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Google’s Adwords Auction Policy – American Airlines Sues
© Cheryl Hodgson 2007 | Posted on September 6, 2007
Cheryl Hodgson
© 2007 Hodgson Law Group
On August 16, 2007, American Airlines sued Google in U.S. District Court in Northern District of Texas, complaining about Google’s Adwords auction policy, which includes the sale of registered trademarks to competitors for use in advertising by competitors. Google sells American Airlines trademarks as “search terms” in paid advertising, misnamed “sponsored links.”
In reality, Google’s practice should be viewed as the trademark version of digital copyright piracy. In keeping with the spirit of free speech on the internet, our firm has renamed the trademarks auctioned by Google as “TMadwords.” Owners of TMadwords are increasingly seeking a definitive ruling in line with some European courts which are far ahead of the U.S. in preventing the practice. Courts and Germany and France have ruled the practice illegal.
In 2006, the German Federal Supreme Court ruled that use of the mark IMPULS was a violation of German trademark laws. (Read the report here.)
LOUIS VUITTON scored a similar victor last September in the Paris Court of Appeals. (French decision or in English.)
While American Airlines is to be commended, another TMadword owner just capitulated. As of Friday September 1, 2007, the San Jose Mercury News reported that American Blinds settled with Google. The report also quotes Eric Goldman of the High Tech Law Institute of Santa Clara as claiming this to be a “stunning victory” for Google, and that bringing such action against Google was a “sucker’s bet.”
Moreover, the article refers to Mr. Goldman’s comments in an interview that American Blind invested more than $100,000 in legal fees and lost two valuable assets. Last I heard, descriptive terms are never valuable assets, regardless of the existence of federal registrations, absent proof of secondary meaning. A requirement in any trademark infringement action, whether or not one involving Google TMadwords, is ownership of a valid non-descriptive term as a trademark.
Admittedly American Blind was not the perfect company to take on Google, since its marks were not particularly strong, nor was the case in a favorable jurisdiction. Google sued American Blinds, in yet another example of the abusive and ever increasing use of the “Declaratory Relief” action to forum shop for a favorable ruling.
These facts do not negate the ultimate impact of Google’s actions and possible liability as a contributory infringer. There are thousands of strong marks, including LOUIS VITTON, which have already succeeded in shutting down Google’s practice in Europe. AMERICAN AIRLINES does not face the risk of a valid descriptiveness defense, and the key line of attack should that of contributory infringement. Moreover, for once, Google is now in a jurisdiction which should be more favorable to the plaintiff American Airlines.
For the last several years, Hodgson Law Group has been fielding a growing list of client complaints. These clients express their feelings of being wronged, but helpless over what they believe to be at worst illegal, and at best, competitively unfair. Numerous letters to Google on behalf of individual clients, addressing specific competitors have met with limited success, and a stock response with their “standard” policy on the subject, which in itself could be evidence of contributory infringement. Google’s most recent response to our office stated:
“Please note that we will not be able to process for your client’s trademark . . . at this time because: * you requested that we remove ads that are using your client’s trademark as a keyword in the US. Please note that we have ceased investigating all keyword complaints for US and Canadian trademarks. As a result, we will not be able to remove ads that are using your client’s trademark as a keyword in advertisers’ AdWords accounts.”
Echoing the same theme as legal counsel pitched at the International Trademark Association meeting in Chicago last may, the response goes on to state:
“Google does not auction or sell keywords. Google provides advertising space. The advertisers themselves select what ad content and keywords to use for their ads, and we encourage you to contact them directly as Google is not in a position to be the arbiter of private disputes.”
Google’s latest position is disingenuous at best. Under the Google business model, a trademark owner’s competitors routinely “bid” (pay money to Google) for search terms to obtain page placement of sponsored ads next to ranked listings. The search terms include generic and descriptive terms as well as “TMadwords.” When one types almost any trademark into a Google search these days, Google provides a search engine listing, together with “sponsored links” which are nothing more than paid competitor advertising.
Bidding takes place in real time, and depending upon the amount of money one is willing to “bid” at any given moment, a competitor’s ad can be knocked out of top place. Most companies routinely schedule a daily budget and times of day for spending that budget. Once the daily budget is met, the bidding stops and ones’ sponsored link drops from top place. The back-end engine of the Google adwords is not unlike viewing ticker trading at the N.Y Stock Exchange, or more like a day at the horse races. Forget the odds, just look at the cost to out bid the next highest bidder, multiplied by a factor of a few million.
American Airlines’ complaint is yet another in a growing line of cases against Google and other search engines, which, so far have been largely unhelpful in stemming the practice or obtaining clarity on the law. Out of frustration, the State of Utah enacted legislation on the issue in April 2007. Utah SB 236, Chapter Law 365 (2007).
While there has been some question as to liability, so far there has been no ruling or trial on the merits to apply law to specific facts “on the merits.” The bigger question is not proving liability, but rather “Is American Airlines serious about taking this action to the finish line in order to obtain a clear and well reasoned ruling in American legal jurisprudence, or will it too settle out of court before that clarity of law can be obtained?”
With the billions in cash flowing into Google’s coffers, it has unlimited resources to outlast all but the strongest of plaintiffs, in what is certain to be costly and protracted litigation. Even with the best of intentions, American’s resources and patience could tempt them to settle quietly. We hope not.
Copyright owners, while hurt by unlawful piracy, are finally evolving to deal with the situation. Unlike trademark owners, music publishers have been dealing with “compulsory licensing” of their musical works for years, or have a clear industry standard and practices for negotiated licenses. Unlike copyrights, trademark licenses have traditionally been based upon an individual “chosen” business relationship such as a franchisee, whose usage is monitored and subject to quality control. Trademark owners are totally unprepared to deal with the mass sale of their trademarks to competitors by a third party reaping millions in profits from the practice.
Moreover, unlike copyright infringement which is based upon unlawful “reproduction,” the courts addressing the issue have been dogged by dated legal doctrines requiring “trademark usage” and “likelihood of confusion.” Most courts have gotten over the first hurdle but as of yet, a ruling on the merits as to the second, an absolute requisite for a finding of trademark infringement, has been elusive.
So far Google has escaped a clear adverse holding on the merits which would end its auction of federally registered trademarks to competitors. While some cases have found “trademark use,” and the competitor itself is likely to be liable under the “initial interest confusion” doctrine, Google’s liability has thus been unclear, leaving U.S. case law without a clear precedent that Google should in fact liable for “contributory infringement” if not direct infringement.
As a supplier of services (sale of TMadwords) to competitors of American and hundreds if not thousands of other trademark owners, it is hard to imagine Google does not know, or have reason to know, the purchasing competitor is engaged in trademark infringement in the form of initial interest confusion.
Google makes money from a TMadword but does not share it with the trademark proprietor, and knowingly provides the means, as well as encouragement to competitors to infringe through initial interest confusion. Most important, its stated policy has been to take no action to prevent the practice. Instead, Google largely turns a “blind eye” even when confronted with a direct complaint.
An example of a case not decided on the merits, but arguably one the most well reasoned opinions is Government Employees Insurance Co. (“GEICO”) v. Google, Inc., 330 F.Supp.2d 700 (E.D. Va. 2004). The court recognized contributory infringement as a possible theory of liability stating: “The claim that Overture monitors and controls the third-party advertisements is sufficient to plead actual or constructive knowledge required to allege contributory infringement.” Id. at 705.
A finding of contributory infringement “requires proof of either an intent to induce another to infringe a TM or continued supply of goods or services to one whom the supplier (contributory infringer) knows or has a reason to know is engaging in TM infringement.” Inwood Labs., Inc. v. Ives Labs., Inc., 456 US 844, 845 (US 1982); 800-JR Cigars v GoTo.com, 437 F.Supp2d 273, 280 (D.N.J.2006). “Thus, the actions undertaken by the supplier of services (contributory infringer) enable an infringer to confuse or deceive the ultimate consumer.” Id.; See 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 25:18, at 25-43.
Pleading a valid claim against Google by filing the lawsuit is one thing. Proving liability through years of litigation is yet another distinctly different and costly endeavor. Given the number of cases filed so far against Google, and the complaints from trademark owners, it is hard to see how Google’s overpaid lawyers can defend its client’s actions with a straight face, and claim that they have no reason to know of the infringing conduct. Many clients can provide some anecdotal evidence! As Goldman notes in his blog, the dollar figures are small per trademark owner. This sounds a lot like a perfect class action in the making, since collectively the dollars are not small at all.
American’s best strategy may well be to focus upon securing evidence on the contributory infringement issue, and move for summary judgment as to liability. American Airlines is in a user friendly jurisdiction, in its home base of Texas. Without a clear strategy to go for the ultimate ruling on the law, American may find itself succumbing to the current dilemma facing most litigants, no matter who is legally correct. He or she with the deepest pockets often calls the shots and bury the opponent.
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