Digital Media

Google's love-hate relationship with the advertisers that pay its bills could hit another rocky patch following its latest AdWords policy change.

Google announced Thursday night that starting next month it would begin allowing certain companies to purchase advertisements that use trademarks--even ones they don't own--in the text of their ads on Google search results. Previously, Google hadn't allowed anyone but the trademark owner to use a trademark in the text of an ad, but the search giant reversed course, saying "we believe that this change will help both our users and advertisers by reducing the number of overly generic ads that appear across our networks in the U.S."

But the move could anger companies who are already sensitive about the use of their trademarks as keyword triggers in searches, the subject of two lawsuits pending against Google. According to an industry group called the Alliance Against Bait and Click, which includes companies such as 1-800 Contacts and Starwood Hotels, "this (policy change) further exposes the self-interest guiding Google's advertising policies, which permits dishonest marketers to mislead consumers," it said in a statement.

In some ways, the decision makes an awful lot of sense. Some third-party resellers, for example, were not allowed to use the trademark for goods they were authorized to sell in their Google ads if the trademark holder objected.

Google compared the policy shift to turning its ads into the online equivalent of a grocery store ad circular in a Sunday newspaper, where no one raises a trademark eyebrow if Safeway advertises a sale on 12-packs of Coca-Cola. Google said it would limit the use of trademarks in text ads to three types of companies: resellers, component sellers (buy memory for Hewlett-Packard laptops here!), and information providers.

That brings Google's policies in line with those of Yahoo, which allows trademarks to be used in text ads with similar restrictions. In the past, advertisers have been more willing to sue Google over trademark disputes because the search giant said it wouldn't allow trademarks in the text of ads, but such trademarks would appear anyway from time to time on certain ads, said Dave Kelly, a trademark lawyer with Finnegan.

"This policy is better than what they were doing before," Kelly said. "This means there is an editorial policy and the number of misleading ads should be smaller than under their policy before."

Still some groups, such as the Alliance Against Bait and Click, believe it's possible that the move could grant deceptive advertisers looking to trick searchers onto click farms or e-mail harvesting sites an additional weapon to deploy.

For example, a company could theoretically sell just a single iPhone case on its Web site, advertise under searches for "iPhone cases," and redirect ad clicks to sites that mostly sell competitive smartphones or consumer electronics gadgets. Or, it could force a visitor to provide his or her e-mail for more information before revealing that flashy iPhone case.

More money
What's more likely, however, is that companies interested in preserving their brands could be forced to pay more in Google's ad auction process to make sure their legitimate ads appear on those searches.

Winning Google's keyword auction process involves a combination of the maximum amount an advertiser is willing to pay per click as well as an ad quality score. Without the ability to use a trademark in the text of their ads, third-party retailers were forced to write generic ads that likely didn't see as high a click-through rate as ads with the trademark, hurting their quality score.

But if the playing field is leveled on the quality score side of the equation, then the maximum bid has to go up. AdAge reported that branded advertisers now feel they'll have to increase the maximum amount they are willing to pay per click in order to ensure ads with their trademark appear above ads from companies that don't own that trademark.

Financial analysts who follow Google agree. "Advertisers will likely bid more if the ad can have product names and brands that will help drive CTR (click-through rate) conversions," said Ben Schachter of Broadpoint AmTech in a research note Friday. Combined with Google's announcement last week that advertisers in many parts of the world can now bid on keywords that involve trademarks, Schachter said "these two changes will be positive revenue drivers when allowed and into 3Q and beyond, however, we believe trademark holders will undoubtedly, and loudly, raise legal challenges."

Kelly, who has followed issues with Google and trademarks very closely for years, isn't so sure.

"Although the updated policy may not affect those trademark owners who want to sue Google simply because they object to the act of Google selling their trademarks as keywords, it should reduce the amount of litigation over the appearance of Google's keyword-triggered sponsored ads," he said. That's because Google is now responsible for reviewing the content of the ads to make sure trademarks are being used properly.

In what is likely not a coincidence, the decision comes following a quarter in which Google's cost-per-click numbers (the average cost that advertisers are willing to pay for a click) fell for the second-straight quarter while overall click-through rates remained flat. Issues around Google's trademark policies on search keywords have also heated up in recent weeks, with an appeals court's decision to reinstate the Rescuecom case and a new lawsuit filed this week over Google's practice of allowing anyone to bid on search keywords containing trademarks.

Some of Google's partners will hate this decision, and some, such as retailers, will like it. Either way, Google should benefit from the sale of more relevant--and more expensive--advertising.

Google has revised its policy on trademarks appearing in keyword ads, allowing brand names to show up in AdWords copy.

Google will begin accepting new ads that contain trademark terms on Friday although the ads will not surface online until June 11. Dan Friedman, a member of the Inside AdWords crew, announced the shift Thursday in a company blog:

In an effort to improve ad quality and user experience, we are adjusting our trademark policy in the U.S. to allow some ads to use trademarks in the ad text. This change will bring Google's policy on trademark use in ad text more in line with the industry standard. Under certain criteria, you can use trademark terms in your ad text in the U.S. even if you don't own that trademark or have explicit approval from the trademark owner to use it. This change will help you to create more narrowly targeted ad text that highlights your specific inventory.

For example, under our old policy, a site that sells several brands of athletic shoes may not have been able to highlight the actual brands that they sell in their ad text. However, under our new policy, that advertiser can create specific ads for each of the brands that they sell. We believe that this change will help both our users and advertisers by reducing the number of overly generic ads that appear across our networks in the U.S.

The move comes on the heels of a lawsuit filed against Google by Firepond, which makes sales management software, over whether the search giant should be allowed to sell keywords bearing a company's trademark to its competitors. A similar suit involving PC support company Rescuecom was brought back to life in April by an appeals court after initially being dismissed in 2006.

Rescuecom and Firepond argue that their respective keywords are an extension of the trademark they have acquired on their brands and that Google should not be encouraging competitors to violate the trademark by using it to promote their own products.

AdWords allows anyone to bid on a given keyword and win placement on the top or right side of a search results page based on a combination of factors such as the maximum bid for that keyword as well as the quality of the ad.

eBay cannot be forced to police its auction listings to identify counterfeit Tiffany & Co. products, a federal judge ruled on Monday in a lawsuit brought by the iconic 171-year-old jewelry company.

In what could become a landmark case for auction Web sites, the court said trademark law cannot be used to force eBay to shoulder the burden of examining individual auction listings for possible counterfeits.

"The court is not unsympathetic to Tiffany and other rights holders who have invested enormous resources in developing their brands, only to see them illicitly and efficiently exploited by others on the Internet," wrote U.S. District Judge Richard Sullivan. "Nevertheless, the law is clear: it is the trademark owner's burden to police its mark."

Tiffany attorney James Swire, a partner at Arnold & Porter, said he would be surprised if his client did not appeal. Swire said "the purpose of trademark law is to prevent consumer confusion and to protect the trademark owner...and I don't believe that purpose was honored by the judge's ruling."

For now, though, the decision relieves eBay--and companies such as Amazon.com, Yahoo, and Google that provide auction listings or product search results--of what would have been a significant financial burden and legal uncertainty. In the last few years, French courts have ordered eBay and Google to pay fines for trademark breach; a decision last month led to a $61 million fine for eBay that went to fashion giant LVMH Moet Hennessy Louis Vuitton.

It's not an insignificant problem: the U.S. Department of Homeland Security says counterfeiting is an "economic pandemic" that costs the U.S. economy more than $200 billion a year. Counterfeit goods may be manufactured domestically or imported through fraudulent shipping documents.

The lawsuit, which was filed in the southern district of New York, is not about whether counterfeit goods will be permitted on eBay (they're not, and trafficking in counterfeit goods is even a criminal offense). Rather, the debate is about whether the product manufacturer or the auction site should bear the cost of policing eBay listings for fakes.

For its part, eBay says it spends $5 million a year in maintaining its fraud search engine, which has 13,000 rules that are designed to identify counterfeit listings based on words such as "replica" or "knock-off." Listings flagged by the search engine are manually reviewed by customer service representatives.

In addition, eBay offers a Verified Rights Owner ("VeRO") program that lets trademark owners report and remove infringing listings. Tiffany is one of more than 14,000 companies and individuals participating in the VeRO program.

Making matters tricky is that it's perfectly legal to resell noncounterfeit Tiffany jewelry, with or without the famous blue boxes. And because eBay doesn't review the actual merchandise, which is exchanged directly between buyer and seller, it may not be able to identify illicit merchandise based only on the information provided in the auction listing.

In 2003, Tiffany's lawyers contacted eBay and said that because their client uses no third-party vendors, "any seller" of "five pieces or more of purported 'Tiffany' jewelry is almost certainly selling counterfeit merchandise" and the listing should be automatically deleted. eBay replied: "What you have asked us to do is to consider listings 'apparently infringing' simply because the seller is offering multiple Tiffany items. That we are not prepared to do at this time." A year later, Tiffany asked eBay to ban the sale of all silver "Tiffany" jewelry; eBay refused.

On Monday, Judge Sullivan put an end to that argument: "As a factual matter, there is little support for Tiffany's allegation that a seller listing five or more pieces of Tiffany jewelry is presumptively trafficking in counterfeit goods." In addition, Sullivan concluded that eBay always removed listings promptly after receiving notification from Tiffany, and noted that eBay delayed listings of Tiffany products by 6 to 12 hours to provide time for a manual review.

"There is no dispute that eBay was generally aware that counterfeit Tiffany jewelry was being listed and sold on eBay even prior to Tiffany's initial demand letter," Sullivan wrote. But he said that because "eBay does not continue to supply its services to those whom it knows, or has reason to know, are infringing Tiffany's trademarks," generalized knowledge is not enough to make the auction site liable.

The debate over whether Web companies should be held liable for what their users post is hardly new: It's been at the heart of some of the most bitter legal battles in the last decade. Those involve recent free-speech cases involving FriendFinder, Craigslist, and Roommates.com. Viacom's pursuit of YouTube through the court system is in a slightly different category because it involves intellectual-property law and the Digital Millennium Copyright Act. The extent to which trademark law restricts auction listings has been, until now, somewhat unclear.

There is one irony in this hard-fought legal battle, which has involved top-tier law firms and has almost certainly cost both sides millions of dollars in fees. Tiffany filed suit four years ago, when the auction site remained primarily focused on small sellers and before its new deal with Buy.com that has angered the eBay faithful.

Because eBay is trying to compete with Amazon.com (with an enviable stock price performance over the last two years, compared to eBay), by working with larger sellers, it may not have taken precisely the same hard line, if those letters from Tiffany had arrived today.