Hotel Internet Marketers Beware: Pop-Up And Keyword Advertising Threaten Your On-Line Brand - By Peter M. Ripin, Esq.
Before leaving on a business trip to Los Angeles, I wanted more information about the hotel where I was staying so I ran a search on Yahoo by entering the hotel's name next to the words 'Los Angeles'. At the top of the first search results page were two listings shaded in light blue under the words 'Sponsor Results' -- one for Expedia and the other for LA Downtown Hotels. On the right hand side and bottom of the page were another eight (8) Sponsor Results, none of which included the hotel's official website.
Fortunately for my hotel, I had already booked my reservation and decided not to change it. However, if I hadn't been already been booked there, I might not have realized initially that the sponsored listings were merely paid advertisements purchased from Yahoo by the highest keyword bidders on the hotel's trademark. Even if I later realized that I was somewhere other than the brand's official website, I might still have been coaxed away from my original choice by one of the competing hotel brands being offered by Hotels.com. Finally, even if I did book my original hotel choice on the Hotels.com website, the hotel's profit margin would be about 18-30% less than if I had booked the reservation directly on the hotel's official website due to the large commission paid to Hotels.com.
This example is designed to illustrate the threat that third party sites pose to a hotel brand's on-line business. A recent survey by HSMAI found that hotel branded web sites are driving Internet business, account for 75 percent of online reservations and produce the highest average daily rate. When you combine this statistic with the fact that more and more consumers are using the Internet to book their hotel rooms and that search engines are becoming a critical part of this marketing mix, it becomes obvious why it's so important for hotels to defend their brands in the on-line arena.
To highlight the magnitude of the problem, I'll briefly refer to two studies. The first is a published report by Smith Travel Research which estimates that the "leakage" of revenue from hotel brand web sites to third party sites is approximately $1 billion. The second is an unpublished report by a leading hotel brand which studied the impact of a third party site's discontinuation of keyword buys and was able to demonstrate that 40% of that site's revenues came from keyword buys and search engine placement. If this 40% average holds true for all third party sites, as much as $400 million of the $1 billion leakage cited by Smith Travel Research may be attributable to the "hijacking" of trademarked keywords by third party sites which is obviously an enormous and direct loss to the profitability of hotels.
The reality is that both keyword bidding and pop-up advertising are being used to divert customers away from on-line brands and are costing hotels many millions of dollars in lost revenues. While studies have shown that pop-up advertising is viewed by many people as among the most intrusive and/or obnoxious features on the Internet, it is also considered one of the most effective. In fact, a recent study showed that some of our most prominent companies are using popup ads to target their competitors' websites including a number of companies in the hospitality industry such as Hotels.com, Orbitz and Best Western whose ads appeared on more than 200 websites including those of its competitors, Comfort Inn and Day's Inn.
While there have been a number of legal challenges to both pop-up and keyword advertising resulting in some important decisions, it's important to understand that this is still very much an unsettled and evolving area of the law. The very first decision in this area was issued in 2002 when a federal judge in Virginia issued a preliminary injunction preventing Gator (now known as Claria), one of the leading pop-up advertising companies, from sending pop-up ads to the Washington Post and The New York Times. Thereafter, however, the pop-up advertising companies, WhenU.com and Gator, won two important victories.
In the first case which was decided in 2003, a different federal judge in Virginia dismissed a lawsuit by U-Haul which argued that WhenU's SaveNow pop-up program infringed U-Haul's copyrights and trademarks by sending its competitors' pop-up ads to U-Haul's website. Although the court acknowledged that the average computer user who accessed U-Haul's website would not expect to find a pop-up ad from U-Haul's competitor on the website, the court nevertheless dismissed the lawsuit because it found that the computer user had made a "conscious decision to install the WhenU program [which generated these ads]"; that WhenU's pop-up window was separate and distinct from U-Haul's website; and that the incorporation by WhenU of the U-Haul URL in the SaveNow directory in order to generate competitor's pop-up ads was not an illegal use of a trademark because WhenU merely used the marks for a "pure machine linking function" and in no way advertised or promoted U-Haul's web address or any other U-Haul trademark.
In the next case, a federal judge in Michigan denied Wells Fargo's request for a preliminary injunction against WhenU after concluding that Wells Fargo was unlikely to prevail on its claims of copyright and trademark infringement. The court held that WhenU did not use Wells Fargo's trademark per se in its advertising since the pop-up ads did not display those trademarks. In addition, the court held that there was no trademark infringement because WhenU only used the mark in its directory to determine what advertisements to display for consumers and did not hinder access to Wells Fargo's website.
It certainly seemed like WhenU and the pop-up advertisers were on a roll until a decision which came down in New York at the end of 2003. In that case, a contact lens retailer named 1-800 Contacts brought a lawsuit against WhenU after it sent pop-up ads for Vision Direct, a direct competitor of 1-800 Contacts to the 1-800 Contacts website. This time, the Court granted a preliminary injunction to 1-800 Contacts after concluding that it was likely to succeed on its trademark infringement claims because there was a strong likelihood of customer confusion arising from the appearance of the pop-ups. The judge's opinion stated:The fact that [WhenU's] pop-up advertisement for competing Internet contact lenses retailers appears shortly after a consumer types into the browser bar [1-800 Contacts'] trademarked name and accesses [its] homepage increases the likelihood that a consumer might assume [WhenU's] pop-up advertisements are endorsed or licensed by 1-800 Contacts.
The judge also took note of a survey undertaken by an expert hired by 1-800 Contacts which showed that 68% of WhenU's Savenow users did not know they had the software installed on their computers and that 76% of those who did know did not know what the software did. In addition, the survey found that 59% of Savenow users believed that pop-up ads were placed on sites by the site's owners and 52% believed such ads were pre-screened and approved by the websites on which they appeared. The survey results indicated to the Judge that "a consumer is likely to associate a Vision Direct pop-up ad generated by the Savenow program with the 1-800 Contacts websites on which it appeared". Finally, the judge also found that the use by WhenU of 1-800 Contacts.com as a term in the SaveNow directory triggering Vision Direct pop-ups added to the likelihood of customer confusion and trademark infringement.
Even though the facts in the 1-800 Contacts case were very similar to the facts in the U-Haul and Wells Fargo cases, the judge in the 1-800 Contacts case reached the exact opposite result as the other two judges. After this decision, Claria announced that it was canceling its IPO in the face of numerous lawsuits concerning pop-up advertising including a lawsuit by InterContinental Hotels. Since the 1-800 Contacts case has been appealed, we can expect a more authoritative decision on this topic shortly.
In 2004, there were two significant decisions rendered on the topic of keyword advertising. In the first case, Playboy sued Netscape Communications for selling advertisers the use of the trademarked terms "playboy" and "playmate" to generate banner ads on the search engine's web site. Playboy claimed that consumers who saw clearly unlabeled ads were likely to be confused about whether Playboy had sponsored them. Although the lower court originally dismissed the case, the California appellate court reversed this decision stating that the keyword advertising could lead to "initial interest confusion" because some consumers who were seeking Playboy's site may initially believe that unlabeled banner ads were linked or affiliated with Playboy.
The court noted that although the consumers who clicked on these ads might thereafter realize that they were not at a Playboy sponsored site, they also might be perfectly happy to remain on the advertiser's site and purchase their competing product. The court concluded that since the consumer would have reached the competitor's site because of Netscape's use of Playboy's mark, this use could constitute trademark infringement. As a result, the Court of Appeals reversed the lower court's decision and sent the case back down for a trial.
Shortly thereafter, Netscape settled with Playboy for an undisclosed amount rather than risk putting a fundamental part of its business model at risk. However, it's important to note that the Court's decision in this case was a limited one which only addressed ads which would be confusing to the consumer. In other words, the court did not address a situation where a banner ad clearly identified its source with its sponsor's name or which overtly compared its competing products to Playboy's. Instead, the court limited its holding to competitors' banner ads which were unlabeled and which did not compare themselves to Playboy.
While Google had originally gone out of its way to comply with trademark owners who requested that the company stop using trademarked keywords to sell ads, it announced a change in policy in April, 2004 and said that it would now allow advertisers to base their ads on trademarks. A few weeks later, Google and Overture were sued by GEICO in Virginia based upon a similar set of facts as in the Playboy case. Initially, after Google and Overture moved to dismiss the case, the court denied the motion and Overture decided to settle out of court. However, on December 15, 2004, after presiding over two days of trial, the judge ruled that there was insufficient evidence of trademark infringement and that Google could continue to sell keyword advertising triggered by GEICO's trademark.
While this decision appears, for the moment at least, to have stemmed the recent legal tide against the pop-up and keyword advertising companies, it remains to be seen whether other federal judges in similar cases pending against Google will adopt the court's reasoning. In one such case, Google is being sued by a home furnishing company called American Blind and Wallpaper Factory which claims that Google engaged in trademark infringement by selling paid links for the words "American", "blind" and "wallpaper" to the company's competitors. This case may help to decide whether a company can purchase generic-type keywords which are also part of a hotel's trademark such as, for example, Holiday Inn.
Notwithstanding the legal uncertainties, however, there are still some important steps that hotels can – and should – take to protect their on-line brands. First, hotels should prohibit keyword buying and pop-up advertising in their contracts with third party sites and enforce those prohibitions. Indeed, it's important to recognize that while third party sites like Expedia and Hotels.com are among the biggest offenders when it comes to pop-up and keyword advertising, they're also contractual partners of the hotel brands. Recently, InterContinental Hotels adopted new standards requiring its third party distributors to agree, among other things, not to bid on or purchase placement rights for InterContinental's trademarks or to engage in predatory advertising methods which was defined to include pop-up advertising. When InterContinental was unable to reach an agreement with Expedia and Hotels.com on these standards, it took the drastic action of severing its relationship with them.
Other options to consider include paying the search engines "ransom" by bidding on your own trademark and/or seeking the advice of counsel concerning possible legal action. Although the legal route can be costly, it can also be highly effective and is surely preferable to simply capitulating to the "hijacking" of your hotel's trademark by paying ransom which can also be costly. Since we clearly haven't received our "final answer" from the courts on these issues, it's important that hotels take proactive action now to defend their on-line brands.
- 1 - U-Haul International Inc. v. WhenU.com, 279 F.Supp. 723 (E.D. Va. 2003).
- 2 - Wells Fargo & Co. v. WhenU.com, Inc., 293 F.Supp.2d 734 (E.D. Mich. 2003).
- 3 - 1-800 Contacts, Inc. v. WhenU.com, 309 F.Supp.2d 467 (S.D.N.Y. 2003).
- 4 - Playboy Enterprises Inc. v. Netscape Communications Corporation, 354 F.3d 1020 (9th Cir. 2004).
- 5 - Government Employees Insurance Company v. Google, Inc., 2004 WL 1977700 (E.D.
About the Author | Peter M. Ripin is a partner with the law firm of Davidoff Malito & Hutcher LLP in New York City where he practices in the areas of business litigation and dispute resolution. Mr. Ripin has represented numerous institutions and individuals in the hotel and hospitality industries including hotels in connection with disputes concerning website domain name piracy and the Anti-Cybersquatting Piracy Act, timeshare developers and managers in disputes arising out of joint ventures, restaurant franchisees in connection with actions seeking to terminate their franchise agreements and large catering halls involving significant business disputes. In addition, Mr. Ripin has written, lectured and been interviewed on legal issues affecting the hotel and hospitality industries including franchising and domain name piracy.
Mr. Ripin was formerly associated with the New York law firms of Kelley Drye & Warren and Shea & Gould and is a cum laude graduate of Columbia University and Georgetown University Law Center.
He may be reached at (212) 557-7200 and [email protected]