Geico, a subsidiary of Berkshire Hathaway, the investment company owned by Warren Buffett, filed suit against Google and Yahoo-owned Overture on May 4, in federal court in Alexandria, Va.
The insurer charged the two companies with infringing on its trademarks when they sold them as keywords to Geico's rivals, so that the protected terms could appear in sponsored search results. According to the suit, that practice causes consumer confusion, in violation of the Lanham Act, the primary federal law covering trademark registration and protection.
"This practice deliberately misleads consumers and allows Geico's competitors and these defendants to illegally exploit for their own commercial purposes Geico's investment of hundreds of millions of dollars in its brand," company spokeswoman Janice Minshall wrote in an e-mail.
The insurer is seeking damages and an injunction against Google's and Overture's use of its service marks in their advertising programs.
Geico, the largest direct marketer of auto insurance in the United States, is the most high-profile American company to have filed a complaint against Google and Overture over their ad-selling practices. It launched its lawsuit only weeks after Googlemade to trademark owners regarding their rights to keywords sold in its popular ad program.
The suit also comes only weeks after Google filed to raise $2.7 billion in an initial public offering. In its S-1 filing, the company highlighted the financial risks it would face if it were forced to limit sales of keyword ads to generic words. Roughly 95 percent of Google's $1 billion in annual revenue comes from search-related advertising, according to its filing.
Complaints abound about misuse of trademarks in search engine ads. Google and Overture have built billion-dollar businesses by marrying text ads with search results; the technique has been effective because Web searching is such a common method for people to find products and services. Consequently, more companies have sought control over their brand names and trademarked terms in paid search. Businesses including American Blind and Wallpaper Factory have filed trademark complaints against search engines.
Still, U.S. law is unclear about how far search engines must go to make sure trademarks aren't infringed upon.
Google did not immediately respond to requests for comment. In the past, representatives from the company have said that trademark law allows for the use of registered marks, as long as there is no likelihood of consumer confusion.
An Overture representative said the company cannot comment on pending litigation. But Overture employs a fair-use policy for evaluating requests from trademark owners.
"In cases in which an advertiser has bid on a term that may be the trademark of another, Overture allows the bids only if the advertiser presents content on its Web site that (a) refers to the trademark...without creating a likelihood of consumer confusion...or (b) uses the term in a generic or merely descriptive manner," according to a notice posted on the company's Web site.
In contrast, Google has adopted a more hands-off approach, opting to review fewer trademark complaints. In April, the search companyU.S. and Canadian advertisers to bid on any keyword, including trademarked terms, in its sponsored listings service.
Previously, Google had granted requests from advertisers, including 1-800 Contacts and eBay, to bar competitors from bidding on their trademarked names. Google will now only review trademark complaints that relate to text appearing in sponsored listings on its Web site and those of its partners.
According to Geico's complaint, the insurer considered Google's policy change before pursuing legal action: "Google's recent change in trademark policy constitutes a deliberate decision to use the registered trademarks of other companies, including Geico, for the financial benefit of Google and to the detriment of (others)."
Google faces a number of lawsuits similar to Geico's. Louis Vuitton sued Google and its French subsidiary for similar alleged trademark infringement, and a French court ordered Google to cease the practice and pay a fine. In January, American Blind and Wallpaper Factoryagainst Google in a New York federal court, alleging trademark infringement.
In an effort to preempt American Blind's suit, Google late last year asked a U.S. District Court judge in San Jose, Calif., for a declaratory judgment in the dispute. American Blind still insists, though, that Google stop selling keyword phrases that the company claims violate its trademarks.
Overture faces two pending U.S. trademark suits, one filed by JR Cigar and another by Pets Warehouse.
Paid search is one of the fastest-growing and most closely watched segments of the online advertising business. According to Jupiter Research, paid search will grow from $1.6 billion in sales in 2003 to $2.1 billion this year, and it will continue to grow at a compound annual rate of 20 percent through 2008.
At least some of that growth could be jeopardized if legal rulings bar Google and other search engines from selling off well-known terms such as "Wells Fargo" in their ad programs, legal experts have said.
Research shows that many inquiries at search engines are for brand names or trademarked terms. Within the finance category, for example, more than half the total searches are for branded keywords such as Wells Fargo, according to ComScore Networks, a market research company.
"This is yet another reminder we have to question the core revenue-generating practices of Google and Overture and whether it's sustainable as a legal proposition," said Eric Goldman, an assistant professor of law at Marquette University Law School.