A federal judge in Virginia has ruled that a trademark infringement suit filed by the US Government Employees Insurance Co. (GEICO) against Internet search giants Google and Overture Services can proceed.

Judge Leonie Brinkema of the U.S. District Court for the Eastern District of Virginia dismissed a motion filed by Google and Overture to dismiss the case, which charges that Google and Overture violated GEICO's trademark by selling advertising, or "sponsored links" to GEICO's name. If successful, the lawsuit by GEICO could hobble the engine that has fueled Google's growth: search advertising.

Sponsored links are key for both Google and Overture, which is owned by Yahoo. The companies sell advertisers the right to have links to their Web pages appear, under a separate heading, when certain keywords appear in a search. In a public filing on April 29, 2004, linked to the company's plans to sell stock in an initial public offering, Google disclosed net income of US$105.6 million and revenue of US$961.9 million in 2003.

GEICO sued both companies for selling rights to its trademarked name to advertisers, alleging trademark infringement, false representation and trademark dilution under a federal trademark statute known as the Lanham Act.

In oral arguments on Aug. 6, Google and Overture claimed that they could not be sued for trademark infringement because they used GEICO's name only in internal computer algorithms that determined the sponsored links to display, and did not identify the search engines as the source of the GEICO product or imply an endorsement by GEICO.

In her ruling, which was filed on Aug. 25 but not publicized by the companies, Judge Brinkema flatly rejected those arguments, saying that Google and Overture's sale of adwords for sponsored links may make the companies liable for unlawful use of GEICO's trademark, according to a copy of the decision.

The judge refrained from ruling on whether the sale of adwords actually violated the Lanham Act or Virginia law, saying "that decision cannot be reached until discovery has been completed," the order said.

In the same decision, the judge threw out two other GEICO charges based on Virginia state law.

A claim by GEICO of "tortious interference" with GEICO's business was found to be too broad. Another claim of "statutory business conspiracy" between the search engines and their customers were not well supported enough to prove that the companies conspired to injure GEICO, the order said.

In a statement, GEICO said it was pleased with the judge's decision not to dismiss the trademark and unfair competition claims.

"The Judge rejected the argument advanced by Google and Overture that they should not be subject to liability for allowing their advertisers to bid on the GEICO marks and, in the words of the Judge, 'pay defendants to be linked to the trademarks.' We look forward to the opportunity to prove at trial that this unauthorized use of GEICO's well-known trademarks is unlawful and should be stopped," the statement said.

Representatives for Overture and Yahoo did not respond to requests for comment.

Representatives from Google also declined to speak about the decision, citing the still-ongoing U.S. Securities and Exchange Commission "quiet period" stemming from the company's recent initial public offering. In an e-mail statement, the company said the suit is without merit and that Google "will continue to defend against it vigorously."

The case between GEICO and the search engines could proceed quickly, given the reputation of the U.S. District Court for the Eastern District of Virginia as "the fastest moving federal docket in country," according to a source familiar with the case, who cited the ongoing litigation between the companies in asking not to be named. Although GEICO just filed its complaint in May, a trial could begin before the end of 2004 or in early 2005, the source said.