The Second Circuit Court of Appeals has issued a ruling in a Google case that may impact the way AdWords operates nationwide.

Reversing a 2006 ruling that judged advertisers could buy trademarked search terms without violating trademark law, the Court concluded that recommending and "selling" a mark to advertisers — for the purpose of triggering a sponsored link — could violate trademark law.

It also claimed product placements could be subject to trademark law if the trademark holder can prove that consumers were confused.

The case in question is Rescuecom Corp. v. Google Inc. From the opinion:

According to Rescuecom's allegations, when a Google user launches a search for the term 'Rescuecom' because the searcher wishes to purchase Rescuecom's services, links to websites of its competitors will appear on the searcher’s screen in a manner likely to cause the searcher to believe mistakenly that a competitor’s advertisement (and website link) is sponsored by, endorsed by, approved by, or affiliated with Rescuecom.

The Electronic Frontier Foundation decried the ruling, arguing it would cause a chilling effect on third parties and Google — which may now have to approach a slew of similar lawsuits on stocking-feet, according to Search Engine Land.