Search advertising powerhouse Google suffered a setback Wednesday in its defense of a trademark infringement suit.

U.S. District Judge Jeremy Fogel dismissed one claim by American Blind & Wallpaper Factory, but denied Google's motion to dismiss the suit, allowing it to go forward for trial.

American Blind sued Google in May 2004 for trademark infringement in a beef over Google's lucrative AdWords search advertising service. Google started the spat by asking the court to rule on whether AdWords infringed on American Blind's trademarks following a series of nasty letters from the home decor retailer. American Blind countersued.

The suit claims Google's practice of selling text ads related to keyword search terms infringes on American Blind's trademarks, because competitors' ads can appear on results pages delivered to users searching for the company. American Blind asked that Google be permanently barred from selling keywords.

In fact, the suit claims, Google makes it worse with its AdWords Keyword Suggestions feature, which "actively and deliberately encourages American Blind's competitors to purchase... virtually every conceivable, though indistinguishable, iteration of those marks."

Google's distribution partners Ask Jeeves, Earthlink AOL, Netscape and CompuServe are also defendants in the suit, because they display Google search results and AdWords on their own sites.

Google is fighting similar suits in a home and abroad. Earlier this month, a French appeals court upheld a $103,000 damage award to travel companies Luteciel and Viaticum. The lower court had ruled that Google's practice of letting competitors buy the companies' names as key words amounted to "trademark counterfeiting."

In April 2004, AXA, an international insurance and asset management company, filed a similar suit.

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In the U.S., insurance provider Geico has filed with the courts over a similar beef.