CORRECTED-UPDATE 1-M&S may use rival trademark if no harm done -court

(Corrects paragraph 3 to show Adwords can push websites higher in Google ad lists, not search results)

Sept 22 (Reuters) - * EU court: use of rival trademarks is part of competition

* Lawyers: ruling a boost for Google's Adwords product

* Setback for brand owners

* Up to national courts to decide on merits of each case (Adds Interflora, lawyer comments)

By Foo Yun Chee and Georgina Prodhan

BRUSSELS/LONDON, Sept 22 (Reuters) - Marks & Spencer may be allowed to use another company's trademark for online advertising as long as it does not hurt its rival's reputation, Europe's highest court ruled, in a boost for Google's Adwords product.

The European Court of Justice (ECJ) was ruling on Thursday on a lawsuit brought by U.S. flower delivery group Interflora against M&S, in which British judges sought advice from the Luxembourg-based ECJ.

Google's Adwords allows organisations or individuals to increase their prominence on the Web by buying keywords that will push their websites higher up in Google ad lists when users type those words in.

Many companies use this as a tool to piggyback on the strength of rival brands, for example in the case of M&S, which bought the keyword "Interflora" to lead consumers to its own site.

The court said M&S could use an online advertisement with a keyword corresponding to another trademark to attract customers to its goods or services, as long as it did not damage the reputation of the rival brand.

"Such use falls, as a rule, within the ambit of fair competition in the sector for the goods or services concerned," the ECJ ruled.

The ruling confirms Google's business model, said Geert Glas, an intellectual property rights specialist at law firm Allen & Overy.

"The court allows a certain degree of free-riding as part of normal competition on the Internet. The court sees keyword advertising as something to stay and which has a legitimate place in the Internet economy," he said.

"I think it's good news for Google. It will be able to convince customers that they can take out Adwords as long as these comply with the rules set by the court."

Google's Adwords service, which involves the sale of keywords to trigger advertisements, is at the heart of the company's $23 billion online advertising operations and a key plank of commerce for Internet service providers.

British judges, who will have to make a final decision in the Interflora case, may decide in favour of Interflora as the nature of its service could lead consumers to think M&S is part of its network, said Mark Owen, at London-based law firm Harbottle & Lewis.

Overall the Luxembourg ruling was a setback for brand owners, he added.

"The case is unlikely to be of assistance to many other brand owners who are trying to stop their competitors bid on their brands as keywords," he said.

Interflora welcomed the ruling, saying judges broadened the scope of possible trademark infringements.

"This ruling has gone a bit further," said Helyn Mensah of Pinsent Masons, who acts for Interflora.

"It's saying that if you use a keyword that is identical to a registered trademark or brand, and that use has an adverse effect on the brand owner's ability to attract or retain consumers, then that is also infringement," she said.

Affirming last year's ruling in a case involving Google and Louis Vuitton , the ECJ also said that brand owners could go after rivals if the trademark free-riding confused consumers as to who was providing the service or the goods.

It will be up to national courts to decide on the merits of each case, the judges said.

(Editing by Rex Merrifield and Helen Massy-Beresford)