Search Engine Marketing Popular but Problematic

							                  “Search Engine Marketing: Popular but Problematic”



                                                        By:
                                               Avv. Dr. Felix Hofer1

                                  Hofer Lösch Torricelli - www.hltlaw.it


For several years search engine marketing had been used quietly by all major
companies providing internet services. High profits were being made by some without
any significant notice, except by investment specialists and stock analysts.

In recent years more and more concern about the particular marketing techniques used
by search engines spread around among marketers and their in-house and external
legal consultants. All of a sudden technical means such as ad-words, key-words, meta-
tags, thumbnails, pop-up or pop-under ads, paid placement, sponsored links, deep
linking, etc. drew high attention and shifted into the focus of huge economic conflicts
and harsh legal battles. Why?

On one hand, companies were discovering that web-surfers were an interesting target
for their marketing efforts to achieve new markets and customers for their products and
services, and were prepared to make consistent investments in search engine
marketing (average bids for attractive key-words ranged from 0,25/0,50 cents up to
1,00/1,50 USD per click).
On the other hand, big spenders in advertising and owners of famous brands (with
huge annual budgets dedicated to preserving/increasing their market positions) felt
uncomfortable when they realized that their well established trademarks were –
profitably – auctioned by search engines and were frequently used by direct
competitors in attracting web traffic to their sites. Brand owners and advertisers felt that
search engines were taking unfair advantage of their investments and more and more
considered legal action necessary to defend their interests.

It is therefore no wonder that business newsletters report – almost on a daily basis –
about a new lawsuit launched against a search engine or a company involved in search
engine marketing. Such lawsuits have had rather differing – not to say conflicting and
highly contradictory – outcomes. As a matter of fact, up until now neither legal
framework (national as well as international) nor case-law offer harmonized criteria or
uniformed legal principles for a suitable, generally valid solution for the various
problems emerged in the most recent developments of search engine marketing.



1
  Felix Hofer, a founding partner of the Florence (Italy) based law firm "Hofer Loesch Torricelli", is author or co-author of
a number of books and articles on advertising, marketing and sales promotions, data protection and on company law.
Felix is also a frequent speaker at conferences and seminars on these topics (in Italy and Europe as well as in the United
States). Felix is the country representative for Italy in the European Advertising Lawyers’ Association (EALA –
www.eala.net) and in the Global Advertising Lawyers Alliance (GALA - www.gala-marketlaw.com), two networks that link
legal offices located throughout Europe, America and Asia, having expertise in marketing law, trade promotions and
advertising. He has served as EALA’s General Manager in 2001 and 2002. Contact Felix Hofer at fhofer@hltlaw.it .




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So, the only – even if highly unsatisfying - conclusion possible to be achieved about
search engine marketing is, that it’s extremely controversial. Nevertheless, trying to
outline an overview of the main legal issues currently debated in the ongoing lawsuits
could result as a useful task, at least in order to achieve a rough idea about what one
should think about when approaching the new technical means used by search engine
marketing. In fact, the risks linked to search engine marketing appear to be pretty much
dependent on the legal tradition of the geographic area where it’s performed.

First of all lawsuits have brought forward as a central problem the use of third parties’
registered trademarks as key-words in meta-tags placed on others’ websites.
In many European countries Courts quite openly do consider such practice as contrary
to the principles set by trademark legislation.
In what’s to be considered as a sort of leading case French judges seem to have a
rather clear view on the issue and have delivered a first ruling2 in such direction, while
a number of lawsuits involving well-known brands have been filed recently and are
currently pending in front of various courts3.
Also British judges had found, in earlier times, that the practice of using TMs as key-
words resulted in violation of trademark provisions4. Nevertheless, after such earlier
opinion a superior court recently appears to have re-opened the issue by partially
revolting a first instance decision and holding that the claimant had failed to efficiently
prove an ‘initial confusion’ implying trademark infringement5.
In recent years German Courts have frequently dealt with the issue, but apparently did
struggle when approaching the problem, as very differing – and sometimes
contradictory and clashing – decisions can be found. While a Court of Appeal held6 that
using third parties’ trademarks or companies’ distinctive signs as meta-tags was neither
conflicting with provisions governing trademark protection nor resulting in acts of unfair
competition, a few month later a Bavarian First Instance Court stated7 that such
practice resulted in a clear violation of the German trademark law8.
Also US jurisprudence offers very oscillating opinions with respect to the issue at
stake. A Court of Appeal9, found that using a third party’s trademark as a meta-tag for
driving traffic to a web-site constitutes violation of the TM owner’s rights. Interestingly
the Court did not feel that the use of the plaintiff’s trademark as a meta-tag
automatically implied trademark infringement, but held that in the specific case the
defendant had to be considered liable for ‘overuse’ of the TM. In the Court’s view, the
plaintiff’s trademark was used too pervasively, i.e. in a way exceeding any measure of


2
  see TGI Nanterre, 13 octobre 2003, in Juriscom.net, 13/10/2003
3
   Tribunal de Grand Instance of Paris, Tribunal de Grande Instance de Lyon. The Tribunal de Grande Instance of Nanterre has
also ruled (on December 16th, 2004) against a leading search engine’s keyword advertising, considering that such practice results
in trademark infringement. (case is reported by C/Net news.com January 20th, 2005, http://news.com.com/.
4
   High Court Chancery Division, Master Bowman, judgment May 25th, 2000, case no. is HC 1999 04573; the Court found that “a
blatant, albeit unsophisticated, and ultimately …unsuccessful invasion of the claimant’s intellectual property rights“ occurred.
5
  Court of Appeal, March 3rd, 2004, CA (Civ Div) (Jacob LJ, Rix LJ, Auld LJ); the decision can be found in www.lawtel.co.uk.
6
  OLG D_sseldorf , judgment February 17th, 2004, case no. is I 20 U 104/03.
7
  LG München I, decision June 24th, 2004, in case no. 17HK 0 10389/04.
8
   Another German case gives a neat example of how strongly courts sometimes struggle when dealing with such new marketing
techniques: after issuing a temporary desist injunction (order dated November 14th, 2003 in case no. 312 O 887/03) against a
search engine in a preliminary proceeding (on the grounds of copyright and trade mark infringement) and fixing a fine of
250.000,00 Euro for eventual non-compliance, a German First Instance Court (LG Hamburg) appears to have recently dismissed
on the merits the same plaintiff’s successive claim for damage compensation (see Associated Press report at the following URL:
http://seattlepi.nwsource.com/business/aptech_story.asp?category=1700&slug=Google%20Suit).
9
  CA for the 9th Circuit, decision May 9th, 2003 in case CV-00-00372-VAP.




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reasonable necessity - in the text of the website as well as in the meta-tags placed for
linking purposes.
In an earlier case – in a proceeding for a preliminary injunction - another Court10 had
cleared the practice, agreed on the defendant’s ‘fair use’ arguments and stated that
none of the alleged violations (trademark infringement, dilution, false designation of
origin, and unfair competition) had occurred. Later on the 9th Circuit Court confirmed
the dismissal of the plaintiff’s claims11 also in the proceeding on the merits.

Another aspect of the dispute involves the practice of displaying pop-up and pop-
under ads without permission on other companies’ websites.
Last year the German Division of a leading car rental company succeeded in
obtaining a temporary desist injunction12 from a First Instance Court, which ordered a
software producer to immediately restrain from such practice. In the Court’s view
distributing ad- and spy-ware programs, capable to monitor web-surfers’ habits and to
hit them with targeted ads was likely to result in unfair competition to the car rental
company’s business. For eventual non-compliance with the desist order the Court fixed
a sanction of 300.000,00 Euro or – alternatively – six months in jail. Such opinion on
‘pop-up ads and in-context behavioural advertising’ received confirmation from another
German Court, which, when approached for a preliminary injunction aimed at halting
software driven, unauthorized pop-up ad placement, targeted to specific web surfers,
considered such technique as in breach of the rules governing fair competition13 and
issued a desist order14.
US Courts had to deal with same issue in year 2003 with respect to the business
practice of a global desktop advertising network, which used to place pop-ads of
competitors to visitors of third parties’ websites. Several lawsuit had quite contradictory
outcomes: in late December 2003 a District Court15 considered that a trademark
infringement could be found and issued a preliminary injunction prohibiting the
defendant from insisting in its marketing practice.
Another lawsuit, involving the same advertising network, lead to a totally different
opinion, as the Court then held16 that the delivery of pop-up ads of rival companies to
surfers visiting the plaintiff’s website was a correct practice (“legitimate comparative
advertising”) and did not result in improper use of third parties’ trademarks nor in
copyright infringement. The same company also succeeded in having an identical claim
dismissed by a Virginia District Court17. Several other lawsuits, concerning pop-up
software, are currently pending before US Courts18 with claims for trademark
infringement as well as for “customer hijacking”, consumer confusion through “implied
affiliation” and “unfair business practices”.

But also deep-linking and thumbnails (an automated process allowing related
headlines and photos to be pulled together) have given rise to conflicts in the courts.


10
   United States District Court, Southern District of California, case no. 98-CV-0413-K, Judith N Keep.
11
   Decision February 1st, 2002.
12
   LG Köln, injunction dated March 12th, 2004, case no. is: 31 O 145/04.
13
   Reference is to Section 1 UWG, i.e. the German Law on unfair competition.
14
   LG Köln, injunction March 12th, 2004, in proceeding no. 31 O 145/04.
15
   District Court for the Southern District of New York, Judge Deborah Batts.
16
   Eastern District Court of Michigan, Judge Nancy G. Edmunds.
17
   Judge Gerald Bruce Lee.
18
   Federal Court in Maine, US District Court for the Eastern District of Texas, State Court in Salt Lake City.




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According to a German First Instance 19Court which ruled against a leading search
engine and established20 that: (a) posting copyrighted material on a website (even a
foreign one) and offering, by doing so, access for potential downloading implies ‘public
availability’ of that material, (b) such ‘public availability’ through ‘thumbnail’ procedure
constitutes illicit use of the protected originals, even when the ‘thumbnails’ differ from
the originals in size and resolution. Recently another German First Instance Court21 felt
that22 placing huge lists of terms without any specific content reference as meta-tags
had to be considered as a clear manipulation of search engines (i.e. as an
unacceptable exploitation of “technical weaknesses and bugs” in order to achieve
unfair advantage on competitors) and, subsequently, held that such practice was
contrary to the provisions governing fair competition.
A Dutch Court23 was called to deal with a case24 where the plaintiff intended to stop a
deep linking practice arguing that systematic reproduction and diffusion to the public
(through the placement of hyperlinks) of the titles and articles reported on newspapers’
websites resulted in illicit extraction and use of content owned by others and therefore
constituted copyright infringement.
The Court dismissed the case25 on the following grounds:
- by publishing in their websites’ news sections a selected number of articles the
newspapers freely choose to release information to the public,
- deep-links placed by the defendant did actually transfer visitors to the articles
reported in the websites’ news sections, but did in no way prevent access from there to
newspapers’ homepages,
- such visitors’ transfer (through deep-links) did not imply any “substitution or
exploitation” of the newspapers’ homepages, nor significant economic “prejudice” to
them (the Court felt that the services performed by the defendant appeared to have
actually increased traffic to the newspapers’ websites, resulting therefore in a positive,
promotional effect to those sites),
- eventual decrease of advertising revenues had to be put into relationship not with the
questioned deep linking, but rather with newspapers’ inappropriate choices as to the
pages selected for placing the ads (being the news section obviously of particular
appeal to visitors),
- copyright protection implies restriction on reproduction, but ‘deep-linking ’ may not be
automatically considered equal to reproduction,
- while grabbing of an entire list/selection/collection of articles’ titles theoretically could
result in ‘reproduction’ of copyright protected material, the Dutch legislation allowed
such process when performed by another press medium, provided that proper source
reference is made, which occurred in the case,
- finally even if the titles’ list in discussion could be considered as a database,
according to Dutch legislation the respective protection is granted only if the content of
such data base is “systematically or methodically arranged” (a premise which was not
found with respect to the case submitted, a titles’ list just following a chronological
order); in the Court’s view, for claiming database protection the list arrangement would


19
     LG Hamburg, case no. 308 O 449/03
20
     See decision dated September 5th, 2003; the decision is under appeal.
21
     LG Essen, case no. 44 0 166/03.
22
     See judgment May 26th, 2004.
23
     A Rotterdam District Court.
24
     Case no. is 139609/KG ZA 00-846.
25
     Judgment August 22nd, 2000.




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have had to involve “substantial investment in terms of quantity or quality”, i.e. either of
financial resources or of employees’ time and efforts.

Finally, an additional aspect could result with respect to “sponsored links”: Recently
the British ASA26 objected to an ISP’s practice of including ‘sponsored links’ without
due notice to web-surfers among search results. The ASA found27 that “not each
sponsored link had a hyperlink to an explanatory pop-up box” and that “because
sponsored links were not clearly identified by a headline or title, and the search page
did not contain an explanation of the purpose of the hyperlink” …..”consumers were
unlikely to realise that the …….. hyperlink indicated that results were sponsored and
concluded that consumers could be misled”.

In conclusion, the legal landscape, as summarized above, eloquently shows that courts
as well as lawyers do struggle a great deal when required to provide solutions for
problems, which are unexpected or radically new and when trying to apply their proven
expertise (and traditional legal principles) to new tools and mechanisms, such as the
Internet and electronic marketing, in general, and search engine marketing, specifically.




26
     The independent, self-regulatory body for non-broadcast advertisements, sales promotions and direct marketing in the UK.
27
     Adjudication June16th, 2004, see http://www.asa.org.uk/adjudications/index.asp.




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