In a landmark judgment issued this past Tuesday, the European Court of Justice (ECJ) ruled that Google^† is not liable for trademark infringement when an advertiser purchases a keyword based on a competitor’s trademark to trigger a search ad, so long as it removes infringing ads promptly when notified by brand owners. However, and this is critical, individual advertisers could be held liable if ads triggered by a keyword involving a competitor’s trademark are found to confuse consumers.

So, what qualifies as consumer confusion? According to the ECJ whose opinion applies to all 27 EU member countries, the search ad can be found to be confusing if it makes it “impossible, or possible only with difficulty, for average internet users to establish from what undertaking the good or services covered by the ad originate.” More simply put, if an average internet user cannot tell from the search ad whether the goods or services advertised come from the trademark owner or not, then the ad is considered to be confusing. This goes to the core of what trademarks are all about in the first place: to guarantee consumers the origin of the goods or services.

The ECJ also said that determining whether consumers are likely to be confused by the ad copy of search ads is a matter for the national European courts to decide on a case by case basis. Consequently, this decision is likely to initiate a number of trademark infringement cases between brand owners. On the positive side, the threat of lawsuits alone could discourage some advertisers from buying and misusing competitor’s trademarks and may even mean potentially lower keyword costs for brand owners, as fewer advertisers may be bidding on their brand names. Or, it could mean business as usual with rivals outbidding each other for popular branded keywords.

How does this ruling impact Google’s AdWords trademark policy for EU member countries? As of now, it doesn’t. Currently, Google does not allow third parties to purchase the trademarks of others as keywords or use them in the ad text in all EU countries, except in the UK and Ireland. (In these two countries, third parties can bid on others’ trademarks as keywords but cannot use them in the ad text of the search ads.) Given this ruling, however, it is not unlikely that Google may modify its policies impacting most EU countries to be consistent with the policies for the UK and Ireland and possibly even consistent with the Google’s US policy, which permits third parties to use others’ trademarks in both keywords and in the ad text, as long as certain criteria are met. In Google’s own blog posting, the search engine did not tip its hand to what its next move may be based on this ruling, but mentioned it was awaiting a series of decisions by the ECJ involving search advertisers and brand owners.

The good news is that Google already provides a formal complaint procedure for reporting search ads that violate its region-based trademark policies. Google even has a separate complaint procedure for reporting advertisers that are selling counterfeit goods. While the ECJ ruling did not specifically address the issue of search ads promoting the sales of counterfeit goods, its clarification on what constitutes trademark abuse in search ads for all practical purposes stymies counterfeiters leveraging brand names in their ads.

To wrap things up, who came out ahead? In a sense, both parties came away with some wins, although the general consensus is that Google walked away with more. One outcome is clear, though; the onus is on brand owners to continuously monitor for the misuse of their brands in search ads, report abuses to Google and potentially go after infringing competitors on a case by case basis.

^†Note: the ruling applies to other search engines as well, including Yahoo! and Bing.