C.A.G. Insights

Trademark Infringement: Can I Bid on My Competitors’ Trademarks as Adwords?

With the use of search engines by consumers to find products and websites becoming more prominent, search engine optimization has become an important part of the marketing plan for large and small businesses alike. For those companies that do not want to take the time or put in the effort to improve their SEO for certain keywords organically, purchasing keywords, also known as Adwords, from Google or other search engines can put a website on the first page of search results for a particular keyword overnight. By “purchasing,” we mean the submission of the high bid for the use of a keyword or campaign for a specific time period and geographic location.

In most cases, an Adwords customer “purchases” a word or a series of words that are used to describe the services or goods to be advertised and/or sold on the customer’s website. Recently, Google created a “campaign” of words that can be purchased in any given industry. A purchaser can specify which areas of the country and at what times those Adwords would be purchased.  The scope of the geographic area and the times chosen determine the purchase price.

For example, a campaign that begins at midnight for three hours only on a Monday and a Wednesday will cost less than a campaign that runs seven days a week, twenty-four hours a day. If the customer decides to purchase a Google Campaign for a specific industry, the purchaser does not get to choose the words in the campaign, but is allowed to see the words.  Adwords campaigns may contain the names of competitors or competitive products to increase the number of hits resulting from the campaign.  As a result, a trademark owner’s competitors may be listed in ads located above the normal search results for the trademark.

Prior to 2004, Google’s trademark usage policy prevented the use of trademarks in the text of a sponsored advertisement and also prevented the use of trademarks as keywords if so requested by the trademark owner.  But in 2004, Google loosened its policy to allow use of trademarks as keywords even if objected to by the trademark owner. The underlying reason for making the change was financial as Google’s research showed that about 7% of its total revenue was driven by trademarked keywords.

Google understood that the risk of litigation for both itself and its partners would increase as a result of the change in policy, but decided the risk was worth the additional revenue that was sure to come.  Google even introduced a trademark-specific keyword tool that suggests relevant trademarks to clients to bid on as keywords.  However, Google continued to block use of trademarks in the text of the advertisement because of internal studies suggesting that the unrestricted use of trademarks in the text of an advertisement might confuse users.

In 2009, Google further relaxed its policy to permit limited use of trademarks in advertising text.  In particular, Google began permitting the use of trademarks in advertising text if 1) the sponsor is a reseller of a genuine trademarked product, 2) the sponsor makes or sells component parts for a trademarked product, 3) the sponsor offers compatible parts or goods for use with the trademarked product; or 4) the sponsor provides information about or reviews of a trademarked product.

As a result of this change in policy, use of trademarks by competitors in Adwords campaigns became even more controversial.  Some companies, including American Airlines, Rosetta Stone, and Geico, filed trademark infringement suits against Google in an attempt to prevent Google from selling their trademarks as Adwords. These cases have been settled, but Google continues to allow the practice in the United States.  And recently, Google reversed the practice of allowing trademark owners to object to others bidding on their trademarks as Adwords in Australia, Brazil, China, Hong Kong, Macau, New Zealand, South Korea, and Taiwan.

The Rosetta Stone case deserves some attention as a result of the evidence that was presented by Rosetta Stone to support its claim of trademark infringement. Although the district court granted summary judgment in favor of Google, the Fourth Circuit ruled last year that summary judgment was improperly granted given the evidence presented, noting that while summary judgment on a likelihood of confusion in a trademark infringement case is permissible in appropriate cases, this issue is “an inherently factual issue that depends on the facts and circumstances of each case.”

The evidence presented by Rosetta Stone in opposition to summary judgment included:

  • Testimony by five consumers who purchased bogus software mistakenly thinking it to be the authentic product;
  • Evidence that Rosetta Stone’s customer care center received 262 complaints over a one-year period from individuals who had mistakenly purchased counterfeit software;
  • Internal study by Google recommending that the only effective policy is to allow trademark usage for keywords but not allow trademark usage in ad text (either title or body);
  • Survey evidence by an expert opining that 17% of respondents were confused by Google’s sponsored links after conducting a search for Rosetta Stone; and
  • Internal study by Google reflecting that even well-educated, seasoned Internet consumers are confused by the nature of Google’s sponsored links and are sometimes unaware that sponsored links are, in actuality, advertisements.

The Fourth Circuit held that this evidence created a genuine issue of material fact that must be decided by a jury.  Indeed, this is a common theme in trademark cases with respect to the likelihood of confusion issue, and in most cases summary judgment can be avoided because of the inherently factual nature of the inquiry.

Although the Rosetta Stone case was remanded for trial, the parties settled the case late last year.  The settlement terms are confidential, but a joint statement by the parties provides that they will “meaningfully collaborate to combat online ads for counterfeit goods and prevent the misuse and abuse of trademarks on the Internet.”

Google has been aggressive and successful in defending its revenue stream from Adwords, and it appears that Google’s relaxed policy is here to stay.  You may be thinking, “If Google allows the practice of purchasing trademarks as Adwords, then we can do it without worrying about a trademark infringement claim.”  But that is not the case.

Although the purchase of Adwords, in and of itself, is generally not enough to subject the purchaser to a trademark infringement claim, the text of the ad could give rise to such a claim.  Adwords are a bit unique in the trademark context, but the Fourth Circuit’s decision in the Rosetta Stone case demonstrates that the question of whether there is trademark infringement is still determined based on the “digits of confusion” like any other trademark infringement case.

In the Fifth Circuit, the digits of confusion that are considered include:  1) the type of trademark, 2) mark similarity, 3) product similarity, 4) outlet and purchaser identity, 5) advertising media identity, 6) defendant’s intent, 7) actual confusion, and 8) care exercised by potential purchasers.  In College Network v. Moore Educational Publishers, decided in 2010, the Fifth Circuit upheld a jury finding that there was no likelihood of confusion caused by the purchase of the trademark “The College Network” as a keyword from Google and Yahoo to summon sponsored links for advertising competitive study guides for nursing students.  In that case, experts were presented by both sides on the likelihood of confusion issue, and the jury was permitted to view the keyword-search process and visually compare the companies’ websites. The Fifth Circuit held that the evidence was not so strongly and overwhelmingly in favor of the plaintiff that a reasonable jury could not arrive at a verdict in favor of the defendant.  But the opinion is short on analysis of the issues presented by sponsored advertising cases.

Under the initial interest confusion doctrine, if a consumer is confused as to the source of the goods or services by the text of the advertisement in a sponsored link, this could be enough to constitute trademark infringement even if the confusion is dispelled after clicking on the link and going to the website of the sponsor. The 2011 Network Automation v. Advanced System Concepts case is a sponsored advertising case in which the Ninth Circuit provides a thorough analysis of the likelihood of confusion issue in the context of sponsored advertising.  In vacating a preliminary injunction by the district court, the Ninth Circuit found the following factors to be most important in a sponsored advertising case:  1) the strength of the mark; 2) the evidence of actual confusion; 3) the type of goods and degree of care likely to be exercised by the purchaser; and 4) the labeling and appearance of the advertisements and the surrounding context on the page displaying the results.

Of course, if there is a trademark infringement action, the court will look at all relevant factors.  But the factor that advertisers should use to minimize their risk of litigation when purchasing trademarks as keywords is the labeling and appearance of the advertisements and the surrounding context on the screen displaying the search results. This factor was addressed at several points in the Network Automation decision, with the court stating that in the keyword advertising context, “likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context.”

Therefore, if the advertisement is confusingly labeled or not labeled at all, there is a greater chance of initial interest confusion.  However, clearly labeling the advertisement so that the consumer knows the source of the goods or knows that a competitive product is being offered before clicking the link could eliminate the likelihood of initial interest confusion.

Part of any likelihood of confusion analysis involves the consideration of the degree of care and sophistication of the consumer, which will vary depending on the product or service offered. It is assumed that the more expensive the products or services, the greater the degree of care that will be exercised by the consumer.  Although the Ninth Circuit had once held that internet users as a whole exercise a low degree of care, the court suspects that there are many cases where that is no longer the case. “[T]he default degree of consumer care is becoming more heightened as the novelty of the Internet evaporates and online commerce becomes commonplace.”

Recently, the Wisconsin Court of Appeals heard an Adwords case where trademark infringement was not claimed, but the case centered on a law firm’s “right to privacy.” The plaintiff, Cannon & Dunphy, purchased Adwords containing the name of a competitor’s law firm, Habush & Rottier.  The lawsuit centered on whether the Adwords purchase was barred under Wisconsin’s privacy law. In its ruling, the court held that “locating an advertisement or business near an established competitor to take advantage of the flow of potential customers or clients to the established business is not a practice the [Wisconsin] legislature intended to prohibit. Further, we fail to discern a meaningful distinction between competitors simply selecting locations in proximity to each other and using a third party [such as Google or Yahoo, as in this case] to obtain the same result.”

After the court’s ruling, the defendant did not remove its Adwords campaign. However, the plaintiff was able to win after all by simply outbidding the defendant for the Adwords, and therefore, gained control of them.

In conclusion, advertisers should conduct an analysis regarding how a typical consumer will interpret the advertisement that is used in connection with the purchase of trademarks as Adwords. Clearly identifying the name of the sponsor in the advertisement can help eliminate initial interest confusion.  Likewise, comparing the sponsored product to the trademark owner’s product will also avoid confusion.  But, failing to label the advertisement, or using misleading text, could subject the sponsor to trademark infringement liability. As with many purchases, Adwords are no different – Caveat Emptor!

Vincent Allen is a partner at Carstens & Cahoon. He focuses on the litigation of intellectual property disputes and the prosecution of patent and trademark applications.

P.J. Putnam is General Counsel and Executive Vice President at Calvet Companies, LLC.

This blog is maintained by Carstens, Allen & Gourley, LLP to inform readers of recent developments in intellectual property. Solely informational in nature, this blog is not intended to create an attorney-client relationship or to be used as a substitute for legal advice or opinions. 

by Vincent Allen and PJ Putnam