Craig Mende is a member of Fross Zelnick Lehrman & Zissu. He can be reached at cmende@frosszelnick.com

Companies pay search engines to associate certain keyword search terms with their ads. For example, a pain-reliever manufacturer might purchase the keyword "headache." The company's ad and Web site link will then appear in an area of the results page, labeled "sponsored results," when consumers type these words into the search box of Google or other search engines. So far, so good: This use of keywords allows advertisers to target consumers who express interest in their products through the use of specific search terms.

But the controversy arises when the keyword being used to trigger an ad is not a generic term, like "headache," but rather, the trademark of a competing manufacturer. The manufacturer of Brand X pain reliever, for example, might purchase as a keyword its competitor's trademark, "Brand Z." As a result, the most prominent result from a search for "Brand Z" may be a sponsored link to the Web site of its competitor, Brand X. The intended result, of course, is that the consumer searching for Brand Z pain reliever will instead buy the Brand X product.

Zoe Hilden is a former associate of Fross Zelnick Lehrman & Zissu.

Yahoo! takes a different approach. It permits the use of a trademark as a keyword, but only by advertisers that make fair use of that trademark—like in legitimate comparative advertising. Thus, Yahoo! would permit a keyword-linked ad containing the claim "Brand X relieves headaches faster than Brand Z," whereas Google would not.

Early Rulings

Several companies have already filed lawsuits challenging the sale of their trademarks as keywords, alleging that the practice unfairly exploits the goodwill companies build in their brands and constitutes trademark infringement and dilution, and unfair competition. Multiple actions are pending against both the search engine companies selling the keywords and the advertisers that have purchased them.

In order to prevail in such an action, a trademark owner must prove that the use of its trademark as a keyword (1) constitutes "use in commerce" under the US Trademark Act, which usually requires that the trademark is actually used on the labels for goods traveling in interstate commerce, and (2) either creates a likelihood of confusion among consumers or causes the trademark to lose its unique identification.

The courts have not yet provided clear guidance on any of these issues, but some early rulings do not bode well for brand owners. After a court in a different case ruled that the sale of keywords could constitute trademark infringement, a Virginia district court held in August 2005 that Google had not violated the trademark rights of Government Employees' Insurance Company (GEICO) by selling the search term "GEICO" as a keyword to trigger the ads of competing insurance companies. The court found that GEICO failed to present evidence that the use of "GEICO" as a keyword, standing alone, caused confusion among consumers.

In May of this year, a federal judge in New York dismissed a claim by Merck against owners of online pharmacies that purchased the keyword "Zocor." The judge ruled that the use of "Zocor" as a keyword did not constitute use in commerce, but rather, was "akin to the product-placement marketing strategy employed in retail stores, where, for example, a drugstore places its generic drugs alongside similar national brands to capitalize on the latter's name recognition."

Cases have now gone both ways. But a key question remains: Will Internet users understand that sponsored links aren't necessarily owned by the brand for which they are searching? If consumers get this, trademark owners' claims of infringement and unfair competition—based on the premise that the practice confuses consumers—will become even more difficult to establish.