The European Court of Justice’s recent ruling in Google v. Louis Vuitton Malletier SA has been hailed a major legal victory for Google and other internet search providers. That, however, is only part of the story.

The Luxembourg-based court held on 23 March that a search provider does not infringe a mark by merely selling it as a keyword that triggers online ads. But the court also added several caveats which create legal risks for both purchasers and sellers of keywords.

“In the short term, the ruling is a tremendous psychic victory for Google,” said Scott B. Schwartz, an IP attorney in the Philadelphia office of Cozen O’Connor. “In the long term, the decision leaves wide open the ability of national courts and the ECJ itself to still find liability if Google continues to profit on the backs of trademark owners.”

The case arose from three lawsuits filed in France against Google by various trademark owners, alleging that their rights had been infringed by Google’s use of their marks as keywords. In all three cases, the trial courts and first-level appellate courts ruled Google had committed trademark infringement. Google appealed the rulings to France’s highest court, the Cour de cassation. That court, in turn, asked the ECJ to interpret several relevant EU directives and regulations concerning trademark rights and the protections for online service providers.

Under the EU’s trademark and community trademark rules, an entity must “use” another’s mark “in the course of trade” in order to commit infringement. The ECJ interpreted this to mean that a search provider like Google does not “use” a mark by selling it as a keyword and displaying an ad in response to that keyword – because the ad doesn’t communicate the search provider’s commercial message. The ad communicates the advertiser’s commercial message. A search provider, the court declared, “allows its clients to use signs which are identical with, or similar to, trade marks, without itself using those signs.”

Search providers make money by selling marks as keywords, but this is not sufficient to constitute “use” of these marks, according to the ECJ. Only advertisers, not search providers, “use” the keywords “in the course of trade,” so only advertisers can commit direct infringement by using marks as keywords, the court held. Such infringement can occur even if the online ad does not display a mark owned by another, the ECJ ruled.

The court went on to find that a keyword advertiser commits infringement if the ad displayed in response to a trademark keyword falsely suggests “an economic link” between the advertiser and the mark’s owner, or if “normally informed and reasonably attentive internet users are unable to determine” whether there is an economic link between the advertiser and the mark’s owner. Whether an ad satisfies this test for direct infringement must be determined by the national courts on a case-by-case basis, the ECJ held.

The ECJ’s ruling doesn’t give search engine providers a complete pass. These companies can still face secondary liability for trademark infringement if they fail to satisfy the safe harbor provisions of the E-Commerce Directive (2000). The ECJ stated that in order to qualify for this safe harbour, a search engine provider must be a passive conduit for information supplied by others. The provider’s activity must be “of a mere technical, automatic and passive nature,” and the provider must have “neither knowledge of nor control over the information which is transmitted or stored,” the court held. These requirements are satisfied if a search engine provider merely serves up ads in response to keywords purchased by customers, the ECJ held.

But search engine providers such as Google can face secondary liability in two situations, said Jason Rawkins, an IP attorney in the London office of Taylor Wessing. “If a brand owner notifies Google of the infringing ad and Google fails to do anything about it, Google can be secondarily liable. …[And] if Google helps create an infringing keyword ad, the company can be secondarily liable.”

The ECJ, however, was vague about what type of involvement in an ad would exclude a search engine provider from the safe harbour. Google, for instance, automatically suggests keywords to potential advertisers. If one of Google’s suggestions is a trademark belonging to a third party, is that enough to exclude Google from the safe harbour? Experts disagree.

The ECJ was unable to take a clear position on the scope of secondary liability because this matter is reserved to the EU’s member states, Rawkins notes. The states have differing laws in this area, so “different national courts can decide this differently,” he said.

The ECJ’s ruling is a big setback for brand owners, who were hoping for a decision that would require Google and other search engine providers to police their keyword ads. “It makes enforcement [of trademark rights] more difficult, because markholders must do the monitoring themselves,” says Zohar Efroni, non-resident fellow at Stanford University’s Center for Internet and Society. “In other words, it has become more difficult to impute liability to the forum provider, depriving markholders of a more centralized and effective enforcement strategy.”

The ruling strengthens the legal position of Google and other search engine providers – and not just in the area of trademark law. “Google has received a clear mandate to continue its [keyword] practice in Europe without worrying too much about advertisers who use trademarks as keywords,” Efroni said. “Google has also been classified as an ‘information society service’ in the meaning of the E-Commerce Directive, which makes it principally eligible for the European safe harbour provisions. If Google manages its system carefully enough [to stay within the safe harbour], this could solve a host of problems concerning indirect liability not only in the context of trademark infringements but also in the context of unfair competition and other IP violations (such as copyright infringement).”

Some experts believe the ruling is a boon for keyword advertisers, too. “The ECJ ruling makes it perfectly OK to buy other people’s marks as keywords if all you’re doing [in the ad] is offering people an alternative which is clearly an alternative,” Rawkins said. “I think there will be more of this activity.”

Other experts, however, expect a decline in keyword ads because the ECJ has affirmed that advertisers can be held liable for direct infringement if national courts find the ads failed to draw clear distinctions between the advertisers and the owners of the keyword brands. “Advertisers … are worse-off in the aftermath of the ruling. The net legal risk of using marks as keywords in Europe has risen,” Efroni said.

The legal battle over keywords is far from over. Experts anticipate brand owners will shift their litigation strategy, filing more trademark infringement suits against keyword advertisers. Such suits will decided in the courts of the various member states, offering some favourable opportunities for trademark owners.

“With the likelihood that national courts will differ in their interpretation and application of this [ECJ] holding, it will soon be clear which countries will tend to rule more favourably toward trademark owners. The courts in those countries will soon likely become hotbeds of litigation activity against individual advertisers,” Schwartz said.

Brand owners also are expected to try imposing secondary trademark liability on Google and other search providers. Indeed, in this very case, Louis Vuitton has alleged Google offered advertisers the ability to buy not only keywords which correspond to Vuitton’s trademarks, but also those keywords in combination with terms such as “imitation” and “copy.” This may be enough for a French court to find Google was actively involved in infringing ads – and is thus excluded from the safe harbour protection of the E-Commerce Directive, Rawkins warned.

The case now goes back to the Cour de cassation, which will apply the ECJ’s interpretation of the law to the matter. Google may have won a major legal battle in Luxembourg, but it may yet lose the war in France.