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Thursday, June 10th, 2004

Google – Trouble on the Horizon (with a capital T)

 

Google has two major legal problems plaguing them this month. If I was Google’s lead lawyer, I would approach the administration with a simple question… Do you want the good news or the bad news first? The good news is that their first problem is not nearly as damaging as their second problem. That’s about where the good news stops.

Google, which has been in a SEC mandated “quite period” ahead of its pending IPO is being sued by a few large corporations for trademark infringement over its policy of allowing AdWords advertisers to bid on keywords containing the name of a competing company. For example, if Royal Tissue wanted to advertise their facial tissues, they could bid on the keyword “Kleenex”, which is a registered trademark of the Kimberly-Clark Corporation. The same can be said for Geico, the auto insurance company owned by Warren Buffet’s holding firm, Birkshire Hathaway. The major difference is that while the word “Kleenex” is almost synonymous with facial tissues, the word “Geico” is not necessarily synonymous with auto insurance. Nevertheless, both Google and Overture sold use of the word as a keyword to rival insurance companies. Now Geico is suing both search tools. Both Google and Overture (a division of Yahoo) make the vast majority of their revenues on the sale of paid-placement advertising. If Geico is successful in their suit, both Google and Overture will be forced to limit the scope of keywords websites can be advertised under.

The second suit on Google’s horizon is much more threatening and may make their IPO even riskier than it already appears to be. Overture is suing Google for infringing on their patented method of selling advertising based on bidding on keyword phrases. This practice is the basis of how Google’s main revenue generator, AdWords works. The suit, which was filed in April 2002 revolves around a patent filed in the spring of 1999 by GoTo.Com (Overture’s original name) for a, “system and method for influencing a position on a search result list.” The patent application details both the auction-bid system for determining placements, and the ability of advertisers to alter their bids and ads via a web-browser. The full patent was awarded by the US Patent office on July 31, 2001. About seven months later, in February of 2002, Google unveils AdWords. Flash ahead to today and we see that AdWords provides the major revenue source for Google, accounting for over 80% of income last year. Trouble…

…That’s trouble with a capital T, which rhymes with P and that stands for Patent.

(with apologies to Meredith Willson, author of The Music Man)


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