Search engine advertising is a multi-billion-dollar industry in the United States. The major search engine operators sell keywords to advertisers. When a user inputs the selected keyword into a search engine, advertisements linked to the keywords are displayed among the search results. Typically, the links for the paid-for advertisements are displayed in a fashion that indicates they are sponsored. Each time a user clicks on the sponsored keyword, a fee is paid to the search engine operator.

There are no concerns when an advertiser purchases the right to use a keyword consisting of its own trademark. However, search engine operators have allowed advertisers to purchase keywords consisting of the trademarks of third parties, including their competitors. As a result, numerous actions in the United States have included search engine operators as defendants, alleging that the use of such keywords is infringing.

The potential liability of search engine operators relating to the use of a competitor's trademark has yet to be finally resolved in the United States. To date, no Canadian court has considered whether such keyword advertising infringes a trade owner's rights under the Trademarks Act or constitutes passing off.

In Vancouver Community College v. Vancouver Career College (Burnaby) Inc., the plaintiff brought an action for passing off, principally concerning keyword advertising relating to the initials VCC. The action was dismissed at trial since the judge said that the plaintiff failed to establish sufficient goodwill and distinctiveness relating to the initials.

The trial decision in the Vancouver Community College case was reversed on appeal. The court found that based on existing decisions of the Supreme Court of Canada, confusion must be assessed when the search results are first seen, not when the searcher arrives at the defendant's landing page.

The trial judge misstated the scope of the evidence relating to the plaintiff's goodwill in the initials VCC and the public's association of the initials with the plaintiff. The court concluded confusion was fully established by proof that the defendant's domain name was equally descriptive of the plaintiff and contained the acronym long associated with it.

The court agreed that bidding on keywords by itself was not sufficient to establish passing off. The critical factor in determining whether confusion has occurred is the message communicated by the defendant. Merely bidding on words, by itself, is not the delivery of a message. What is key is how the defendant has presented itself, and the fact of bidding on a keyword is not sufficient to amount to a component of a claim of passing off.

In the European Union and the U.K., the owner of a trademark may prevent a competitor from advertising - based on a keyword which is identical to the trademark and which has been selected in the Google search engine by the competitor without the owner's consent - goods or services identical with those for which that mark is registered, where that use is liable to have an adverse effect on one of the functions of the trademark. For example, infringing use includes use that adversely affects the trademark's function of indicating origin where the advertising displayed based on a keyword does not enable reasonably well-informed and reasonably observant internet users or enables them only with difficulty, to ascertain whether the goods or services concerned are economically linked to that owner or, on the contrary, originate from a third party.

A related issue concerns banner or pop-up advertisements triggered by a keyword consisting of a competitor's trademark. A pop-up ad is a window not initiated by the user that appears automatically. If the user clicks on the advertisement, they are typically linked to the advertiser's site. The potential liability of those responsible for the advertisements has yet to be finally resolved in the United States, and to date, there are no Canadian cases.

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