It began simply enough. A small company wanted to make some money in online travel. So it joined Expedia Affiliate Network, where the online travel agency shares its hotel inventory with third-parties, sharing part of the commissions on any bookings.

To juice their returns, the entrepreneurs became assertive in marketing. The company bought ads on Google, using its AdWords program, which auctions ads tied to search terms. The affiliate outbid other players on keywords associated with hotel brand names.

InterContinental Hotels Group, Choice, and Hilton promptly sent the affiliate cease-and-desist notices, according to The Capitol Forum, a Washington-based investigative news and legal analysis publication. Capitol Forum reported the incident Tuesday, keeping the name of the affiliate anonymous.

“The IHG and Hilton letters accuse the affiliate of violating trademark laws, while the Choice letter specifically states that the company [Choice] entered into a ‘global agreement’ with Expedia that forbade Expedia and its affiliates from bidding on its brand’s keywords,” The Capitol Forum reported.

In effect, Expedia and its affiliates could bid all they wanted on “hotel downtown Indianapolis” or “Indianapolis downtown hotels,” for example, but not on a keyword that includes “Hilton” or its other brands.

The publication alleges that the hotel chains and online travel agencies are relying on “coordination” — a strong word, with potential legal ramifications.

Recent legal developments may change the calculations.

The publication also suspects that the behavior “harmed” consumers. That would be a potential trigger for an antitrust claim. The report doesn’t detail such harm, but courts have in some keyword-bidding cases outside of travel found that consumers indeed were adversely impacted by the practice.

Beyond Hotels

Other sectors have faced this issue. Around 2010, Carnival brands added language to their contracts with travel agencies to prohibit them from bidding on their trademarks as keywords in online search engines.

That led to the unintended consequence of higher placement in Google for the sponsored links from rival cruise lines. A Google search Wednesday for “carnival Caribbean cruise” fetched ads from rivals Disney and Celebrity in the second and third spots.

Non-travel searches turn up a lot of competitive bidding. In our random tests, a search on the phrase “nike sneakers” turned up ads from Zappos, Dick’s, and Kohl’s in all the top three advertising spots, while a search on “honda san jose” triggered ads from AutoNation, Subaru, and iMotors.

The case of hotel and online travel agency cooperation is notable, though, in what it suggests about broader industry dynamics.

Chains ordinarily compete against online travel agencies. Yet in the scenario that The Capitol Forum details, hotels and online travel agencies appear to be working together to protect each others’ trademarks in a way that has the side effect of reducing the money they need to spend on Google ads.

Smaller chains don’t seem to enjoy the same protections.

The Backstory

In 2002 and earlier, when online travel brands were new, they would sometimes forsake some of their commissions just to undercut others and gain market share or establish their brands.

Online travel agencies occasionally promoted a lead rate for a destination at the net cost that they owed to the hotel, just to create an attractive lowest rate in a market overall in their promotional claims (“We have New York City hotels from $179 a night!”)

On the one hand, that competitive tactic may have led to lower rates for consumers, on average. On the other, the tactic may have confused consumers about whom they were buying from.

Around 2003, the major hotel chains saw an economic recovery and fought for changes in their contracts with the online travel agencies to reduce their dependency on them.

By 2006, large chains, including Marriott and IHG, stopped such marketing behavior, longtime hotel marketing veterans say.

Contracts quoted by The Capitol Forum echo the claim of these executives.

In a clause in a Hilton and Expedia contract, The Capitol Forum reported, the companies agree that neither side will “knowingly bid on or otherwise use any of the other Party’s trademarks (the ‘Marks’) or common misspellings for use in connection with hotel services with the intent of targeting specifically the other Party’s properties or services.”

The contract also requires Expedia to “use commercially reasonable efforts” to keep members of its affiliate network from doing the same thing, even when the affiliate receives Expedia inventory via a third-party channel.

Skift requested comments for this story from several hotel chains and online travel agencies cited in The Capitol Forum reporting.  Hilton and IHG declined to comment, and Choice, SBE, Expedia, and the Priceline Group didn’t respond.

A Different Story for Smaller Players

Smaller hotel groups and independents seem to face assertive bidding against their brand keywords by online travel agencies.

“This because of the humongous market power the online travel agencies have accumulated,” said Max Starkov, president and chief executive of HEBS Digital. “The smaller hotel groups and independents are being intimidated.”

One former hotelier, who worked for a U.S. chain of significant size but not as big as world’s six largest, said one of their former company’s biggest frustrations was online travel agencies purchasing the chain’s branded keywords. The hotelier said that protesting about trademarks and intellectual property didn’t work.

In any negotiations the ex-hotelier did with online travel agencies, none would agree to rein in their practices contractually. The former executive suspects that the few largest global brands are getting special treatment from the online travel agencies.

Searches on Wednesday on several smaller chains did suggest cross-brand bidding is common. Typing “wyndham vegas” returned three sponsored ads from Vegas.com, Booking.com, and HomeAway rather than an ad for the brand’s premier property in the area, Wyndham Grand Desert.

Some small hotel chains and independents have a clause in their agreements disallowing the online travel agencies from bidding on their branded and trademarked) keyword terms, said one marketing executive who has worked with hotel chains.

But these hotel brands do not dare enforce this provision because they are afraid that the online travel agencies will punish them with lower rankings in their online travel agency search results, said the owner of a digital marketing agency that works for hotels but who declined to be named.

Retaliation was allegedly the case with Morgans Hotel Group when it spoke out against Expedia’s bidding practices before SBE acquired the hotel group a year ago, the executive said. A spokesperson for Morgans could not be reached for comment.

Hotels that do not give their rooms to the online travel agencies may also fear being bullied.

Last year, the owner of two California properties that do not list on Expedia — Buckeye Tree Lodge and Sequoia Village Inn — filed a class action lawsuit against the online travel agency.

The hotelier alleges that Expedia brands bid against its keywords for ads and posted “fake” telephone numbers for the hotels to divert callers to Expedia’s own operators — who then tried to book the consumers at Expedia participating hotels where it earns a commission.

In October, a federal judge in California ruled that the hotels had provided enough evidence that the case may go to a hearing and not be dismissed as frivolous, reported Law360.

Elsewhere, many smaller hotel brands face online travel agency competition in keyword bidding. A Google search for “ace portland hotel” turned up an Hotels.com ad in the top spot. Searching for “mayflower washington” led to a top ad placement for booking company Guest Reservations instead of for The Mayflower boutique hotel in Washington, D.C.

Searching “virgin hotels chicago” fetched an Expedia ad in the second position after a Virgin link. A look for “riverwalk plaza hotel” delivered a TripAdvisor ad in the second position after the hotel’s own ad. A hunt for “viceroy hotels new york” turned up a Booking.com ad in the second position. And so on.

The issue applies to hotels outside the U.S., too. In 2009, an academic paper in Cornell Quarterly by Peter O’Connor, now a travel industry consultant and chaired professor of digital disruption at ESSEC Business School in Paris, found that keyword bidding by third-parties was widespread in European search. More recently, a Berlin hotelier complained about Booking.com’s aggressiveness.

In an interview, O’Connor suspects “that intermediary cross-bidding behavior is less today than then, but updated empirical research is needed.”

Much Ado about Something?

The law is muddy about keyword bidding and trademarks. But The Capitol Forum pointed to a fresh development.

In late October, an administrative law judge working for the Federal Trade Commission upheld a decision against the retailer 1-800 Contacts in a case involving trademark use in online keyword advertising.

The company’s rivals had been bidding on its name to buy AdWords. 1-800-Contacts sued one of them, Lens.com, but lost in federal court. The court ruled that traditional analysis and actual marketplace data failed to show that the keyword use by Lens.com and its affiliates was highly likely to divert consumers. The case was upheld on appeal.

Yet 1-800 Contacts persisted in asking competitors to sign agreements to stop bidding on its keywords. Some signed.

The FTC said that these agreements restrained price competition, restricted lawful advertising, and resulted in consumers paying higher prices. 1-800-Contacts denied all of those claims, and it appealed.

This October, an FTC administrative judge upheld the decision. But the company plans to contest that decision.

For the travel industry, what matters is that the watchdog agency’s ruling, combined with the court decision, suggests that bidding on a competitor’s trademark in AdWords may not be trademark infringement under certain circumstances. In theory, that could be a concern to some hotel chain lawyers.

A 2013 review of the topic by the Harvard Journal of Law & Technology noted that, in some cases, courts have found that consumers are harmed when they “search for a trademark and paid links for a competitor appear” and some courts have also “assumed that the inclusion of the trademark in ad text increases the likelihood of diversion and/or confusion.”

But other courts have ruled differently.

Google’s policy for AdWords around trademarks doesn’t offer clear-cut answers.

Google’s policy suggests broadly that more relevant information is better than less, and that the consumer’s interest is best served by maximizing the choice of keywords for a variety of contexts.

An Open Secret Among Digital Agencies

Industry experts we spoke with were unimpressed by the affiliate’s beef with hotels. Several said the ban on keyword bidding was common, long-standing, and well-known.

When asked if the keyword bidding on rival brands is common in industries outside of travel, a couple of current and former ad agency executives said that it wasn’t.

They argued that it’s just not productive for major retailers, automakers, and other national brands to bid on each others’ keywords because the cost-per-click would be exorbitant given that each side has large budgets and that Facebook, native, and display ad programs would be more cost-effective.

But the claim that big brands never cross-bid on keywords doesn’t hold up against quick searches on randomly picked brands outside of travel, as noted above in the example with Nike sneakers and Honda cars.

Practicing “Discipline”?

Proving consumer harm in keyword bidding agreements among hotel chains and online travel agencies is a high legal threshold, experts noted.

While The Capitol Forum characterized contractual clauses on keyword brand-bidding as “coordination,” some industry observers describe this behavior as “ad-bidding discipline.”

Barring an outcry and renewed attention, unless the Expedia affiliate in question takes its case to court or to a federal regulator, the hotel chain-online travel agency contractual arrangements on keyword bidding will likely remain in place.

On that point, they may have more luck with courts and regulators overseas.

In general, European regulators have lately been more sympathetic to claims about restraints on trade due to online marketing practices.

European regulators recently forced Booking.com, Expedia, and other online travel players to revise their contracts to eliminate best-rate guarantees, and this year European regulators fined Google for favoring its shopping products over competitors’.

Photo Credit: A Google search for 'hilton garden inn new york' finds no major online travel agencies running ads based on Hilton's keywords. Hilton Garden Inn