Can You Agree with Competitors to Not Target Each Other in Google Ads?

If you own a business, are Google Ads your best friend, worst enemy, or vexing frenemy? These are the ads that show up in Google search results, usually at the top.

Businesses hate it when a competitor runs a Google Ad triggered by a search of its name. For example, Spacely Sprockets hates it when Cogswell Cogs runs a Google Ad that shows up whenever anyone searches for “Spacely Sprockets” in Google.

It can get worse. When you run a Google Ad, you can have the searched term appear in the body of your Google Ad. This is called “keyword insertion.”

A problem arises if someone searches for your company by name. That can cause an advertisement to look like it came from your company when it didn’t. If Cogswell Cogs runs a Google Ad for people searching for “Spacely Sprockets” and uses keyword insertion, that would cause “Spacely Sprockets” to appear in the body of the ad. That might make people think the ad is by Spacely Sprockets. That is pretty clear trademark infringement.

Also, you can stop your Google Ad from running in certain situations by using negative keywords. Doing so will cause your Google Ad to not appear when specific terms are in the search. For example, if you sell reading glasses, you don’t want to pay for your ad to run when someone searches for wine glasses. You would use “wine” as a negative keyword.

A recent case involving 1-800-Contacts raises the intriguing possibility of using a ginned-up trademark dispute between competitors as a way for the competitors to steer clear of each other with Google Ads without incurring antitrust liability. 1-800-Contacts is a major online retailer of contact lenses but charges more than most of its competitors.

To try to stifle competition, it threatened trademark-infringement claims against other online contacts sellers who purchased Google Ads triggered off a search for “1-800-Contacts.” That threat is weak because courts nowadays generally hold it’s okay to have your Google Ad trigger off a search for a competitor’s name.

1-800-Contacts used this threat to persuade competitors to enter into settlement agreements in which each party agreed to not run Google Ads triggered off of the name of the other and to use negative keywords to ensure Google Ads don’t appear when a search includes the name of a competitor.

The Federal Trade Commission claimed the settlements violated antitrust law. About a year ago, the Second Circuit threw out the FTC charges. It held settlement agreements over trademark-infringement claims usually should be left undisturbed by antitrust law, and any regulator (such as the FTC) or private plaintiff carries a heavy burden in attacking such settlements on antitrust grounds.

The court primarily focused on whether it’s okay for competitors in a settlement to agree to not run Google Ads off of each other’s names. The court declined to address whether an agreement to use negative keywords might violate antitrust law because the FTC did not independently develop that part of its case. This concerns coding your Google Ads so that they don’t appear when the names of specified competitors are in the search.

So, after the 1-800-Contacts case, could you safely agree with your competitors to not run Google Ads off of searches for each other’s names? And could you agree to use negative keywords so your ads don’t appear when a search includes a competitor’s name?

You would have to have a big legal budget and a huge appetite for legal risk. Your competitors probably won’t back off buying Google Ads triggered off of your name unless you make a credible threat of scary and expensive trademark infringement litigation.

Even if you scare your competitors into a “settlement” agreement in which you mutually abstain from targeting each other in Google Ads, you still would face significant antitrust risk. 1-800-Contacts has fared poorly in some antitrust cases brought by private plaintiffs even though it has beaten back the FTC for now. And the FTC may not be done fighting. While it now has a heavier burden of proof, it could still win. And if you lose an antitrust case to the FTC or a private plaintiff, you likely would get hit with enormous damages.

Even if you are not that aggressive, don’t be passive about Google Ads that unfairly target your business. If someone uses your business, product, or service name in the body of a Google Ad, and if you registered it as a trademark, you probably could get Google to take the ad down. A cease-in-desist letter to the competing advertiser usually would be appropriate.

Written on August 17, 2022

by John B. Farmer

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