[Thomas Yarnell contributed to research and drafting on this post.]

Google’s popular and dominant advertising service, AdWords, allows companies to place auction-style bids on search keywords.  If a company bids the highest amount on a keyword, that company’s ad comes up first when someone searches the keyword.  The company then pays Google on a pay-per-click basis.  In many countries, including the United States, Google lets companies advertise next to search results from use of their competitors’ trademarks.

Let’s say you want to buy a Louis Vuitton bag.  You know it’s expensive, so you might not want to buy it directly from the company’s website.  Instead, you might search “Louis Vuitton bags” on Google and assess other options.  As you can see in a search of “Louis Vuitton bags”, you may find some “Sponsored links” to the right of your search.  Sponsored links such as the “Louis V. Bags Handbags” come from the AdWords service.A search for “louis vutton handbags” turns up a sponsored link from something like Handbags.Smarter.com that says they have great deals on the product you’re searching.  For your purpose of buying an LV bag on the cheap, it sounds promising.  But what if the site sells counterfeit Louis Vuitton bags?

Earlier this year, Louis Vuitton’s parent company, LVMH Moet Hennesy Louis Vuitton, raised this concern in the French courts, and France’s highest court referred the matter for guidance to EU’s European Court of Justice (ECJ). The French luxury goods company claimed that by allowing other companies to advertise next to searches on its trademark, Google was enabling trademark infringement.  LVMH argued that only it or those acting with its permission should be permitted to buy ads for searches on trademarked names.

Google argued that allowing third parties to bid on ads benefits consumers, as it can give them useful resources for making decisions on a purchase.  Plus, Google added, trademark owners can still submit a complaint if they think consumers might confuse a third-party ad as having their brand name or stamp of approval.

The ECJ ruled for Google, and beginning in September its AdWords policy in Europe will be similar to those in the United States and the United Kingdom.  Advertisers in Europe will be able to bid on ads next to searches for their competitors’ trademarks.

Google’s victory in the ECJ has caveats and important exceptions.  For example, consistent with a trademark owner’s infringement claims of likelihood of confusion or dilution, the European court warned against instances where advertisers create an impression that they are “economically linked” with the trademark owner.  More problematic for Google, though, is the ruling’s confusing ambiguity and its inconsistency with a subsequent ruling in the same matter by France’s highest court last month.  As the Los Angeles Times commented at the time of the ECJ ruling,

The [ECJ] said that Google is merely a provider of advertisements, not a company infringing trademark rights.  The court ruled that only advertisers are liable for infringing a trademark, and not the company providing a place for ads.

The distinction is significant because of its narrowing effect: While AdWords in itself might not infringe trademark, that’s only because (and limited to) the passive facilitator role Google’s service plays in the process.  In the United States, Google has successfully argued in other contexts of its immunity from copyright infringement under the Digital Millennial Copyright Act (most obviously in its litigation with Viacom over YouTube).  The DMCA does not apply to trademark infringement, but the philosophy of Google’s argument is consistent: We are simply a vehicle for advertisements and content.

The limitation in the trademark context on Google’s claimed immunity as purely a platform was underscored by the ECJ.  While not directly liable for infringing, Google must be responsive to valid claims of infringement by trademark owners.

In July, the French Supreme Court revoked a 2006 ruling of the French Court of Appeals against Google for trademark infringement in the same case, in light of the ECJ ruling.  The French court ordered the case back to the Court of Appeals for review and assessment of damages (if any) against Google.  Nonetheless, the court was somewhat less qualified than the ECJ in rejecting Louis Vuitton’s claims against Google for trademark infringement, leaving little wiggle room for possible arguments against Google based on vicarious, contributory or secondary liability.

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