By David Hansel, Partner, Hansel Henson LLP & Christian Panayi.
The important matter of whether Google can lawfully allow advertisers to use its AdWords service to bid on keywords that are registered trade marks ought to have become a lot clearer as a result of a much anticipated opinion of the Advocate General of the European Court of Justice, Poiares Maduro. This article is a summary of the opinion for non-lawyers. In order to keep it short, we assume you have a good understanding of Google AdWords and the issues surrounding the service.
Brand owners have been keen to stop bidding on their trade marks by their competitors for keywords. But does the use of keywords corresponding to trade marks constitute an infringement of those trade marks? Over time and in different parts of the World, Google has altered its policies and has more recently allowed bidding on these keywords. This has led to court proceedings all over Europe, including those in England between Interflora and Marks & Spencer. The French courts were the first to pass issues to the European Court of Justice and it is these that the Advocate General considers. In short, the Advocate General’s opinion is that Google and advertisers do not commit trade mark infringement; neither by allowing advertisers to select keywords that are registered trade marks nor…
…by displaying advertisements triggered by AdWords. The opinion is essentially reached by breaking down and analysing two component parts of AdWords – firstly selection of AdWords (the transaction between the advertiser and Google, which the consumer never sees) and secondly the display of advertisements by Google. He reached this opinion through analysing at length a series of questions. For the purpose of this briefing we will just look at the key issues:
i) Selecting – A key finding is that keywords themselves are internal to AdWords and only concern Google and the advertiser. When keywords are selected by advertisers there is no product or service being sold to the general public, and therefore the use is not one in relation to the goods or services of the brand owner. The process is internal to AdWords. As a result, Google has not committed a trade mark infringement by allowing advertisers to select, in AdWords, keywords corresponding to trade marks. The Advocate General noted that in the traditional example of use of a trade mark in advertising, a link is established between the trade mark and the good or service sold to the general public. This happens, for example, when the advertiser advertises on a billboard his goods under the trade mark. However, the service being sold here and to which the use of the keywords corresponding to the trade marks is linked is simply to Google’s own service, AdWords. In the Advocate General’s opinion, the selection of keywords is not a commercial activity and not in the course of trade. Advertisers will select keywords for many legitimate purposes ranging from giving a history of a brand to product reviews. He did find that there was a link between the keywords selected and advertised sites that sell products which are identical or similar to those covered by the trade mark. But he did not think that such a link would constitute a trade mark infringement: consumers would not be confused as to the origin of goods or services. People will make judgements based on the text of the advertisement.
ii) Displaying – The Advocate General’s opinion is that neither the display of advertisements, nor the display of natural search results, in response to keywords that correspond to trade marks, leads to a risk of confusion as to the origin of the advertised goods and services. Neither affect the essential function of a trade mark, which is to guarantee the origin of goods and services. Again, therefore, there is no infringement. He says consumers will only make an assessment as to the origin of the goods and services on the basis of the wording of the advertisement or by leaving Google and visiting sites. So, none of this limits the possibility that the text of the advertisements, which the consumer sees, or the sites to which they are taken may themselves infringe through themselves using the trade marks. Essentially, the Advocate General acknowledges that consumers are savvy; they will not normally be confused by AdWords or natural search results. David Hansel’s own simple bricks and mortar analogy for this is the long established practice of “ambush marketing”, where a brand owner’s attempts to promote its brand are effectively hijacked by a competitor. This might be through a sports shoe manufacturer putting up advertising hoardings along the route of a race being sponsored by a rival brand owner. Similarly Dixons has recently been using advertising on the Underground to leverage off consumer awareness of Selfridges, but doing so without infringing Selfridges rights. Yes, there is a link being made, but this does not go as far as to infringe rights, and so it is not one that the law will stop. Even in relation to trade marks that have a particularly strong reputation, e.g. those of Louis Vuitton, the Advocate General says that the brand owner cannot wholly limit or exclude any other use of their trade marks. The public has the right to be able to access information about trade marks from sites other than the trade mark owner’s. He gives the instance of a website describing the history of Louis Vuitton as being perfectly legitimate. Thus trade marks may, he says, be legitimately be used in product review and price comparison sites. This will often be used, for example, by a price comparison website buying AdWords relating to non-participating insurers with links from the Google results to a page on the comparison site headed something like “About Direct Line”.
iii) Google’s liability – The Advocate General says that both Google’s search engine and AdWords constitute “information society services”. A service provider seeking to benefit from a liability exemption under the E-Commerce Directive must remain neutral as regards the information they carry or host. Whilst Google is a neutral information vehicle applying objective criteria in order to generate the most relevant sites to the keywords entered, that is not the case with Adwords where Google has a direct financial interest in internet users clicking on the sponsored links. As a result, the liability exemption for hosts provided for in the E-Commerce Directive does not apply to the content featured in AdWords. Google cannot claim protection in relation to Adwords under the safe harbour exemption from liability offered by the E-Commerce Directive. However the Advocate General puts the onus on the trade mark holder to prove specific instances of illegal damage to their trade marks.
iv) The opinion in context – Over the years substantial returns have been made from “brand-squatting” in the paid search space. Affiliates spotted that the cost per click (“CPC”) rate payable to search engines for branded keywords (e.g. “Interflora”) were much lower than for generic keywords (e.g. “flowers”). Therefore they were very profitably able to convert this into cost per action (“CPA”) revenues. The people who effectively paid for this were brand owners and advertisers. This included the case where brand owners allowed their own affiliates to bid on their own brands as keywords, and rewarded the affiliates for it. Indeed, some brand owners have encouraged their own affiliates to bid on the brand with a view to crowding out those promoting competitive brands. All this can, as Interflora complain, dramatically push up the CPC cost, and for brand owners create costs that would otherwise not exist.
On the face of it this opinion will lead to increased revenues for Google, as competition for keywords will enable anyone to bid on trade-marked brands. In practice, however, in many industries gentlemen’s agreements have been reached so that brand owners agree not to compete against each other. Is this anti-competitive? We do not think so. We are already seeing changes to how businesses uses AdWords – and how they allow their affiliates to use it. Moreover, does AdWords provide the best value for money in targetting customers? What about new ways of interacting with consumers (by which we don’t just mean Twitter!) .
Overall this opinion is good news for Google. It will continue to earn substantial revenues through allowing anyone to bid on keywords that are registered trade marks. From a brand owner’s point of view, the ruling will allow less well known competitors to continue to piggyback on the back of their trade marks. In these current economic times this may prove difficult with already stretched margins. As is often the case, the law is moving slowly. The Advocate General’s opinion is not law, the decision is not expected until early next year. This opinion is important and it is likely to be followed (although the Court may reach a different decision in about 10% of cases). In the meantime business will continue to evolve. Even if the Court does follow this opinion, this should not be seen as the final word on third parties using AdWords to bid on trade marks. In part this is due to the fact that the questions that the opinion looks at are mainly concerned with the activities of Google. It will be very interesting to see what happens when the Court gives its final decision at the beginning of next year. It will also be interesting to see what happens when a case concerned more with the activities of the advertiser – as with Interflora v Marks & Spencer – is finally decided.
We can understand why he breaks up of the process between Google allowing the advertiser to select and then Google displaying advertisements to consumers. But is this helpful – might it not be somewhat artificial and is the process not better looked at as a whole? We are some way from the definitive legal ruling on AdWords – and by the time we have it the methods of digital advertising will most likely have significantly changed. For now, marketeers will continue to use AdWords as an effective advertising tool. For brand owners, we believe the emphasis needs to be not on suing people, but on controlling their interaction with consumers through doing deals that promote and target the positioning of their brands.
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