BusinessWeek Covers RESCUECOM Appeal Victory over Google

Google suffered a setback in a legal battle over how it auctions search terms. How would eventual defeat affect the Web search market?

It's vexing for a company to see its brand name disparaged. It can be downright infuriating when that brand is used to drum up business for a rival.

So some companies are up in arms over a practice by Google that lets advertisers use a competing brand name in efforts to attract customers. Google's opponents won a legal victory recently that could presage limits on how Internet companies use brand names to sell search-related ads.

On Apr. 3, the U.S. Circuit Court of Appeals for the Second Circuit reinstated a suit filed by computer repair firm Rescuecom, which alleges that Google's practice of letting competitors bid for each others' names as search keywords infringes its trademark. Consumers who searched the term "Rescuecom" have been shown ads of rival computer repair companies.

The setback for Google (GOOG) highlights simmering questions about the rules of the road for advertisements linked to Internet search. At issue is the practice of letting marketers bid on and purchase the right to use trademarked names?even when those brands belong to a competitor?as part of online ad campaigns. Yahoo! (YHOO) is embroiled in similar litigation.