Tuesday, April 10, 2007
Remember the Coke and Pepsi TV ads from the "cola wars" of the 80s and 90s, when the cola giants sponsored taste tests, hired rock stars, and spent a lot of time arguing that one formula of sugar water was better than the other? How about the Bounty paper towel ads, in which one towel picked up what appeared to be a gallon of liquid spills while the competitor's towel seemed to have the absorption capacity of a rock? Though these comparative ads are good for consumers, promote competition, and symbolize free speech, Utah last week passed a misguided law attempting to prevent consumers from seeing these kind of ads online.
According to the Electronic Frontier Foundation, the law -- which was passed and signed into law without any hearings or notice -- would "allow trademark owners to prevent their marks from being used as keywords to generate comparative ads. If this law takes effect, a company like Chevrolet couldn't purchase 'sponsored link' space on the Google results page when a user types 'Toyota' as part of a search query -- at least if the latter term is registered in Utah as an 'electronic registration mark.'" But don't just take EFF's word for it. Utah's own general counsel told legislators that the bill was probably unconstitutional because it would disrupt interstate commerce. (Constitutional Law 101: the regulation of interstate commerce is the responsibility of the U.S. Congress.)
The law clearly runs counter to both trademark law and capitalism, both of which embrace comparative advertising. For years, federal courts have upheld the right to use trademarked terms in comparative ads. And competition -- which generally helps lower prices and benefits consumers -- is fueled in part by companies being able to use advertising to draw contrasts with their competitors.
Aside from its obvious constitutional flaws, the bill presents other problems. It lets individuals and companies register "electronic registration marks" even if they don't actually own the trademark. So this new law so it could cause a free-for-all in which any individual or company could claim another company's trademark as their own "electronic registration mark." Maybe the Utah legislature was looking for ways to create a 21st century gold rush.
The bill also isn't limited to online uses. Any use of a trademark in connection with comparative advertising would be a violation -- including a supermarket checkout coupon that gives you a discount for Huggies next time if you bought Pampers this time. It also does away with two critical components of federal trademark law -- that a trademark be protectable and that infringement occurs only when there is a likelihood of confusion. That could open the door for generic or descriptive terms (i.e., "water," "food," "supermarket") to be registered, preventing anyone from using them in connection with advertising.
Finally, this law could also infringe on free speech, by preventing an advocacy group from placing an ad in protest of a company's business practices.
The new law is very likely to be challenged in court, and we believe it will be struck down. We'll certainly be working with other Internet companies to help educate officials in Utah about the consequences of this bad piece of legislation.