April 13, 2004 4:00 AM PDT

Google plans trademark gambit

Google plans to stop limiting sales of trademarks in its popular keyword advertising program, a high-stakes gamble that could boost revenue but also create new legal problems for the company.

The Mountain View, Calif.-based search provider quietly notified customers in an e-mail message on Thursday of coming changes to its trademark complaint policy.

Sheryl Sandberg, Google's vice president of global online sales and operations, on Monday confirmed the changes. She said Google in the next two weeks will begin allowing U.S. and Canadian advertisers to bid on any keyword, including trademarked terms, sold as part of its sponsored listings service.

News.context

What's new:
Google plans to remove limits on sales of trademarks in its popular keyword advertising service.

Bottom line:
The move signals Google's increasingly aggressive posture in defending its primary source of revenue, according to some legal experts, who call the plan a gamble.

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Previously, Google had granted requests from advertisers, including 1-800 Contacts and eBay, to bar competitors from bidding on their trademarked names. When the changes take effect later this month, Google will only review trademark complaints that relate to text appearing in sponsored listings on its Web site and those of its partners.

"By letting people restrict certain words, you're not getting the results that people expect from Google," Sandberg said, adding that Google plans to put up for auction trademarked terms that it had agreed to keep off limits in the past. Now "users will decide what's useful," she added.

The change underscores ongoing legal uncertainties raised by keyword advertising programs offered through search engines such as Google and Yahoo subsidiary Overture Services. The move also signals Google's increasingly aggressive posture in defending its primary source of revenue, according to some legal experts, who called the plan a gamble.

"It's almost a declaration of war on trademark owners," Terence Ross, a trademark attorney at Gibson Dunn & Crutcher, said of the pending policy change. "At the very least, it's waving the red flag at the bull, inviting more lawsuits on this."

At least one of Google's biggest advertisers responded positively to the change. An eBay representative said the company understands Google's decision and it plans to continue advertising with the search giant. "This change could actually benefit many sellers who sell through the eBay marketplace, because they can now drive potential buyers to specific listings," the representative said.

Paid search is one of the fastest-growing and most closely watched segments of the online advertising business. Its success has helped Yahoo put its dot-com blues behind it, posting $101 million in profits for the first quarter of 2004, well ahead of analyst expectations. It also has fueled intense speculation that Google will go public sometime this year.

According to Jupiter Research, paid search will grow from $1.6 billion in sales in 2003 to $2.1 billion this year, and it will continue to grow at a compound annual rate of 20 percent through 2008.

Legal hurdles ahead?
At least some of that growth could be jeopardized if legal rulings bar Google and other search engines from selling off well-known terms such as "eBay" in their advertising programs, experts cautioned.

Research shows that many inquiries at search engines are for brand names, or trademarked terms. Within the finance category, for example, more than half the total searches are for branded keywords, such as Wells Fargo, according to market researcher ComScore Networks. Between 25 percent and 30 percent of those people searching for a brand name will follow up their request by searching for a competitive brand, such as Bank of America, ComScore found.

"Google can't be a multibillion-dollar company if they disable trademarked keywords at anyone's request," said Eric Goldman, a law professor at Marquette University, who has followed legal issues related to search engine advertising.

For its part, Overture's policy states that it will review trademark complaints when it comes to bid-for keywords as well as ad text. A company representative said that it does not have plans to change its policy.

Complaints about misuse of trademarks in search engine ads abound. Google and Overture have built billion-dollar businesses by marrying text ads with search results; the technique has been effective because Web search is one of the primary ways that people find products and services. Consequently, more companies have sought control over their brand names and trademarked terms in paid search.

Google's predicament goes to the heart of many Internet businesses, which rely on the sale of trademarked keywords. Shopping sites like NexTag and Shopping.com, which recently filed to go public, allow merchants to bid on trademarked terms to turn up in search results. Adware makers Claria, formerly known as Gator, and WhenU.com also make their money by allowing marketers to buy and deliver pop-up ads when consumers visit their rivals' Web sites. Claria faces numerous lawsuits related to its trademark policies.

Last year, auction giant eBay asked Google to block advertisers from using its trademark in sponsored search results, for example. eBay listed, in 13 pages, a wide selection of terms related to its trademarks, and Google complied with some of eBay's requests. In another example, Louis Vuitton sued Google and its French subsidiary for similar alleged trademark infringement, and a French court ordered Google to cease the practice and pay a fine.

The law is murky in the United States over how far search engines must go to police trademarks allegedly infringed in paid search services.

In January, legal guidance came from a five-year lawsuit involving Playboy Enterprises and Netscape Communications. The Ninth Circuit Court of Appeals ruled that Playboy could pursue charges that Excite and Netscape violated its trademark by selling banner ads triggered by the terms "playboy" and "playmate." Its analysis supported enough of a case for consumer confusion and brand dilution related to Playboy's trademarks that a trial was ordered. Shortly after, Netscape owner America Online settled the case with Playboy for an unspecified amount.

Marquette University's Goldman said that Google may be standing on firmer legal ground, because it is difficult to establish Web users' intent when they type in a search term. For example, typing in the term "Apple" could signal a Web surfer's interest in the fruit just as well as the trademark name of Apple Computer. That argument counters trademark holders' claims that keyword search terms can divert customers from their business, he said.

Still, some early results in some related cases haven't been encouraging for Google.

Suit casts a shadow
A federal judge in New York has rejected requests from Google and Overture to throw out a lawsuit that claims the two search companies unlawfully sold advertising based on a pet store owner's registered trademark.

Hoping to bring more clarity to the situation, Google in November asked a district court in San Jose, Calif., to rule on the legality of its keyword ad service, called AdWords, as it relates to trademarks. The request had centered on a dispute with American Blind and Wallpaper, an interior decor company, which insisted that Google stop selling keyword phrases that let rivals exploit its brand. American Blind has since filed a lawsuit against Google.

In a court filing related to Google's dispute with American Blind and Wallpaper, Google explained that it had removed American Blind's trademark names from the auction block at the company's request. Google's request for declaratory judgment centers on its legal obligation to censure a broader range of descriptive terms related to American Blind's marks, which the wallpaper company had requested.

Google's new policy would no longer offer trademark holders the olive branch of giving them exclusive rights to their keywords in its advertising service.

Google said that it carefully evaluated the legal landscape before making its decision and is betting on a long-held tenet of trademark law that holds there is no infringement in the use of a registered mark unless there is a likelihood of consumer confusion.

"We do not believe that Internet users are likely to be confused by the clearly labeled text ads that appear on Google. If any confusion is possible, we believe it is caused by the ad text, which is why our policy focuses on use of trademarks in ad text," according to the company.

David Rammelt, an attorney representing American Blind, surmised that Google aims to distance itself from policing trademarks altogether and the sale of related descriptive terms with its new policy. That's similar to a move by Network Solutions, or Internic, in the early days of the Internet, when trademark disputes repeatedly cropped up over the sale of domain names. Google's own trademark complaint policy calls on trademark holders to take up their grievances with ad infringers themselves.

"Whether their refusal to police the use of marks will increase or decrease their active sale of trademarks is yet to be seen," Rammelt said. American Blind's case takes issue with Google's knowing and active sale of its trademarks, Rammelt said, adding that this change will not likely affect the case substantially. However, he said, "I would foresee many more similar lawsuits against Google."

Trademark gambit may not pay off for advertisers
The better approach for trademark owners whose marks are being purchased by competitors in the Google AdWords program is to go after the competitors. My 2 cents.
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