This is a guest post by Louis J. Levy of Lerman Senter PLLC (llevy@lermansenter.com)

It’s common practice these days to purchase advertising keywords from search engines such as Google.  Once purchased, these keywords will trigger advertisements for your business.  Say, for example, that you run a pizzeria.  By utilizing the search engine’s context-based marketing tools, you can purchase the keyword “pizza,” which will trigger advertisements for your business each time a browser searches for the term “pizza.”  That advertisement will appear as a “sponsored advertisement” next to the organic results list generated by the search engine.

But what happens when the keyword you purchase consists of the trademark of a competitor?

This happens quite frequently, and there have been several high-profile cases brought in the U.S. and Europe against Google and others over this practice.  Several of these cases have settled, but others are still pending, and the jury is still out regarding the legality of this practice.  At issue is whether the use of a third party’s trademark to generate sponsored advertisements constitutes trademark infringement.  In other words, will consumers be confused into believing that the business featured in a sponsored advertisement is endorsed by, sponsored or otherwise affiliated with the owner of the trademark used as a keyword?

The Second Circuit Court of Appeals recently reversed the dismissal of a trademark infringement complaint against Google on grounds that use of such keywords constituted a “use” of trademark, as that term is defined by statute.  However, the court left open for further review the question of whether the practice created a likelihood of confusion.  Rescue.com v. Google, Inc., 562 F.3d 123 (2d Cir. April 3, 2009).  Not all courts agree, of course.  Moreover, in Europe, the European Court of Justice recently ruled that confusion was unlikely in such cases.  Google France et. al v. Louis Vuitton Malletier and related joined cases, Case Nos. C-236/08, C-237/08 and C-237/09 (September 22, 2009).

It’s also worth noting that both Google and Yahoo have established procedures through which trademark owners can file complaints.  (See, for example, http://adwords.google.com/support/aw/bin/answer.py?hl=en&answer=6118).

As long as the question remains unsettled in the United States, however, the watchword for using third party marks as keywords to trigger advertising is “caution.”

Ideally, the practice should be avoided, at least until U.S. courts rule that the practice is legal.  To the extent you want to move forward, however, you should make sure that the advertisement triggered by the particular keyword does not contain the trademark of a competitor in any manner.  Depending on the precise circumstances, the appearance of a competitor’s trademark in your ad could be found to constitute trademark infringement, for which you can be held liable.

In addition, be prepared to discontinue the advertisement the minute you receive a complaint.  Regardless of whether the practice constitutes trademark infringement, per se, litigation is expensive.  As a practical matter, whatever benefits can be derived from this practice will be heavily outweighed by the costs of having to defend against a trademark infringement claim in court.

Of course, if you are a trademark owner who believes your mark is being improperly used as a keyword to trigger a competitor’s advertisements, you should immediately file a complaint with the relevant search engine that generates the sponsored advertisement and simultaneously notify the competitor of your rights in the mark.