Trademarks in Search: A Legal Pick’em

Marketers who reach for their Magic 8-Ball for answers to the question of using rivals’ trademarks as search keywords got a pair of responses from two different federal courts last week. Taken together, they add up to “Reply hazy--ask again later.”

A ruling issued by a U.S. District Court in Minnesota on March 20 and made public last week found that a lawsuit by Edina Realty against TheMSLOnline.com could proceed. Edina Realty’s suit charges that by purchasing its business name as a keyword in searches on both Google and Yahoo!, its home-listing competitor committed false advertising, trademark infringement and trademark dilution. Edina alleges that the term was also used in hidden links and text on the MLS Web site to ensure that the page appeared in organic search results for “Edina Realty”.

The court filing in the case reveals that MLSOnline bought ads not only on Edina’s actual name but on keywords such as “EdinaRealty”, “Edina Reality” and “EdinaReality.com”, covering all the misspelled bases. The name was included in the text of the ads, as in “Find Edina Realty ™ and Twin Cities MN MLS listings.” The MLSOnline ad also included hidden text—white text on a white background—that said, among other messages, “Edina Realty information presented at TheMLSOnline.com”.

Trademark infringement is usually considered to be improper use of someone else’s mark in commerce, leading to confusion in the marketplace. In the Minnesota ruling, the court found that “while not a conventional ‘use in commerce’”, TheMLSOnline.com did use the Edina name commercially, and that the purchase of search terms can be considered a “use in commerce”. The decision also said that MLSOnline “could have done more to prevent an improper inference regarding the relationship” between itself and Edina Realty.

Things were looking grim for the legality of buying trademarks as keywords—until a week ago.

But last Thursday, the U.S. District Court for the Southern District of New York dismissed trademark infringement claims brought by pharmaceutical maker Merck against a group of online Canadian pharmacies that bought the name Zocor, Merck’s cholesterol-reduction drug, as a search term.

The New York court’s ruling in the Zocor case was 180 degrees away from that in the Minnesota finding. The court ruled that using a trademark as a keyword was not using it “in commerce” and therefore not infringement; that would only occur if the name was used on a label or displayed in the sale of services. Instead, the court ruled, using a rival’s name or trademark to produce ads on search results pages is “internal use” within the search engine index. (The Canadian pharmacists are not out of the woods yet. The court did agree that Merck’s suit against them could proceed on allegations of false advertising and trademark dilution.)

Note that neither case has been decided or for that matter even tried yet. The courts have simply set the grounds on which they can proceed—and in this case, those bases are in contradiction. In Minnesota, trademark infringement is at stake; in New York, that’s been knocked back to trademark dilution, which involves using a well-known trademark in a way that lessens its uniqueness. Neither case has been given a court date at press time.

Technology law professor Eric Goldman of Marquette University wrote in his blog that the New York court used a statutory definition of “trademark use in commerce” that essentially said if it’s invisible to consumers—as a purchased keyword would be—then it’s not “in commerce” and not infringement.

What to the two decisions mean taken together? First, they seem to be good news for the search engines, simply because for once they aren’t playing the role of defendants. These suits are the first to bring suit directly against the advertisers buying the keywords and not against the search engines that sell them. In an earlier notable trademark infringement case, insurance provider Geico sued Google for letting its name be used by another insurer as a keyword to deliver paid search ads. In that case, a judge issued a written decision that dismissed the infringement charges but let the case proceed on the use of trademarks in the text of paid-search ads. The dispute was settled out of court in September 2005 without any further resolution of the trademark questions.

Several other trademark keywords suits against the search powers are still in the courts. One suit against Google by American Blind and Wallpaper Factory has been in process for about two years.

For search advertisers, the results are not so clear-cut. Granted, the New York finding is a boon to those looking to leverage their competitors’ brand awareness. But as Goldman notes in his blog post on the Zocor case, “Because this ruling directly conflicts with the Edina Realty ruling, we’re in legal limbo. We need more courts to weigh in before this issue becomes predictable.”

Given that lack of legal clarity, some in the search marketing industry are saying that advertisers will tend to shy away from using rivals’ trademarks in their keyword campaigns. Gary Angel is president and CTO of SEMphonic, which offers software to let advertisers monitor both their own SEM and the efforts of their competitors. He says that using another company’s name as a search term was a sensible strategy whose time has gone.

“In the past, it wasn’t a bad strategy at all,” Angel says of buying competitors’ trademarks as Google keywords. “There were very limited markets for these words, so you weren’t bidding against 20 or 30 other advertisers. You could bid 5 cents or 10 cents for the keyword and then just sit there in second or third position on the page. And while you might not get a lot of clicks on those ads, the clickthroughs you got were highly qualified, because people were already searching for your competitor or their core brand.”

But Google revised its bid structure for keywords last year, effectively increasing minimum bids to that point where most buyers can’t get a good return on the investment of buying a competitor’s mark. “The minimum pricing changes make it much less attractive as a strategy,” according to Angel. “In a lot of cases, the minimum prices [on competitors’ trademarks] are above what you’d expect to pay for similar real estate on equally qualified words that are not trademarked.”

Nor do the clickthrough rates on rival marks make those offensive plays any more attractive to advertisers: While they’re highly qualified, they’re also low in volume. “When searchers search for the company name or brand of a competitor, they’re highly inclined to click through on that competitor,” he says. “That makes it very difficult to get large returns on that kind of targeted attack on your competitors.”

Combined with the marginal returns, the present legal tangle over trademarked keywords and the chance that using them could lead to being hauled into court for infringement may be enough to put many advertisers off the tactic. “If the returns are really only incremental and if you’re exposed to increased liability, it’s something that marketers really ought to think twice about,” Angel says.

Andrew Klungness, an intellectual property attorney with Bryan Cave LLP, agrees that given the conflicting legal views on the infringement issue, advertisers may err on the side of caution and cut back on trademark search campaigns. Klungness would not comment on the Merck case because his firm does legal work for the pharma company, (although not in the New York trademark case), but he said that the fact that one jurisdiction in Minnesota has allowed the infringement complaint to proceed to court could have an impact on search marketers around the country.

“True, it may be Minnesota and not New York or Los Angeles,” he says. “But because of the global nature of the Internet, companies have got to be conscious that if they’re conducting marketing activities throughout the country, they could potentially be sued anywhere in the country.”

Klungness says it’s surprising that it’s taken so long for companies who think their trademarks are being abused in search to go after specific marketers rather than the engines selling off the keywords. The reasons for this lag, he says, may be partly due to assets—how many advertisers have deeper pockets than Google?—but also to a desire to attack the prime movers in the situation, the search engines themselves. “By going after search engines, trademark owners were trying to nip the problem in the bud with big cases, rather than taking a piecemeal approach.

Yahoo! and Google have both altered their stance over time on buying trademarked terms as keywords to trigger search ads. After initially prohibiting the practice, Google allowed it in 2004, claiming that limiting sales of trademarks as keywords was impairing the completeness of Web searches on those terms. Google search advertisers can bid on competitors’ trademarks but cannot use those terms in the headline or text of their paid-search ads. (For example, Edina Realty was eventually able to block those MLSOnline search ads that used its trademark name in their creative.)

More recently, Yahoo! announced in February that it would only sell trademarked keywords to advertisers who were the legal holders of those marks. The move was widely seen as an attempt to appeal to a broad range of advertisers who have worried about protecting their trademarks in search marketing.

Angel points out that there are still ways for advertisers to shadow their competitors with sponsored listings but without the risk of legal fallout. One way is to set keywords for broad matching, so that an advertiser who buys the keyword “hotels” will be likely to have an ad show up when someone searches on “Hilton Hotels”.

Another strategy is to take competitors’ names, make an ad group out of them and then set that up for content match. “That way, any time your competitors show up in an article, your ad is likely to be paired with it,” he says. “There’s not even any way to backtrack and determine that this is being done.” Both these ploys are more expensive than straight keyword matching and might not be within every advertiser’s budget. And again, clickthroughs may be low.

But that may be beside the point of simply showing up where your competitors are in search results. “Some advertisers approach this with the idea that impressions are valuable, particularly in businesses with long sell-cycles where you don’t expect people to convert right away,” he says. “If you’re getting a significant number of impressions but very few clicks, since you only pay for clicks, you may decide you’re able to live with the minimum bid for these types of ads.”