How Google is getting ahead in advertising

A European judge has backed Google in its trademarks row with brands such as Louis Vuitton. Nick Clark reports

Google yesterday struck an important blow in its battle against the parent company of Louis Vuitton over a long-running trademark dispute. It could see the technology giant boost its already dominant position in search advertising.

LVMH first took Google to court in France, complaining that the search engine had infringed trademarks by selling adverts against its name to rival companies and possibly counterfeiters. The case was passed to the European Union last year. An adviser to the European Court of Justice (ECJ) yesterday rejected the claims. "Google has not infringed trademark rights by allowing advertisers to buy keywords corresponding to registered trademarks," said the advocate general, Luis Miguel Poiares Maduro.

The adviser's advice is not binding, so Google cannot breathe easily yet, but it has been followed in about 80 per cent of cases. Mr Maduro said users were unlikely to mistake an original brand for a fake when browsing.

Harjinder Obhi, a senior litigation counsel for Google, said: "We believe that selecting a keyword to trigger the display of an ad does not amount to trademark infringement, and that consumers benefit from seeing more relevant information rather than less. We also believe that consumers are smart and are not confused when they see a variety of ads displayed in response to their search queries."

If the ECJ confirms the ruling, Google would be the undoubted winner, according to lawyers. The fight is over the group's AdWords service. Google makes about 97 per cent of its revenues from advertising, most of which is through companies paying for spots on search results pages through AdWords. Last year, global revenues hit $21bn (£13bn).

Andrew Frank, research vice-president at Gartner, said: "Google dominates online search advertising, which is the largest portion of online advertising." He added: "The secret was bringing in millions of customers who hadn't ever considered advertising before, or maybe would have been in the local directory. It really appeals to small and medium-sized businesses, and Google created the market."

AdWords allows companies from multinationals to local cornershops to create adverts and choose keywords related to their business. Whenever a user types that keyword into Google's search engine, the advert will be displayed next to the search results. Google promotes it as targeted advertising: "You're advertising to an audience that's already interested in you."

Every time a search is entered, a split-second auction is carried out which brings up the most relevant adverts to run alongside the results. The cost of the auction can range from anything from 10 cents to "tens of dollars", according to one expert. That doesn't mean the most expensive advert appears in the sponsored links, as positioning depends on the quality score Google gives to each website based on its algorithms.

Yesterday's ruling could prove problematic for big brands. Kirsten Gilbert, a partner at Marks & Clerk, said that if the ECJ agrees, it "would give Google carte blanche to continue its policy of selling trademarks as keywords to third parties. As such, brand owners will have no recourse under trademark law to defend themselves against some incredibly significant commercial losses." Last year, Interflora sued Marks & Spencer for sponsoring its brand name as a keyword. Interflora said the costs in keeping its search engine position increased by $750,000 the year Google allowed third-party bids on brand owners' names.

It is crucial for a company to be on Google, said Richard Wheaton, managing director of digital and direct media agency Neo@Ogilvy. "It is by far the most popular search engine and companies have to be found on it either by the search or buying their way on. Otherwise, their competitors will pick up the slack."

Much of the group's remaining estimated 30 per cent of advertising revenues come through its AdSense system, which sells advertising on to third-party sites, but it is looking at other opportunities.

Mr Frank said: "Google has been doing this for about six years and has experienced phenomenal growth. That growth is beginning to plateau and it is looking to diversify."

The group is now targeting online display advertising, which includes videos and interactive adverts that run on third-party websites. Google signalled its tilt at display two years ago with the $3.1bn acquisition of DoubleClick. Last week, it launched the DoubleClick Ad Exchange, which will aggressively go after the $15bn online display-ad market. While it dominates search, there is little chance of it building a similar share of display, coming up against both Yahoo! and Microsoft, who operate similar exchange models.

On-lining them up: Corporate ad tactics

One core tactic for companies to boost their presence on Google is not to pay for advertising at all. Instead, many use "search engine optimisation", appointing specialist consultants to ensure that their website is high on the list of unpaid search results when a user types in a certain keyword. This involves editing the company website's content and indexing, and increasing the relevance to specific keywords. Google also promotes sites on its internal rating. This is boosted by links to other websites, especially with a solid brand such as newspapers and Wikipedia.

Facebook

Along with search-engine optimisation, an increasingly popular form of advertising is through "social media optimisation". This acts in a similar way to viral adverts on the internet as people share links and videos over sites including Facebook and Twitter. Some companies also use it to develop services, recruit as well as build their brand's reputation.

Twitter

Traditional advertising against search-engine results – which is a pay-per-click model – as well as display advertising, which has banners along the top or videos on the site, remains the most popular. Companies also use email marketing and interactive advertising. Email marketers are not just the spammers. Often, if a customer buys a product, the online vendor tends to inundate them with tailored emails for products that might be of further interest.