The Google Adwords trademark policy is aimed at balancing the interests of trademark holders, advertisers and internet users. Does it always do this, or can it sometimes provide a method for trademark holders to restrict competition and potentially cause harm to advertisers, internet users and Google itself? That’s the billion dollar question.

Google Adwords is a paid search marketing program offered by Google that allows millions of organisations around the world to advertise their products and services in Google’s search results. That makes Adwords a big deal. Adwords accounts for the lions’ share of Google’s revenues, which totalled $16.5bn in 2007 alone.

Yahoo! and Microsoft offer similar programs to Adwords. However, Google is the market leader, with estimates of its paid search market share ranging from 58% upwards. Google clearly holds a dominant position within the paid search marketplace, so its policy decisions matter.

Google’s dominance has created a significant demand within Adwords from third party advertisers who would like to market products and services against the results of popular trademarks which they do not own. As a result, there have been several instances where Google has faced legal action by trademark holders trying to restrict third parties bidding on those search terms relating to their trademarks. Trademark holders in the US, such as Geico and American Airlines, have previously filed suit . In Europe, Google has been sued by the likes of Louis Vuitton in France .

These legal actions led to the introduction of the Google Adwords Trademark Policy. There are in fact two policies, one or other of which is in force in any location around the world. These policies allow the trademark holder to exert significant influence over the use of their marks within the Adwords program.

Whilst it may seem a reasonable response on the part of Google to seek to recognise and protect the rights of trademark owners, especially in response to suggestions Google may be facilitating passing off and/or infringement of registered trademarks, the problem is that the Google Adwords Trademark Policy may in fact give far more power to trademark holders than they need to protect their goodwill and prevent passing off. Google’s trademark policies may fail to recognise the legitimate right of third parties to use registered trademarks which they do not own to legally sell products and services which they have a right to sell and facilitate Trademark holder to restrict free trade in goods and services.

For example, in the motor market, many private individuals, non-franchise and franchise dealers have a legitimate right to use manufacturer and model trademarks in order to describe a car or range of cars they wish to advertise.

An example would be if you wished to sell your Peugeot 308. Do you really want to have to call it a mid size French 1.9 litre diesel hatchback? Somehow the sale is much more likely to happen if you just call it by its make and model rather than a bland description.

Clearly in this example there is no passing off and no loss of goodwill. It is completely understood by all parties that the advertiser of the car is not necessarily the trademark holder. Yet Google’s trademark policies mean that advertisers can be prevented from using trademarked terms even so. Has this policy really balanced the interests of trademark holders, advertisers and internet users, as Google purports to do? Commenting, Kevin McGuinness of London-based commercial law specialists Sabretooth Law stated

In restricting the use of trademarks Google may have diminished the ability of non-owners of trademarks to legitimately use such trademarks in the course of carrying on their trade. Given the size of the market in which Google operates and the importance of the advertising market to automobile resale sector this is likely to be an area where both English and European competition authorities may take an interest in arrangements which potentially restrict competition to the detriment of the general public.

Antitrust or anti-competition issues have been one area where both the UK and European competition authorities have consistently demonstrated a keen interest in protecting the European consumer and Google’s dominant position in the paid search marketing sector would suggest it needs to ensure its policies are legal, not only in the US but also in Europe.

In the UK, an organisation can be fined 10% of its worldwide annual revenues for engaging in anti-competitive behaviour. As noted earlier, these amounted to $16.5bn for Google in 2007 alone, so 10% would be $1.65bn. That is a large number!

Is it Google’s responsibility, though, or is it the responsibility of the respective trademark holders? Or is it both?

It seems harsh to hold Google solely responsible, when Google has been simply trying to respect trademarks holders’ legitimate rights; especially in light of the fact that Google has been sued by several trademark holders and to some extent its trademark policy is a result of that. In addition, by restricting competition on some trademarked terms, Google may have impacted its own revenues. Kevin McGuinness again:

As Google is the participant in the on-line market place, which is itself restricting the availability for use of other persons’ trademarks, it could be that Google, not the trademark holders, may be found to be at fault. This hardly seems fair given Google’s long standing commitment to ethical good business practice.

Clearly Google does not exercise its trademark policy in isolation. Only when a trademark holder files a trademark complaint in the appropriate jurisdiction does Google exercise its policy. This is why you can see Google Adwords for lots of trademarked terms, but not all.

Evidence of how trademark holders are working with search engines came in a recent interview with New Media Age magazine (subscription required) when Steve Bowler, Marketing Manager of Land Rover, stated:

One of the areas that wasn’t looked at properly before was search. Previously it was recognised as being somewhat important yet ancillary to TV, press and outdoor. Now, though, we take search very seriously, working with the search engines on how to deal with issues like trademarking.

As a result, Kevin McGuinness states:

Competition authorities could conclude that Google and trademark holders are each using Google Adwords to prevent competition.

Not only Google but each individual trademark holder could be investigated and potentially fined up to 10% of global revenues. Trademark holders who have restricted their trademarks include Alfa Romeo, Peugeot and Land Rover.

Do the same issues also affect Yahoo! and Microsoft? No. Both of these search companies have much more targeted trademark policies. For example, Yahoo!’s policy is:

As applied to nominative uses of another’s trademark, Yahoo! Search Marketing requires advertisers to meet one of the following two conditions: … Reseller [... or ...] Information Site, Not Competitive

And Microsoft’s policy, though targeted, is elegantly simple:

Affiliates and resellers may bid on trademarked terms relevant to the goods, services, or sites that they promote.

Why does Google not have such a simple policy? Perhaps because, though simply stated, the Yahoo! and Microsoft policies require more editorial intervention than the Google policy, or perhaps because Google’s current policy arises from being sued by trademark holders, rather than being pursued by competition authorities. Google’s official response is posted on their Inside Adwords Blog:

We will not allow the use of a trademark term according to the parameters of the trademark complaint filed by the trademark owner. Therefore, unless the trademark owner specifically grants you permission to use their trademarked term by contacting our Trademark team, we are not able to approve the use of the trademark in your AdWords ads.

There is no explanation there, nor has one ever been offered on the many occasions Google has been given to comment on this issue, but one can only assume that Google believes it is on solid legal ground in operating this policy. The question is: are they correct?

Though a vast improvement on Google’s trademark policy, Yahoo!’s and Microsoft’s policies both restrict comparative advertising (advertising which “explicitly or by implication, identifies a competitor or goods or services offered by a competitor”). A recent European court case showed that such restrictions may be unlawful . However that is a different, and far less contentious, issue than the anti-competition issues raised by the Google Adwords Trademark Policy alone.

So, the question remains. Has Google and/or its advertisers been in contravention of UK or EU competition laws in exercising its trademark policy to date? Microsoft’s European court experience should provide ample evidence that American software giants need to be very careful within the European Union. Once the EU competition authorities decide to bite, they rarely let go of their prey quickly. Given the enmity between the two, will Microsoft be at the head of the line to point out the ongoing competition issues in Google’s trademark policies?

Google has, since its inception, been a beacon of best business practice, but it may be on the wrong side of this legal issue by trying to do the right thing by trademark holders who continue to abuse its policies in order to restrict fair competition. With fines of up to 10% of global turnover possible, it’s a high stakes issue.

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