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Saturday, May 16, 2009

Google's New Advertising Trademark Policy & Consumer Welfare
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Google has announced that it will soon begin allowing U.S. advertisers to use trademarked keywords in limited circumstances in text ads, much as Yahoo! already does. Google currently allow advertisers to bid on trademarked terms as keywords that could cause an ad to appear, either next to Google search results or on a third-party publisher's website. That policy will not change, and is discussed here by my PFF colleague Sid Rosenzweig. The new policy is focused on the text seen by users in ads themselves and applies only if the "landing page" (to which the ad links) is used by a reseller, aggregator or parts supplier to sell only products that are relevant to the mark in question, or if the page is used to provide impartial reviews or other information about the trademarked product. The new policy does not apply to sites/pages that (a) facilitate the sale of counterfeit goods, (b) allow the sale of a competitor's goods, (c) criticize the trademarked good, or (d) do not provide substantial information or a purchase option. Despite these limitations and other safeguards, Google has been sharply criticized by some trademark holders and might even be sued (e.g., for contributory infringement).

I'll defer to the real trademark lawyers to figure out whether Google is correct that its new policy falls within the bounds of trademark law (particularly the "nominative fair use" doctrine). But since Adam Thierer and I have been involved in an ongoing defense of online advertising against those who would squelch it through regulation in the name of privacy concerns (not at play here), I think it's important to highlight the potential benefits to users from this seemingly arcane policy change-and to consider what this episode says about online advertising generally. I see three main benefits to consumers from the policy change that should be considered alongside the vitally important role that trademarks play in our economy in communicating reputational information.

First, Google's new policy will allow consumers to find products more easily because advertisers will be able to offer more descriptive and therefore informative ads, mentioning what they sell by name.

Looking for a Prada handbag? You'd probably find the ads that appear next to your search results for "Prada Handbag" more useful if the text of the ad specifically mentioned "Prada"-and if, as Google's new policy requires (to protect trademark holders), the landing page actually sold Prada handbags, and only Prada handbags. You'll currently see a few ads that mention Prada, reflecting the current policy, which allows advertisers to use a trademark in an ad text, but only with permission of the trademark holder. But the new policy will allow any advertiser that meets the criteria stated above to compete for attention with ads that convey more useful information to users and that are therefore more likely to be clicked on. This might particularly benefit the Long Tail of products and services, because it could help retailers of niche products advertise, particularly if those products are accessories to major brands.

Of course, Marxists have long argued that advertising is a dead-weight loss to society because it doesn't actually convey useful information: Ads just "manipulate" users, who are-the elites tell us-too stupid to tell the difference between what they really want and what they've been tricked into thinking they want ("false consciousness"). Whatever one thinks of this argument, it's pure hypocrisy to criticize advertising as being "information-poor" and also attack tools and policies that convey more information-in this case, the fact that the advertised page concerns a particular trademarked good/service.

Second, this policy change will allow the Long Tail of retailers & review/information sites to compete more effectively by letting users know they're out there. As anyone who's ever started a business knows, perhaps the single greatest barrier to entry is simply the difficulty and expense entailed in building awareness among potential customers. This is why effective, targeted speech is so vitally important to competition and the overall health of the economy. Giving consumers more information means more small businesses will be able to break in to compete with entrenched firms by offering lower prices and higher quality (including on non-price factors like privacy).

Third, by raising the value of advertising, this policy change will create more funding for free content & services, both those provided directly by Google and those provided by third parties supported by ads sold through Google. Obviously, Google wouldn't be adopting this new policy they didn't think it would allow them to make more money: Allowing more descriptive ads means users are more likely to find the ads they see relevant and to click on them, which, in turn raises the value of ads sold by Google. But contrary to what some Googlephobes might have us believe (based on the usual reaction to every Google announcement), Larry & Serge won't just spend that new revenue on building a Clone Army to implement some nefarious scheme to take over the Galaxy. I can't disprove the Clone Army possibility any more than I can disprove the existence of the Easter Bunny, Sasquatch or Zeus, but if this phantom menace does exist (perhaps on one of Google's planned floating data centers), our soon-to-be Digital Overlords are sure doing a good job of hiding it amid all the "free" (i.e., ad-supported) stuff they give away to consumers-at considerable expense:

  • As I've written previously, two-thirds ($14.41B) of Google's 2008 global revenue ($21.78B) came from advertising on its own sites, primarily the search engine. These sites and the dozens of its free services like Maps and Gmail aren't cheap, altogether costing Google another $3.34B to support, including the enormous cost of its data centers ("cost of revenues"). Google spent $2.79B on R&D, much of which will lead to innovative new services for users. Of course, until the Clone Army can take over Google's daily operations, someone's got to keep the lights on (and the Cylons machines from rebelling)-so throw in another $1.8 billion for personnel, post-it notes, ethically harvested coffee and other "general and administrative" expenses.

  • The remaining third of Google's global 2008 revenue ($6.71B) came from ads sold on the "Google Content Network": third-party publishers that sell ad space on their pages to advertisers through the AdSense auction system. Of that, Google paid out $5.28B (78.7%) to publishers, who used the money to support the content and services they give away to users-from simply paying hosting costs in the case of the smallest sites to, say, trying to keep cash-strapped newspapers alive.

Again, there is great value to protecting trademarks to minimize the possibility of confusion and fraud among Internet users. But while this policy change is ultimately an issue of trademark law, it also highlights the benefits of improved online advertising for consumers. If Google (and other ad networks) can increase the value of information-richness of advertising (and therefore its effectiveness and economic value) in a way that is consistent with the consumer protection purposes of trademark law, that's something to be celebrated. Sure, Google will benefit, but in this case, a rising tide will truly lift all boats.

If Google wants to minimize concerns about the automated process Google will use in deciding whether a trademark may be included in an ad for any particular page, the company could proactively address these concerns by providing trademark owners (and the third parties that monitor their online brands) tools that would indicate whether a particular trademark could be used in advertising a particular page. This would alleviate the uncertainty of trademark holders as to whether their brands are at risk and allow them to call attention to inevitable shortcomings in Google's algorithm, which will have to evolve constantly. This would allow Google to keep its algorithms secret, but in order to prevent those who would abuse such tools from reverse-engineering Google's abuse-detection algorithm, it would probably be necessary to restrict access to these tools to legitimate trademark holders and monitoring services. How to implement that system might not be easy, but if anyone can figure that out, it's Google. I've applauded Google's leadership in the privacy context, where Google has given users tools (the Ad Preference Manager and the Advertising Cookie Opt-Out Cookie plug-in) to manage their preferences about behavioral advertising. I hope to see Google follow the same approach here: addressing legitimate concerns through technological means in a way that maximizes consumer welfare.

Finally, it's interesting to note here that Google is playing catch-up with Yahoo! here-just as Google lagged behind Yahoo! in introducing behavioral targeting, which has caused considerable privacy consternation. As I've said before:

it's no accident that Google was a late-comer to the [Online Behavioral Advertising] market, lagging behind Yahoo! in particular. The most likely reason Google has taken its time in rolling out an OBA product is that Google is subject to a unique level of scrutiny by privacy advocates by virtue of its size. Being the "big kid on the block," Google has to be especially careful not to appear to be "Big Brother." This reputational check on Google should allay some concerns about Google's size.

posted by Berin Szoka @ 4:30 PM | Trademark

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