by Peter M. Ripin

With more and more consumers using the Internet to book their hotel rooms and search engines such as Google and Yahoo playing a critical role in how people get their information and make decisions, it’s important that hotels understand the risks and rewards involved in internet marketing. For example, if your competitor’s paid advertisement appears when someone runs a search on Google using your hotel’s trademark, is this an unethical and deceptive business tactic or simply smart marketing? Is it trademark infringement or fair competition?

The answers to these questions are not purely academic - they have a direct and immediate impact on a hotel’s bottom line. For example, if a family which wants to stay at a Best Western in Miami runs a search on Google by typing in the words “Best Western Miami”, a search results page will appear with bold, highlighted listings at the top of the page and a separate column of listings on the right hand side of the page entitled “Sponsored Links”. If the family clicks on one of those listings, 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 clicks on one of the competitor’s listings and decides to book a room at one of these other hotels, Best Western loses a customer. Even if the family does book a room with Best Western, the hotel’s profit margin will be reduced by about 18-30% because Best Western will be required to pay a large commission to the online travel agency.

This example illustrates the threat that third party sites and online travel companies such as Expedia and Travelocity pose to a hotel’s online business. Unbeknownst to many consumers, the so-called “sponsored link” search results highlighted at the top and right hand side of the search results page are simply paid advertisements sold by the internet search engine to the highest bidder on a particular keyword. 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 a high bidder on the trademarked keywords “Best Western”. As a result, Google sold the online agency the right to have its paid listing appear whenever someone enters Best Western as a search term. This industry known as “paid search” has become a huge money making enterprise on the web and has dramatic implications for the hotel industry.

While Google had originally gone out of its way to comply with trademark owners who requested that the company stop using trademarked keywords to sell ads, it changed its policy in April, 2004 and said that it would now allow ads to be triggered by a company’s trademark. A few weeks later, Google was sued by GEICO in Virginia. However, in December 2004, Google scored a major legal victory when the court held that Google’s display of “sponsored link” advertising which was triggered by the entry of GEICO’s trademark as a search term did not constitute trademark infringement so long as the text of the advertisement did not contain GEICO’s trademark.

Although this was a big victory for Google, the effect of the decision is limited because it was based upon the judge’s rejection of the particular survey evidence presented in that case by GEICO. In fact, the judge subsequently issued a written decision in which she specifically stated that the ruling should only be applied to the specific facts in that case. Since there are a number of other pending lawsuits involving keyword bidding, it remains to be seen whether other courts will reach the same conclusion as this particular judge.

In view of the legal uncertainties, what action, if any, should hoteliers take to protect their online brands? The first thing which hoteliers should do is recognize that while online travel companies like Expedia and Travelocity are among the biggest offenders when it comes to keyword advertising, they’re also contractual partners of the hotels. With the 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 and prohibit keyword bidding in their contracts with these companies.

With rapidly increasing numbers of consumers booking their hotel rooms online, effective internet marketing is no longer a luxury but a necessity. Since the law in this area is changing almost as rapidly as the technology, it’s essential that hoteliers obtain sound legal advice so that they can act now to protect their valuable online brands.

Peter M. Ripin is a partner with the law firm of Davidoff Malito & Hutcher LLP in New York City.