Google's informal corporate motto is "Don't be evil" but the search engine provider isn't viewed as particularly nice by a growing list of companies that claim Google is misusing their trademarks and, in so doing, hurting their businesses.
Search engines such as Google deliver users both a list of Web sites and a list of ads triggered by the users' query terms, also known as keywords. For example, a seller of art supplies may pay Google to run its ad whenever a user enters a query containing keywords such as "easel" or "stencil." The dispute at hand arises when advertisers sell keywords that are trademarks without authorization from the trademark owner.
Rescuecom is one company challenging Google's practice in court. The Syracuse, New York, computer services franchising business says Google is seriously hurting it by serving up competitors' ads when users search for "Rescuecom" in Google's search engine.
Google and the Rescuecom competitors buying the ads are profiting without authorization from the Rescuecom trademark, which the company spends significant amounts of money promoting and protecting, Rescuecom claims in a lawsuit filed against Google in September in U.S. District Court for the Northern District of New York. The practice can also confuse potential customers and franchisees, leading them to incorrectly assume that Rescuecom is associated with a competitor, which results in lost business for Rescuecom, the lawsuit claims.
"Defendant Google is promoting, encouraging, enabling and profiting from Rescuecom's competitors 'free-riding' on (Rescuecom's) goodwill and the name recognition it enjoys in its marketplace," the lawsuit reads, and adds further down: "Rescuecom would have realized additional sales, franchisees, customers and revenue from such diverted Internet users were it not for Google's intentional and improper sale of (Rescuecom's) protected trademark 'Rescuecom' as a keyword."
Rescuecom, which had 67 franchisees when the lawsuit was filed, asks the court, among other things, to forbid Google from using "Rescuecom" as a keyword for ads in its search engine and to have Google pay damages.
Google has said the lawsuit is without merit.
So who will prevail? With U.S. law unclear on the legality of using trademarks without authorisation to trigger online ads, search engines and trademark owners will spend a lot of time and money in coming years battling the issue in court, experts say.
Search engines such as Google and Ask Jeeves Inc. are fighting over the issue with trademark owners in several ongoing cases at the federal district court level. Although Google won a partial victory last week against Government Employees Insurance (Geico) in one of those cases, experts say a solid legal precedent is likely to be years away.
"There have to be more cases and the cases need to get appealed," said Sheldon Klein, an attorney specializing in intellectual property matters and a partner at Arent Fox in Washington, D.C. "When you have one of the circuit courts of appeals ruling on something, it carries more weight (than at the district court level) and it's a binding precedent within that entire circuit. We may end up having two or three or more circuits ruling different ways and that's how cases get to the Supreme Court."
In May, insurance company Geico sued Google for trademark infringement over its advertising practice. However, last week Leonie M. Brinkema, a district court judge for Virginia's Eastern District, citing lack of evidence, dismissed Geico's allegation that the practice will cause confusion among customers. The judge also ruled that advertisers who use Geico trademarks without authorization in the text of their ads are infringing on Geico's trademarks. The judge still has to rule on whether Google is liable when such an infringement occurs.
Until a legal consensus is reached, search engines are expected to strongly defend this advertising practice because it is an important part of their advertising model.
In the second quarter ended June 30, total U.S. Internet ad spending was about US$2.37 billion, a 42.7 percent increase over the same period in 2003, according to the Interactive Advertising Bureau and PricewaterhouseCoopers. Search-related ads -- triggered both by generic and trademarked terms -- were the largest category with $947 million.
Search engine ads that are triggered using trademarks tend to yield better results for advertisers than those using generic terms, said Kevin Lee, chief executive officer of Did It.com, a search engine marketing company based in New York. "Trademarks are very popular as search terms, so this is a huge issue," he said.
The effect of banning the sale of ads using unauthorized trademarks on search engine advertising revenue would be significant, said Niki Scevak, a Jupiter Research analyst. "A sizable amount of queries monetized by Google have some trademark name within them," he said. "The ability to bid on trademark terms is a fairly significant component of any search engine business."
Moreover, a precedent limiting the use of trademarks as keywords in search engine ads may force search engines to devote time and resources to checking every keyword for trademark violations, Did It.com's Lee said. "That verification process would be very burdensome," he said.
Google has never had to undertake this process. The company's trademark policy on ads puts the onus on trademark owners to complain to Google about potential violations, not on Google to proactively screen its ads for possible infringement. Google's current policy, revised in April 2004, allows trademark keywords, and pledges to investigate complaints only when trademarks are used in the ad text itself.
To succeed in court, trademark owners need to convince the judge that the trademark keywords practice is likely to confuse customers, even if the confusion were to be brief and last only a few seconds, Arent Fox's Sheldon said. In addition to Geico and Rescuecom, other businesses that have filed lawsuits against search engine companies in the U.S. over this practice include Pets Warehouse, American Blind & Wallpaper Factory Inc. and 800-JRCigar Inc. All of these lawsuits are ongoing.
Companies that have been sued in U.S. district courts over the past several years for this advertising practice include, in addition to Google, Yahoo Inc.'s Overture ad network subsidiary and AltaVista search site, Ask Jeeves and its Excite search site, and America Online and its Netscape and CompuServe units. The advertising practice has also landed Google in court in several European countries.
Playboy Enterprises lost an initial lawsuit against Netscape and Excite but won on appeal, and the defendants chose to settle. The Geico lawsuit against Google originally included Overture as a defendant, but Overture settled.
"Geico will continue to aggressively enforce its trademark rights against purchasers of its trademark on search engines and against search engines that continue to sell its trademarks," said Charles Davies, Geico's general counsel, in a statement.
For now, last week's decision is a small victory that Google is happy to have won. "It confirms that our policy complies with the law, particularly the use of trademarks as keywords," said David Drummond, Google's vice president and general counsel, in a statement.
Calling the ruling "a victory for consumers," Drummond also sought to extend its significance beyond the scope of the Geico litigation. "This is a clear signal to other litigants that our keyword policy is lawful," he said.
Google is a defendant in the Pets Warehouse, American Blind & Wallpaper and Rescuecom lawsuits, and the plaintiff in its own lawsuit against American Blind & Wallpaper, in which it seeks a declaratory judgement that its search engine ads based on trademark keywords don't violate the defendant's trademarks.
Although last week's ruling doesn't establish any precedent beyond that case, Google will try to get as much mileage out of the ruling as possible, Arent Fox's Sheldon said.