Yahoo Resolves Trademark Case

SAN FRANCISCO —  Yahoo Inc. settled a closely watched trademark infringement lawsuit with auto insurer Geico, even as rival Google Inc. prepared to take the case to trial this month.

Geico, a subsidiary of Warren Buffett’s Berkshire Hathaway Inc., sued the two Internet companies in federal court in May for allowing other insurance companies to buy ads that appear when people type “Geico” into search engines.

The confidential settlement reached Friday between Geico and the Overture Services division of Sunnyvale, Calif.-based Yahoo leaves Google as the sole defendant in what could be the first case to decide whether advertisers can lure Web surfers to their sites by buying “sponsored search” ads related to their competitors’ brand names.

The Geico case and several related lawsuits brought by other trademark holders threaten a sizable chunk of the multibillion-dollar market for keyword ads delivered alongside search engine results -- the primary source of revenue for Google.

“It’s a huge battle over an enormous revenue generator for Google and Yahoo,” said James D. Nguyen, an intellectual property lawyer who has been following but is not involved in the cases.

Google and Yahoo get paid every time someone clicks on a sponsored link. Many of the links are generated by searches using generic terms, such as “car insurance.” But many advertisers also buy ads based on brand-name keywords. So, for example, several competing carmakers could attract Web surfers searching Google for “Ford Focus.”

Geico argued that its brand name shouldn’t be used to drive traffic to its competitors’ websites. Judge Leonie Brinkema, in an Alexandria, Va., federal court, ruled last summer that Geico’s claims of trademark infringement, unfair competition and dilution of trademarks had enough merit to go to trial.

Brinkema approved last week’s settlement, but the agreement was sealed from the public. The two companies confirmed the settlement but declined to comment Wednesday.

Because the settlement’s terms were not disclosed, observers said it was difficult to tell how Overture’s submission might affect Google’s chances of winning. The Mountain View, Calif., company’s trial is scheduled to begin Dec. 13. Brinkema mostly sided against the search engines in early stages of the court proceedings.

“This settlement with Overture signals something to Google -- there is something that can be done to make Geico happy,” said intellectual property lawyer Bruce Sunstein. “It puts the pressure on Google to settle.”

But Nguyen and other observers said Google seemed ready to defend its turf in court.

Pasadena-based Overture lets trademark holders challenge ads related to their brand names and removes ones it thinks infringes trademarks. Google did too -- until April, when it dropped all restrictions on keyword bidding in the United States and Canada. Analysts said the move signaled Google’s desire to have a court rule on whether its business practices could stand.

“Overture’s policy has been a little bit more forgiving and favorable to trademark owners, so it’s not that surprising that they settled when Google did not,” said intellectual property lawyer Sheldon H. Klein. But he added, “Overture correctly surmised that this judge may not be all that sympathetic to the search engines.”

Yahoo shares rose 38 cents to $38 on Wednesday, while Google fell $2.02 to $179.96. Both trade on Nasdaq.