PREVIEW-Google adword win in Europe wouldn't end battles
* Ruling from European Court of Justice expected Tuesday
* Experts see a Google win, but warn ruling likely murky
* A clear ruling could influence chaotic US law on adwords
By Alexandria Sage and Georgina Prodhan
SAN FRANCISCO/LONDON, March 18 (Reuters) - Google Inc (GOOG.O) could win a widely expected victory next week in Europe's top court and still face many more battles over keyword advertising, the backbone of its Internet business model.
The European Court of Justice in Luxembourg will rule on Tuesday whether or not Google infringes the trademark rights of such companies as Louis Vuitton through its Adwords service, in which advertisers pay to use keywords that are the companies' proprietary brand names.
In Google's Adwords service, advertisers pay a fee so that "sponsored links" to their own websites pop up beside a user's keyword search results.
"This case has the potential to shape global standards for the legitimacy of keyword advertising," said Eric Goldman, an associate professor of law at Santa Clara University School of Law, who called that a "multibillion-dollar question."
"We're going to get new and highly influential legal guidance on the legitimacy of that practice," he said. "That has the potential to move billions of dollars in our industry."
Brand owners will closely examine next week's judgment on three cases, one of which was brought by Louis Vuitton (LVMH.PA), as they try to protect their trademarks against a practice they say undermines their cachet.
Buying a sponsored link on a keyword such as "Nike" can be useful for retailers who stock goods of that brand -- yet the retailers do not pay Nike (NKE.N) for using the brand name. More controversially, Nike's rivals might buy it as a keyword, hoping to divert trade and traffic to themselves.
At the extreme, brands like Louis Vuitton and others fear that a loss of control of their brands to less-than-desirable outfits -- such as counterfeiters -- would damage painstakingly managed reputations or confuse and drive away consumers.
NO CLEAN WIN
The case is the first at such a high level to test Google's liability, rather than that of the advertisers buying keywords.
Google used to block advertisers from buying others' brand names as keywords, but in 2004 it changed its policy in North America and four years later extended that to Britain and Ireland. Google says it will honor valid complaints from brand owners and prevent their rivals from using a trademarked keyword in their ad text, but some trademark holders say they should not be sold in the first place.
The stakes are high in this murky area of law because paid ads are a mainstay of Google's business and a foundation of commerce in the digital age. Courts in various member states within the European Union have issued disparate rulings, and U.S. decisions are similarly inconsistent.
Although Google does not break out revenue from its paid ads, it derives 97 percent of its annual revenue of nearly $24 billion from advertising.
Cases from five European nations brought by brand owners against advertisers are also pending in the European Court of Justice. The first of those will also be decided next week.
In one of those cases, international flower delivery group Interflora Inc and its UK unit are suing British retailer Marks & Spencer (MKS.L) for using the keyword "Interflora" and variants to trigger ads for itself, in the hope of luring flower buyers to its own service.
Interflora says its bidding costs for its own name as a keyword leapt as much as 14-fold when Google changed its policy in Britain in 2008, increasing its costs by a total of $750,000 in the first year after the change.
In the Google case, experts believe the court will rule at least partly in the Web giant's favor, based on the September nonbinding opinion of the court's Advocate General that Google did not infringe brand owners' rights by allowing advertisers to buy keywords corresponding to trademarks.
But the case, which originated in the French courts, is unlikely to completely absolve Google of future responsibility, with further litigation in European countries guaranteed.
"It's my feeling Google is going to win, but it's not going to be an ultimate victory for Google," said Alex Montagu, a New York-based attorney who specializes in intellectual property and international commerce transactions.
Though the hot-button issue of counterfeiting was not in front of the court, brand owners could still find Google liable in their host countries for "secondary infringement" by selling keywords to those who then infringe the trademark, such as counterfeiters.
"Where Google is not out of the woods is if Louis Vuitton can demonstrate that those sponsored links are being sold to people not authorized to use those trademarks, such as counterfeiters or the grey goods market," said Montagu.
He argues for an international convention to deal with the liability of Internet service providers, saying trademark law has not kept pace with the digital age.
EBay Inc (EBAY.O), which buys keywords from Google and also operates its own internal search, has similarly been sued by brand owners, including Louis Vuitton, in Europe and the United States over its use of keywords.
A favorable ruling for Google in Europe's top court could allow eBay to reargue cases it has lost in countries such as France considered sympathetic to the claims of brand owners.
Google currently faces eight cases alone in the United States over the sale of trademarked keywords, said Goldman.
A "nice, clean" ruling from the European Court of Justice could potentially influence U.S. law, said Goldman, who added: "It's very possible we'll get a very muddy, murky ruling."
"We take it for granted that Google can do whatever it's doing and that's not a question that anyone here (in the U.S.) has ever answered definitively." (Additional reporting by Foo Yun Chee in Brussels; Editing by Gary Hill)
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