• by Wendy Davis  @wendyndavis, March 5, 2009

Utah legislators have attempted to regulate keyword-based advertising at least three times since 2004. Now, they're going for number four.

State lawmaker Bradley Last has introduced a bill (H.B. 450), that would ban companies from using competitors' trademarks to trigger ads on search engines, directories and other sites. The legislature could vote on the measure as early as this week.

A coalition of Web companies is lobbying against the bill, arguing that it is "confusing" and would create roadblocks to online advertising in the state. In a letter to House Speaker David Clark, the coalition called the bill "a confusing, special, discriminatory obstacle to Internet advertising and consumer choice that exists nowhere else in the country."

"H.B. 450 would attack a wide range of ad-supported Internet business models that benefit Utah consumers and employ thousands of Utahans," wrote the coalition, which includes AOL, eBay, Google, Microsoft and Yahoo. The group added that the measure "would send a clear message that Utah is not friendly to innovative advertising-supported Internet businesses."

Among the opponents is a group called the State Privacy & Security Coalition, which last year lobbied against a New York bill that would have regulated online behavioral targeting.

The Utah bill, in its current form, would only ban marketers from using trademarks as triggers, but would not directly regulate companies like Google or eBay that publish the ads. But Web companies still say in the letter to Clark that the measure would hurt them. "H.B. 450 would expose their (Web sites') advertising customers to lawsuits, and reduce consumer choice for entirely non-deceptive, useful advertising," they write.

The Utah law specifies that companies cannot use trademarks in ads as part of a "a bad-faith attempt to divert a consumer" from the trademark owner's products. The proposed statute says that one factor that could go into determining bad faith is whether the ad "is likely to create an initial misleading impression" that the advertiser sells the trademarked products.

The coalition opposing the bill singled out those provisions as especially problematic because they are ambiguous. "These murky standards would encourage costly litigation and make it difficult for ad-supported Internet companies to do business in Utah," the group wrote.

Utah has passed three other bills attempting to regulate trademarks in ads. The first measure, a 2004 bill attempting to ban adware, was struck down as unconstitutional because it interfered with interstate commerce and violated the First Amendment. An amended version of that bill, enacted in 2005, is still on the books, but it's extremely narrow and only applies to adware that violates federal trademark law. Adware companies use keywords to trigger pop-up ads; often those keywords are themselves trademarked terms, but a federal appellate court has okayed the use of trademarks to trigger pop-ups.

In 2007, the legislature again banned the use of trademarks to trigger ads, but that measure was repealed last year.

The bill now under consideration includes provisions that appear to be aimed at defeating an argument that the measure affects interstate commerce, said Eric Goldman, director of the High Tech Law Institute at Santa Clara University. For instance, one clause says marketers are not liable if the sites where their ads run cannot realistically use geotargeting to block them from appearing in Utah. But, Goldman said, courts might still strike down the measure if it is enacted.

The contact lens seller 1-800-Contacts, which is headquartered in Utah, has aggressively litigated against rivals that have used the name 1-800-Contacts to trigger ads. But so far, 1-800-Contacts has lost the most famous case it brought--a lawsuit against adware company WhenU. In that action, the Second Circuit Court of Appeals ruled that arranging for a term to trigger an ad was not likely to confuse consumers and, therefore, didn't violate trademark law.

Overstock, which also is headquartered in Utah, recently lost a lawsuit it brought against SmartBargains for using adware to display pop-ups to Overstock.com visitors. "Overstock failed to show that SmartBargains' pop-ups, labeled with the SmartBargains' logo and appearing in a separate window on the top of Overstock's website, are deceptive, infringe a trademark, pass off SmartBargains' goods as those of Overstock's goods, or are likely to cause confusion," the Utah Supreme Court wrote in that case.