By Peter M. Ripin

In Technology & Marketing Law Blog, Eric Goldman lamented that 2006 was "a bit of a jurisprudential disaster on the question of whether buying and selling [Internet] keywords constitutes a trademark use...Basically, courts can't agree..." Fortunately, experts do agree on a few moves hoteliers can take to protect their valuable keywords.

It's a common scenario: A family seeking a vacation at a Best Western in Miami runs a search on Google by typing in the words "Best Western Miami". A search results page appears with bold, highlighted listings at the top and a separate column of listings on the right side of the page entitled "Sponsored Links". If the family clicks on a Sponsored Link listing, it will be transported not to the official Best Western Website but, rather, to an online travel company which also has listings for other nearby Miami hotels including Best Western's competitors. If the family decides to book a room at one of these other hotels, Best Western loses a customer. Even if the family does book with Best Western, the hotel's profit margin will be significantly reduced because Best Western will have to pay a commission of approximately 18-30% to the online travel agency.

Is this a deceptive business practice? Or simply smart marketing?

In our example, the reason why the online travel company's Website appears as a sponsored link when the family types in the search term "Best Western" is because the online travel company was one of the highest bidders on the "Best Western" trademarked keywords. As a result, the online travel agency obtained the right to have its paid listing appear whenever someone enters Best Western as a search term. Whenever a consumer clicks through on this sponsored link, the online travel agency pays the search engine its bid price for the keyword. This industry known as paid search, "pay-per-click" or keyword advertising has become a huge money making enterprise on the Web and has accounted for about 99 percent of Google's $6.1 billion in revenues in 2005.

The question for hoteliers: if a competitor's paid advertisement appears when someone runs a search on Google using your hotel's trademark, is this trademark infringement or fair competition?

The answer is far from academic. PhoCusWright's U.S. Online Travel Overview predicts that in 2007, for the first time ever, online travel bookings will actually surpass offline bookings. In addition, Internet advertising is the fastest growing category of advertising in the United States with revenues totaling over $12.5 billion in 2005, according to Internet Advertising Revenue Report. An estimated 50 million U.S. consumers research travel online every month resulting in online travel revenues exceeding $60 billion, according to Comscore 2006b. DoubleClick states that nearly three out of four travel buyers consult search engines before making a purchase. Indeed, marketing experts have aptly called search engines the "gatekeepers" for online travel consumers.

Keyword advertising has dramatic implications for the hotel industry. Since a hotel's own branded Website produces the highest average daily rate, it is clearly in the hotel's best interest to drive Internet business to its own site rather than to an online travel agent. Accordingly, hotels are increasingly focused on selling their rooms directly on their own Websites by offering best rate guarantees and other incentives to avoid the cost of sales through third party intermediaries. On the other hand, online travel agents seek to divert customers away from on-line brands to their own Websites to maximize their profits at the hotels' expense.

Court decisions on the topic have been far from uniform. In one recent case, Edina Realty, the largest real estate brokerage firm in the midwest, sued its competitor, TheMLSonline.com, alleging that it unlawfully used Edina's mark by purchasing it as a keyword search term from Google and Yahoo, using it in the text of ads that appear on the search engines and using it in the hidden links and text on its Website. In response to TheMLSonline.com's assertion that this alleged conduct did not constitute a "use in commerce", the Court stated: "While not a conventional 'use in commerce,' defendant nevertheless uses the Edina Realty mark commercially. Defendant purchases search terms that include the Edina Realty mark to generate its sponsored link advertisement."

In addition, the Court rejected TheMLSonline.com's assertion that its use of Edina Realty's mark was permitted under a "fair use" defense known as the nominative fair use doctrine because TheMLSonline.com allegedly used the mark to advertise the fact that it legitimately included Edina Realty's listings on its Website. The Court stated that none of it's uses required the Edina Realty mark; that TheMLSonline.com could easily describe the contents of its Website by saying that it includes all real estate listings in the Twin Cities; and that it could rely on other search terms such as Twin Cities real estate to generate its advertisement. In addition, the Court stated that the use of the mark did not reflect the true relationship between the parties.

Thus, the Court noted that TheMLSonline.com's advertisement placed the Edina Realty mark in the headline which was underlined and in bold font while the name of TheMLSonline.com company was listed in much smaller font at the bottom. The Court concluded that TheMLSonline.com could have done more to prevent an improper inference regarding the relationship.

Literally ten days after the decision in Edina Realty, the Court in Merck & Co., Inc. v. Mediplan Health Consulting, Inc., reached the exact opposite result. Merck sued a number of online pharmacies alleging trademark infringement based on the purchase of the keyword "Zocor", Merck's popular anticholesterol medication, which triggered the display of sponsored links to Mediplan's Websites.

The Court held that such purchases did not constitute the requisite use in commerce of Mediplan's mark stating, "Here, in the search engine context, defendants do not "place" the ZOCOR marks on any goods or containers or displays or associated documents, nor do they use them in any way to indicate source or sponsorship. Rather, the ZOCOR mark is "used" only in the sense that a computer user's search of the keyword "Zocor" will trigger the display of sponsored links to defendants' Websites. This internal use of the mark "Zocor" as a key word to trigger the display of sponsored links is not use of the mark in a trademark sense."

In support of its holding, the Court relied upon decisions in cases involving 1-800 Contacts, U-Haul, and Wells Fargo but also acknowledged contrary decisions in GEICO, American Blind, and Playboy. In addition, the Court noted that it was significant that defendants actually sold Zocor (manufactured by Merck's Canadian affiliates) on their Websites. Under these circumstances, the Court concluded that there was nothing improper in Mediplan's purchase of sponsored links to their Websites from searches of the keyword "Zocor".

Although the Court held that Mediplan made trademark use of Merck's marks in the Google keyword advertising program, it concluded that this use did not create a likelihood of confusion and, accordingly, dismissed the complaint.

As several recent cases demonstrate, the law pertaining to Internet keywords can be characterized as in a state of uncertainty and flux, if not total disarray. As courts continue to grapple with these issues, it appears that, at least for the present, a plaintiff is better off bringing its trademark infringement lawsuit in California, not in New York, and is more likely to succeed if its competitor uses its trademark in the headings or text of its sponsored ad without describing or comparing the competing product and without offering it for sale. Under this scenario, a hotel is more likely to prevail in an action against its competitor than against an online travel agent who is reselling its rooms.

In view of these legal uncertainties, what actions, if any, should hoteliers take to protect their online brands?

First, they should recognize that while online travel agents are among the biggest offenders when it comes to keyword advertising, they're also contractual partners of the hotels. With the dramatic improvement of fortunes in the hotel industry, hotels no longer find themselves saddled with a large excess room inventory and are not as dependent upon online travel companies to sell their rooms as they used to be. Hotels should take advantage of their improved bargaining position by insisting that online travel companies respect their trademarks. Specifically, they should prohibit keyword advertising in their contracts with these companies and make sure that those prohibitions are enforced.

In 2004, InterContinental Hotels became the first chain to adopt new standards requiring its third party distributors to agree, among other things, not to bid on or purchase placement rights for InterContinental's trademarks. When it was unable to reach an agreement with Expedia and Hotels.com on these standards, InterContinental took the drastic step of severing its relationship with them.

In November 2005, Marriott International also introduced sweeping new standards and guidelines for its third party distributors concerning the use of Marriott's online trademarks. Among other things, the rules provide that online travel companies "may not bid on keyword terms containing Marriott trademarks, whether alone or in conjunction with other terms" and "may not use any Marriott trademark in the text or title of ANY paid search ad". Online travel companies are given thirty days notice to correct initial violations. Subsequent violations may result in the possible suspension or permanent revocation of authorization to sell Marriott rooms, loss of commissions and/or legal action.

Other proactive steps which hotels should take include tracking and monitoring the use of their trademarks on the Web; becoming the high bidder on their own trademarks; and when an infringing use is discovered, complaining to both the search engine and the competitor. Although Google originally honored requests from trademark owners to discontinue keyword advertising sales triggered by trademarks, it changed its policy in April 2004. Presently, Google permits this practice although if it does receive a complaint, it may require the advertiser to remove the trademarked term from the text of the ad. In contrast, in February 2006, Yahoo announced that it would no longer permit competitor keyword trademark bidding.

The bottom line is that keyword advertising poses a serious threat to a hotel's profitability. Since the law in this area is changing as rapidly as the technology, it's essential that hoteliers obtain sound legal advice to protect their online brands.

Peter M. Ripin is a partner with the law firm of Davidoff Malito & Hutcher LLP in New York City where he practices in the areas of business litigation and dispute resolution. He has represented numerous institutions and individuals in the hospitality industry. In February 2007, he presented the first comprehensive survey of law and guidelines for protecting keywords at the 5th Annual Hospitality Law Conference.