Google has announced that it will soon begin allowing U.S. advertisers to use trademarked keywords in limited circumstances in text ads, much as Yahoo! already does.  Google currently allow advertisers to bid on trademarked terms as keywords that could cause an ad to appear, either next to Google search results or on a third-party publisher’s website.  That policy will not change, and is discussed here by my PFF colleague Sid Rosenzweig.  The new policy is focused on the text seen by users in ads themselves and applies only if the “landing page” (to which the ad links) is used by a reseller, aggregator or parts supplier to sell only products that are relevant to the mark in question, or if the page is used to provide impartial reviews or other information about the trademarked product.  The new policy does not apply to sites/pages that (a) facilitate the sale of counterfeit goods, (b) allow the sale of a competitor’s goods, (c) criticize the trademarked good, or (d) do not provide substantial information or a purchase option.  Despite these limitations and other safeguards, Google has been sharply criticized by some trademark holders and might even be sued (e.g., for contributory infringement).

I’ll defer to the real trademark lawyers to figure out whether Google is correct that its new policy falls within the bounds of trademark law (particularly the “nominative fair use” doctrine).  But since Adam Thierer and I have been involved in an ongoing defense of online advertising against those who would squelch it through regulation in the name of privacy concerns (not at play here), I think it’s important to highlight the potential benefits to users from this seemingly arcane policy change-and to consider what this episode says about online advertising generally.  I see three main benefits to consumers from the policy change that should be considered alongside the vitally important role that trademarks play in our economy in communicating reputational information.

First, Google’s new policy will allow consumers to find products more easily because advertisers will be able to offer more descriptive and therefore informative ads, mentioning what they sell by name. Looking for a Prada handbag?  You’d probably find the ads that appear next to your search results for “Prada Handbag” more useful if the text of the ad specifically mentioned “Prada”-and if, as Google’s new policy requires (to protect trademark holders), the landing page actually sold Prada handbags, and only Prada handbags.  You’ll currently see a few ads that mention Prada, reflecting the current policy, which allows advertisers to use a trademark in an ad text, but only with permission of the trademark holder.  But the new policy will allow any advertiser that meets the criteria stated above to compete for attention with ads that convey more useful information to users and that are therefore more likely to be clicked on.  This might particularly benefit the Long Tail of products and services, because it could help retailers of niche products advertise, particularly if those products are accessories to major brands.

Of course, Marxists have long argued that advertising is a dead-weight loss to society because it doesn’t actually convey useful information:  Ads just “manipulate” users, who are-the elites tell us-too stupid to tell the difference between what they really want and what they’ve been tricked into thinking they want (“false consciousness”).  Whatever one thinks of this argument, it’s pure hypocrisy to criticize advertising as being “information-poor” and also attack tools and policies that convey more information-in this case, the fact that the advertised page concerns a particular trademarked good/service.

Second, this policy change will allow the Long Tail of retailers & review/information sites to compete more effectively by letting users know they’re out there.  As anyone who’s ever started a business knows, perhaps the single greatest barrier to entry is simply the difficulty and expense entailed in building awareness among potential customers.  This is why effective, targeted speech is so vitally important to competition and the overall health of the economy.  Giving consumers more information means more small businesses will be able to break in to compete with entrenched firms by offering lower prices and higher quality (including on non-price factors like privacy).

Third, by raising the value of advertising, this policy change will create more funding for free content & services, both those provided directly by Google and those provided by third parties supported by ads sold through Google.  Obviously, Google wouldn’t be adopting this new policy they didn’t think it would allow them to make more money:  Allowing more descriptive ads means users are more likely to find the ads they see relevant and to click on them, which, in turn raises the value of ads sold by Google.  But contrary to what some Googlephobes might have us believe (based on the usual reaction to every Google announcement), Larry & Serge won’t just spend that new revenue on building a Clone Army to implement some nefarious scheme to take over the Galaxy.  I can’t disprove the Clone Army possibility any more than I can disprove the existence of the Easter Bunny, Sasquatch or Zeus, but if this phantom menace does exist (perhaps on one of Google’s planned floating data centers), our soon-to-be Digital Overlords are sure doing a good job of hiding it amid all the “free” (i.e., ad-supported) stuff they give away to consumers-at considerable expense:

• As I’ve written previously, two-thirds ($14.41B) of Google’s 2008 global revenue ($21.78B) came from advertising on its own sites, primarily the search engine. These sites and the dozens of its free services like Maps and Gmail aren’t cheap, altogether costing Google another $3.34B to support, including the enormous cost of its data centers (“cost of revenues”). Google spent $2.79B on R&D, much of which will lead to innovative new services for users. Of course, until the Clone Army can take over Google’s daily operations, someone’s got to keep the lights on (and the Cylons machines from rebelling)-so throw in another $1.8 billion for personnel, post-it notes, ethically harvested coffee and other “general and administrative” expenses.
• The remaining third of Google’s global 2008 revenue ($6.71B) came from ads sold on the “Google Content Network”: third-party publishers that sell ad space on their pages to advertisers through the AdSense auction system. Of that, Google paid out $5.28B (78.7%) to publishers, who used the money to support the content and services they give away to users-from simply paying hosting costs in the case of the smallest sites to, say, trying to keep cash-strapped newspapers alive.

Again, there is great value to protecting trademarks to minimize the possibility of confusion and fraud among Internet users.  But while this policy change is ultimately an issue of trademark law, it also highlights the benefits of improved online advertising for consumers.  If Google (and other ad networks) can increase the value of information-richness of advertising (and therefore its effectiveness and economic value) in a way that is consistent with the consumer protection purposes of trademark law, that’s something to be celebrated.   Sure, Google will benefit, but in this case, a rising tide will truly lift all boats.

If Google wants to minimize concerns about the automated process Google will use in deciding whether a trademark may be included in an ad for any particular page, the company could proactively address these concerns by providing trademark owners (and the third parties that monitor their online brands) tools that would indicate whether a particular trademark could be used in advertising a particular page.  This would alleviate the uncertainty of trademark holders as to whether their brands are at risk and allow them to call attention to inevitable shortcomings in Google’s algorithm, which will have to evolve constantly.  This would allow Google to keep its algorithms secret, but in order to prevent those who would abuse such tools from reverse-engineering Google’s abuse-detection algorithm, it would probably be necessary to restrict access to these tools to legitimate trademark holders and monitoring services.  How to implement that system might not be easy, but if anyone can figure that out, it’s Google.  I’ve applauded Google’s leadership in the privacy context, where Google has given users tools (the Ad Preference Manager and the Advertising Cookie Opt-Out Cookie plug-in) to manage their preferences about behavioral advertising.  I hope to see Google follow the same approach here:  addressing legitimate concerns through technological means in a way that maximizes consumer welfare.

Finally, it’s interesting to note here that Google is playing catch-up with Yahoo! here-just as Google lagged behind Yahoo! in introducing behavioral targeting, which has caused considerable privacy consternation.  As I’ve said before:

it’s no accident that Google was a late-comer to the [Online Behavioral Advertising] market, lagging behind Yahoo! in particular.  The most likely reason Google has taken its time in rolling out an OBA product is that Google is subject to a unique level of scrutiny by privacy advocates by virtue of its size.  Being the “big kid on the block,” Google has to be especially careful not to appear to be “Big Brother.”  This reputational check on Google should allay some concerns about Google’s size.

Today and tomorrow I am attending a terrific conference at Penn State University called, “Playing to Win: The Business and Social Frontiers of Videogames.” It features panel discussions about various legal and business issues facing the video game industry, as well as discussions about how video games are used to aid teaching and learning. There are also panels on multiplayer online worlds and virtual reality environments and the issues surrounding both. [They will apparently be posting videos from the conference on their site shortly.] The folks at PSU were kind enough to invite me to deliver the luncheon keynote on Day 1 and I decided to provide a broad overview of the policy issues facing video games that I have covered in some of my past work. My presentation was entitled, “Video Games, Ratings, Parental Controls, & Public Policy: Where Do We Stand?” and the entire 36-slide presentation is now available online here. Down below, I thought I would just outline a couple of the key themes I touched upon in my presentation.

ESRB: Strengths & Challenges

One of the things I did in my presentation was to provide a brief sketch of how the Entertainment Software Rating Board (ESRB), the game industry’s voluntary rating and labeling system, works. After doing so–again, you can download the entire presentation if you want those details–I outlined the strengths of the ESRB system, which I listed as follows:

Then I discussed some of the challenges facing the ESRB system…

General Thoughts on Ratings vs. Government Regulation

Later in the presentation, after walking through how various parental control tools worked, I talked about my general feelings regarding critiques of private rating systems and the ESRB in particular:

Future Issues & Controversies

I concluded by throwing out a few predictions about future issues and controversies that I think we will be debating in coming months and years.

I suppose I should provide some more details regarding this last slide since it will be of the most interest to many readers. Here’s some more explanation regarding each of my 7 predictions:

(1) Renewed push for universal media ratings: This issue has always been hanging out there and I think we will continue to hear calls–from both policy makers and media critics–for some sort of universal rating system for all media. God only knows how that would work. The last Star Wars movie (“Revenge of the Sith”) yielded several distinct media products: a major theatrical motion picture, a video game, a book, a comic book, and even a musical soundtrack. Should they all be rated the same way using the same system? I think that would be difficult to pull off. More worrisome is the fact that any move toward a universal rating scheme would undermine much of the education and awareness-building efforts that have helped familiarize consumers (especially parents) with the ESRB and other existing private rating and labeling systems. Finally, because it is unlikely we will ever see a voluntary movement by all major media producers to abandon their existing rating schemes and adopt a universal system, such a move would likely only come about because of action by government officials. Of course, that raises a host of First Amendment issues. For that reason, we might instead see a push for…

(2) Oversight of ESRB by Congress or non-profit / academic groups: Some critics say that the ESRB needs more “objective” oversight by either a regulatory agency or some of the third-party group, like an academic institution. As I point out in some of those slides above, ratings will ALWAYS have a subjective element to them since raters all bring different values and insights to the task of judging artistic expression. So making the rating process more bureaucratic isn’t going to make matters any better. Instead, it will just politicize the system and slow it down. [See my lengthy essay on this issue from a few weeks ago.]

(3) More FTC oversight of retailer enforcement: The Federal Trade Commission already conducts secret shopper surveys and issues an occasional report about the “Marketing of Violent Entertainment to Children.” Those reports has shown that retailer enforcement of the ESRB rating system is improving, but still needs to improve. [Here you will find my detailed thoughts on the conclusion of the last FTC report.] But there have been some calls in Congress for stepped-up FTC oversight, and potential penalties, for retailers who fail to enforce the system properly. (Remember Sen. Clinton’s “Family Entertainment Protection Act”?)

(4) Mandatory age verification for MMOGs & online activities: Here’s one to keep a close eye on. With a debate raging about the wisdom and effectiveness of age verification for social networking sites, it’s only a matter of time before online video games are brought into the discussion in a major way. The recent Bryon report in the UK included a discussion of this in the online gaming section of their final report. Stay tuned, this debate is set to explode here in the States.

(5) Mandatory parental controls defaults: One of my next white papers discusses the perils of government mandates that might force media & technology providers to not only embed parental controls in all their devices, but also turn them “ON” when they are shipped to market (meaning they would set to their most restrictive position as a defaults). For example, it could be required that every video game console be shipped with on-board screening technologies that were set to block any games rated above “E” (i.e., “Everyone”-rated games). Similarly, all personal computers or portable media devices sold to the public could be required to have filters embedded that were set to block all “objectionable” content, however defined. If “default” requirements such as this were mandated by law, parents would be forced to opt out of the restrictions by granting their children selective permission to content above a certain ESRB rating. In theory, this might help create another roadblock to underage access to some objectionable content, but it would also create an enormous consumer backlash and lead to a great deal of regulatory hassles and console hacking. Again, I’ve got an entire paper coming out on this issue from PFF next month that addresses my reservations with such a mandate.

(6) What happens when “AO” games hit consoles? I created some controversy recently when I noted that: “Whether any of us care to admit it, the fact that AO-rated games are currently kept off the major consoles and off the shelves at some major retailers (ex: Wal-Mart and Target) is probably the most important thing holding back a full-on legislative assault on video games.” Some took that to mean that I was advocating rigorous self-censorship of “AO” (Adults Only-rated) games. To the contrary, as I told MTV Multiplayer News, “I am in no way advocating that the industry hold off in terms of allowing complete creative expression.” And I also told MTV Multiplayer that I thought that eventually one of the major consoles–probably Sony–would cave and allow some AO-rated games on their platform. But make no doubt about it, when that happens, all hell is going to break loose. Not only with the typical pro-censorship crowd kick their complaint-generating factories into high gear, but a lot more average parents will protest the move and likely petition lawmakers for greater regulation of games or consoles.

(7) What about virtual reality games? And finally we come to virtual reality. All these other video game debates we have been having pale in comparison to the heated debate we can expect during the coming decade as virtual realities games and devices proliferate. And we all know they are coming. I fully expect that something like the Star Trek “holo-deck” will be in my living room by the time my kids are teenagers. We are already seeing more “tactile” devices coming to market, such as steering wheels and video game guns, that add a new layer of involvement to the games we play. Most recently, video game vests are hitting the market that simulate the sensation of being shot while playing a game. Once you combine these tactile technologies with more visually immersive visual display technologies, we will be well on our way to a serious VR world. And once they figure out a way to make it fully online and interactive, a huge policy debate is going to develop over the wisdom of letting people (especially kids) play holo-deck games where they actually feel like they are inside Halo or World of Warcraft, mowing down competitors with plasma rifles and broad swords. (Personally, I am very eager to try out “Resident Evil” this way!) Regardless, this debate is coming and it will be a very heated affair.