By  on March 23, 2010

PARIS — Luxury versus Internet counterfeits took another twist Tuesday — and both sides claimed victory.

The European Union high court ruled Tuesday that Google Inc. did not violate trademark law by allowing advertisers to buy key words corresponding to registered names such as Louis Vuitton. However, the court said advertisers who buy such key words must make clear where the goods they are selling originate, a partial victory for luxury firms vying to stamp out counterfeits and protect their brands online.

Trademark owners can invoke their rights against advertisers when ads are displayed on Google that “make it impossible, or possible only with difficulty, for average Internet users to establish from what undertaking the goods or services covered by the ad originate,” the European Court of Justice in Luxembourg said in a landmark decision. “The function of the trademark, which is to guarantee to consumers the origin of goods and services…is thus adversely affected.”

The European Court of Justice was asked to rule on the issue after a French court sided with Vuitton parent LVMH Moët Hennessy Louis Vuitton.

The principles laid out in Luxembourg on Tuesday apply to the 27 countries of the European Union; however, recourse in terms of liability will be “governed by national law” on a case-by-case basis, the court said.

The case concerns Google’s AdWords service, in which companies bid to have “sponsored links” appear alongside Internet search results. It is a key revenue stream for search giants.

LVMH, among three parties that brought the case against Google, lauded the decision for protecting “innovation and investments carried out by businesses” and for reducing consumer confusion about what they are buying.

LVMH also maintains Google can be found liable if it was “aware when selling the key words that the advertiser was infringing a trademark” or that the advertiser did not have authorization to use a trademark.

“This decision represents a critical step toward the clarification of the rules governing online advertising,” stated Pierre Godé, senior executive vice president of LVMH. “We are committed to working with all parties, including Google, to eradicate illicit practices online.”

In a conference call with journalists, Godé took pains to portray Google as a partner rather than an adversary, given that LVMH is a big purchaser of display ads and key words for the 70 brands in its luxury universe. These include the fashion brands Givenchy, Donna Karan and Fendi, cosmetics such as Guerlain and Christian Dior, and the drink brands Krug, Dom Perignon and Hennessy.

That said, Godé argued the European court left the door open for trademark owners to seek retributions from search engines when they play an active role in facilitating counterfeiters.

The ruling says a search firm can be held culpable if it had “knowledge of the unlawful nature” of an advertiser’s activities and “failed to act expeditiously to remove or disable access to the data concerned.”

In a statement, the European Brands Association, known in Europe as AIM, applauded the court’s decision to hold sellers of key words liable for illicit material, saying it would “enhance consumer confidence in shopping online.”

In a posting on its official blog, Google characterized the court ruling as upholding the “free flow” of information on the Internet.

For example, it said an Internet user seeking to know more about a certain car would want information beyond the maker’s official site: about dealers that sell it new or second-hand, consumer reviews and similar models.

“We believe that user interest is best served by maximizing the choice of key words, ensuring relevant and informative advertising for a wide variety of different contexts,” said the posting, signed by Harjinder Obhi, Google’s senior litigation counsel. “We have strict policies that forbid the advertising of counterfeit goods….We work collaboratively with brand owners to better identify and deal with counterfeiters.”

Google, owner of the most-used Internet search engine, and LVMH have been fighting in France since 2003 over Internet searches linked to trademark names.

In 2006, the Paris Central Court ordered Google to pay LVMH 300,000 euros, or $443,859 at average exchange rates for the period, for trademark infringement.

LVMH has also been active in protecting its brands on online auction giant eBay.

Last month, Paris’ Tribunal de Grande Instance, or Superior Court, ordered eBay to pay Louis Vuitton 200,000 euros, or $275,206 at current exchange rates, in damages, as well as 30,000 euros, or $41,281, for legal fees.

The court also ordered eBay to stop using Vuitton-related key word searches or face fines of 1,000 euros, or $1,376, per infraction.

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