Utah markets itself as a business-friendly state. But it recently enacted a law that has Google, Microsoft, AOL and Yahoo up in arms.
They are upset because Utah's new Trademark Protection Act grants companies throughout the U.S. a novel legal right to control the way their trademarks are used online.
Google and many other search engines make money by selling online ads that appear along with search results. The ads vary depending on what search terms a user types in. If a user types in "car" for instance, the search engine will display ads from companies that have paid to have their ads appear in response to that keyword.
Ads also appear if a user types in a trademark, such as "Pepsi" or "Big Mac." The ads that appear when a user types those terms can be for the trademark owner's competitors because Google and other search engines sell keywords--including trademarked terms--to whomever will pay.
Utah's statute puts an end to that. The law allows companies to register their marks as "electronic registration marks" and prohibits others from using those marks to trigger online ads.
The statute is seen as a boon by many businesses because they don't like having their trademarks used to trigger ads for their competition. However, the law is facing intense criticism, and not just from search providers such as Google. Many trademark experts excoriate the statute, saying it is both unconstitutional and harmful to the economy.
"It imposes a significant burden on interstate commerce," says Corynne McSherry, a staff attorney at Electronic Frontier Foundation, a San Francisco-based non-profit that protects consumer rights online. "It also creates significant harm to consumers."
New Legal Right
This is not the first time that search engine providers have faced legal challenges to their right to sell trademarks as keywords. For instance, GEICO, computer repair site Rescuecom, and American Blind & Wallpaper Factory Inc.--the largest U.S. seller of window blinds--all have sued Google for trademark infringement.
But so far search engine firms have done fairly well in court. That's because federal trademark law protects a mark only against an infringing "use in commerce," and the courts are split on whether using a mark to trigger ads constitutes a "use in commerce."
"A number of courts have ruled one way, and a number have ruled the other way," McSherry says. "It's a bit of a mess."
Utah's legislation sidesteps this whole issue by creating a new legal right. The state's Trademark Protection Act allows any company to register "a word, term, or name" used to "identify and distinguish [its] business, goods, or ?? 1/2 service." The Act makes it unlawful for someone to make unauthorized use of such a registered mark to trigger ads for a business, goods or service "of the same class." It is similarly unlawful to use the mark to trigger ads that are "likely to cause confusion between the business, goods or service of the registrant of the electronic registration mark and the business, goods or service advertised."
If someone uses an electronic registration mark in violation of the law, the registrant can sue both the offending search engine and the advertiser. These registrants can obtain the same remedies that are available for infringement under state trademark law.
Utah's statute is supposedly limited in its geographical reach. It applies, by its terms, only when an online ad is displayed in Utah or when the advertiser or party selling the ad is located in the state.
Critics, however, assert that the statute ultimately will have a national reach because there's currently no way for Internet companies to ensure they exclude only Utah-based users from specified online ads.
"Google can allow advertisers to tailor ads to specific geographical locations, but this technology isn't perfect," says Eric Goldman, who teaches cyberlaw at Santa Clara University School of Law. "The Utah law requires perfect geo-location technology, and no one has such technology."
If the critics are right, Utah's law forces companies doing business online to make a choice: Either avoid all keyword ads that run afoul of Utah's law, or create expensive new technology to treat Utah-based users differently than all other users in the U.S. Either way, Utah's law would have effects far beyond the state's borders. And such a burden on interstate commerce may violate the Constitution.
"On its face it violates the dormant Commerce Clause," Goldman says.
That assessment was largely shared by Utah's Office of Legislative Research and General Counsel, which told Utah's legislature prior to the law's passage that there was a "high probability" it would be held unconstitutional if challenged in court. Still, the law's backers are not worried.
"Protecting trademarks is a traditional police power that states have been exercising for the past 200 years," says Matthew Prince, one of the statute's drafters and an adjunct professor at Chicago's John Marshall Law School. "There is no instance I have been able to find where a state trademark law has been found to be unconstitutional for violating the commerce clause."
Other critics aren't so worried about the constitutionality of the law. They are more concerned about its impact on consumers.
"It might cause consumers to view a reduced set of materials in search results, which would channel their behavior to trademark owner-controlled options, reducing competitive options and causing consumers to pay higher prices," Goldman says.
The law also might hurt the nation's economy by reducing consumer spending.
"It might paralyze consumers," Goldman says. "They might stop transacting because they can't get the information they want."
Supporters of the law counter that hasn't been the case in other countries--such as France and Germany--that have enacted laws to prevent search engines from selling keywords.
"Virtually all of the rest of the world has adopted a policy that tracks what Utah has done," Prince says.
The future of the law remains uncertain. On April 24 key Utah legislators met with representatives of major corporations opposed to the statute to try to hammer out a compromise to amend the law. But the two sides remain far apart.
"There are some unresolved issues--particularly with Google, which has become an extremely profitable company by selling [ads triggered by] other companies' trademarks," says David Clark, Utah House majority leader and a sponsor of the law. He adds, "If we can't [reach a compromise], the referee in our system is the courts."
And that's precisely where many observers expect this statute will wind up.