Court Allows Trademark Suit on Google AdWords

(CN) - The 2nd Circuit reinstated a trademark lawsuit that could fundamentally change how Google sells and promotes advertisements. The search giant allegedly prompts advertisers to buy other companies' trademarks as keywords for Google's AdWords program.

The New York-based federal appeals court made a point of expressing no view on whether the plaintiff computer repair company can prove infringement, but it revived the dispute, saying Rescuecom had adequately stated a claim under the Lanham Act.

The case centers on two of Google's programs: AdWords and the Keyword Suggestion Tool. AdWords allows advertisers to buy targeted search terms. When users search for those terms, Google displays related advertisements and links. Google makes 97 percent of its revenue from selling ads through AdWords, according to Rescuecom.

The Keyword Suggestion Tool helps advertisers select effective keywords by recommending relevant search terms, such as the name of a specific product or rival business.

Rescuecom said Google violated its trademark by urging competitors to buy its mark as a search term, causing anyone who searched for "Rescuecom" to see ads that would take them to a competitor's Web site.

Though the ads are marked "sponsored links," Rescuecom said a user might be misled into thinking the ads were part of Google's search results. Because the sponsored links appear in a horizontal bar at the top of the search results, they might appear to be the first, most relevant results, rather than advertisements, Rescuecom claimed.

U.S. District Chief Judge Mordue dismissed the lawsuit against Google, citing the 2nd Circuit's holding in 1-800 Contacts v. WhenU.com. Mordue said the plaintiff failed to allege that Google's use of the mark was a "use in commerce" under provisions of the Lanham Act.

"We believe this misunderstood the holding of 1-800," Judge Leval wrote.

The court explained that the "restrictive definition of 'use in commerce' ... never was intended as a restriction on the types of conduct that could result in liability."

The three-judge panel reversed and remanded, and then expanded the discussion in a non-binding appendix.

Leval gave a brief history of the Act's evolution to show that the phrase "use in commerce" was intended as a requirement for trademark registration.

This interpretation "makes eminent good sense," Leval said.

"It makes no conceivable sense as a limitation shielding bad-faith abusers of the marks of others from liability for causing trademark confusion."

But the court acknowledged the vagueness of the phrase, concluding: "It would be helpful for Congress to study and clear up this ambiguity."

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