Google AdWords and Trademark Law

Recently, Google suffered a legal setback when its motion to dismiss was denied by a California district court.  Google is being sued by American Blind and Wallpaper Factory for, among other things, trademark infringement because it permits and encourages third parties (including the competitors of American Blinds) to use the latter’s trademarks as a Google AdWord.

This is yet another indication that trademark law is granting marks owners far greater rights than that contemplated by the law.  Trademarks are protected because of their ability to direct consumers to the product that they want to purchase.  This reduces search costs and gives incentives to the trademark owner to maintain higher quality levels (or even to establish varying quality levels  — think of Toyota and Lexus).  Therefore, trademarks need only be protected if the trademark is used in a way that confuses consumers into making wrong purchases (e.g., purchasing Lifeboy instead of Lifebuoy soap).  This obviously corrupts the search process and degrades trademark protection.

For this reason, trademark owners are given a monopoly on the words that constitute their marks.  But this monopoly or exclusive use is limited only in instances where it may cause confusion in the market.  Therefore, it has been established that trademarks can only be protected within certain classes of goods (United SuperMarket does not infringe upon United Airlines).  In one case, the use of a mark by a newspaper for purposes of running a poll is also permissible.  What the courts should not tolerate is the case where the mark is being used to pass off one’s goods as being that of another.

But this isn’t what’s happening in the case of Google AdWords.  Google does not use the marks in order to confuse the market into making wrong purchases.  In fact, Google Ad Words are valuable because they provide more data that informs the consumer as to other choices in the market.  From a policy standpoint, more information in a market increases its efficiency.  So, trademark owners should not be permitted to prevent this from happening in the name of trademark protection.

Neither do Google Ad Words cause consumers to incur higher search costs. One has to come to grips with the fact that Google is an information tool which by itself lowers search costs.  In fact, in my view, Google Ad Words do not affect search costs either way.  In that sense, Google Ad Words do not impact the efficiency of a trademark system.

What it does is provide even more information that may be useful to the consumer and makes the market for the goods even more efficient.

Trademark holders (like other IP rights holders) need to understand that the exclusive rights granted to them are done so because it is in the public good.  When they exercise those rights in ways that do not promote the public good, then they make an argument for reform in the trademark system.