Sponsored Links in Brazil: Will Courts Ban Them?

A recent decision by the São Paulo State Court of Appeals in the case between Via S/A (“Via”) and Magazine Luiza S/A (“Magazine Luiza”) highlights critical issues in the realm of advertising and trademark law, particularly concerning the use of sponsored links in digital marketing*. The case, centered around the unauthorized use of trademarks "CASAS BAHIA" and "PONTO FRIO" by Magazine Luiza in Google Ads campaigns, underscores the nuanced challenges of ensuring fair competition and protecting brand integrity in the digital age.

Case Background

Via is the owner of the trademarks "CASAS BAHIA" and "PONTO FRIO" and filed a lawsuit against Magazine Luiza, alleging that the latter had engaged in unfair competition by using these trademarks as keywords in Google Ads. Via argued that this practice led to consumer confusion and a diversion of clientele, which ultimately harmed its brands.

In its defense, Magazine Luiza contended that such use of competitors' trademarks as keywords was a common and accepted practice in the market, arguing that it did not constitute trademark infringement or unfair competition.

Court's Decision

The 2^nd Reserved Chamber of Business Law of the Court of Appeals of São Paulo, in a majority decision, sided with Via, reversing the lower court's ruling that had dismissed the lawsuit. The Appellate Court found that Magazine Luiza's actions did indeed constitute unfair competition. The court noted that using a competitor's trademark to trigger sponsored ads can mislead consumers and unfairly divert business, thus violating the principles of fair competition as outlined in the Brazilian Industrial Property Law (Lei n. 9.279/1996).

Key points from the decision included:

1. Consumer Confusion and Market Disruption: The court emphasized that Magazine Luiza's use of the trademarks "CASAS BAHIA" and "PONTO FRIO" as Google Ads keywords created a likelihood of consumer confusion. 
2. Unfair Competitive Practices: The decision reaffirmed that the use of a competitor's trademark in this manner constitutes an act of unfair competition. This practice disrupts market equilibrium and damages the trademark owner's business by diverting potential customers.
3. Moral and Material Damages: The court awarded Via with moral damages of R$ 10.000,00 (approximately USD 1,800.00), recognizing the harm to its brand reputation and consumer trust. Additionally, material damages are to be determined in a subsequent phase of the proceedings, highlighting the financial impact of such unfair practices to the trademark owner. 

Divergent Opinion

However, the decision was not unanimous. Judge Maurício Pessoa presented a divergent opinion, arguing that Magazine Luiza did not violate trademark laws or engage in unfair competition, as even though given the opportunity, Via was not able to prove that Magazine Luiza did in fact purchase keywords corresponding to the trademarks "CASAS BAHIA" and "PONTO FRIO". On the other hand, according to the Judge, Magazine Luiza proved not having purchased the keywords corresponding to the appellant's brands, as revealed by the negative keyword details report and other evidence presented. Judge Maurício Pessoa highlighted that Google's "Dynamic Search Ads" was likely a key factor, since it automatically generates ads based on the content of a website without specific keyword targeting. Therefore, according to him, the automatic nature of Dynamic Search Ads led to any potential misdirection of consumers, exonerating Magazine Luiza from the accusations of intentional misconduct. 

This divergent view underscores the complexities involved in cases of digital advertising and trademark use, especially when automated systems are involved.

Implications for Advertising and Trademark Law

This decision has significant implications for advertisers and legal practitioners in the fields of advertising and trademark law:

1. Clarity on Keyword Advertising: The ruling provides clearer guidance on the boundaries of using competitors' trademarks in keyword advertising. Companies must be cautious and ensure their marketing practices do not mislead consumers or unfairly exploit competitors' brand equity.
2. Enhanced Brand Protection: Trademark owners can take solace in the fact that the court recognizes and protects against the misuse of their trademarks in digital marketing. This decision reinforces the importance of maintaining brand integrity and offers a legal remedy against unfair competition.
3. Legal Precedent: The decision is amongst many that are setting a crucial precedent in Brazilian jurisprudence. As a matter of fact, both the majority decision and the dissenting opinion referenced Statement XVII issued by the Group of Reserved Chambers of Business Law of the Court of Appeals of São Paulo, published on November 29, 2022, that states: "It is an act of unfair competition to use the nominative element of another's registered trademark, trade name, or establishment title, that is sufficiently distinctive and acts in the same line of business, as a search term for the promotion of advertisements contracted with internet search providers". 

The majority decision also referenced Statement XXIII from the same Group of Reserved Chambers, published on January 23, 2024, that states: "The use of the nominative element of a competitor's trademark, trade name, or establishment title as a keyword on the Google Ads platform constitutes parasitic use, facilitating an act of unfair competition (art. 195, III, of Law No. 9.279/1996), implying the joint liability of the provider due to the risk of the activity (art. 927, sole paragraph, of the Civil Code). Art. 19 of the Marco Civil da Internet is not applicable, because the choice of a keyword for targeted advertising service cannot be confused with the production of content by third parties."

Conclusion

The 2^nd Reserved Chamber of Business Law of the Court of Appeals of São Paulo decision in the Via vs. Magazine Luiza underscores the legal risks associated with using competitors' trademarks in keyword advertising and reinforces the judiciary's role in maintaining fair competition in the marketplace. As digital advertising continues to evolve, this ruling provides essential guidance for legal professionals and businesses navigating the complex landscape of trademark use in online marketing. The divergent opinion further highlights the need for clear guidelines and thorough evidence in disputes involving automated advertising technologies.

* Appeal n.º 1130874-18.2021.8.26.0100 before the 2^nd Reserved Chamber of Business Law of the Court of Appeals of São Paulo