The European Court of Justice (ECJ) has been asked to judge whether a part of the system which offers advertising buyers alternative choices of keywords breaches trade mark laws.
A court in France has referred crucial questions about the operation of the system and one intellectual property expert has said that any answers the ECJ gives will guide how search engines operate all over Europe.
Most of Google's income comes from keyword advertising, the practice of placing sponsored links beside the 'natural' search results for a given term. Advertisers bid on the search terms in a live auction which means that sponsored links for, say, 'car insurance', are likely to attract a higher fee than something more obscure such as 'string sculptures'.
Luxury goods producer Louis Vuitton sued Google over its keyword generation engine, which suggests terms to advertisers.
It took action when the AdWords keyword engine offered terms such as 'Louis Vuitton fakes' and 'Louis Vuitton replicas' as suggestions when an advertiser searched for its brand as a possible keyword to use as a trigger for its adverts.
It won the case, but Google appealed. The Cour de cassation has paused in its deliberations to ask the ECJ to rule on whether Google's actions infringe trade mark law. The ECJ can choose whether or not to rule on the questions posed.
"The court has asked whether or not that use by Google in its keyword generator amounts to trade mark use," said Iain Connor, an intellectual property partner with Pinsent Masons, the law firm behind OUT-LAW.COM.
"When considering whether or not this amounts to trade mark use the ECJ will use a relatively low threshold," he said. "It will concentrate on whether it affects the essential function of the trade mark, which is to designate the origin of the goods."
Connor said that he believes that Google certainly has a case to answer. "Every time someone clicks on one of those ads for a fake, Google makes money," he said. "The keyword generator changes Google from being passive to being active because when someone wants to bid on 'Vuitton' Google suggests that the advertiser should also bid on 'fake Louis Vuitton'."
Louis Vuitton, according to French court documents, is suing for trade mark counterfeiting, unfair competition, damage to its trade marks and domain names and false advertising.
The ECJ has been asked to rule on whether the suggesting of keywords advertising fake goods using real trade marks is the kind of trade mark infringement the owner is entitled to prohibit; does a brand holder have the right to object to that usage; and whether or not Google is indemnified against the practice until notified of illegal use by virtue of being a service provider.
Connor said that because trade mark law is harmonised across the EU any judgment on this issue from the ECJ would influence search engine practices in all member states.
Google's trade mark policy has recently caused controversy. Until recently, in all countries outside North America, companies could ask Google to prevent any other party from sponsoring their trade marks as keywords. On 5th May, rights holders in the UK and Ireland were added to the policy for the US and Canada, meaning that rivals could bid on their trade marks. However, rights holders in France can still object to the sale of their marks as keywords.
Connor said the referral should offer some guidance if a case is brought in the UK over the new policy but will not answer all questions.
"The ECJ will answer one question on the use of a brand by Google and whether that amounts to trade mark infringement. But this will not answer all the questions. It is likely that there will be a need for further references on different facts to deal with questions where one company bids on a competitor's trade mark term and Google's liability (if any) in facilitating that process and displaying the results of searches in the form of sponsored links."
Connor said the French case was focused on a particular element of Google's system and does not look at the more general issue of displaying an advert as a sponsored link in response to a user's query.
"This case shows that there is an appetite for litigation by claimants to have a definitive answer as to whether the operation of search engines involves lawful use of trade marks," said Connor. "At the moment, that question is unresolved."
Editor's note, 04/06/2008: This article was updated to clarify some points.