Sponsored links: has the Supreme Court finally ended the debate on keywords?

In France, the issue of the liability for trademark infringement and unfair competition of Google and advertisers within the context of Google's paid referencing service has created much legal turmoil. After years of conflicting rulings, the Supreme Court decided to refer a question to the Court of Justice of the European Union (ECJ) which led to the ruling of March 23 2010 in Google France (Joined Cases C-236/08, C-237/08 and C-238/08). Several years later, the issue of the liability of Google and advertisers is still the subject of many decisions in France, and a recent ruling of the Supreme Court dated January 29 2013 allowed the court to reaffirm and clarify its position on this issue.

Cobrason, a hi-fi and video equipment reseller, noticed that one of its competitors, Home Ciné Solutions, was using its company name as a keyword to trigger sponsored links advertising Solutions' products. When an internet user searched for the word ‘Cobrason’ in Google's search engine, a sponsored link appeared alongside the natural results. The sponsored link contained a hyperlink to the website of Solutions, ‘homecinesolutions.fr’, and the following message: "Why pay more? Choice, quality and service for the past five years". As a result, Cobrason decided to bring a court action against Solutions, as well as Google, on the grounds of unfair competition and misleading advertising.

The Paris Court of Appeal, in a surprising decision of May 11 2011, held that such use of Cobrason's company name necessarily gave rise to confusion between the companies’ respective websites on the part of potential customers. Consequently, it found that the defendants were liable for unfair competition.

The court also held that Google, which had provided the necessary technical means for Solutions' actions, was liable for contributing to the confusion, since it had offered the keyword ‘Cobrason’ for sale as part of its AdWords programme and had displayed the results on its search engine. The court held that Google was in breach of its duty of commercial loyalty and was liable for misleading advertising. To reach this conclusion, the court had clearly relied on Paragraph 57 of Google France, in which the ECJ had indicated that:

 "[t]o the extent to which [Google] has permitted its client to make such a use of the sign, its role must, as necessary, be examined from the angle of rules of law other than Article 5 of Directive 89/104 and Article 9 of Regulation 40/94." 

As a result, Google and Solutions were found to be jointly liable and were ordered to pay Cobrason a total amount of €100,000 in damages.

However, the Court of Appeal had failed, in its decision, to examine whether Google, as the provider of the AdWords service, could qualify as a hosting provider and benefit from the exemption provided by the E-commerce Directive (2000/31/EC).

At the time, several commentators had pointed out that this decision was an example of how the lower courts in France were reluctant to accept and apply the ruling of the ECJ, especially by avoiding examining whether Google could qualify for the ‘hosting provider’ exemption under the E-commerce Directive. This decision appeared to be an attempt by the French courts to circumvent the Google France decision by assessing the liability of Google and advertisers on grounds other than trademark law.

The Supreme Court, in its decision of January 29 2013, overturned the decision of the Paris Court of Appeal and handed down a clear decision aiming to put an end to the controversy.

The Supreme Court started by criticising the Court of Appeal’s decision from a procedural point of view - the Supreme Court found that the Court of Appeal had not considered Google’s argument that it should benefit from the liability exemption granted to hosting providers under Article 6(I)(2) of the Law of 21 June 2004 on Confidence in the Digital Economy, which transposed the E-commerce Directive in France. By failing to consider this argument, the Court of Appeal was held to have breached the provisions of the French Procedural Code, and its decision was thus partially overturned on this ground.

The Supreme Court also criticised the ruling of the Court of Appeal on the merits. The Supreme Court considered that the appeal judges had not found any circumstances which could demonstrate the existence of a risk of confusion. The Court of Appeal had stated that, by merely using the company name Cobrason as a keyword to trigger sponsored links, the defendant had necessarily created confusion between the parties’ websites. The Supreme Court rejected this analysis and clearly stated that buying a keyword was not, in itself, sufficient to find the defendant liable for unfair competition. The Supreme Court thus overturned the decision of the Appeal Court and clearly specified that soliciting the customers of competitors is lawful as long as it is not deceptive.

Arguably, it is difficult to anticipate what may be considered as a ‘deceptive’ act. It is now well established by the French courts that Google's sponsored links are identified by consumers as advertisements and, therefore, do not create a risk of confusion by their mere appearance. In order to qualify as unfair competition, an advertisement needs to go much further, for example by making an explicit reference to the name of the competitor in order to create confusion for the average consumer.

Finally, the Supreme Court also rejected the finding of the Appeal Court that Solutions and Google were liable for misleading advertising under Article L 121-1 of the French Consumer Code. The appeal judges had considered that the mere display of a sponsored link alongside the natural results was sufficient to lead consumers to believe that there was a specific commercial link between the two companies. The presence of a link to the website of Solutions and the message "Why pay more?" were also considered to contribute to the misleading advertisement. The Supreme Court rejected this reasoning and considered that the Court of Appeal had not properly established the existence of a misleading advertisement. This shows that, under French and EU case law, consumers have a clear understanding of Google's AdWords system and know that the sponsored links are only advertisements.

This decision by the Supreme Court is a positive step against the development of conflicting case law by the lower courts, which, so far, had been reluctant to adopt the liberal approach of the ECJ. The coming months will tell whether this effort has been sufficient.

Jean-François Bretonnière and Thomas Defaux, Baker & McKenzie, Paris