The Court of Justice of the European Union handed down its long- anticipated decision in the Google AdWords case1 on 23 March 2010. The decision provides useful guidance on the operation of EU trademark law in the emerging, but highly controversial, area of online advertising. In this alert, we consider the reasons for the Court’s ruling and how it may affect the rights of brand owners. Although the case related to Google AdWords, the principles espoused by the Court are of more general application.

The most important finding in the Court’s decision is that Google did not infringe trademark law merely by allowing advertisers to purchase keywords corresponding to their competitors’ trademarks through its AdWords service. The Court held, however, that if Google had knowledge or took a more active role in facilitating advertisers to engage in unlawful conduct, it could also be liable for trademark infringement.

The Court held that advertisers who use keywords that are identical to another company’s trademarks to reference their own goods or services may be liable2 for trademark infringement if the advertisement causes confusion about the origin of the goods.

Background

The judgment of the Court of Justice follows a request for a preliminary ruling by France’s Cour de cassation in three separate cases involving the use of Google’s AdWords service. In each of these cases, it was established that when internet users entered search terms corresponding to registered trademarks in Google’s search engine, this would trigger advertisements for sites offering counterfeit products or links to websites that directly competed with the proprietor of the trademarks. It was also established that Google offered advertisers the possibility of selecting not only keywords that corresponded to other company’s trademarks but also those keywords in combination with expressions such as ‘imitation’, ‘replica’ and ‘copy’.

These facts led to Google being held liable for trademark infringement on all three cases. Google then appealed to France’s Cour de cassation which referred various questions of law to the Court of Justice of the European Union. The Court of Justice was called to provide a preliminary ruling on the following two issues:

  • Can a trademark proprietor prevent a paid referencing service provider [such as Google] from making available to advertisers keywords reproducing or imitating registered trademarks and referencing, on the basis of those keywords, advertising links to sites offering infringing or competing goods?
  • If the trademark proprietor cannot prevent the service provider from providing such a service, is the provider exempt from liability (under the EU directive on Electronic Commerce) until the trademark proprietor gives notice to the provider of the unlawful use of the sign by the advertiser?

The Use of Keywords Corresponding to Other Persons’ Trademarks

The first issue that the Court had to consider was whether advertising on the Google AdWords service through the use of keywords that are identical or similar to registered trademarks constitutes infringing ‘use’.

Under EU trademark law,3 a registered trademark (or Community trademark) gives the proprietor the right to prevent third parties from ‘using in the course of trade any sign that is identical with the trademark [or Community trademark] in relation to goods or services which are identical with those for which the trademark [or Community trademark] is registered’.

The Court found that an advertiser who purchases advertisements in Google AdWords by selecting a sign corresponding to another person’s trademark as a keyword, uses that sign in the course of trade in relation to its goods or services. This is irrespective of whether or not the keyword appears in the advertisement itself. Underlying the Court’s reasoning was the fact that an advertiser who chooses a sign identical or similar to another trademark as a keyword does so with the aim of offering internet users an alternative to the goods or services of the trademark proprietor.

The Court also held that the use of keywords to trigger the display of advertisements in this way had the potential to create an impression that (or cause confusion as to whether) there is a material link between the goods and services in question and the proprietor of the trademark. The Court stated that this could adversely affect one of the key functions of a trademark: to indicate the origin of the goods offered under the mark. The Court found that it is for the national courts to determine, on a case-by-case basis, whether such an adverse effect exists or not. According to the Court, such an adverse effect would obviously exist if the advertisement suggests that there is an economic link between the advertiser and the trademark owner.4 In such cases, the Court indicated that the trademark owner is entitled to prevent the advertiser’s use of the mark in this way.

In contrast, the Court found that a referencing service provider (such as Google) that merely allows its clients (namely the advertisers) to use a sign that is identical or similar to another trademark as a keyword does not itself ‘use’ those signs within the meaning of EU trademark law. The Court held that the fact that the referencing service provider creates the technical conditions that enables the advertiser to use the signs in this way (and is paid for providing the service) does not mean that the provider itself uses the sign. Absent such use by the provider, the Court found that it would not be found liable for trademark infringement.

The Liability of the Referencing Service Provider

The second issue that the Court had to consider was whether a referencing service provider such as Google could be held liable for hosting data of advertisers (which are its clients) on its server even before it was informed of the unlawful conduct of that advertiser.

Under the EU E-Commerce Directive5, a hosting provider is exempted from liability if the service it provides is of a mere technical, automatic and passive nature. The Court stated that this will only be the case where the role played by the service provider is ‘neutral’ in the sense that it does not have knowledge or control over the data that it stores.

The Court refused to take a position on whether the action of Google in relation to its ‘AdWords’ service was ‘neutral’, however, indicating instead that it was up to each national court to decide this issue on a case-by-case basis. Nevertheless, the Court did provide some guidance on how the national courts should approach this issue. It said that merely because a host’s referencing service is subject to payment or a host provides general information about the service to its clients does not mean that its actions are of a kind that would deprive it from the liability exemption regime. By contrast, if a hosting service drafted the commercial message accompanying the commercial link, or assisted its clients in the selection of the keywords, this would be relevant in assessing whether its actions were neutral.

What Does the Decision Mean for Brand Owners?

It is difficult, at least at this stage, to identify a clear winner from the Court of Justice’s decision: shortly after the decision, both sides released official statements claiming success. For its part, Google claimed that by exonerating Google from liability for its AdWords service in the case, the Court had upheld the ‘fundamental principle behind the free flow of information over the internet’.6 However, Louis Vuitton’s statement pointed out that the decision means that a ‘provider of a paid referencing service can be found liable alongside an advertiser, either because it was aware when selling the keywords that the advertiser was infringing a trademark, or because it did not verify that the advertiser was authorized by the trademark owner to use the trademark’.7

Indeed, the decision leaves open the issue regarding the liability of service providers (such as Google) as something that will have to be settled at the national level. This may lead to uncertainty and disparate conclusions across member states. The Court’s finding that a service provider must remain ‘neutral’ in order to avoid liability, however, will allow brand owners to exert more pressure on service providers to take down advertising links to counterfeit product websites and curb the activities of companies that seek to ‘piggy back’ on the reputation of brand owners.

Brand owners will also be happy with the Court’s finding that advertisers who purchase keywords that are identical to registered trademarks could be held liable if the advertisement leads to confusion about the origin of the relevant products or services. These brand owners will be relieved that this finding overturns the earlier opinion of Advocate General Poiares Maduro, who had suggested that advertisers do not commit trademark infringement by selecting in Adwords, keywords corresponding to trademarks.