Google's AdWords Faces New Litigant

by David Chen October 2 2007, 15:16

I. Background

Google currently derives most of its revenue from its AdWords and AdSense advertisement programs.  [1]  Through its automated AdWords, Google sells advertisement space, with prices based on either cost-per-click or cost-per impression. Google enables advertisers to closely target potential customers through “keyword advertising,” where advertisers bid on keywords for their ad campaigns. Keywords can be single words such as “tennis,” or phrases such as “tennis lesson” and “tennis racquet string."  [2]

When an advertiser wins a keyword, Google displays their ads anytime that keyword is used. AdWords gives advertisers a high degree of customizability, such as options to associate specific ads with specific keywords, and options to display and bold keywords within ads.  [3]  Ads and keywords can be assigned based on a number of factors, such as the type of website, and the location of the viewer as determined by their IP address. Advertisers can also pay to display their ads in higher, more prominent positions on websites in Google’s advertisement Network.

Google’s AdSense program distributes advertisements throughout the websites of Google Network members.  [4]  Thus, ads from Google’s AdWords program are displayed on thousands of affiliated websites, in addition to Google’s own search homepage. Most of the advertiser fees are paid out to the websites on the Google Network.  [5]   The advertisements displayed on Google’s main search page are carefully separated from the “organic,” non-advertisement search results and are labeled as “Sponsored Links."  [6]

When the AdWords program originally debuted, Google honored requests from their advertisement customers to “bar competitors from bidding on their trademarked names.”  [7]  In early 2004, Google changed its policy on the sale of keywords by removing the restrictions on trademarked names.  [8]  This introduced the potential of competitors bidding on one another’s trademarked names in order to promote the primacy of their own ads. The possibility of having to bid on their own trademarks drew the ire of many advertisers and trademark owners. Several filed suit against Google for trademark infringement, including GEICO, American Blinds and Wallpaper Factory, and most recently, American Airlines.  [9]  Trademark owners brought additional suits overseas. A German court held Google not liable for infringement [10], while Google is appealing a judgment of infringement in France.  [11] 

 

 

II. Current litigation

The cases brought by GEICO and American Blinds were both settled before they reached a jury, while American Airlines filed its initial complaint in mid-August 2007.  [12]  Google claimed victory in the GEICO case: “as a matter of law it is not trademark infringement to use trademarks as keywords to trigger advertising.”  [13]   American Blinds only recently dropped their lawsuit against Google. The only terms of that settlement was for Google to maintain the same trademark policies that led American Blinds to bring suit nearly four years ago.  [14]  Not only did American Blinds fail to win any damages or concessions from Google, it had two of its trademarks declared unenforceable.  [15]  But in spite of these apparent victories for Google, the waters remain murky as to the legality of selling trademarks as keywords for advertisements.   

III. Discussion

While GEICO was widely viewed as a victory for Google, it was a limited opinion. The Court took pains to emphasize “that its ruling applies only to the specific facts of this case,” including the “unique business model” of GEICO and the “specific design” of Google’s ad program and search result pages.  [16]  Under GEICO’s “unique business model,” “potential customers can get GEICO rate quotes only directly from the company."  [17]   The court was sensitive to the continued evolution of jurisprudence on various aspects of the Internet, and thus declined to make a broader ruling.

Many commentators saw the American Blinds case as another major victory for Google. However, American Blinds points out in a post-settlement statement that they had “had to bear the economic hardship of this lawsuit” while other trademark owners watched and waited to potentially “reap the benefits of [American Blinds’] investment.”  [18]  They went on to acknowledge that “American Airlines’ decision to file the same claims against Google earlier this month made the decision by our company that much easier," [19] since “American Airlines is more well-suited to take on Google than we are."  [20]

Google joins prominent trademark experts like Professor Eric Goldman in proclaiming the American Blinds case as a lesson that “it’s often irrational to bring lawsuits over keywords” and “keyword-related lawsuits can be a sucker’s bet.”  [21]   However, American Airlines is unlike any previous trademark owner in these various keyword lawsuits. Prof. Goldman pointed out that “GEICO is a pretty well-known brand, but American Airlines is one of those highest-echelon brands, one of the brands that almost everyone is familiar with.”  [22]  In contrast to American Blinds, American Airlines’ has the financial muscle for a protracted legal battle with Google.

Many experts echo Prof. Goldman’s view that “this was not a good lawsuit for American Airlines to bring.”  [23]  While American has little to lose beyond legal costs, those costs can add up over the course of a lengthy trial. Unlike American, Google has no choice but to see this lawsuit through, since the AdWords system being attacked is at the very core of its primary revenue stream. An adverse judgment would likely choke off revenue from trademarked keywords currently being sold. Even worse, Google may be forced to police its AdWords system for potential trademark violations, increasing costs and further eroding revenue. Thus, a settlement is unlikely to yield any concessions from Google, as it is defending the core of its business.

In contrast, questions arise about the economic calculus of American Airlines in this action. Typically, losses from allegedly diverted Internet customers are unlikely to surpass the legal bill in such a case.  [24]  As a cheaper option, American could simply have outbid its competitors for its desired keywords. A further step would be to bid on a competitor’s trademark, a tactic that could be damaging to its current case if American actually engaged in such practices.  [25]  American may also be defending against potentially damaging corollaries in the ways that Google is using its trademark. Since the Internet is still a largely unregulated and unlitigated area, American may simply be preemptively defending its trademark against more egregious infringements.

IV. Conclusion

Unlike GEICO and American Blinds, it appears likely that American Airlines’ current lawsuit will actually reach trial. With the core of its business practice under attack, Google has no choice but to defend vigorously. While American has comparably little at stake, the fact that they undertook the lawsuit signals their seriousness in seeing the lawsuit through.  [26]



[1]  Google Inc., Quarterly Report (Form 10-Q), at 17 (June 30, 2007). [2]  Google AdWords: Keyword Tool, https://adwords.google.com/select/KeywordToolExternal (last visited Oct. 1, 2007).

[3]  Google AdWords Help Center, https://adwords.google.com/support/bin/answer.py?answer=75003&query=how+does+keyword+work&topic=&type=f&onClick=
(last visited Oct. 1, 2007).

[4]  Google Inc., Quarterly Report (Form 10-Q), at 17 (June 30, 2007).

[5]  Id. at 18.

[6]  Government Employees Ins. Co. v. Google, Inc., No. 1:04cv507, 2005 WL 1903128, at *1-7, 2 (E.D.Va. Aug. 8, 2005)

[7]  Stefanie Olsen, Google Plans Trademark Gambit, Apr. 13, 2004, http://www.news.com/2100-1038-5190324.html

[8]  Id.

[9]  Cade Metz, Google Adwords Dive-Bombed by American Airlines, Aug. 17, 2007, http://www.theregister.co.uk/2007/08/17/american_airlines_sues_google/

[10]  Google Inc., Quarterly Report (Form 10-Q), at 12 (June 30, 2007).

[11]  Id.

[12]  Linda Rosencrance, American Blinds Drops Trademark Infringement Suit Against Google, Sept. 4, 2007, http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9034322

[13]  Stefanie Olsen, Google wins in trademark suit with Geico, Dec. 15, 2004, http://www.news.com/Google-wins-in-trademark-suit-with-Geico/2100-1024_3-5491704.html

[14]  Linda Rosencrance, American Blinds Drops Trademark Infringement Suit Against Google, Sept. 4, 2007, http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9034322

[15]  Id.

[16]  Government Employees Ins. Co. v. Google, Inc., No. 1:04cv507, 2005 WL 1903128, at *1-7, 7 (E.D.Va. Aug. 8, 2005)

[17]  Id. at 2.

[18]  Linda Rosencrance, American Blinds Drops Trademark Infringement Suit Against Google, Sept. 4, 2007, http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9034322

[19]  Id.

[20]  Jessie Seyfer, Google Foe Ends Unique Trademark Suit Over Keywords, Sept. 5, 2007, http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1188896557118

[21]  Technology & Marketing Law Blog, http://blog.ericgoldman.org (Aug. 31, 2007, 17:43 EST).

[22]  Cade Metz, Google Adwords Dive-Bombed by American Airlines, Aug. 17, 2007, http://www.theregister.co.uk/2007/08/17/american_airlines_sues_google/

[23]  Technology & Marketing Law Blog, http://blog.ericgoldman.org (Aug. 16, 2007, 21:30 EST).

[24]  Id.

[25]  Id.

[26]  Fred Aun, American Airlines Files Trademark Infringement Case Against Google, Aug 20, 2007, http://www.clickz.com/3626791
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