Summary:

Starting next month, Microsoft’s Bing and Yahoo (NSDQ: YHOO) Search will both allow advertisers to buy paid search ads that pop up based on…

Starting next month, Microsoft’s Bing and Yahoo (NSDQ: YHOO) Search will both allow advertisers to buy paid search ads that pop up based on searches for trademarked keywords, like Coke or Ford. The reason they’ll be able to engage in this profitable practice? Largely, because they’re standing on the shoulders of legal victories won by Google (NSDQ: GOOG). Google has allowed ads to be keyed off trademarked keywords in the U.S. for several years now, and expanded the policy worldwide in 2009.

The company continues to fight legal battles over the practice, since some trademark owners don’t like the idea that searchers for terms like “American Airlines” are finding anything other than the trademark owner’s products and services. There are still outstanding lawsuits over the practice, including the suit brought by software maker Rosetta Stone which is now being considered by an appeals court.

The practice of allowing advertisers to bid on trademarked keywords isn’t only profitable; it’s pro-consumer, since it allows searchers looking for terms like “Nike” or “Sony” to immediately see deals from competing companies. But it has upset big brand owners who are used to controlling their message; some, like Rosetta Stone, say Google’s ad policies allow for counterfeit software sales to flourish. (Google has denied those claims.)

Whereas Google has fought off legal attacks from angry trademark owners, Microsoft (NSDQ: MSFT) and Yahoo were much more accommodating of their complaints-until now.

In the search market, it’s consistently been Google that has fought the tough legal battles-including battles that will allow competitors to easily chase its heels. In one sense, as former EFF attorney Fred Von Lohmann wrote, “Google’s legal investments have paid dividends for the entire Internet innovation economy.” (It should be noted that about 20 months after Von Lohmann wrote that essay, he left EFF to start working at Google!)

Consider the other examples of legal battles Google has fought, where competitors were too timid to take on the challenge, but will benefit nonetheless.

Caching Of Web Pages. Back in 2006, Google won a lawsuit over its practice of making a “cache” of web pages and holding those on its server.

Image Search. It’s already hard to remember the fact that the idea of reproducing many images from around the web in reduced-size format was of questionable legality-but that was the landscape until 2007. In that year, Google won a landmark appeal case against Perfect 10, a porn company that has been a perenniall copyright plaintiff. The U.S. Court of Appeals for the 9th Circuit made it clear that image search was “transformative” and thus covered by fair use. Other search engines didn’t have to fight that battle, but they’re sure happy to use image searching today.

*Viacom* v. YouTube. Google has already beaten Viacom (NYSE: VIA) in the lower courts, and the case is now up on appeal. Google’s victory in this case will make it clear to every startup using user-generated content that as long as they play by the rules outlined by Congress, they’ll be safe from copyright lawsuits. Importantly, Google’s filtering technology-which would be hard to implement for a small company-isn’t necessary for a company to be in the green, but rather goes above and beyond.

Remarkably, if you think about it, Google could actually gain a competitive advantage by settling or even losing this lawsuit. If new entrants to the online video space or similar user-generated content sites were forced to implement filtering systems that satisfied copyright owners, it could well have the effect of limiting the market to deep-pocketed companies like itself.

One Big Counterpoint: the Book Search settlement. The class-action settlement with book authors, which was approved a federal court in 2009, will only apply to Google. That means until a competitor strikes a similar deal, Google will essentially have a monopoly in the field of global book search. So the book settlement could end up being exactly the type of competitive barrier that won’t be created by the Viacom lawsuit. Another company could at least follow the strategic path that Google laid out and strike a similar deal, but that would require big up-front resources as well as a commitment to replicate Google’s very expansive book-scanning project.

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