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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 trademarketed 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.
Trademark Infringement?
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 the 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 competition 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 a 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 keyword
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 occures
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 when 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 million 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.
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