As small and mid-size businesses jump on the online marketing bandwagon in droves, there’s an issue they need to consider: trademark infringement risk.

Most companies know that using a competitor’s trademarked buzzword, buzzphrase, or logo in a traditional advertisement could get a company in legal hot water. But even using a competitor’s trademarked item to generate an online ad during a basic Internet search could land a company in court, legal analysts warn. Smaller companies, which often lack legal teams, need to be especially aware of the risk.

To be sure, there’s a lot of evidence that online marketing is a good way for small businesses to grow. A November 2006 survey of 700-plus small businesses by theYankee Group, of Boston, found that those surveyed will spend between 10 percent and 20 percent more on online marketing in 2007 than in 2006. “This is the biggest jump in spending that I’ve seen ever,” says Gary Chen, a Yankee Group analyst. “There is much more awareness that the Internet lets them reach all these consumers that they’d never be able to reach.”

What a trademark is

A trademark is any word, name, symbol, logo or device that a company has officially registered to distinguish a product or service from its competitors. Trademarks must be registered separately in each country where a company does business. Multiple companies can use the same trademark if they are in different industries and are not direct competitors. In the United States, a trademark that is registered, re-filed after five years, and actively used can last indefinitely.

Paid-search ads also carry risks

But companies purchasing paid-search ads need to understand the risks of using a competitor's trademark as a search term to trigger advertising for their own business. Paid search ads are now offered by Google’s AdWords and AdSense, or Yahoo! Search Marketing (formerly Overture). Google tells companies seeking keywords for its ads -- words that trigger the purchasing company’s ad to appear in the margin -- that “you alone are responsible … for making sure that your use of the keywords does not violate … any applicable trademark laws.”  On its site, Google says it will review trademark complaints relating to the content of ads, but “not the keywords used to trigger the ads.”

When companies use Google AdWords to develop their keyword list, the AdWords program automatically lists trademarked items as suggested synonyms. For example, a customer keying in the word “computer” to start a keyword list will be offered a long list of terms, including the trademarked buzzphrase “Apple computer” as suggested options.

Because a term is suggested, some companies might think it’s okay to use it to trigger their ads. But Terry Ross of Gibson, Dunn & Crutcher, the international law firm, who specializes in trademark law, says companies should not assume this. “If I were advising a small business owner using Google, I’d tell them that they should not use anything that’s a registered trademark," Ross says. "It’s that simple.” According to Ross, this means checking every buzzword or buzzphrase a business plans to use against the U.S. Patent and Trademark Office electronic trademark database.

A history of litigation

Google’s success in defending its let-the-user-beware approach to trademark protection has been mixed in the courts. But now its paid-search customers are landing in court, too.

In 2004, a U.S. federal court ruled that Google was not at fault in a case against insurance giant GEICO by using trademarks as keywords to trigger advertising. However, the case also concerned Overture/Yahoo! Search Marketing, which reached an undisclosed out-of-court settlement with GEICO. In 2005, however, a French court ruled that Google must stop using the trademarks of French hotel chain Le Meridien Hotels to trigger competitor’s ads. A case against Google by American Blind & Wallpaper Factory remains in court.

Meanwhile, three outstanding U.S. cases concern charges of trademark infringement against companies using Google’s paid-search ads: 1-800-J.R. Cigar Inc. (plaintiff) vs. Inc., Edina Realty Inc. (plaintiff) vs. The and Buying for the Home LLC (plaintiff) vs. Humble Abode LLC.

Ross says using the USPTO’s database to check buzzwords first can help companies avoid the courtroom.  “It’s easy to check," he says. “You don’t even need to hire a lawyer to do it.”