Hunton Retail Law Resource

Branded keyword advertising (“BKA”)—bidding for your company’s website to feature prominently near a search engine’s results for branded or trademarked terms—has been around for over a decade. Under this practice, search engines auction off keywords, and the highest bidders receive advertising space adjacent to search results for those terms. Brand owners commonly bid on their own keywords and those of their competitors and related third parties.

Concerns that BKA runs afoul of trademark, false advertising, and unfair and deceptive trade practices laws were largely put to rest in 2013 and 2014, when a wave of court decisions held that, on its face, the practice does not constitute trademark infringement or cause customer confusion. However, a new challenge to BKA emerged earlier this year with the filing of Tichy v. Hyatt Hotels Corp., No. 1:18-cv-01959 (N.D. Ill.). In Tichy, a putative class of online consumers alleges that six major hotel chains violated antitrust laws by conspiring with each other and with third-party online travel agencies like Expedia and Priceline to refrain from bidding on each other’s branded keywords.

This is not the first time that BKA has been challenged on antitrust grounds. Two years ago, in In the Matter of 1-800 Contacts, Inc. (“1-800 Contacts”), Docket No. 9372, the Federal Trade Commission filed an administrative complaint against 1-800 Contacts for agreeing with its competitors not to bid on each other’s branded keywords. On October 30, 2017, the ALJ issued an Initial Decision holding that the agreements restrained price competition in internet search keyword auctions, thereby restricting consumers’ access to information in the online marketplace.

Two months after the FTC filed its complaint, private citizens filed a class action lawsuit against 1-800 Contacts and its competitors with respect to the same agreements, Thompson et al. v. 1-800 Contacts et al., No. 2:16-cv-01183 (D. Utah Oct. 13, 2016). For many of the same reasons set forth in the ALJ’s Initial Decision, the court denied the defendants’ motions to dismiss and found plausible the plaintiffs’ theory of financial loss.

In briefing the pending motion to dismiss in Tichy, the defendants have gone to great lengths to distinguish the 1-800 Contacts decisions. The defendants also contend that the putative class erred by presuming that refraining from BKA is an action against the defendants’ economic interests and by failing to allege defendants’ historical bidding practices with the requisite particularity.

This line of cases should be of concern to all online vendors. Given the proliferation of third-party websites that allow customers to compare prices, book a service or purchase a product, it is tempting to try to regulate or prohibit BKA and other forms of advertising by competitors on those websites or by the third parties themselves. It is important in negotiating such terms to confer with counsel who can advise as to your options and accompanying legal exposure.