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Psst ... Want to Buy a Keyword?

Issue Date: Mar 29 1999

Search engines have been selling advertisements against keywords for some time. They may be breaking the law.

If you do a search for, say, "Intel (INTC)," you'll probably see a banner ad for the chipmaker displayed above the search results. It's no accident: Sites like Excite (ATHM), Yahoo (YHOO) and Netscape sell keywords to advertisers so that when a surfer enters the word as a search term, the company's ad is displayed.

But enter, say, "Estee Lauder" in the search fields of Excite or Webcrawler (an Excite company), and you'll see banner ads for an e-commerce site called the Fragrance Counter. Enter "Playboy" on Excite or Netscape (whose search services are provided by Excite), and the banner ads are for hardcore porn sites.

Playboy Enterprises (PLA) and Estee Lauder aren't happy about this. The suits against Excite, Webcrawler and Netscape are for trademark infringement. Playboy's lawsuit states that "Excite has hijacked and usurped [Playboy's] good will and reputation," and Estee Lauder charges the search engines and the Fragrance Counter with various acts of trademark infringement, "bait and switch" false advertising and unfair competition. How these cases pan out will define how trademarks are protected on the Net.

Suzanne Kawadler of NameStake, a consultancy that helps companies build and protect online identities, estimates that targeted keywords sell for about $50 per thousand impressions and that 60 percent to 70 percent of each engine's total revenue comes from selling trademarked keywords. Jupiter Communications gives much lower figures, estimating that 20 percent to 30 percent of search engines' ad revenues come from keyword ad sales and perhaps 5 percent come from trademarked words.

The practice of buying a competitor's keyword isn't without precedent, says intellectual-property attorney Carl Oppedahl, of Oppedahl & Larson in Frisco, Colo.

"Grocery stores have coupon dispensers at the checkout," he says. "When the cashier scans Kellogg (K)'s Raisin Bran, the machine may spit out a coupon for Post Raisin Bran, if Post has purchased the "Kellogg's" keyword from the grocer."

The two banner-ad cases appear identical, but crucial differences exist. In the case of the porn companies that bought "Playboy" from Excite and Netscape, most of the banner ads served do not contain information about the advertiser. This could spell trouble for the search engines, according to Neil Shapiro, a First Amendment and intellectual-property lawyer in San Francisco. Trademark law, he explains, is not designed to protect trademark owners but to prevent the public from being confused.

"You cannot use somebody else's mark to advertise your goods as a general rule," says Shapiro. "There are a lot of court opinions saying that the ultimate purpose is the protection of the consumer, so the consumer is not misled into purchasing an inferior product believing it to be the higher-quality product. When you search for 'Playboy,' if you get a banner that is of a similar nature or serves a similar market, but it's not Playboy, there is at least a risk that somebody might get sucked into buying that product thinking it was sponsored by or part of Playboy."

If Playboy can convince the court that surfers will be misled into thinking that the porn sites that advertise when a user searches for "Playboy" are related to Playboy, "then they do have a shot at winning," says Shapiro. The lawyer for Playboy, Jeffrey Neuberger, declined to comment on the case.

The suit filed by Estee Lauder is more complicated, and the court's decision will be closely watched by search engines and advertisers. Fragrance Counter is the No. 1 online retailer of fragrances and cosmetics. The banner ads triggered by the "Estee Lauder" keyword are clearly identified as being from the Fragrance Counter, and the company does indeed sell Estee Lauder products. But Estee Lauder's suit against the Fragrance Counter and the two search engines contends that the banner ads also "present the Estee Lauder trademark so prominently that consumers viewing the ad may conclude incorrectly that they are viewing an online ad or that TFC is in some way associated with Estee Lauder." Further, Estee Lauder says it does not sell any products to the Fragrance Counter and that "TFC is not an authorized retailer or distributor of Estee Lauder products."

Andrea Sarkisian, a spokeswoman for Estee Lauder, admits her company does not try to stop unauthorized retailers from selling Estee Lauder products, "because it's not illegal." When asked if she could explain what an authorized retailer is, she said "No, I can't really, but it's what you expect it to be. You either are or you aren't."

Sarkisian would not reveal how the Fragrance Counter was able to obtain Estee Lauder products. "This is where it starts to get too close to the complaint," she said. "Because it is pending litigation, I can't comment on it." (A person in the cosmetics industry, who asked not to be identified, says that unauthorized retailers get their products though middlemen.)

The Fragrance Counter claims that the form of advertising it uses "is perfectly legal and that there is no confusion among our customers as to who is selling the products," says Gary Holmes, a spokesman for the company. But it could still run into trouble for using the Estee Lauder trademark in its banner ads and for buying the keyword "Origins," an Estee Lauder brand name and line of products the Fragrance Counter does not sell. When users go to the Fragrance Counter and search the site for Origins products, they get the following message: "We did not find a match for your search on Origins. We suggest using the Fragrance Advisor below to find a similar fragrance." This, says Estee Lauder, constitutes "bait and switch."

Few search-engine companies were willing to go on the record about selling keywords. When asked about Infoseek (dossier)'s policy in cases in which a trademark owner contacts the company to complain that its brand name has been sold to another party, an Infoseek spokesperson said "those are legal questions that only judges would have answers for." A Netscape spokesperson said, "We don't comment on these types of things." Excite offered the standard, "We don't comment on pending litigation."

Yahoo, AltaVista, CNET (CNET) and Snap did not return phone calls or e-mail requesting comment on the matter. Lycos (LCOS) does have a printed policy about keywords, which states that advertisers who don't own a trademark will be given a two-week notice if the trademark holder complains. HotBot says it sells trademarked keywords only to advertisers that sell products or services associated with the mark. For example, a search for "Ford" on HotBot serves up a banner ad for an online used-car selling service. But HotBot says it won't sell trademarked keywords to companies that compete with the trademark holder. "It's a slippery slope and we realize that, so we keep away from it," says a HotBot spokesperson.

NameStake, the company that protects online identities, offers a free service on its Web site that lets anyone see the banners triggered by keywords on 10 popular search engines. A quick look makes it clear that most of the search engines are getting in on the keywords-for-sale action.

A search on the word "wired" displays a banner advertisement for The Standard on Lycos, an ad for Wired on Yahoo and banner ads for Electronic Newsstand on Excite and Webcrawler. A search on "amazon" delivers an (AMZN) ad on Excite, Yahoo, LookSmart (LOOK), NetFind, and an ad for Barnes & Noble (dossier) on Lycos.

The two lawsuits are only the first in an approaching flood of Net-commerce- and intellectual-property-related disputes, says Shapiro. "The Internet is the first wholly new medium in almost 50 years, so a lot of the law that developed doesn't really fit yet, and it's going to take years for the law that's been developed to deal with broadcast and print to be adapted to this kind of medium."

Until that happens, Shapiro concludes, "People are going to push as far as they can."

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