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Legal trip ropes may curb banner year for advertising
Internet advertising is slowly maturing. But as Sonya Rabbitte explains, murky legal waters are hampering the commercial development of the medium globally...

By Sonya Rabbitte

Published: Thursday 19 October 2000

It's not easy being an internet pioneer. Just ask online retailer Fragrance Counter. Last year, while UK advertisers were still spending less than £50m on banner ads, this e-tailer was just one of many US sites cashing in on internet advertising.

However, this company is now before a US court for alleged infringement of the Estee Lauder trademark, after paying search engine Excite for a link to it. So much for trailblazing.

The e-tailer also faces infringement charges after using the trademark in its banner advert. Action is still pending on this and several other similar cases.

If there is a lesson to be learnt from all this it's that online advertisers are operating in a legal minefield. Banner advertising is such a new area that even in the US there are few precedent rulings on which to base guidelines.

There could be hard-hitting implications as the banner advertising industry continues to grow. A Forrester report forecasts that UK expenditure on banner advertising will jump from last year's paltry £50m to £624m by 2004.

According to John Armstrong, partner with law firm CMS Cameron McKenna, the debate raises several legal issues. Use of a company's trademark in an advertisement is an issue also hotly debated in traditional advertising mediums, while the use of a trademark as a key search word is more internet specific.

There is also the question of who should be held liable - the company behind the advert or the search engine accepting payment for it.

"Companies pay a search engine to be associated with a specific word or words. So when you key in that word a list of maybe 300 associated companies comes up. You can pay the search engine to be near the top of the list," explained Armstrong.

That is perfectly legal under existing law. In fact, as Armstrong explains, if a similar infringement case were to arise in the UK, it could be defended under the UK Trademarks Act 1994, which provides for the use of trademarks in advertisements as long as it falls under "honest practice".

In the US, the Federal Trade Commission (FTC) has regulated on banner advertisements for several years. FTC ruling is legally binding and since it modified its advertising standards remit to include the internet it has dealt with 150 lawsuits relating to various aspects of online advertising.

In contrast, the UK Advertising Standards Authority (ASA) operates a self-regulatory code of conduct that has only been adapted this month to include breaches in online advertising. As evidenced by ASA figures, complaints regarding online advertising have jumped from 45 in 1997 to almost 300 so far in 2000.

The ASA readily admits that legal complexities surrounding the use of trademarks as key search words do not fall under their remit. So are they doing too little, too late?

"As the medium has developed we're looking at what we can realistically and effectively regulate," said Gary Ward, External Affairs manager for the ASA.

He believes such cases are likely to become a feature in UK courts. But with no clear-cut legislation governing banner advertising, what alternative redress do UK trademark holders have?

Ward hopes that the UK situation will be supported by the fact that the Internet Advertising Bureau (IAB) - a global watchdog organisation for online advertising - is a member of the Committee of Advertising Practise, the ASA's policy-making body. He claims that 90 per cent of internet advertisers are members of the IAB and are governed by both bodies' codes of conduct.

Anthony Diresta, senior counsel at Washington DC-based law firm Fulbright & Jaworski, has been watching several cases progress through the US courts and is not so confident self-regulation works.

"There are more complexities than simply the issue of who is to blame," said Diresta. "These debates not only raise advertising issues, but also anti-trust issues. If the search engine has substantial market share the advertiser has a pretty good lock on the market. There may be a question if the contract prohibits other competitors from coming in and advertising. Potentially everybody - the search engine, the ISP, the advertiser - is at risk."

It's a problem that's not going to go away, according to industry experts. In fact, they agree that we are just at the beginning of a new learning curve which will be further complicated and aggravated by the global nature of the internet.

As usual the US is spearheading a resolution, with the FTC promoting international cooperation programmes for online business, and developing international protocols on extraditing company representatives that breach US regulation.

"There is still a lot of ambiguity," said Diresta about the FTC's plans. "It's a work in progress. Nothing has been finalised, but at least the dialogue is open."