Keyword ad buyers beware

(Fortune) -- The European Court of Justice in Luxembourg ruled this morning on whether Google violated trademarks by selling brand-name keywords to competitors -- for example, allowing makers of Louis Vuitton knockoff or competitor handbags to buy the keyword "Louis Vuitton." The practice had been challenged by several trademark owners, led by Vuitton's parent company, luxury conglomerate LVMH. And while both sides are claiming victory, it's clear that the big losers are advertisers -- many of whom are small businesses, hoping to be noticed -- who now face potential legal peril when they go shopping for keywords.

Today's 29-page ruling allows the supreme court of each of the 27 nations of the European Union to make its own case-by-case determination of many critical questions that arise in these disputes, but the opinion does establish the following guidelines:

1. Google's AdWords program and, by inference, similar programs used by the other major search engines, do not directly violate trademarks law simply by allowing advertisers to select trademarks as keywords without permission of the trademark owner. This part of the ruling had been widely anticipated but does not end the discussion.

2. Advertisers who use Google's AdWords program may violate trademark law if they select a trademark as a keyword without permission of the trademark owner. Whether they do violate trademark law will depend on whether consumers are actually confused about the origin of the products or services being advertised. (LVMH senior executive vice president Pierre Godé contends in an interview, however, that, in practice, any use of a trademark as a keyword by an advertiser will automatically cause sufficient consumer confusion to bring about liability under the court's definitions.)

3. Whether Google (GOOG, Fortune 500) can be held liable for an advertiser's use of an infringing ad will depend upon whether, in the view of the highest national court of each European Union country, Google has played a role that is "neutral, in the sense that its conduct is merely technical, automatic and passive, pointing to a lack of knowledge of, or control over, the data which it stores," according to the court's official press release summarizing its ruling.

Google says it considers this third part of the ruling a victory, since it believes national courts will find it to be neutral in this sense. LVMH takes the opposite view. It maintains that Google's use of its automated Keyword Suggestion Tool, which helps advertisers choose keywords and sometimes suggests the use of trademarks, ensures that national courts will find its role to be too active to qualify for the exemption. In its ruling, the Court does explicitly state that "the role played by Google in the drafting of the commercial message which accompanies the advertising link or in the establishment or selection of keywords is relevant" to the determination of whether it is acting passively or not.

Because of earlier adverse rulings in French courts, Google has been, since 2008, blocking the use of trademarks as keywords in all E.U. countries except the United Kingdom and Ireland. A Google spokesman says, "We're now assessing the judgment, and won't be making a 'what-we-will-do' announcement straight-away. But we're happy with the judgment."

LVMH's Godé likewise asserts that the ruling is "totally a win." In light of the clarification that the court has brought to "what is allowed and what is forbidden," he says, "I hope we could be able to negotiate with Google and look for an agreement. That's what I will try to get now."