System, MySpace and IAC/InterActiveCorp (owners of the "" search engine) for the use of competitive keyword advertising in Google's AdWords program (of which all defendants are participants). Another class action suit was launched on May 15, 2009, by John Beck, a California-based real estate investment advisor, purporting to represent all trade-mark owners across the United States.

Google isn't known to shy away, though, and it expanded the practice of permitting competitive keyword purchases to the UK and Ireland in 2008 (after a fairly favourable decision was rendered in the UK), and to 190 more countries on May 5, 2009.

Google's AdWords Program—Competitive Advertising Text

Despite a growing tension between trademark owners and Google, Google continues to push the boundaries of trade-mark law with its policies. On May 15, 2009, Google announced that it would be changing its strict policy against using third-party trade-marks in the text of the advertisement itself. A blog entry posted by the developers states, "Under certain criteria, you can use trademark terms in your ad text in the U.S. even if you don't own that trademark or have explicit approval from the trademark owner to use it". It is unknown whether this policy will expand to other jurisdictions, but, for now, Canada is excluded.

The new policy went into effect on June 15, 2009, and allows a U.S. advertiser to use third-party trade-marks in an advertisement's text if it resells the trade-marked goods or services, sells compatible components or replacement parts for trade-marked products, provides noncompetitive information or informative details of the trade-marked goods and services, or uses the term in a descriptive or generic way (i.e., outside of the realm of the trade-mark, such as using the term "Bigfoot" when referring to sasquatches, and not Bigfoot-branded goods or services).

The position, which has also been adopted by Microsoft and Yahoo! search engines, may be viewed as aggressive because U.S. courts have previously held that using trade-marks in such advertisements sprinkled amongst search engine results infringes trade-mark rights through something called "initial interest confusion". Initial interest confusion occurs when the use of a trade-mark is done in a manner calculated to capture initial consumer attention, regardless of whether or not there is any confusion at the completion of the ultimate sale.

The new policy also compounds the liability Google (and the advertiser) faces under its AdWords program. Consider our example of a printer manufacturer, BigCo, which has a trade-mark for high-quality, BigCo-brand printers. SmallCo makes cartridges that are compatible with those printers. Under Google's new AdWords policy, SmallCo could purchase the keyword "BigCo" or "BigCo cartridge" so that people searching for those terms will receive an advertisement for SmallCo. In Canada (and elsewhere in the world), Google's policy stipulates that the advertisement cannot contain the trade-mark. So when a user searches for "BigCo cartridges", he or she might receive an advertisement that says "SmallCo: Cartridges available for less". But under Google's new U.S. trade-mark policy, SmallCo could purchase an advertisement that said "SmallCo offers BigCo cartridges for less" or "Purchase BigCo Cartridges Here". That could be viewed as creating initial interest confusion and infringing on BigCo's trade-marks.

The initial interest confusion doctrine has not been accepted in Canadian courts, but an analysis of traditional trade-mark infringement reveals issues facing Canadian advertisers who use third-party trademarks in their online advertisements. While legal advice should always be sought when using another person's trade-marks, the general rule is that the use should be accurate, correct and compliant with the owner's reasonable trade-mark policies and rights. As such, advertisers must not infringe on the owner's exclusive use in connection with its goods and services, and be careful not to depreciate the value of the goodwill of the trade-mark in question. And, of course, the text of the advertisement (or the resultant page to which it links) should never confuse consumers about the origin of the goods and services being offered by the advertiser.

Risk for Advertisers and Competitors

An advertiser's decision to competitively use trade-marks on search engines will often involve a mix of a business and legal analysis. The advertisement "SmallCo offers BigCo cartridges for less" returned from the result of searching for "BigCo cartridge" is more risky than "SmallCo sells cartridges compatible with BigCo™-brand printers" returned from the result of searching for "printer cartridges", but it's fairly obvious which one is more marketing-friendly.

But if Google and other search engines face some risk when selling competitive keywords or using another person's trade-marks in an online advertisement, it necessarily follows that advertisers themselves take on potential liability by purchasing competitive keywords or competitively using trade-marks in advertising text. Not only could a trade-mark owner pursue the advertiser for trade-mark infringement, but the advertising program's terms and conditions typically contain indemnities through which the advertiser may have to pay for the search engine's legal bills and damages to the extent it is dragged into the battle. Cases like Rescuecom (or any cases in this area in Canada) will eventually help guide search engines, advertisers and trade-mark owners in the future as they compete for online eyeballs, but for now all parties should be cautious about how they approach the hotly competitive practice of keyword advertising, particularly as the law slowly catches up.

This article appeared in ACETECH's CEO SnapShots newsletter on November 27, 2009.