May 15, 2008 | Thursday

How brands are reacting to trademark bidding

As brands come to terms with Google’s new rules on trademark bidding, have their fears come true or are gentlemen’s agreements keeping competitor bidding at bay?

Last week NMA reported that brands were entering into verbal gentlemen’s agreements not to bid on each other’s brand terms, following Google’s decision to lift restrictions on trademark bidding. It was also revealed this practice might not be above board (NMA 08.05.08) and, coupled with the Government’s current crackdown on cartels and price fixing, it seemed a dangerous route for brands to follow.

Indeed, Section 2(1) of the 1998 Competition Action (chapter 41) says there are restrictions to agreements and practices between UK companies that could affect trade by preventing, restricting or distorting competition.

Duncan Parry, co-founder and director of strategy at Steak Media, told NMA last week: “There are some mutual agreements being struck between competitors. We suggest brands consult with their legal team before entering into these.”

Gavin Ailes, acting MD of The Search Works, agrees. “There are quite a few gentlemen’s agreements going on between brands,” he says.

A week on and the picture is still blurred. NMA understands these deals are continuing to be made, but the advice for brands remains to steer clear unless they’re certain it won’t get them into legal trouble.

Duncan Calow, partner at commercial practice DLA Piper, admits it’s not entirely clear whether competition law applies to verbal agreements, but there’s enough to suggest this is an area worth steering clear of if you’re a brand looking to make the most of Google’s decision.

“Whenever you’re in a position where large commercial players are making backroom deals or gentlemen’s agreements, then competition alarm bells ring,” says Calow. “Competition law is complex so there’s an analysis to be run. However, the advice any lawyer would give a client when they talk about background deals is to be very cautious and make sure they take legal guidance.”

Nick Jones, director of search agency I-Spy Search, says agencies mustn’t put their clients in situations where they could get into trouble. “We advise a cautious approach,” he says. “It’s certainly not something we’re advising our clients to do, but obviously it’s happening as people react to the decision.”

Google itself refused to comment on this possible outcome. Calow says the search giant probably doesn’t have much to worry about from brands that have said they might take legal action against it.

“It’s highly unlikely Google would have made such a decision had it not been 100% sure it was right,” he says. “Across Europe, the law has largely been in favour of its decision. France appears to be the one place where brands might be able to bring a case, due to legal precedents.”

Early days

Google’s decision to allow brands to bid on each other’s trademarks was always going to be contentious and throw up countless ifs, buts and maybes. The initial reaction from the industry was one of horror, with brands just as scared they would have to pay millions of pounds protecting their terms as excited they could to bid on their rivals.

Indeed, key brands like Barclaycard suggested it could cause a significant change in how it had to operate in the search market (NMA 10.04.08), with others publicly stating they were looking at whether Google had acted legally.

But now the search sector has had almost two weeks to experience life in a non-restrictive Google market, it’s possible to see a slightly clearer picture. The sectors where there has been most activity are finance and travel, although the aggregators have also become a lot more prevalent.

Bruce Fair, UK MD of price-comparison site Kelkoo believes Google’s decision could have a positive effect. “I see a lot of benefits for us, including being able to get in front of more people who are shopping online,” he says. “It’s better for them as well as they see more people selling what they’re looking for.

“We’ll only be looking at bidding on manufacturing brands rather than retail brands, though, as it would be destructive for us to bid against Tesco, say,” he adds.

Other aggregators have been concentrating their efforts on speaking with the brands they sell, rather than competitors. Cheapflights, for example, announced it would not bid on partner keywords, with Pricerunner adopting a similar strategy.

“We’re talking to our partners and deciding how we go forward case by case,” said a spokeswoman for Pricerunner. “We’ll make sure we make the right agreements.”

Discussion leading up to the restrictions being lifted implied the new situation would be a free-for-all, with brands spending a fortune bidding on competitor terms, as well as protecting their own. Initial impressions suggested this might be the case, according to Bigmouthmedia MD Lyndsay Menzies.

“A rush of initial activity has sent prices upwards. Some of our big-brand clients have seen increases as high as 50% in their average cost per click,” she says. “Obviously, the large brand clients aren’t pleased by this. However, at these prices it’s going to be very difficult for those bidding on competitors’ brand terms to actually make a profit in some sectors, so we expect competition to decrease within six weeks.”

In fact, the decrease looks as if it’s already happening. Richard Gregory, COO of Latitude, says, “On 6 May [the day after the restrictions were lifted] the average CPC of brand terms rose 437%, but over the next two days the prices started to settle down quickly thanks to the Google quality score removing less relevant advertisers. Thursday still saw brand terms 115% more expensive than before the change. If it settles at this level it will have less of an impact than we initially estimated.”

Jonathan Beeston, client services director at SEM Efficient Frontier, says what really happened on Tuesday last week was a lot of confusion from both brands and search agencies. “There was a rush, but Google’s quality score calculations kicked in. For example, on Tuesday a lot of ads appeared against some of our retail clients, but the next day there were fewer. I think minimum bids are turning competitors off.”

Perhaps the major aspect that added to the confusion was Google’s broadmatching tool, which serves ads it believes to be relevant to the search term regardless of whether the advertiser has actually bid on it.

“Extended broadmatch shows ads on keywords that Google thinks are relevant. But if those ads aren’t getting clicks it’ll place them elsewhere or not at all,” explains Beeston. “But yes, ads are appearing where brands don’t want to be, and it’s become more of an issue now. The key is to be more vigilant and ensure that you add negative keywords, stipulating where you don’t want to appear.”

Will Cooper, NMA, 15th May 2008