The settlement resulted from a trademark infringement suit from GEICO, the auto insurer that is part of Warren Buffett's empire. Basically, GEICO claimed that advertisements of competitors popped up whenever users searched its name on Google's site. Shouldn't GEICO get a piece of the ad revenue? The implication is that, under the alleged conditions, the GEICO name has effectively driven some of Google's ad revenue, since other companies have benefited from GEICO searches.
Actually, it had become quite a confusing case. Late last year, it appeared that Google had scored a major victory when the U.S. District Court judge in Virginia said that the company could continue its search-engine practice, although the same judge indicated that GEICO had the right to collect damages from Google. What's more, she encouraged the parties to settle within 30 days.
And that's just what finally happened yesterday, when Google and GEICO announced they had reached a settlement. What did they agree upon? Well, we will probably never know, since the terms of the settlement are closed, as they are in many settlements. It's interesting to note that both parties say they have won the standoff.
In a way, Google had few options. If it proceeded with litigation -- and lost -- it would be damaging to its core business, as other companies continually direct search revenue. In addition, a negative outcome would have set a costly precedent, since other companies would have then tried to obtain payments from Google. This would have delivered a serious blow to its margins and might have forced it to raise its advertising fees, thereby putting it at a competitive disadvantage.
Given the uncertain outcome of yesterday's settlement, it's not unlikely that the company might find itself the subject of similar challenges. Obviously, Google has a lot of money and is willing and able to negotiate on these things. But if this becomes an ongoing problem, it raises serious questions about Google's business model. There may well be continual threats to the company's margins if other companies follow GEICO's lead and force the company to pay additional settlements. Regardless of who won yesterday's settlement, it's doubtful that anyone was celebrating at Google's campus in Mountain View, Calif.
Fool contributor Tom Taulli does not own shares of any company mentioned in this article.