Google AdWords is Google's main advertising product. According to some sources, Google generated advertising revenues totaling US$42.5 billion in 2012. AdWords works by matching paid advertisements with specific “keywords” or search terms entered into Google’s search engine by users. For instance, if a user searches for the term “auto mechanic,” AdWords causes advertisements for local mechanics to appear next to or above the Google search results. Google earns revenue based on the number of “clicks” and/or views these advertisements receive. Users who click on the advertisements are directed to the advertiser’s website.

With a few limited exceptions, Google allows customers that purchase advertising through AdWords to select any keyword to associate with the customers’ advertisements. In 2004 Google began allowing customers to select the trademarks of their competitors as keywords. Sticking with the auto mechanic example, this meant that ABC Mechanic could purchase its competitors name, say “XYZ Mechanic,” so that any time a user searched for “XYZ Mechanic,” an advertisement for ABC Mechanic would appear at the top or next to the Google search results. 

This practice created a hot controversy as companies became increasingly concerned that they were losing the business of customers drawn away by competitors’ use of their brands in the AdWords program. Google faced numerous lawsuits over AdWords, with claims ranging from trademark infringement to fraud. Recently, the most prominent of these lawsuits, Rosetta Stone Ltd. v. Google, Inc., settled out of court. With this case ending by settlement, Rosetta Stone did not result in any significant changes to applicable trademark law. While a district court opinion was a victory for Google, the Fourth Circuit later reversed on several key points without providing any meaningful guidance to others aggrieved by Google selling the use of their brands as search terms.

Without much legal precedent, as a matter of US trademark law, the use of third-party trademarks as search keywords is still legally ambiguous. In an apparent effort to avoid future liability, Google has put into place certain restrictions regarding the use of trademarks in the actual AdWords advertisements that are displayed with the search results. Its policy permits trademarks to be used (1) in a descriptive or generic manner, known as Descriptive Fair Use; (2) where the use is nominative, known as Nominative Fair Use; (3) where the advertiser is authorized to sell products under that trademark; or (4) where the advertiser does not sell products that compete directly with products sold under that trademark. As of now, however, Google does not place any restrictions on the use of trademarks as keywords for Internet searches performed through Google. Descriptive Fair Use is the use of a third-party's trademark that is descriptive of and used fairly to describe one's own goods or services. This can either involve using a third-party mark without intending to refer to that third-party’s products or using a third-party mark to describe one’s own products. For example, an advertiser could use the term “Alaskan” to advertise jackets that were "Alaskan-made" and would not be liable for infringing the Alaskan Airlines’ trademark of “ALASKAN.” 

Nominative fair use, on the other hand, is where the advertiser specifically refers to another person’s goods or services to describe one’s own product. For example, a juice company might make the claim that its product is “sweeter than SNAPPLE” without being liable for infringing the SNAPPLE trademark. Similarly, an independent auto repair shop might say that it specializes in repairing BMW automobiles.

Outside of these limited exceptions, if a competitor (or any advertiser for that matter) purchases a third-party trademark as a search keyword in order to attract attention intended for the owner of that trademark, and the purchased trademark has no relation to the contents on the site, or falsely implies sponsorship, the use of that trademark as a keyword may be actionable. Trademark owners in this situation may assert claims for trademark infringement, trademark dilution, false advertising and unfair competition. 

To make a trademark infringement claim, there must be (1) use of the trademark in commerce and (2) a likelihood of confusion. Most trademark-keyword claims are based on “initial interest confusion,” which is not recognized in all American jurisdictions. This means that, although the consumer is not confused as to the source of the product when he or she ultimately makes a purchase, the trademark owner suffers because the consumer was initially confused and contemplated, or actually did, purchase a different brand-owner’s product as a result of that initial confusion. Courts will consider other factors such as the brand owner’s context surrounding the sponsored link and the contents of the linked page, when determining whether a likelihood of confusion exists.

As of yet, there is little guidance one way or the other that the mere use of a trademark as a keyword, without more, constitutes trademark infringement or dilution. Until and unless there is strong court precedent holding that the use of a third-party’s trademark as a keyword constitutes trademark infringement, the practice is likely to continue. For now, brand owners can seek to halt use of their own brands as keywords by competitors, and remain aware of this issue in managing their overall web presence.