As U.S. consumers spend more time and money browsing the internet, U.S. businesses are following with their advertising dollars.  According to the Internet Advertising Bureau and PricewaterhouseCoopers LLP, internet advertising sales increased by over 30% in 2005 to a new high of $12.5 billion. 

When you browse the internet, you realize quickly that internet advertisements are becoming increasingly sophisticated and creative.  You see, among other things:  ads that automatically fill a browser’s screen to cover the website content below or that automatically stream audio and/or video content; “sponsored links” that appear when you enter a search engine query triggered by the keywords you used in your search; and, pop-up ads that are relevant to your keyword searches and browsing patterns (unless your browser is blocking these pop-up ads). 

If your business is planning to venture into this online advertising world, take care to investigate the options thoroughly.  A bewildering array of advertising styles and payment schemes exists, and thousands of internet marketing firms stand ready to take your money.  Do your homework carefully, check references, and make a careful and informed choice. 

While you are engaged in this due diligence process, you should be aware that there are some legal risks associated with internet advertising.  This alert describes some of the current legal issues involved with internet advertising and provides tips on how to protect your business:  

• Have Counsel Review Your Contracts with Advertising Firms.  The wording of your contracts with the firms that do your advertising can have significant consequences.  Among other things, counsel can help ensure that you own the intellectual property included within the advertisements; that the advertising firm warrants that it has the right to use all images and copy they use in your ad and that they will indemnify you if any images or copy in the ad infringe the rights of a third party; and that such matters as your payment obligations and right to terminate the contract are clearly set forth and understood by everyone.

• Comply with the FTC’s fair advertising requirements.  The FTC has a long history of monitoring and regulating advertising.  The FTC’s general rules and principles apply online.  Among other things, this means that claims in internet advertisements must be properly substantiated, required disclosures must be clear and conspicuous, and product demonstrations must show how a product performs under normal consumer use.  A very good and detailed explanation of how the basic rules against unfair and deceptive advertising are applied to the internet is available at the following URL:  http://www.ftc.gov/bcp/guides/guides.htm.  Make sure your internet advertisements comply with these requirements.  If you fail to comply, you could face an FTC enforcement action or litigation from competitors. 

• Be Careful Before Using Others’ Trademarks in Your Advertisements.  Companies that use their competitors’ trademarks in online advertisements often become litigation targets.  Current legal issues that involve the use of trademarks in advertising include: 

  • Search Engine Marketing Issues.  Search engines like Google and Yahoo! sell advertisers the right to have “sponsored links” appear when relevant keywords are entered into a search query.  For instance, a florist might pay to have its sponsored link appear when a user searches for the term “florist.”  Lawsuits have arisen when advertisers pay to have their sponsored link appear after a user enters a competitor’s trademark as the query.  For instance, Toyota might pay to have its sponsored link appear when a user enters a search query for Nissan, and Nissan might respond by filing suit.  Courts in a few recent cases have determined that using a competitor’s trademark as a search engine keyword does not necessarily violate the trademark owner’s rights, but the law is far from settled.  At this point, it is still risky to use a competitor’s trademark for sponsored search engine advertising, and those who want to avoid lawsuits should avoid this practice.  More aggressive advertisers may conclude that the benefits from this type of advertising outweigh the risk of litigation, but they should do so only after consulting legal counsel to get the benefit of the latest case precedent and to consider ways to minimize the risks as much as possible.  

  • Use of Competitors’ Trademarks in Pop-up Advertisements.  Litigation has also arisen when software provided by companies such as Gator and WhenU.com triggers pop-up advertisements based upon trademark keywords entered by internet browsers.  A few recent cases have determined that WhenU.com’s practice of using trademarks to trigger competitor pop-up ads did not infringe the trademark owner’s rights.  Again, however, the law in this area is evolving and a risk-averse advertiser will steer clear of this practice.

  • Use of Competitor’s Trademarks in Comparative Advertising.  Fair comparative advertising has long been permitted under U.S. law.  A summary of the law regarding comparative advertising can be found online at http://www.ftc.gov/bcp/policystmt/ad-compare.htm.  Comparative advertisements must comply with the same rules for accuracy, fairness, and substantiation as other types of advertisements.  Failure to properly substantiate comparative advertisements can lead to defamation or disparagement claims.  However, assuming the comparison in the advertisement is accurate and fair, it is appropriate to identify the product or service to which you are comparing your product or service by using its trademark or service mark.  However, you should use only the name of the compared product or service and refrain from using any stylized logo, design, or slogan.  You should also avoid using the competitor’s mark more than is necessary to make the comparison.

• Copyright Protected Materials.  It is not uncommon for businesses to find out after they have placed content online that the images or copy they use are copyright protected and were used without the permission of the copyright owner.  Unlucky businesses that find themselves in this situation often have no choice but to dig into their wallets to pay damages for copyright infringement.  Hence, you should be careful to make sure that all content in your ad is either original or else used with the express written permission of the copyright owner.  As mentioned previously, you should also be sure that your advertising company and anyone else who supplies content for your ad warrants that they have the right to use all materials in the ad and agrees to indemnify you in the event such materials infringe the rights of a third party. 

The internet can be a very effective means to provide information about your business to a well targeted group of consumers.  If you carefully consider the legal issues described in this alert, chances are good that your company’s ventures on the information highway will not result in an unwanted stop at the courthouse. 

For more information on this matter please contact Eric Stevens at 919.783.1017 or at estevens@poynerspruill.com or David Dreifus, Business Litigation Practice Group Leader, at ddreifus@poynerspruill.com or 919.783.2817.