Some businesses choose to advertise on competitor names while others don’t. Is it worth it & what is the risk?
Google allows AdWords customers to advertise on trademarked terms in the U.S. & research indicates that U.S. courts have so far agreed that it is not illegal to advertise on competitor names, as long as the message is not misleading. However, the rapid adoption of the Internet as a tool to find products and services has resulted in trademark law getting challenged and changed on a regular basis, so there is still uncertainty in this area.
I would like to start out by making it very clear that I am not a lawyer. However, per Jeffrey A. Babener, who is an attorney with Babener & Associates, “Generally, a seller or imitator may use a competitor’s trademark when advertising the seller’s product so long as the competitor’s trademark is used in a truthful way, such that its use is not likely to create confusion in the consumers’ mind as to the source of the product being sold”
“Over the years, many different legal theories have been used by competitors in an attempt to stop the use of their name or product … Actions have been brought for disparagement, trade libel, defamation, trademark infringement, unfair competition and misappropriation of a name. The successful cases have, for the most part, involved false advertising and unfair competition through the misrepresentation of one’s product, causing consumer confusion… A seller may be held liable for unfair competition under federal and state laws where the seller misrepresents either the seller’s, or the competitor’s products. ”
Some U.S. courts have upheld that advertising on a competitor’s name is legal. For example, In J.G. Wentworth SSC Ltd v. Settlement Funding LLC, 2007 WL 30115 (E.D. Pa. Jan. 4, 2007), the court granted summary judgment to the advertisers based on the lack of evidence of consumer confusion. There are other examples as well.
Businesses can partially protect themselves by trademarking their name so competitors cannot use their name in ad copy, but again, this process does not prevent competitors from using trademarked terms to advertise on. Advertisers can click here to review AdWords Trademark policy detail and access their Trademark Complaint Form.
Interestingly, when it comes to advertising on a competitor name, large companies basically have the ability to bully smaller companies into submission, and here is why. If Business A is upset about Business B’s decision to advertise on Business A’s name, Business A can then have their lawyers issue Business B a Cease & Desist Letter. If Business B decides not to listen, they may then be setting themselves up for potential litigation. I am trying to simplify something rather complex, but the bottom line is that even if Business B has done nothing illegal, they may still find themselves in a position where they have to defend themselves. The cruel reality of litigation is that it can easily cost $100,000 in legal fees. Furthermore, a company cannot defend itself as an individual can, so a lawyer must be hired to defend a business (with certain exceptions that might apply to small claims court). Again, I am not a lawyer, but this is my understanding.
In the end, it appears that advertising on competitor names is legal and usually OK to do. If a competitor is upset, they will usually have their lawyers provide a Cease & Desist Letter, at which time you may want to comply with their request as litigation is incredibly costly. It must be understood that advertising on competitor names has the potential to result in unforeseen grief, litigation & legal fees, so it is important to understand your risk.
At JumpFly, we leave the choice of advertising on competitor names to the client. For those that have done this, it has often proven valuable and provided a very favorable ROI. However, this action can certainly lead to grief if a competitor is infuriated and willing to try and litigate, even if they would likely lose. So if you choose to go down this path, it must be done carefully & without confusing potential customers. Sadly, businesses advertising on competitor names that find themselves in litigation will likely find that even a victory in court still results in defeat in the pocket book.