1H 2019 Quick Links, Part 2 (Keyword Advertising)

* Grasshopper House LLC v. Clean & Sober Media LLC, 2019 WL 2762936 (C.D. Cal. July 1, 2019). Prof. Tushnet recaps the case. The passages that stood out to me:

Lastly, Passages argues for a third mechanism to estimate Cliffside’s financial benefit from its violations of the Lanham Act by pointing to the equivalent cost of Cliffside paying for advertising to reach the same number of consumers as there were visitors to The Fix’s review of Passages. The Fix heavily relied on Passages’ review to generate significant traffic for The Fix generally, and The Fix even informed Passages that three of the top 20 key word searches of The Fix were related to Passages. The Passages review on The Fix received 192,434 organic visits between 2014 and 2018. Passages argues that, because Cliffside did not have to pay anything to generate those visits, Cliffside saved significant money from having to advertise separately to bring in those visitors.

To calculate Cliffside’s estimated advertising savings, Passages relied on testimony from Arun Thach, Passages’ search engine marketing manager. Thach testified at trial about “Google Adwords,” an advertising platform hosted by Google that allows advertisers to bid a certain price for particular key words and make a link to the advertiser’s product appear every time a person initiates a Google search using those key words. The advertiser then pays to Google the amount of money it bid every time a person clicks on the advertising link, an arrangement known as “pay-per-click.” Thach testified that, based on his extensive experience working with Google Adwords in connection with his employment by Passages since 2016, the average cost per click Passages paid for the key words “Passages Malibu” since March 2017 was $40.00 per click. In addition, Thach’s documentary support shows that an average of 4,800 users per month entered Google searches containing the words “Passages Malibu” over that time period. Taite admitted during trial that Cliffside places bids on Google Adwords for key words related to Passages with the intent to have persons searching on Google for Passages instead click on the advertisements for Cliffside. Thus, based on these figures, Thach testified that, if Cliffside was required to advertise for its own services by bidding on the key words “Passages Malibu” on Google Adwords instead of by using The Fix’s review of Passages to steer potential clients away from Passages and to Cliffside, Cliffside would have had to pay $40.00 for each of the 192,434 organic visits to the Passages review, totaling $7,697,360.

The Court finds Passages’ argument unpersuasive. First and foremost, Passages’ theory rests on the incorrect assumption that every visitor to The Fix’s review of Passages constitutes a consumer of an affirmative advertisement for Cliffside Malibu. There is no evidence to suggest how many people who viewed the Passages review on The Fix would have clicked on an advertisement for Cliffside Malibu had the viewer instead searched for the key words “Passages Malibu” on Google, and any arguments on that front are purely speculative. As Cliffside correctly points out, Thach admitted that his calculation of Cliffside’s saved advertising expenditures was irrespective of the content of the Passages review. To illustrate, had the Passages review been overtly positive without any false or misleading statements, Thach’s calculation would still rely on the same assumption that Cliffside was benefitting from the Passages review the same as if a viewer had clicked on a link for a Cliffside advertisement. Such a result would be illogical, and Thach’s testimony constitutes an acknowledgment that his calculation bears no causal relationship to Cliffside’s Lanham Act violations at issue in this case. Thach also testified that he does not know what Cliffside’s financial benefit would be per viewer of the Passages review page on The Fix. Therefore, the record does not support the conclusion that Cliffside improperly financially benefitted from every viewer of the Passages review, let alone any viewer, in the manner that Passages suggests.

Second, the Court finds Thach’s testimony about using the average cost per click for key word searches for “Passages Malibu” as a proxy for Cliffside’s financial benefit not credible. Dr. Ward Hanson, Cliffside’s expert rebuttal witness, explained that bidding for search terms on Google Adwords is a “multi-item auction” in the sense that more than one advertising bid is accepted for any given key word. In other words, Google may allow for three separate advertisers to place an advertisement on the page showing search results for the key word “Passages Malibu.” The significance of this bidding structure is that, while the top bidder is granted an advertisement at the top of the page, advertisers who bid less money may still receive an advertisement on the same page in a lower, and less visible, position on the page.

Dr. Hanson’s own analysis of Google Adwords, conducted shortly before the Phase III bench trial, revealed that the range of bids for a “top tier” advertising placement for the key words “Passages Malibu” was between $7.99 and $35, and that a bidder may be able to receive a lesser advertising placement for “a couple of dollars.” Thus, the Court finds that Thach’s estimate of $40.00 per click since March 2017 does not fairly reflect the average cost of Cliffside advertising on Google Adwords generally. Even if Thach’s testimony was accurate, it does not logically follow that Cliffside would have to be positioned at the top of the bidding queue to receive the same theoretical advertising benefits as what Cliffside purportedly received through the review of Passages on The Fix. Moreover, the $40 per click figure Thach relies upon for his calculation is the amount Passages actually paid for that advertising, but that cost does not necessarily reflect the actual market rate for those clicks. See 2/26 PM Tr. at 135 (“That’s how much Passages paid, $40 per click – that’s how much we paid.”). Just because Passages was subjectively willing to pay for an average of $40.00 per click to be placed at the top of the list of advertisements does not necessitate the conclusion that such a cost is a fair estimate of Cliffside’s supposed advertising benefits from the Passages review.

Furthermore, Dr. Hanson observed that Thach’s testimony about the financial benefit of the Google Adwords advertisements to Cliffside was speculative. Dr. Hanson noted that for Cliffside Malibu to be able to benefit from such an advertising campaign on Google Adwords, Cliffside would have to pay at most $1.80 per click given the low conversion rate of people who viewed the Passages review page and subsequently called Cliffside Malibu seeking addiction treatment. Thus, Dr. Hanson concluded that it would make no economic sense for Cliffside to spend $40.00 per click to advertise on the Google search results for searches containing the terms “Passages Malibu.” Based on Dr. Hanson’s testimony, the Court finds that Thach’s conclusions are speculative and do not constitute a reasonable estimation of Cliffside’s financial benefit from its Lanham Act violations with respect to the Passages review through saved advertising expenditures.

* New England Mercantile Group v. Barnell, 2019 WL 2307446 (Conn. Superior Ct. April 2, 2019). Competitive keyword advertising case fails.

* Bloomberg: Bank Norwegian Can Use Competitors’ Trademarks on Google Ads

* Boost Beauty, LLC v. Woo Signatures, LLC, 2019 WL 560277 (C.D. Cal. Feb. 11, 2019). Competitive keyword advertising isn’t trademark counterfeiting.

* Andrey Simonov & Shawndra Hill, Competitive Advertising on Brand Search: Traffic Stealing, Adverse Selection and Customer Confusion, June 28, 2018

competitors’ ads provide value to some customers, since a substantial share of consumers click on competitors’ links, and the majority of those clicks are successful”, meaning that consumers do not return to the search engine in less than 30 seconds. On top of this, more relevant competitors are able to steal more and higher quality traffic, which cannot be explained by misclicks of consumers due to confusion. All of this supports the argument that competitive advertising brings value to some of the focal brand’s searchers, meaning that a ban on competitive advertising would deprive consumers of useful information and thus restrict their choice set.

At the same time, some of our results are consistent with the existence of customer confusion as a result of competitive advertising. The presence of competitors’ ads at the top of the results page significantly increases the overall quick back probability, implying that more consumers are not satisfied with the search results in this case. Since higher quick back probability is also consistent with consumers’ deliberate search, our estimates allow to determine only an upper bound on the degree of customer confusion, namely that around a quarter of consumers who click competitors’ links do so due to confusion, corresponding to the 5.7% of searchers of the focal brand. While imperfect, this measure suggests that the vast majority of customers searching for the focal brand are either unaffected or find some value in competitive advertising….

Competitors can steal a substantial share of focal brands’ traffic. While this traffic is of lower quality, near 60% of consumers do not immediately return to the SERP, implying that they find something of value on competitors’ websites. Moreover, more relevant competitors are able to get more and “higher quality” traffic, confirming that they find more value on the websites of more relevant competitors. Our results thus validate the practice of competitive advertising on brand search; there are cases of brand search where consumers make a search to satisfy a general informational or transactional objective, and competitors are able to acquire traffic because they can also satisfy this objective.