On March 23, 2010, the Court of Justice (“CJ”) (formerly the European Court of Justice), the European Union’s highest court, issued its long-awaited opinion on Google, Inc.’s sale of trademarks as keywords in its AdWords program. The CJ ruled that Google may continue to sell trademarks as advertising key words – so long as Google acts quickly to take down such advertisements when trademark owners object on the basis that the ads, and/or linked web sites resulting from the keyword buys, infringe the owners’ trademarks. For a copy of the opinion, see here, then select any of the following cases: C-236/08, C-237/08, and C-238/08 (Google France and Google).1

A number of French companies have secured court rulings that Google’s sale of their trademarks constitutes trademark infringement. Three such cases had been appealed by Google to France’s highest court, the Cour de cassation. In May, 2008, that court stayed proceedings in all three cases and referred the matter to the CJ, seeking preliminary rulings on core questions of European trademark law as it applies to keyword advertising.

In its ruling, the CJ holds that trademark owners have the right to prevent others from using the owners’ trademarks as search engine keywords to trigger sponsored ads that infringe the trademarks. But companies like Google, which sell the keyword ads, may not face legal consequences if they meet certain criteria that establish themselves as passive service providers playing technical roles, so long as they quickly remove infringing ads after receiving notice from the trademark owners.

The issue of the potential trademark infringement liability of advertisers and search engine companies for sponsored link ads containing others’ trademarks has been considered in many proceedings on both sides of the Atlantic over the past several years. In the United States, the hard-fought threshold issue of whether the sale and display of such ads constitutes “use” of a trademark sufficient to allow the case to proceed to consideration of whether a likelihood of confusion exists was decided in the affirmative by the Second Circuit in Rescuecom Corp. v. Google, Inc., 562 F.3d 123 (2d Cir. 2009). That case was remanded for trial, but was recently dismissed after a confidential settlement between the parties. Some ten or so other U.S. cases remain pending.

The CJ addressed the issue of whether, under EU law, the use of trademarks as keywords and the resulting advertising links constitutes use of a trademark in the course of trade, in relation to goods and services. The court held that such activity does constitute trademark use by the purchaser of the keyword. The court emphasized that this is the case regardless of whether the trademark appears in the ad text itself. (This point is instructive since, in most countries outside the EU, including the United States, Google will not take down an ad that does not display the offending trademark in text). However, the court found that this activity did not constitute use of the mark under EU law by Google, which is deemed a “referencing service provider.” This is a significant victory for Google.

After ruling on the trademark use question, the court took up the question of whether the types of uses complained about in the three French lawsuits constitute use that is liable to have an adverse effect on the functions of the trademarks. The court addressed the core trademark functions of indicating origin and advertising. With respect to both of these questions, the CJ emphasized that the answers are dependent upon the facts presented in each particular case, e.g., the manner in which the ad is presented. Regarding the function of indicating origin, the court stated that, in a case where the ad suggests an economic link between the unauthorized advertiser and the trademark owner, “there must be adverse effect on the function of indicating origin.” In a case where the ad is vague as to whether there is such an economic link, such that “normally informed and reasonably attentive Internet users are unable to determine, on the basis of the advertising link and the commercial message attached thereto, whether the advertiser is a third party… the conclusion must also be that there is an adverse effect on that function of the trade mark.” Ultimately, the court stated, it is up to the national courts of each EU member state to assess the facts of each case to decide this question.

With regard to the advertising function of a trademark, the CJ stated that the manner in which the keyword ads are laid out on Google’s search results page, and the overall content of that page, is such that harm is unlikely. The court found it significant that (in accordance with the Cour de cassation’s findings), the listing and link for the home page of the trademark owner appears in the list of natural search results, alongside the keyword ads, “usually in the highest positions on that list,” with “guaranteed” visibility to Internet users. Under these facts, the court concluded that the keyword ads complained of are not likely to have an adverse effect on the advertising function of the trademark.

A key portion of the CJ’s ruling is the holding that, in its role as “an internet referencing service provider which stores, as a keyword, a sign identical with a trade mark and organises the display of ads on the basis of that keyword, Google acts as an “information society service” under EU law. As such, it is entitled to certain exemptions from liability. These exemptions apply to the extent that Google acts in a neutral, “mere technical, automatic and passive nature,” with “neither knowledge or control of the data which it stores.” The “mere fact” that Google sets payment terms for its ads and “provides general information to its clients” does not deprive it of the exemptions from liability. However, the court pointedly notes that any active role played by Google, e.g., in the drafting of ad text “or in the establishment or selection of keywords” [emphasis added] is relevant, and should be carefully assessed by the national courts, in accordance with the facts of each case.

Today’s ruling shifts AdWords-related disputes in Europe back to the courts of the EU’s member states. The CJ emphasized that national courts must assess, on a case-by-case basis, whether a company’s online advertisement constitutes trademark infringement and, if so, whether online advertising sellers such as Google, which will now enjoy an apparent initial presumption (of sorts) of exemption from liability, may nevertheless be liable due to knowledge of or control over the infringing activity. Those courts will continue to play a large role in determining the ultimate extent of Google’s liability and in defining the degree and amount of protections trademark owners may receive in the Internet advertising context.

One may question the CJ’s finding that Google’s AdWords program is merely technical, automatic and passive in nature. One significant open question for the European national courts to consider seems to be the degree to which Google’s “Keyword Suggestion Tool” negates the company’s “service provider” exemptions by placing it in a more active role with its advertising clients. Certainly, Google will still need to act diligently when it is provided with information about trademark infringement.

Internet advertising’s legal landscape is changing rapidly. Search engines and the advertisers who use them face complex decisions regarding the economic benefit and legal risks of incorporating others’ trademarks in advertising.