Let's hope that Yahoo!'s (NASDAQ:YHOO) freshly announced wave of layoffs spares its legal eagles. It's going to need them, now that American Airlines parent AMR (NYSE:AMR) is suing the search-engine giant on charges of trademark infringement.

What's the problem? Well, AMR is claiming that Yahoo! is profiting from searches on its site for trademarked terms such as AMR's AAdvantage frequent-flier program. A search query on Yahoo! delivers the correct website for the airline's loyalty program, naturally, and several third-party sites that discuss the program. That's not the problem. The sticking point, according to AMR, is that Yahoo! is also serving up sponsored results alongside its trademarked name.

It's a common practice, of course. Search engines aren't charities. Searching for AAdvantage on Yahoo! this morning delivered an ad for Citigroup's (NYSE:C) AAdvantage credit card on top AMR's own site. A search on Google (NASDAQ:GOOG) came up clean of sponsored results, but Microsoft's (NASDAQ:MSFT) Live.com was another story. Not only are Citi and AMR featured as paid ads, but a column on the right also featured ads for several travel portals.

Trademark cases in the search space aren't new. Companies with popular brands have battled successfully to make sure that rival advertisers weren't using their trademarks in their ad copy. Bidding on trademarked keywords and the ad-serving technology that offers up targeted ads are murkier issues.

AMR and Google reached a settlement in a similar suit earlier this year. Terms of the agreement are confidential, but it seems as if Google is keeping the AAdvantage page clean. Other searches for related terms, such as "AAdvantage miles" and "AAdvantage programs," features only the airline's AA.com site as sponsored results.

Will Yahoo! settle as well? Will it push this case in a deal that may make or break online advertising practices? What are the obligations of a search engine? This may be a small legal case, but it's one where the answers are as big as AMR's other problems.

Coffee, tea, or pay-per-click?

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Longtime Fool contributor Rick Munarriz spends plenty of time on Yahoo!'s sites, but he does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.