Treading carefully with others' trademarks

For many years intellectual property experts have been paying close attention to dishonest practices perpetrated through Internet search engines such as Google, Yahoo! or Bing. Notable cases have been debated since the 1990s, when the first decisions about the misuse of meta tags were pronounced by superior courts of different jurisdictions.

Meta tags are elements inserted in HTML code that are not visible to regular users but may be used as parameters on Internet searches. Some companies embedded competitors’ trademarks in meta tags in order to divert consumers using web search engines.

The search engines realised those setbacks and by the early 2000s very few of them still supported meta tags. Instead, theydeveloped algorithms that disregard meta tags when determining search rankings. The decline of meta tags coincided with the consolidation of keyword advertising as a way to achieve better placement on search rankings.

To the extent that more and more consumers use search engines to find businesses and conduct price surveys, being present on the first page of results is fundamental. When natural search results are not satisfactory, strategic positioning can be obtained through keyword advertising. Website owners offer advertisers the possibility to choose certain words that may be related to their activities.

A search for those keywords will generate sponsored links which are often accompanied by short promotional texts. The links are displayed alongside natural search results that correspond to terms entered by the user.

Keyword advertising is an effective way to reach segmented audiences. Sponsored links are shown only when the keyword chosen by an advertiser is entered by the user. Potential traffic is generated instantaneously. In addition to this fast targeted display, the ‘pay-per-click’ method of charge also counts as an advantage.

The price-per-click varies upon demand for the relevant terms, as search engines allow advertisers to bid on keywords. But even for high bid keywords, traffic to the advertiser’s website may be generated for a fraction of the cost of more traditional forms of advertising.

A recent study by Interactive Advertising Bureau Brasil predicts that online ad spend will surpass 3 billion Brazilian reais ($1.7 billion) in 2011. Keyword advertising will correspond to half of that amount. The estimated growth of 25 percent in relation to last year would make keyword advertising count for 5 percent of all the advertising spend in Brazil.

Legal issues emerge from this impressive increase, in particular those related to the selection of competitors’ trademarks as keywords. Although practice demonstrates that many disputes are resolved amicably, the Brazilian judiciary has pronounced important decisions on when such selection is abusive.

"According to this provision, a crime of unfair competition is perpetrated by anyone who employs fraudulent means to divert consumers of another person to his or another party's advantage."

One of the most important cases was decided in March 2010 by the Tenth Criminal Chamber of the Court of Appeals for the State of Sao Paulo. The court analysed an appeal against the first instance decision that condemned defendants for the crime prescribed in article 195, item III, of the Brazilian Industrial Property Law (BIPL).

According to this provision, a crime of unfair competition is perpetrated by anyone who employs fraudulent means to divert consumers of another person to his or another party’s advantage.

The court affirmed the previous judgment, using an interpretation very similar to the initial interest confusion doctrine applied in the well known case Brookfield Communications, Inc v West Coast Entertainment Corporation, decided by the US Court of Appeals for the Ninth Circuit.

According to the Sao Paulo court, the selection of the trademark Pistelli as a keyword was sufficient to unduly divert consumers of the trademark owner, even if actual confusion was not demonstrated. When entering Pistelli in the search engines, consumers were provided highlighted links to the web pages of advertiser Formatto, a direct competitor of the trademark owner.

The court found that it is very common for a user to click on sponsored links, due to their placement on top of results pages. And once Pistelli’s consumers clicked on the link sponsored by Formatto, they would be directed to the competitor’s website, where they would be exposed to the products and services of the defendant.

Another precedent discussed the legitimacy of keyword advertising in relation to free competition and consumer protection laws. Based on those norms, Brazilian commentators have maintained that use of a competitor’s mark in keyword advertising may be deemed legitimate comparative advertising. The Third Civil Chamber of the Court of Appeals for the State of Rio de Janeiro addressed the issue in a judgment of April 2009.

The court recognised that free competition is a general principle of the economic order, as prescribed by article 170, item IV, of the Federal Constitution. This legitimises comparative advertising to promote goods and services.

However, as noted in the decision, free competition should not justify dishonest practices that ultimately harm competitors and consumers. The court concluded that the abusive use of keyword advertising is an act of unfair competition as defined by a rticle10bis of the Paris Convention for the Protection of Industrial Property.

The decisions above indicate that use of a competitor’s trademark in keyword adverting may be deemed illegal when it is likely to divert consumers. Rights holders have successfully applied unfair competition law to stop improper free-riding on the goodwill associated with their marks, even when there is no evidence of actual confusion.

Finally, the illicit use of keyword advertising may also be prosecuted under trademark and consumer protection laws. Following article 189 of the BIPL, trademark infringement is likely to be found, particularly when a mark registered in Brazil is displayed within the promotional text of the sponsored link.

Moreover, it could represent a violation of the Brazilian Consumer Protection Code, which sets as a principle the efficient restraint and repression of dishonest business methods in consumer market relations, including the inadequate use of trademarks and trade names.