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Google AdWords and European trademark law

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                         viewpoints




 DOI:10.1145/1866739.1866749                                                                           Stefan Bechtold


Law and Technology
Google AdWords and
European Trademark Law
Is Google violating trademark law by operating its AdWords system?




W
                   HEN     THE       DOT-COM            istries required to check domain name          whether Google is violating trademark
                 boom began in the                      registrations for trademark violations?        law by operating its AdWords system.
                 late 1990s, many ana-                  Is eBay liable for counterfeit product         With Google AdWords, advertisers can
                 lysts and observers                    sales on its site? To what extent should       buy advertising links in the “sponsored
                 proclaimed the death                   Google be allowed to offer excerpts            links” section of a Google search re-
of intermediation. Supply chains                        from copyrighted books in its Google           sults page. When a user enters a key-
seemed to become shorter and short-                     Book service without the consent of the        word selected by the advertiser, the ad-
er as new B2C companies emerged in                      relevant rights owners?                        vertising link will appear in the upper
Silicon Valley. These companies could                      Both in the U.S. and in Europe, such        right-hand corner of the search results
deal with their customers directly                      questions have led to countless law-           page. In principle, the advertiser is free
over the Internet, rendering distribu-                  suits and legislative initiatives over         to select any keyword for his advertis-
tors, wholesalers, brokers, and agents                  the last 15 years. One of the most de-         ing link. This becomes a legal issue,
superfluous.                                             bated issues in recent years has been          however, if the advertiser chooses a
   While some traditional middlemen
have indeed become less important as
Internet commerce has developed, we
have not seen a general death of inter-
mediation. Rather, many new interme-
diaries have arisen on the digital land-
scape over the last 15 years. Just think
of Amazon, eBay, or Google. If all these
companies have been successful, it is
not because they have removed all bar-
riers between producers and consum-
ers. They have been successful because
they offer innovative services located
between producers and consumers
along the digital supply chain.
   The law often has a difficult time
coping with new intermediaries.
Should an Internet service provider be
held liable for violations of copyright
or criminal law committed by its cus-
tomers? Is Yahoo obliged to prevent
                                                                                                                                                    PHOTOGRA PH BY GW ENA ËL PIASER




French consumers from accessing a
site where Nazi memorabilia is sold?
Can copyright holders compel peer-
to-peer file sharing systems to remove
copyrighted material or to screen for
such material? Are domain name reg-                     The European Court of Justice in Luxembourg.


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                                                                                                                                           viewpoints

keyword that has been registered as a                                                             sions as to whether Google’s AdWords
trademark by another company.                                                                     system violates trademark law. Courts
    In 2003, the French fashion house       Google’s business                                     in France and Belgium, and some
Louis Vuitton discovered that, when         model relies                                          courts in Germany, had ruled that the
French users entered “Louis Vuit-                                                                 AdWords system violates trademark
ton” into Google, they were shown an        extensively on                                        law or unfair competition law, on the
advertising link pointing to fake LV        the advertisement                                     grounds that Google is using trade-
products. While LV could have sued                                                                marks, confusing consumers, and free-
the product imitator, it decided to sue     auctioning                                            riding on the goodwill of trademark
Google. From LV’s perspective, Google       mechanisms                                            owners. Courts in the U.K. and other
was a very attractive target: If Google                                                           courts in Germany have ruled the op-
was found liable, LV would not need         underlying the                                        posite, while decisions in Austria and
to sue numerous individual product          AdWords system.                                       the Netherlands have come out some-
imitators. With one lawsuit against                                                               where between these opposing view-
Google, LV could stop all keyword-re-                                                             points. Ultimately, in addition to the
lated trademark violations at a stroke.                                                           French Court de Cassation, the highest
Google, on the other hand, has a vital                                                            courts in Austria, Germany, the Neth-
interest in avoiding being held liable in                                                         erlands, and the U.K. have referred
such lawsuits. Google’s business mod-       prehensive trademark system since                     AdWords-related lawsuits to the Euro-
el relies extensively on the advertise-     1857. However, in 1989, the European                  pean Court of Justice.
ment auctioning mechanisms under-           Union required its member states to                       In March 2010, the European Court
lying the AdWords system. Of Google’s       amend their national trademark sys-                   of Justice decided the French LV case.b
$23.6 billion gross revenues in 2009,       tems in order to make them compli-                    The court held that a producer of fake
about $22.9 billion came from adver-        ant with the European Trademark                       LV products violates trademark law if
tising (see http://investor.google.com/     Directive enacted that year. This di-                 his keyword-backed advertising link
financial/tables.html). A major part of      rective did not create a unitary Eu-                  creates the impression that his prod-
this advertising revenue is believed to     ropewide trademark system. Rather,                    ucts are actually produced, or at least
come from Google AdWords.                   it harmonized national trademark                      authorized by LV. This holding by the
                                            systems across countries.a Today, if                  court was not surprising. More sur-
Case Studies                                there is some disagreement about                      prising was the court’s holding that
Cases such as LV’s have popped up like      how a particular provision of nation-                 the fake product producer would vio-
mushrooms over the last few years in        al trademark law should be inter-                     late trademark law even if he kept his
many countries. From a trademark            preted and whether this provision is                  advertisement so vague that ordinary
law perspective, they are not easy to       affected by the European Trademark                    consumers would be unable to deter-
resolve. On the one hand, it seems          Directive, it is the European Court of                mine whether or not there was some
unfair that, by choosing third-party        Justice that has the last word. This                  affiliation between the producer and
trademarks for keyword registrations        was the case with the French LV liti-                 LV. What this means in practice is un-
without proper authorization, firms          gation. As the highest court in France                clear. While the European Court of Jus-
can benefit from the goodwill of such        could not itself decide the case, in                  tice settled the relevant points of law,
marks. It also seems problematic that       2008, this court referred it to the Eu-               it did not provide a final answer as to
Google may benefit, at least indirectly,     ropean Court of Justice, which is lo-                 whether the fake product producer was
from such behavior. On the other hand,      cated in Luxembourg.                                  actually infringing trademark law. This
trademark law does not protect trade-          The intellectual property communi-                 depends on whether French consum-
mark owners against each and every          ty eagerly awaited the European Court                 ers were really confused by the adver-
use of their registered marks by others.    of Justice’s decision in this case. It                tising link in question. As such matters
Where the Google AdWords system lies        was of particular importance because                  of fact are not for the European Court
along this continuum is unclear.            courts in various European countries                  of Justice to decide, the court referred
   In the French lawsuit of Louis Vuit-     had reached wildly different conclu-                  the case back to the French courts in
ton vs. Google, a Paris regional court                                                            this regard.
found Google guilty of infringing LV’s      a As a separate measure, the European Trade-              The court then turned to the liabil-
trademark in February 2005. After             mark Regulation of 1994 created a European-         ity of Google itself. The court held that
an appeals court in Paris had upheld          wide trademark system that is administered
                                              by the European trademark office (officially
this decision, Google appealed to the         named the “Office of Harmonization for the           b This decision covered not only the lawsuit
Cour de Cassation, which is the high-         Internal Market“) in Alicante, Spain. As a re-        between LV and Google, but also two other
est French court in this area of the          sult, two trademark systems now exist in Eu-          related lawsuits in France, which will not be
law. The court had to decide whether          rope: the national trademark systems that are         considered here. In addition, as of November
or not Google AdWords was in com-             administered by national trademark offices             2010, the European Court of Justice has also
                                              and enforced by national courts, and the Eu-          ruled on AdWords-related cases from Austria,
pliance with French trademark law.            ropean trademark system that is administered          Germany, and the Netherlands. No decision
At this point in the story the European       by the European trademark office and is also           on the U.K. case (Interflora) had been issued at
Union kicks in. France has had a com-         enforced by national courts.                          the time of writing.


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viewpoints

  Google was not using the LV trademark                                                                       Google AdWords can really cause con-
  in its AdWords system in a manner cov-                                                                      fusion among consumers. Up to now,
  ered by European trademark law. The                      The danger is that                                 most U.S. courts have denied Google’s
  idea behind this is simple. Trademark                    national courts will                               liability on such grounds.
  law does not entitle a trademark owner                                                                         Third, as a result of the decisions
  to prevent all utilization of his trade-                 continue to interpret                              by the European Court of Justice re-
  mark by a third party. In the view of the                European trademark                                 lating to the AdWords system, Google
  court, Google is merely operating a ser-                                                                    revised its European AdWords trade-
  vice that may enable advertisers to en-                  law in different ways.                             mark policy in September 2010 and
  gage in trademark violations. Google                                                                        limited its support for trademark
  does not decide which trademarks to                                                                         owners. Under the new policy, adver-
  use as keywords, but merely provides                                                                        tisers are free to select trademarks
  a keyword selection service. This is not                                                                    when registering advertising links.
  sufficient, in the view of the court, to                                                                     However, if a trademark owner dis-
  justify an action for direct trademark                   the court did not give a definite answer            covers that an advertiser is using his
  infringement.                                            as to whether Google should be pro-                trademark without proper authoriza-
      However, Google might still be li-                   tected by safe harbors provisions. For             tion, Google will remove the advertis-
  able for what lawyers call secondary                     most of these questions, the European              ing link if the trademark is being used
  infringement. The argument would                         Court of Justice provided some general             in a confusing manner, for example
  be that, if advertisers actually infringe                guidelines, but left it to the national            if it falsely implies some affiliation
  trademark law because they create                        courts to rule on details which may be             between the advertiser and the trade-
  customer confusion in the AdWords                        small, but decisive. Therefore, in Eu-             mark owner. By this policy change,
  system, Google is benefiting finan-                        rope, it will ultimately be the national           Google has mollified at least some
  cially from these trademark violations.                  courts which will decide on the liability          trademark owners and provided a
  While this argument may sound con-                       of Google for its AdWords system. We               mechanism outside the court system
  vincing at first sight, the European E-                   still lack a clear answer on how to de-            that may resolve a substantial propor-
  Commerce Directive of 2000 restricts                     sign a keyword-backed advertisement                tion of AdWords trademark disputes
  the liability of “information society                    system in a way that clearly does not              in Europe. Nevertheless, it is almost
  service providers” (such as, potentially,                violate European trademark law.                    certain that national courts in Europe
  Google) for infringing activities by third                                                                  will continue to rule on the details of
  parties (the advertisers). Therefore,                    Indecisive Decision                                how the AdWords trademark policy is
  the European Court of Justice had to                     This does not mean that one should                 implemented and enforced.
  decide whether the safe harbor provi-                    feel sorry for Google which still has
  sions of this directive shielded Google                  to operate in an area of somewhat                  Conclusion
  from secondary liability. The European                   unsettled law. First, Google has some              In the end, the decision by the Euro-
  Court of Justice held that the answer to                 experience in this regard. Just think              pean Court of Justice may indeed turn
  this question depends on whether the                     of the Google Books project. Second,               out to be a victory for Google. Whether
  Google AdWords system is a mere auto-                    Google has been running its AdWords                it is a victory for the European trade-
  matic and passive system, as portrayed                   service in the U.S. for years, and in              mark system is less clear. While the
  by Google, or whether Google plays an                    the U.S. the liability question is still           European Court of Justice provided
  active role in selecting and ordering ad-                not fully settled. In 2009, the Court of           some general guidelines on Google Ad-
  vertisements. As in the customer con-                    Appeals for the Second Circuit held                Words, the task of working out the little
  fusion question, the court refrained                     that Google was using trademarks “in               details has been left to courts in Paris,
  from giving any definite answer, but                      commerce” (as required by the Lan-                 Vienna, Karlsruhe, The Hague, London
  rather referred the case back to the                     ham Act) when operating its AdWords                and other cities. The danger is that na-
  French courts.                                           system,c thereby taking a slightly dif-            tional courts will continue to interpret
      In the popular press, the Europe-                    ferent stance from that of the Euro-               European trademark law in different
  an Court of Justice’s decision in the                    pean Court of Justice. The impact of               ways. French courts, for example, may
  Google AdWords case has often been                       this decision on Google AdWords in                 continue to be more critical of Google
  portrayed as a victory for Google. Does                  the U.S. remains to be seen. At least,             AdWords in their decisions than Ger-
  victory really look like this? Well, it de-              courts in the U.S. will now examine                man or U.K. courts. This is not exactly
  pends. The European Court of Justice                     more closely whether unauthorized                  the idea of a trademark system which
  refrained from providing a final answer                   trademark-backed advertising links in              is supposed to be harmonized across
  as to whether keyword advertising can                                                                       Europe by the institutions of the Euro-
  lead to customer confusion. Nor did it                   c Rescuecom Corp. v. Google, Inc., 562 F.3d 123    pean Union.
  provide a comprehensive answer as to                       (2009). This decision did not rule on the ul-
  whether Google could be held liable                        timate question of Google’s liability, as the    Stefan Bechtold (sbechtold@ethz.ch) is Associate
                                                             Court of Appeals remanded the case back to       Professor of Intellectual Property at ETH Zurich and a
  not because of customer confusion,                         the district court for further proceedings. In   Communications Viewpoints section board member.
  but because other goals of trademark                       March 2010, the parties settled their dispute
  protection had been violated. Finally,                     out of court.                                    Copyright held by author.


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