Sander Morehead at Woods, Fuller, Shultz and Smith P.C. here in Sioux Falls was kind enough to let us re-purpose the article below on our blog. It's a great read for those who engage in competitor/trademark PPC bidding and details some pending litigation that could drastically alter the paid search bidding landscape.  It's a bit early to be hitting the panic button, but this is a case we'll certainly be watching closely.

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Keyword Bidding as Tactic to Foil Competitor Ruled Infringement
By Sander Morehead • sander.morehead@woodsfuller.com

Sander’s areas of law include: Commercial Law, Intellectual Property, Litigation
One year ago, we provided information about an internet advertising practice known as “keyword bidding.” Federal courts were divided as to the legality of certain kinds of keyword bidding. In light of recent developments, business owners face ever-increasing risks of litigation if they bid on internet keywords that are similar to their competitors’ trademarks.

KEYWORD BIDDING REVIEW
Keyword bidding is part of the “pay per click” advertising model. “Pay per click” is used on search engines, advertising networks, and content sites, such as blogs. Advertisers pay their host only when their ad is clicked. With search engines, advertisers typically bid on keyword phrases relevant to their target market. For instance, a law firm might bid on the keyword phrase “internet law.”  Websites that utilize pay per click ads will display an advertisement when a keyword query matches an advertiser’s keyword list, or when a content site displays relevant content. Such advertisements are called sponsored links or sponsored ads, and appear adjacent to or above the unsponsored, standard results on search engine results pages.

COMPETITIVE KEYWORD BIDDING
As keyword bidding became a common advertising practice, competitors began bidding on each others’ trademarks. For instance, if Coca-Cola bid on the keyword “Pepsi,” then when an internet user typed “Pepsi” in an internet search engine, an ad for “Coke” might appear in the sponsored links and/or sponsored ads of the search engine’s results page.  Predictably, trademark owners, especially those with well-known and recognizable names, began filing lawsuits against competitors who engaged in this practice, alleging trademark infringement. 

When we first brought this issue to our clients’ attention a year ago, courts were somewhat divided over whether bidding on a competitor’s trademarks could constitute trademark infringement. Courts from the Northeast, including the New York Federal District Courts, regularly dismissed suits based on competitor keyword bidding, holding that the practice could not constitute infringement. Meanwhile, courts from Virginia, Minnesota, and the Ninth Circuit Court of Appeals permitted such suits to move forward.

That division no longer exists. In a recent case, Rescuecom v. Google, Rescuecom brought a trademark-infringement action against Google because Google permitted Rescuecom’s competitor to bid on its trademark as a keyword. The New York trial court dismissed the suit, noting the split of authority discussed above. The Second Circuit Court of Appeals reversed that decision, and also expressly disapproved of earlier decisions dismissing similar lawsuits. That lawsuit is now moving forward. 

What this means is that there is no longer a split of authority. The only courts that expressly endorsed the legality of the practice have been overruled. Parties may maintain lawsuits regarding this advertising method in most, if not all, jurisdictions. If you are currently using internet keyword bidding as an advertising method, or if you are considering entering this exciting advertising market, you need to be aware that if you bid on another company’s trademark, you are taking a significant risk that a trademark infringement suit will follow.   

NOTICE: This article is intended to provide only general information. It does not represent a legal opinion or advice regarding any particular case or issue. Transmission of the information is not intended to create, and receipt of the information does not constitute, an attorney-client relationship. For legal advice on a specific matter, please see counsel. © 2009 Woods Fuller Shultz & Smith P.C. All Rights Reserved.