Unfair Competition Online: Illegal Use of Competitors’ Brands as Keywords in Sponsored Links

As the internet becomes one of the main business environments for companies, the topic of competition in the digital environment has evolved rapidly and complexly, bringing up relevant legal issues.

One of these issues is unfair or parasitic competition through the use of sponsored links on search providers, which has recently gained prominence with a decision handed down by the Superior Court of Justice – STJ [1] which condemned an advertiser and Google for such a practice.

Online search providers such as Google offer users a list of organic results for their internet searches. The order in which these results are presented is determined by the relevance of the sites, calculated by the search engine’s algorithm. This calculation takes into account various factors, such as the quality and relevance of the content, the authority and reliability of the site, the user experience, optimization for mobile devices, among other elements.

However, in addition to organic results, search providers also display sponsored results, i.e. they usually show, as the main result of a given search, the website of an advertiser who pays the provider for displaying an advertisement in searches for a certain keyword. So, for example, a travel agency can sponsor the keyword “travel” or an electronics store can sponsor the keyword “smartphones” and, in this way, have their sites displayed in priority whenever someone searches for these terms. These are called “sponsored links”.

Offering or contracting sponsored links is undoubtedly a lawful and increasingly widespread activity, but a problem has arisen when advertisers start sponsoring keywords identical to their competitors’ brands. In doing so, these advertisers use the reputation and recognition of the competitor’s company in a way that diverts customers away from the competitor, often in a misleading way.

In this sense, the jurisprudence of our courts has been consolidated – culminating in the recent STJ decision – in characterizing this practice as a clear act of unfair competition, reflecting a parasitic strategy on the part of these advertisers.

The reason for this is that consumers searching for a specific brand are looking directly for a particular company, with the aim of accessing its website and possibly purchasing its products or services. The parasitic competitor, on the other hand, takes advantage of the competitor’s brand reputation and the user’s search to promote its own website, products and services.

It could be argued that having your ad appear in a specific search for your competitor’s brand name would only be a form of comparative exposure to the user, as permitted by the Brazilian Advertising Self-Regulation Code [2]. However, the Code itself points out that comparative advertising does not occur when an action results in (i) confusion among consumers, (ii) unfair competition or (iii) unjustified profiting from the prestige of the competing company.

The recent STJ ruling, in this sense, expressly points out that these three aspects are present when a keyword identical to a competitor’s brand is purchased, with the aim of appearing prominently in the search provider’s results. Consequently, it defines such conduct as unfair competition and not simply comparative advertising.

It is also important to remember that the Industrial Property Law [3] states that a crime of unfair competition is committed by anyone who employs fraudulent means to divert, for their own benefit or for the benefit of others, another person’s customers.

In addition, court decisions have also condemned the search provider, together with the advertising company, to compensate the owner of the unduly commercialized trademark, for both moral and material damages.

With regard to moral damages, the STJ’s decision considers that the moral damage resulting from the improper use of a trademark, based on the Industrial Property Law [4], is self-evident, i.e. its characterization occurs only with proof of the practice, and the demonstration of concrete damage is unnecessary for the duty to compensate to arise.

As for material damages, for these cases of unfair competition and based on the Industrial Property Law [5], the STJ judgment pointed out that damages are presumed due to the detour of customers and confusion between brands. Thus, the damages must be determined in the liquidation of the judgment, which is the procedural phase aimed at calculating the amount of compensation based on the criteria of the law and/or the court decision.

Unfortunately, this practice has become very widespread in the Brazilian digital market, often due to the actions of digital marketing agencies unfamiliar with the law, which end up inadvertently compromising their clients. In this sense, it is important for companies to keep a close eye on their digital marketing campaigns, especially when outsourced, in order to ensure that their companies are not running sponsored ads in breach of the law and to the unlawful detriment of competitors.

However, for companies in general, and especially those with a strong digital presence, it is important to carry out a simple and brief search for your company’s brand on search engines in order to identify whether your brand is suffering from this type of unfair competition.

However, it is important to note that simply displaying a competitor’s sponsored results when searching for a specific brand does not always constitute illegality, due to the way tools such as search engines work. These systems often allow keyword ads to be contracted with broad match, i.e. for the ad to be shown not just with the exact keyword search. In this way, brands made up of commonly used words are more likely to appear in search results, even if they have not been expressly contracted by a competing advertiser. It is therefore essential to analyze each case individually to determine whether there has been an unfair practice on the part of the advertiser.

Finally, it is imperative that search providers address this problem of advertisements made to the detriment of competitors, looking for some technological or procedural alternative to prevent the continuation of advertisements in breach of the law, which will undoubtedly strengthen the digital competition environment.

[1] STJ – Special Appeal No. 2096417 – SP.

[2] Article 32 of the Brazilian Advertising Self-Regulation Code.

[3] Art. 195, III, of the Industrial Property Law – Law 9.279/96.

[4] Art. 209 of the Industrial Property Law – Law 9.279/96.

[5] Art. 209 and 210 of the Industrial Property Law – Law 9.279/96.