Jani McCutcheon, Lecturer, Law School [HREF1], University of Western Australia. jmccutch@law.uwa.edu.au
This paper explores the legal issues that arise when a trade mark is appropriated by a competitor through key word advertising. The paper considers whether the trade mark owner can restrain such conduct under current Australian law. The paper concludes that trade mark owners have limited legal avenues to redress this type of trade mark interception in cyberspace, and suggests the time is ripe to consider whether and how the law should be reformed to better control such conduct.
Advertising revenue is now the lifeblood of the Internet, particularly for search engines, through which most information on the Internet is located. This paper examines the conflict that can exist between trade mark owners and targeted advertising schemes, such as Google's AdWords.1 These schemes essentially involve the sale of search terms to advertisers. When users enter that key word in a search field, a banner2 or text advertisement appears in a separate list of results to the right or above the general results, containing a link to the advertiser's web site.3 The search engine is paid based on the number of times users click on the generated link.4
These schemes create controversy when the purchased search terms comprise a trade mark such as 'Sony' rather than a generic term such as 'DVD players' and are bought by the trade mark owner's competitors as a means of diverting traffic from the legitimate trade mark owner to the advertiser.5 For example, Toshiba and Sony both manufacture DVD players and compete with each other. Most search engines would allow Toshiba to purchase the search term 'Sony', so that when users enter 'Sony' as a key word, an advertisement containing a link to Toshiba's web site is triggered.
Such 'contextual' advertising schemes incense trade mark owners because they are seen to benefit from the value or good will of the owners' trade mark, and permit competitors to free ride on that goodwill.
This paper considers whether this form of trade mark interception violates Australian law, focusing on registered trade mark infringement, passing off and misleading conduct under the Trade Practices Act (Cth) 1974. The paper concludes that the existing legal framework provides a weak and uncertain foundation for restraining such trade mark misappropriation, and recommends that Australian law makers explore legal reform together with other international stakeholders to better protect trade mark owners.
Once a trade mark is registered, the proprietor may assume that the Trade Marks Act 1995 (Cth) ('TMA') will prevent any third party interception of their registered trade marks through key word advertising schemes. However, the law relating to off-line trade mark infringement does not sit very comfortably in a digital context.
Section 120 of the TMA governs trade mark infringement. This section dictates that the alleged infringer must use the trade mark 'as a trade mark'.6 This requirement has two essential elements:
These criteria raise difficult issues of both fact and law in the context of key word advertising. How is a trade mark used as a purchased search term? Who uses it? There are at least three players here. First, the search engine 'uses' the trade mark to arrange the sale of advertisements. Thereafter, the search engine's software 'uses' the key word to generate the advertisement. Then, there is the advertiser which buys the trade mark. Is purchasing a trade marked search term - of itself - use as a trade mark? Then finally, there is the user, who ultimately is responsible for triggering the advertisement when the trade mark is entered into the search field. Who, of any of these players, uses the trade mark as a trade mark under s 120? To what extent should the search engine company be responsible for facilitating such use? Should the user's conduct be ascribed to the advertiser or the search engine?
To what extent can a trade mark owner take direct action against the competitor who appropriated their trade mark? The first act of the advertiser that could be challenged is the advertiser's purchase of the trade mark as a key word. However, the mere purchase of the search term is unlikely to constitute 'trade mark use'. There is no interaction with consumers, no transparent public use, no overt connection made between the advertiser and the advertiser's goods. The term is only 'used' in a private contractual vacuum between the search engine and the advertiser. Once there is an actual advertisement of goods or services by reference to a trade mark, that will be use as a trade mark,8 but acts antecedent to that use are not. Purchasing a search term is like buying advertising space which, of itself, is not (yet) use as a trade mark.
It is therefore very unlikely that merely purchasing a search term is, of itself, using the term as a trade mark, and thus the advertiser would not infringe the trade mark - at least at this point.
The advertiser's conduct: generation of advertisement
The next act (which causes most acrimony) is the generation of the advertisement triggered by the key word. Advertisers may deny liability on the basis that they never directly or overtly use the trade mark, that the ad is automatically generated by the search engine's software (and is thus out of their hands), and indeed the only overt 'use' of the trade mark is by the user, who types in the key word. At first glance, this practical consideration makes it very difficult to establish that the advertiser is using the key word as a trade mark.
However, the advertiser knows (and hopes) when it purchases the search term that a user will type it into the search field and trigger the advertisement. The advertiser controls and is therefore ultimately responsible for the entire sequence of acts from the purchase of the search term to the display of the advertisement. Thus it is strongly arguable that the overt use of the user should be attributed to the alleged infringer, effectively as agent of the advertiser.
But this begs the primary question explored above - is that sequence of events 'use of a trade mark' by the advertiser? It is likely (based on search engine company policies) that the user's conduct will generate an advertisement that does not contain the trade mark. Thus the advertiser - through the user - uses the key word to trigger advertisements, rather than using the trade mark in the advertisement. In that case, is there any connection between the key word and the advertiser's goods or services, as required by the Federal Court test mentioned above?
The form, position, and wording of the advertisement, and the way in which the user responds to that advertisement, will govern whether it is being 'used as a trade mark'.
If the advertisement does not contain the trade mark, it will either bear the advertiser's trade mark, or it will be an anonymous advertisement containing generic information, with a generic link to the advertiser's web site, such as 'click here for great deals on DVD players'.
Let's first consider the case where the key word triggers an advertisement containing the advertiser's trade mark. For example, Toshiba may purchase the search term 'Sony', which generates a clearly marked Toshiba advertisement, such as 'We're Toshiba - come and visit our site, just click on this link'. If there is no mention of the trade mark 'Sony' in the actual advertisement, has Toshiba used 'Sony' as a trade mark?
Remember, there must be some connection suggested between the goods (or services) and the user of the trade mark. A critical question is whether the user clearly connects the key word it just typed in and the advertisement that appears on the web page. Whether a sign is used 'as a trade mark' is governed not by the intention of the alleged infringer, but by how a typical user regards the mark. The link between the key word and any goods or services reflected in the advertisement may be too complicated, weak or indistinct for this kind of trade mark misappropriation to amount to trade mark use. A number of factors will influence the existence or strength of the connection, including how busy the web page is, and where the advertisement is ranked in the search results and placed on the page itself. All of these factors can undermine any potential connection made between the key word and the advertisement. Even observant users may overlook an advertisement in a congested page, particularly if it ranks lower than more relevant links, and also because most users are accustomed to apparently irrelevant search results being generated. Indeed, the ubiquity of 'sponsored results' may equate them in the eyes of the user to off-line junk mail, deliberately ignored with a sound measure of irritation. This further thwarts any connection between the key word and the advertisement.
In this context, the connection is all - without a significant number of users making a connection between the key word and the advertisement, the advertiser is unlikely to be using the trade mark 'as a trade mark'.
Another issue is that, in the above hypothetical, it is doubtful that the 'Sony' trade mark has been used by Toshiba to make a connection between Toshiba and Toshiba's goods. Trade mark infringement requires the alleged infringer to use the key word as a trade mark to suggest a connection between their own goods, not merely any goods. In this hypothetical, the Sony mark has actually been used to facilitate legitimate trade mark use of the Toshiba mark in relation to Toshiba's goods. In other words, the Sony trade mark is not being used as a trade mark, but as a trick - it is not being used to sell Sony-marked DVD players. Once the Toshiba-marked ad appears, the user understands that the advertiser is not suggesting its products are 'Sony' products. Thus an essential criterion for demonstrating 'use as a trade mark' is missing. The use in this hypothetical is more analogous to comparative advertising, delivering the message: 'You may be looking for Sony DVD players, but Toshiba makes them too - buy one of ours'.9
We have no Australian case law on this specific topic. Unfortunately, US and European case law on the issue is quite inconsistent and the US case law in particular arguably does not adequately address the 'use as trade mark' question. 10 However, a recent United Kingdom decision may prove more persuasive in Australia, particularly due to the greater similarity between the UK Trade Marks Act 1994 and the TMA.
In Reed Executive Plc v Reed Business Information Ltd 11 the plaintiff, Reed Executive, had registered the trade mark 'REED' in respect of 'Employment Agency Services' and had acquired a considerable reputation in that field. The defendant, Reed Business Information Ltd, 'RBI' publishes specialist journals and magazines, a successful part of which was the jobs section. Eventually, RBI set up a major recruitment website called Totaljobs.com. RBI purchased the key word 'reed' to generate banner advertisements for the totaljobs.com web site. None of the banner ads made any reference to the word REED, or to RBI, referring only to totaljobs.com. Reed Executive argued that this constituted trade mark infringement of its registered word mark, 'Reed'.
The trial Court agreed with the plaintiff. However, the Court of Appeal disagreed, stating that infringement under the relevant UK provisions requires establishing 'a likelihood of confusion on the part of the public, which includes the likelihood of association with the trade mark'.12 The UK provision therefore imposes a positive requirement to establish public confusion, whereas the issue of confusion may or may not arise under the equivalent provisions of the TMA.
The Court concentrated on the requirement of confusion rather than any concept of use as a trade mark. It held that because the advertisement only referred to totaljobs, and there was no visible appearance of the word 'Reed', there was no likelihood of confusion.
The Court then considered, hypothetically, whether infringement would occur under provisions of the UK Trade Mark Act where there is no requirement to prove a likelihood of confusion, noting that the outcome may have been different because of this. This time, the Court focused on a requirement in the UK legislation that the defendant's use of the trade mark be 'in the course of trade', expressing doubt that such 'invisible' use would be 'in the course of trade', because 'there is no meaning being conveyed to anyone--no "sign"', just computer software registering the key word in a digitized form'. Similarly, in a US case, the Court said: 'A company's internal utilization of a trade mark in a way that does not communicate it to the public is analogous to an individual's private thoughts about a trademark'.13
The assumption in both cases is that the phrase 'in the course of trade' suggests the use must be overt, visible, use, and must be by the alleged infringer. However, even if the TMA infringement provisions require some overt, visible use of the trade mark, it is arguable that the user's overt use satisfies that requirement, and can be ascribed to the advertiser through the agency of the user, as argued above. Provided the user makes some connection between the key word and the triggered ad (in itself a debatable point, as mentioned above), then a sufficient 'meaning' is being conveyed in accordance with the Reed decision.
In summary, if a key word generates an ad containing no reference to the trade mark, and which clearly contains the competitor's trade mark, there is unlikely to be trade mark infringement. Even if users link the key word to the advertisement, there is unlikely to be 'trade mark use' because the advertiser has not used the trade mark to denote the advertiser's goods or services.
There is a stronger case for 'trade mark use' and thus infringement if the key word generates an anonymous advertisement (such as the key word 'Sony' generating a ad which reads 'Click here for great deals on DVD players' and takes users to Toshiba's web site).
Before the user clicks on the link to the competitor's site, has Toshiba used 'Sony' as a trade mark? It could be argued that in this example, Toshiba has used the 'Sony' mark to indicate a connection with the DVD players that are only a click away, suggesting that these are Sony DVD players. This impression is only reinforced by the absence of the true trade mark - Toshiba. Once the user clicks on the link and enters the Toshiba web site, that impression may evaporate, but until then, there has been trade mark use.
In summary, the wording of the advertisement will play a critical role in determining trade mark infringement. Trade mark infringement is arguable if the user (as 'agent' of the advertiser) perceives a link between the key word and the generated ad, and assumes the person responsible for the ad is the trade mark owner. This conclusion is more likely to be reached in the case of anonymous advertisements.
Overseas trade mark owners have pursued both advertiser and search engines, since the latter ultimately facilitate the misappropriation of the trade mark through their advertising programs. It is also more practical and less costly to take action against the software provider than a number of competitors. This section of the paper considers whether search engines infringe registered trade mark when they sell them as search terms.
As in the above discussion, the major obstacle is demonstrating that when the key words are sold, they are used by the search engines as trade marks - ie to suggest a connection between the key word and their own goods or services. There is a fundamental problem here, because search engines only 'use' these trade marks as products for sale - they do not use them to indicate their own goods or services. By analogy, a supermarket does not use as a trade mark the 'Vegemite' brand just by selling jars of Vegemite.
While some US and French Courts have found against search engines in these circumstances,14 similar findings are unlikely to be made by Australian Courts, because our law clearly requires the search engine to be using the intercepted trade mark in relation to their own goods or services. But in the case of Google, it is the trade mark 'AdWords' that Google uses to promote its targeted advertising services, not 'Sony'. Indeed, a number of US decisions have been criticised on this basis.15
On the other hand, there may be circumstances where the supermarket in the above hypothetical may be liable for indirect infringement where it was obliged to prevent direct infringement and failed to do so. Courts have held that distributors are prohibited from 'disseminating' goods which will infringe another's trade mark as soon as they are made aware of this fact.16 By analogy, once a search engine knows that the 'dissemination' of key words will infringe another's trade mark, they may themselves infringe under this principle if they refuse to take steps to stop the direct infringement. However, it would still be necessary to establish that the search engine knew the 'dissemination' of the search terms will infringe another's trade mark. Thus we return to the primary issue - in what circumstances (if any) will key-word advertising infringe a registered trade mark?
The TMA is of benefit only to owners of registered trade marks. Another avenue of redress available to both registered and unregistered trade mark owners may be the common law action for passing off, or action under s 52 of the Trade Practices Act 1974 (Cth) ('the TPA') for misleading conduct.
The critical question under both these causes of action is whether the trade mark is being used in such a way that a misrepresentation is made. If there is no misrepresentation then there is no liability under Australian law.
Considering first the conduct of the search engine, is there any misrepresentation made when a trade-marked search term is sold? It is hard to identify any, just as there is no misrepresentation made by a domain name registrar when it registers a trade-marked domain name to a cybersquatter.
Then we need to look at the conduct of the advertiser. Is there any misrepresentation made when a trade-marked search term is purchased? It may be misleading to purchase a key word that you have no ownership interest in. In a recent case, 17 a cybersquatter registered the domain names 'csrsugar.com' and 'csrsugar.com.au'. The Federal Court held that obtaining the registration of the domain names implied - erroneously - that the domain name belonged to CSR. Alternatively, if the cybersquatter was denoted as owner of the names (as is the case with public registers of domain names), there was a misrepresentation that CSR and the cybersquatter were affiliated or in some way connected.
There are two major problems when we apply the CSR principle to the purchase of trade-marked search terms. First, simply purchasing a trade-marked key word does not necessarily misrepresent that the search term 'belongs to' the purchaser. Search terms which are also trade marks may be bought for several legitimate reasons (for example, for comparative advertising or to use as a descriptor, such as 'Apple' for an orchardist). Trade mark owners have no absolute right to prevent all uses of a trade mark - only use 'as a trade mark'. Therefore the act of purchasing a search term does not inherently connote the buyer is the owner. By comparison, domain names are only used for the single purpose of functioning as a web site address. If the domain name contains a trade mark, then the average consumer may mistakenly believe that the person registering the domain name is the owner of the trade mark so prominently displayed in the domain name.
Secondly, since no public record identifies the advertiser as the 'owner' of the purchased search term, there is little opportunity for the public to assume any connection between the trade mark owner and the advertiser. Conversely, a public register of domain names reflects the identity of the registrant, and it is conceivable that anyone inspecting the register will connect the registrant to the trade mark contained in the domain name.
On balance, the mere act of purchasing a trade-marked search term is unlikely to misrepresent that the advertiser owns, or is affiliated with, the owner of the trade mark.
The next act in the sequence is the generation of the advertisement by a search using the key word. Whether this constitutes a misrepresentation once again depends on the factors already discussed in relation to registered trade marks such as the appearance, substance and placement of the advertisement, and the experience and acuity of the user. If a user makes some connection between the key word and the advertisement, and if the advertisement is anonymous, then the ad may misrepresent that the link will transfer users to the trade mark owner's web site.
However, as above, a misrepresentation is less likely if the advertisement clearly identifies the advertiser (such as 'Sony' generating a simple ad for Toshiba with a link to Toshiba's site). Indeed, some US Courts have expressly warned that clearly labeled advertisements are unproblematic. 18
The Reed Appeal Court also rejected the lower Court's finding that using the trade mark 'Reed' to trigger a 'totaljobs.com' advertisement was 'passing off by substitution'.19 The Appeal Court held that 'That is a hundred miles from a consumer conducting a search under the name Reed and finding a banner which on its face has no connection with his search term'.20
Where the key word generates a classis comparative advertisement, there seems no room to argue a misrepresentation. For example, if a search for 'Sony' triggers an ad reading 'Forget Sony - try Toshiba', the ad functions as an inherent disclaimer of any association with Sony.
However, if the advertisement's text is not that direct, then there is an increased chance of consumer confusion. In the off-line world, different brands act as in-built disclaimers of any association between competing products. For example, rows of pasta sauces may look similar in 'get up' but their different labels clearly differentiate them from their neighbours. But when the competition moves online, the inherent disclaimers in different brands weaken. When a user keys in 'Sony' and generates a 'Toshiba' ad, possible misrepresentations are, for example, that there was some endorsement or licensing by Sony of Toshiba, that the companies are somehow related, that Toshiba is the new company name for Sony or a Sony subsidiary, that Toshiba is a brand name for a Sony product, or the local version of Sony in the user's jurisdiction.
To summarise, trade mark owners may have more success in an action for passing off or breach of s 52 of the TPA than for registered trade mark infringement, especially because there is no criterion of 'trade mark use'. However, there are just as many factors weakening any connection being made by the user between the key word and the triggered advertisement.
The average consumer may instinctively consider trade mark interception as untenable, unfair, damaging to the trade mark owner's business and simply irritating (for both the trade mark owner and users).
Those 'misappropriating' trade marks may argue that they are merely trying to boost competition by increasing consumers' choices, with any diversion of business away from the trade mark owner simply evidence of healthy competition at work. However, when a user deliberately chooses a trade mark as a key word, it indicates that the user is not searching for generic products, but trade-marked products. And yet despite that focused search, the user ends up with irrelevant results. This conduct is like Toshiba paying someone to erect a sign on or at least near Sony's front door to attract the attention of consumers who are intent on visiting Sony's store. Determined customers will still enter the Sony store, but others may be diverted to Toshiba.
While these actions may seem unfair, may affect the trade mark owner's commercial interests, and may irritate users, the above discussion demonstrates that legal liability for that conduct is very tenuous. Arguably, trade mark owners should have more reliable avenues of legal redress under Australian law. This would, however, require quite substantial legal reform, particularly to the TMA and the concept of 'trade mark use'. The Australian Parliament would have a difficult task finely balancing the law such that it prohibits conduct that unfairly appropriates the trade mark owner's trade mark, but permits legitimate conduct such as comparative advertising or using a key word as a descriptor.
Any local reform process will be complicated by the need to harmonise international law on this issue, which is already inconsistent among nations, and even within nations. But International consistency must be a goal, since any disputes concerning trade names on the Internet will necessarily have international implications.
Clearly, the time has come for Australian law makers and stakeholders to examine this issue, ideally in co-ordination with other international agencies.
2 These are small rectangular ads that appear across the top, bottom or sides of a great variety of web sites.
3 These are known variously as 'sponsored links' (Google), 'sponsor results' (Yahoo) or 'sponsored matches' (Alta Vista).
4 And the revenue involved is astounding. In 2005, Google reported over $6.1 billion in revenue - a 92% increase over 2004. 99% of that revenue was derived from advertising sales, about of half of which came from Google's AdWords key word adverstising scheme. See [HREF3], last visited 28 February 2006.
5 Most search engine companies have some policy on trade mark complaints, (see, for example, Google's trade mark complaint Procedure at [HREF4]) but these tend to be reactive rather than pro-active. While many search engines proscribe the appearance of competitor's trade marks in the actual text of triggered ads, all permit the purchase of trade-marked key words.
6 It should be noted that there are a number of express defences to infringement in s 122, which exempt legitimate 'non trade mark' uses of a trade mark, such as using the trade mark as a descriptor, to indicate some attribute or characteristic of the goods, or in the process of reselling used trademarked goods or repairing trademarked goods. This paper does not consider such legitimate uses of another's trade mark in a key word advertising context.
7 Coca-Cola Co v All-Fect Distributors Ltd (t/as Millers Distributing Co) (1999) 96 FCR 107; [1999] FCA 1721 at 20.
8 See, generally, Davison M, Johnston K and Kennedy P, Shanahan's Australian Law of Trade Marks and Passing off (3rd ed, 2003) at [2.195].
9 Comparative advertising has never amounted to 'trade mark use'. See Irving's Yeast Vite Ltd v Horsenail Co Ltd (1934) RPC 110 and s 122(1)(d) of the TMA.
10 See, for example, Margreth Barrett, 'Internet Trademark Suits and the Demise of ìTrade mark Useî', (2006) 39 US Davis Law Review 371.
11 [2004] RPC 40
12 Section 10(2)(b) Trade Marks Act 1994 (UK)
13 1-800 Contacts, Inc v WhenU.com and Vision Direct, Inc 414 F.3d 400 at 409 (2d Cir. 2005)
14 See, in particular, the Playboy Enterprises Inc v Netscape Communications Corp appellate Court decision, which did not consider the question of trademark use by Netscape to be an issue. It focused entirely on 'the core element' of trade mark infringement, whether there was a likelihood of confusion. The Court stated quite peremptorily that Netscape 'uses the trade marks in commerce' and that 'No dispute exists regarding the other requirements of the statute'. Playboy Enterprises Inc v Netscape Communications Corp 354 F.3d 1020 at 1024. The French Courts have also made findings against Google on the issue of trademark use. For example, in Viaticum and Luteciel v Google France, the Versailles Court of Appeal upheld a lower Court's decision condemning Google France's conduct in selling the search terms of a trade mark owner. The Court held that Google France 'uses, or has used, [the trade marks] in circumstances allowing direct competitors of [the trade mark owners] to propose to prospective clients ... products and services designated in the registration of these trade marks'. It seems that the French legislation contains a much broader concept of trade mark 'use' than the TMA, since the Court said: 'it is not the use of the trade mark in a search sent to the search engine that is unlawful, but the commercial use being made of it by Google France in its advertising services for the benefit of third parties'. Société Viaticum et Société Luteciel contre Société Google France, Cour d'appel de Versailles, 12ème ch. section 1, 10 March 2005, R.G. nb. 03/07388 and 04/02214. Quotes are from an English translation of the Appeal Court's decision at [HREF5], viewed 12 April 2006.
15 See, for example, Dogan S and Lemley M, ìTrade Marks and Consumer Search Costs on the Internetî (2004) 41 Houston Law Review 777.
16 Norwich Pharmacal Co v Commissioners of Customs and Excise [1972] RPC 743 (CA)
17 CSR Ltd v Resource Capital Australia Pty Ltd (2003) 128 FCR 408
18 See, for example, Playboy Enterprises, Inc v Netscape Communications Corp 354 F.3d 1020 at 1025 (9th `Cir. 2004). See also Government Employees Insurance Co v Google, Inc 330 F Supp 2d 700 (ED Va 2004).
19 This is where a trader accepts an order for brand X but supplies brand Y and the customer does not notice the substitution and is thus misled.
20 Reed Executive Plc v Reed Business Information Ltd [2004] RPC 40 at para 143.
Jani McCutcheon, © 2006. The author assigns to Southern Cross University and other educational and non-profit institutions a non-exclusive licence to use this document for personal use and in courses of instruction provided that the article is used in full and this copyright statement is reproduced. The author also grants a non-exclusive licence to Southern Cross University to publish this document in full on the World Wide Web and on CD-ROM and in printed form with the conference papers and for the document to be published on mirrors on the World Wide Web.