How Does the Use of Trademarks by Third-Party Sellers Affect Online Search?

Intellectual Property, Copyright and Trademark, Networks, the Internet, and Cloud Computing, Internet and Search and Advertising

Article Snapshot

Author(s)

Lesley Chiou and Catherine Tucker

Source

Working Paper, 2012

Summary

This paper examines the effects of trademark use in advertisements by third-party resellers.

Policy Relevance

Restricting the ability of third-party resellers to use trademarks of the products they resell in online advertisements is unlikely to benefit trademark holders.

Main Points

  • Firms may sell products to consumers directly while simultaneously allowing third parties to sell their goods to consumers.

    • For example, you might buy a flight directly from Delta, or book through Expedia.
       
    • Permitting third-party sales entails tradeoffs.  Although allowing third parties to sell one’s goods does increase sales, third party firms usually charge an agency fee, and consumers may be exposed to competing goods.
       
  • Both the direct seller and indirect sellers can purchase search ads, and for the same key search terms; so, for a particular search term, a firm may be competing with its agents in the advertising space.
     
  • In 2009, Google controversially mandated that trademarks can be used in advertisements by firms other than the trademark holder.

    • The legal environment on trademark use in advertising and advertising purchases is not settled in the United States and Europe.
       
    • After enacting this policy change, many third-party advertisers began using trademarks in their advertisements.
       
  • Surprisingly, trademark holders in the industry examined in the paper—the hotel industry—benefitted from the policy change.

    • Trademark holder advertisements received fewer clicks.
       
    • However, consumers seemed to start ignoring advertisements in favor of clicking on the search result for the trademark holder’s website.
       
  • The use of trademarks in every advertisement led them to become indistinct and less effective in attracting consumers.
     

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