Search Engine Advertising 101

Thursday, March 1, 2007 - 01:00

Search engine advertising, the placement of advertising above, around and sometimes within the search results produced by Internet search engines (such as Google, Yahoo! and MSN), is one of the fastest growing advertising mediums in the United States. North American advertisers spent $9.4 billion on search engine marketing (also called "paid search" or "keyword search") in 2006, up 63 percent over the $5.75 billion spent on search in 2005.1 Recent surveys indicate that advertisers are planning to raise search engine advertising by 39 percent in 2007,2 and paid search advertising is projected to grow to $18.6 billion by 2011.3 In the coming year, twenty percent of all advertising dollars are forecast to be spent in the Internet sector.4

How Search Engine Advertising Works

Advertising appears on search results pages through the use of "keywords." Keywords are terms or phrases entered by search engine users as search terms when looking for websites on the Internet. A search engine uses algorithms to process the keywords entered and produce a search-results page that displays links to Web sites indexed in the search engine's database that match the keywords entered by the search engine user. Internet search engines offer advertisers the opportunity to purchase or bid on keywords. When a search engine user enters that keyword, the search engine (in addition to delivering "organic results" - the common listing displayed in order of decreasing relevance of links to Web sites matching the user's query) generates links to the advertisers' Web sites. These "paid results" appear at the top of the search results page above the "organic results" on the page, and are, to varying degrees, set apart from the true results on the page. The "paid results" are not identified as advertisements but rather are labeled, alternatively, as "sponsored links" (Google and Yahoo!) and "sponsored sites" (MSN). Notably, studies have demonstrated that over 60 percent of Internet searchers are not aware of the distinction between paid and unpaid results.5

Use Of Trademarks As Keywords By The Search Engines

Of the leading three search engines, over 49 percent of online searches are conducted using Google, followed by 24 percent of searches on Yahoo! and just under 10 percent of search engine users using MSN.6 One of the principal differences between these search engines is their editorial guidelines relating to the use of the trademarks of others (such as a competitor or marketplace leader) by advertisers as keywords. Microsoft's "adCenter" program does not allow an advertiser to bid on as a keyword "any term whose use would infringe the trademark of any third party."7 Likewise, Yahoo!'s Search Marketing prohibits the use of keywords which "violate the trademark rights of others."8 Google, however, in its "AdWords" program, allows advertisers to bid on and use other's trademarks to produce their advertising.9 Google thus stands alone on the issue. Indeed, until June 2004 (shortly before its initial public offering), Google's policy was that, upon a complaint from a trademark owner, Google would prevent advertisers from bidding upon third party trademarks as keywords. Google's policy on keywords has resulted in much confusion regarding this issue, as well as much of the litigation which has followed.

Search Engine Advertising Litigation

With its growth, search engine advertising has spawned litigation, as trademark owners have objected to the sale and use of their marks by search engines as keywords (for instance, an Internet user typing "Kodak" into the Google search engine will be presented with an advertisement for Snapfish, an online photo service which competes directly with Kodak). A precursor to this litigation was Playboy Enterprises, Inc. v. Netscape Communications Corp., 354 F.3d 1020 (9th Cir. 2004), a "banner advertising" case. In Playboy, Netscape and Excite sold Playboy's trademarks as keywords to advertisers, resulting in banner ads appearing on the search results page when an Internet user entered searches including trademarks such as PLAYBOY and PLAYMATE. The Ninth Circuit, in reversing the district court's grant of summary judgment in favor of the defendants, expressly held that there was "no dispute" that defendants used plaintiff's marks in commerce and that the "use in commerce" requirement of the Lanham Act "sweeps as broadly as possible" to include infringement claims predicated upon such Internet advertising.10

Courts adjudicating keyword advertising disputes since 2004 have relied upon Playboy to rule that the misuse of another's trademark in such advertising rises to the level of "use in commerce" actionable under the Lanham Act. In Government Employees Insurance Co. v. Google, Inc., 330 F.Supp. 2d 700 (E.D. Va. 2004), the Eastern District of Virginia rejected Google's claim that its use of plaintiff's marks in an internal database to trigger the delivery of advertising with search results did not constitute "use in commerce" of those marks under the Lanham Act. The court ruled that "when defendants sell the right to link advertising to the plaintiff's trademarks, defendants are using the trademarks in commerce in a way that may imply that defendants have permission from the trademark holder to do so."11 Likewise, in Google, Inc. v. American Blind and Wallpaper Factory, Inc., 2005 WL 832398 (N.D. Cal. March 20, 2005), the court relied upon Playboy in denying Google's motion to dismiss American Blind's trademark infringement counterclaims. The court surmised that "it is not at all clear that the [Playboy court's] ultimate conclusion that the defendants' alleged 'use' of the plaintiff's trademarks was 'actionable,' was not based on an implicit, preliminary determination of actionable trademark 'use' in the sense discussed by [Google]."12

The Tenth Circuit weighed in on the issue in Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), in which the defendant was paying a search engine for a premium listing guaranteeing that one of defendant's Web sites would be among the first three listed if one of the plaintiff's trademarks was used in an Internet search query. The court clearly found that those purchasing keyword advertising were liable for trademark infringement, ruling: "[Defendants'] actions were attempts to divert traffic to Defendants' Web sites... Thus, Defendants used the goodwill associated with Plaintiffs' trademarks in such a way that consumers might be lured to the locations from Plaintiffs' competitors. This is a violation of the Lanham Act."13

Against this tide of caselaw, in 1-800-Contacts Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 2005), a case involving "pop-up advertising" triggered by software loaded onto the user's computer, the Second Circuit ruled that some Internet advertising could be viewed as an "internal use" of a mark not giving rise to claims under the Lanham Act. The court in 1-800-Contacts expressly distinguished pop-up advertisements from keyword advertising, however, finding it significant that the defendant's activities did not "divert or misdirect [search engine users] away from [plaintiff's] website, or alter in any way the results a [search engine user] will obtain when searching with the [plaintiff's] trademark."14 Subsequently, two New York courts, Merck & Co. v. MSD Technology, L.P., 425 F.Supp.2d 402 (S.D.N.Y. 2006), and Rescuecom Corp. v. Google, Inc., No. 5:04-Cv-1055 (NAM/GHL)(N.D.N.Y., September 28, 2006), have relied upon 1-800 Contacts to rule that keyword advertising is not actionable under the Lanham Act. The Merck court, it is noted, expressly limited its ruling to the circumstances presented, in which the defendants actually sold products bearing plaintiff's trademark on their website.15

Outside of the New York courts applying the 1-800-Contacts decision to keyword advertising, the use of another's trademark in such advertising continues to be ruled to be actionable under the Lanham Act. In 800-JR Cigar, Inc. v. GoTo.com, Inc., 437 F. Supp.2d 273 (D.N.J. 2006) the District of New Jersey, distinguishing 1-800-Contacts, considered the search engine's use of trademarks to give prominence in search results to the highest bidder. "Such use," the court observed, "is qualitatively different from the pop-up advertising context, where the use of trademarks in internal computer coding is neither communicated to the public nor for sale to the highest bidder."16 In Buying For The Home LLC v. Humble Abode LLC, 2006 U.S. Dist. LEXIS 76371 (D.N.J. Oct. 20, 2006) the court likewise found that the defendants' purchase of keywords comprising plaintiff's mark was actionable "use in commerce" under the Lanham Act. The court so concluded because the purchase of the keyword "trad[ed] on the value of [plaintiff's mark]" and the use of the keyword was "tied to the promotion of [defendants' products and services]" and facilitated the sale of defendants' furniture.17 See also International Profit Assoc., Inc. v. Paisola, 2006 U.S. Dist LEXIS 82971 (N.D. Ill., November 14, 2006) at *9 and n.9 ("defendants are using terms trademarked by [plaintiff] as search terms in Google's Adwords program in a manner likely to cause confusion.")

Most recently, in J.G. Wentworth, S.S.C., Ltd. Partnership v. Settlement Funding LLC, 2007 WL 30115 (E.D. Penn. January 4, 2007), the purchase of trademarks as keywords was again ruled to be a "use in commerce" under the Lanham Act. The court held that "defendant's participation in Google's AdWords program constitute[s] trademark use under the Lanham Act."18 In so ruling, the court expressly considered and rejected defendant's argument, predicated upon the Second Circuit's ruling in 1-800-Contacts, that keyword-based advertising was not actionable because the mark at issue was not actually displayed anywhere. Though ultimately concluding (with little evidence on a motion to dismiss) that confusion was not likely, the court ruled that "defendant's use of plaintiff's marks to trigger Internet advertisements for itself is the type of use consistent with the language in the Lanham Act By establishing an opportunity to reach consumers via alleged purchase and/or use of a protected trademark, defendant has crossed the line from internal use to use in commerce under the Lanham Act.19

Conclusion

Advertisers today are overwhelmingly drawn to search engines. When advising clients who are placing advertising on search engines, the central issue to consider is the keyword used to generate the links to the advertisers' paid listings. Though the Second Circuit appears to take a more liberal approach to Internet advertising, clients should be counseled that the use of another's trademark in keyword advertising can subject them to a claim of infringement under the Lanham Act.1 State of Search Engine Marketing 2006, Search Engine Marketing Professionals Organization, December 2006.

2 HotTopics: Annual Ad Spending Study 2007 - What Publishers Need To Know About Advertisers, Outsell Inc. January 19, 2007.

3 State of Search Engine Marketing 2006, SEMPO.

4 Annual Ad Spending Study 2007, Outsell Inc.

5 Search Engine Users, Pew Internet & American Life Project, January 2005

6 Nielsen//NetRatings MegaView Search, July 2006.

7 See http://advertising.microsoft.com/Home/Article.aspx?pageid=708&Adv_Articleid=3211.

8 See http://searchmarketing.yahoo.com/legal/trademarks.php.

9 See www.google.com/tm_complaint_adwords.html. Notably, as Google has lost litigation in this area in Europe, Google has different keyword policies for trademark rights in the United States and trademark rights outside of the United States. Outside of the United States, Google will not permit an advertiser to use another's trademarked term as a keyword.

10 354 F.3d at 1024.

11 330 F.Supp. 2d at 704.

12 2005 WL 832398 at *6.

13 436 F.3d at 1239.

14 414 F.3d at 410.

15 425 F.Supp.2d 416.

16 437 F. Supp.2d at 285.

17 2006 U.S. Dist. LEXIS 76371, at *26-27.

18 2007 WL 30115 at *11.

19 Id.

Paul W. Garrity is a Partner in the Intellectual Property and Technology Group at Kelley Drye & Warren LLP. Kelley Drye is counsel to American Blind in the case against Google discussed in this article.

Please email the author at pgarrity@kelleydrye.com with questions about this article.