Affiliates and Web publishers who sell goods from the most popular brand name merchants are losing traffic and revenue to Web sites that lure consumers by deceiving them with unauthorized use of trademarked products.

This happens when a Web publisher embeds the most popular brand names into their site in order to attract consumers who are using a search engine to find specific products. These visitors are often directed to Web sites that sell similar products, but not the specific ones they were looking for. Instead, consumers see rival products.

For example, a consumer types “Nike” into a search engine and is directed to a Web site that sells sneakers made by rival Reebok, but not those made by Nike. In this scenario, the consumer may get frustrated and move on to another site that does sell Nikes. Or they might buy one of the competitive offerings. This means the offending Web site profits and has less incentive to stop these deceptive practices.

This very common tactic has upset consumers, the makers of popular brand name products, as well as affiliates authorized to sell these products. In an attempt to stop such behavior, there have been several high-profile lawsuits in which brand names such as Gucci, Louis Vuitton, Nike and Geico Insurance have sued specific Web publishers and search engines to control their own brands on the Internet.

These lawsuits raise a key question: Can one corporation prevent another from linking to its trademarked, for-profit Web site?

The answer is not easy to determine. Many companies are testing the limits of trademark law by suing alleged Internet trademark abusers for infringement. So far the results have been mixed.

Terence Ross, a partner at Gibson, Dunn & Crutcher, a Washington, D.C., law firm, has represented plaintiffs in cases against adware makers Claria and WhenU. “Unfortunately, there is no more certainty as to what the law is than a year ago,” he says. “There have been a number of court decisions on either side of the issue.”

An August 2004 decision by the US District Court for the Eastern District of Virginia delivered a blow to search engine giants Google and Overture Services in their efforts to defend ad sales of trademarks as “fair use.”

But that changed in December when a federal judge ruled that Google’s advertising policy doesn’t violate federal trademark laws. Google will now be allowed to sell ads to rival insurance companies whenever Geico’s name is typed into the Google search box.

Geico sued Google and Overture in May 2004, saying that use of its trademarks when selling advertising in search engines constituted trademark infringement and raised various state law causes of action. Google filed a motion to dismiss the case on the grounds that it had no legal merit and that the state claims were insufficiently pleaded.

The August ruling, which allowed insurance giant Geico to sue Google and Overture for allegedly selling advertisements linked to its trademark, could have threatened the livelihood of the search engines. Overture, which is owned by Yahoo, and Google make money by selling ads linked to keyword-triggered search results, and many commercially driven searches are tied to trademarked brands such as Geico or Nike.

Google attorneys cited the U-Haul International v. WhenU case, in which the moving-truck company alleged trademark infringement against WhenU for displaying rivals’ pop-up ads over its Web page. The court found in favor of WhenU, because it only used U-Haul’s marks for “pure machine-linking function,” Google argued.

For its part, Geico cited the Playboy v. Netscape and Excite case, in which the Ninth Circuit US Court of Appeals in San Francisco found that the two online portals created consumer confusion when using Playboy trademarks to sell banner ads. That suit took five years to settle.

More Legal Battles

Many of the cases are settled before they ever reach the court, with smaller sites often removing the trademarked terms to avoid a costly legal battle. There are some high-profile cases that are still pending. Many are closely watching the trademark suit filed by American Blind and Wallpaper Factory against Google along with its partners Netscape and Ask Jeeves.

The suit, filed in January 2004 in a New York federal court, claims Google’s practice of selling text ads related to keyword search terms takes advantage of American Blind’s trademarks, because rivals’ ads can appear on results pages turned up by searches for “American wallpaper” and “American blind.”

American Blind had threatened to file the lawsuit last year. That, in turn, prompted Google, in a filing with the US District Court for the Northern District of California, to argue that “American” and “blind” and other words American Blind was claiming as trademarks are descriptive terms and shouldn’t enjoy trademark protection.

The company disagrees. “We spend millions of dollars annually to build brand awareness and cannot stand idle while Google allows our competitors to ride our coattails,” according to a statement from Steve Katzman, CEO of American Blind, which says it has spent more than 50 years and $70 million building its reputation.

American Blind says the outcome of this suit will have repercussions for other businesses that include generic words in their names, such as General Motors and National Car Rental System, which could also be targeted for keyword-based advertising.

What About The Networks?

And while some affiliates are relying on the courts to protect them, others think it is the responsibility of the networks to stop this practice. However, some say the networks gain from helping affiliates profit from brand confusion.

“These people are interested in making money, and when a trademark is infringed on, they are still getting paid,” said one affiliate who asked not to be named. “It’s not in their best interest financially to enforce or police rules to try to stop these unethical practices.”

One affiliate manager says that networks are supposed to be the trusted party in this equation, and they must try to uphold fair business standards.

“The industry is failing to recognize that there is widespread use of trademarked keywords,” says Alan Schneider, president of R U on the Net, an affiliate manager, who has stopped many of his affiliates from using trademarks.

However, he also notes that when affiliates in his network were asked to cease and desist from using trademarks or competitors’ URLs in their advertising, their sales often dropped by as much as 80 percent.

Search For Tomorrow

Search engines are also profiting from brand confusion. Both Overture and Google allow marketers to bid for keywords that may be trademarks or linked to trademarks. Some say they are not eager to police trademarks because they risk losing thousands or tens of thousands of dollars a month on lost pay-per-click revenue.

Paid search is one of the fastest growing and most closely watched segments of the online advertising business. According to Jupiter Research, paid search will grow from $1.6 billion in sales in 2003 to $2.1 billion in 2004, and it will continue to grow at a compound annual rate of 20 percent through 2008.

In addition, more than half the total searches are for branded keywords such as Wells Fargo, according to comScore Networks, a market research company.

The search engine companies have long had ambiguous policies on trademark-related advertising. Most refuse to actively police infringements. Instead, they opt for a hands-off approach, acting only if there is a complaint from a trademark owner.

More than a year ago, Overture changed its policy and posted a trademark notice on its site, informing advertisers that it is their responsibility to respect the trademark rights of others.

“In cases in which an advertiser has bid on a term that may be the trademark of another, Overture allows the bids only if the advertiser presents content on its Web site that refers
to the trademark … or uses the term in a generic or merely descriptive manner,” according to the policy.

It’s All About The Meta Tags

Meta tags are HTML code embedded on a Web page used to identify its content. Meta tags are powerful tools because they have a direct effect on the frequency with which many search engines will find a Web site. When a search engine finds a search term in a meta tag, it indexes the Web page for display in its search results.

In the early days of Internet search engines, Web page programmers influenced Web searches by spiking the meta tags with the same word over and over to improve their standing in search engine results. Most search engines have since been trained to largely ignore these repetitions.

But not every meta tag use of another company’s trademark is illegal. When the trademark is used only to describe the goods or services of a company or their geographic origin, it is permitted under trademark law as “fair use.” For example, if a site delivers content such as music from the Amazon region of South America, it may use the word “Amazon” in its meta tags. This use would not infringe the Amazon.com trademark because the term “Amazon” is being accurately used to describe the goods offered.

Unfortunately, there is no clear test for proving fair use, and even a merely descriptive use of a trademark in a meta tag may trigger a lawsuit. Legal experts say, “When in doubt about using a trademark in your meta tag, leave it out.”

The Resolution

Most agree this issue is going to take some time to be resolved.

“I think it’ll take a couple of years,” says Jeffrey Riffer, a partner at Jeffer Mangels Butler & Marmaro, a law firm in Los Angeles. Riffer was the lawyer for defendants Excite and Netscape when Playboy sued them for trademark infringement. Playboy prevailed in that case.

“There needs to be some appellate court rulings on this before it will settle down. We are still at the beginning. There was nothing like the Internet before, so the courts didn’t know how to deal with the issue. There was tension between what the search engines want to do and what the trademark holders want. But there are still more of the fights that will happen in the trial courts.”

Riffer says that when everything finally does settle down, he believes that search engines will be allowed to sell keyword advertising.

“It’s good public policy to allow advertisers to sell advertising to the audience that is most likely to be interested in that advertising,” he says. “It’s good for consumers, pro-competitive and the right application of trademark law. Under the law a trademark holder doesn’t have a monopoly on the trademark. They are only allowed to stop other companies when there is a likelihood of confusion.”

But what if things don’t shake out in favor of the search engines?

“The world will go on if things go the other way, but it’s bad public policy, and at that point the search engines should hire a lobbyist and go to congress,” Riffer says.

Barry Felder, a partner head at Brown Raysman Millstein Felder & Steiner, a New York law firm and Playboy’s counsel in the suit against Netscape and Excite, says he expects that traditional trademark analysis will be applied, but in the context of the Internet, over the next one to three years.

“I expect guidelines for both the search engines and the trademark holders,” Felder says. “They will both have to be familiar with and adopt the appropriate conduct. I don’t know that one party or the other will prevail. The analysis will turn on whether the use [of the trademark] is confusing.”

Attorney Ross says that absent congressional action, the earliest he expects guidance from the appellate courts is late 2005. “The problem is that in the meantime, businesses need to figure out how to operate in an uncertain environment,” Ross says. “And that is creating a mess.”

Lisa Picarille is the editor of Revenue.