Competing through keyword advertising

The impressive growth of online shopping has had a significant impact on firms’ strategies and customer behavior, bringing to the fore new forms of trademark exploitation that may affect competition. A prominent role is played by keyword advertising services provided by internet search engines. Keyword advertising systems have been the subject of several litigations with regard to the legality of the use of keywords which correspond to trademarks, since trademark holders complain that the essential functions of trademarks might be detrimentally affected. However, given the importance of search engines for attracting customers to the websites of retailers and competitors, online advertising restrictions also raise anticompetitive concerns on both sides of the Atlantic. Indeed, the E-commerce Sector Inquiry carried out by the European Commission reported that some retailers are limited in their ability to use or bid on the trademarks of certain manufacturers in order to get a preferential listing on search engines’ paid referencing service or are only allowed to bid on certain positions. Furthermore, the UK Competition and Markets Authority encountered brand-bidding restrictions in the markets for broadband, credit cards, energy, flights and home insurance, while the Netherlands Authority for Consumers & Markets analyzed the hotel sector. Moreover, in the US, the Federal Trade Commission has ruled that the largest online retailer of contact lenses unlawfully entered into a web of anticompetitive agreements with rivals, preventing them from bidding for search engine result advertisements that would inform consumers that identical products were available at lower prices. The aim of this paper is to shed light on the economic rationales and legal implications of keyword advertising in order to strike a proper balance between trademark protection and freedom of competition.