• by Ross Fadner , September 7, 2004

On Friday a federal judge cleared the way for auto insurance company GEICO's suit to proceed against major search providers Google and Yahoo! subsidiary Overture Services. The decision--which rejected Google's and Overture's motion to dismiss--could have significant implications for the paid search industry, which generates hundreds of millions of dollars a year by allowing advertisers to bid to be "sponsored links" on search results pages.

GEICO filed the lawsuit in April of this year, claiming that Google and Overture violated its trademark by letting competing auto insurance companies bid to be listed as a sponsored link when users type the word "GEICO" in search engines.

But some experts say that GEICO might be complaining about something that doesn't really hurt it. Trademark infringement attorneys Ed Hernstadt and Drew Patrick, of the law firm Frankfurt Kurnit Klein & Selz, PC, say trademark bidding isn't always bad for brands. In fact, Hernstadt said, the opposite is often true.

For example, say an unauthorized dealer of Nike sneakers bids on the keyword "Nike" and a consumer goes to his site and buys Nike shoes. This, Hernstadt said, does not indicate trademark infringement because you have the right to be an unauthorized dealer as long you're selling legal goods. Another positive trademark bidding example would be a travel company bidding on "Disney" in order to sell unauthorized Disney vacation packages. He argued that this, in effect, helps both parties, without diluting the brand.

Patrick added that the issue becomes murkier as companies start bidding on trademarks to place ads that make no mention of the trademarked company. In general, he said that if an ad results in consumer confusion, the argument can be made that a trademark has been infringed upon. Comparative advertising--i.e., "Is Nike too expensive? Try Sneakerhouse.com-is okay, but Patrick noted that you cannot say you sell--or strongly imply you sell--Nike, and then not sell Nike.

Both Google and Overture allow their advertising partners to bid on competitors' trademarks. Thus far, Google has attempted to deny responsibility by claiming that individual advertisers--and not the company--are liable for any trdemark infringements because Google does not create the content of the ads. Overture, on the other hand, has an editorial team review the content of trademark ads, advising how certain trademarks should be treated.

Overture declined to comment because it does not discuss pending litigation; Google and GEICO failed to respond to interview requests by press time.

In her 14-page decision rejecting Google's and Overture's dismissal motion, Judge Leonie M. Brinkema of the U.S. District Court for the Eastern District of Virginia said that GEICO had alleged sufficient facts to show that Google and Overture used GEICO's protected trademark in commerce, and made money from it. She dismissed state law claims of tortuous interference with prospective business advantage, and statutory business conspiracy, however.

GEICO charged that Google's and Overture's practice of allowing competitors to bid for the ability to use protected terms violates the Lanham Act, the primary federal law covering trademark registration and protection, by causing consumer confusion.

Google's liberal trademark bidding policy has resulted in a number of pending court actions, including the high-profile American Blind and Wallpaper suit. Following the company's much-hyped initial public offering earlier last month, the company was forced to acknowledge in regulatory filings that it may be subject to more trademark infringement suits and that adverse rulings could potentially harm its business.

Brinkema's decision represents a small victory for GEICO in that the case will proceed, but there is a long way to go before these claims are proved in court. Some legal analysts familiar with the online marketing industry seem to think there is nothing wrong with allowing competitors to bid on trademarked keywords, however.

On his analyst Weblog, JupiterResearch's Gary Stein noted that he--and several legal eagle-types he conferred with--came to the following consensus regarding the legality of the issue: "Imagine a McDonald's with a big sign that can be seen from the Interstate. Now, imagine a smaller restaurant that's on the same exit as this McD's who puts a sign in their window saying 'Great Food here as well!' The McD's sign was the attractor, and the smaller restaurant benefits from their work, but...well, what are you gonna do?"