Google AdWords Appellate Decision Injects Some Uncertainty Back Into the Keyword Game

Just when you thought it was safe to bid on competitors’ trademarks as keywords -- provided you played it smart, and didn’t put trademarks in the actual text of your sponsored ad except under certain limited circumstances -- comes the Fourth Circuit’s decision in Rosetta Stone v. Google. In its opinion, the Fourth Circuit reverses, in significant part, the U.S. District Court for the Eastern District of Virginia for its apparently hasty summary judgment order in favor of Google, remanding the case for further analysis.

The AdWords Dispute

As the result of a typical Google search, you will normally see two types of results -- “natural” results, which are returned and ranked based on a proprietary (and secret!) algorithm Google uses to determine which sites are most relevant to your query, and “sponsored” results -- marked as “ads” and set apart from the natural results -- which are displayed because one or more advertisers have purchased “keywords” that, when searched for, yield their advertisements. By “bidding” on keywords via Google’s AdWords program, advertisers can control when, how often, and how prominently their advertisements spawn in response to a specific user inquiry.

Rosetta Stone has a problem with a specific aspect of the AdWords program -- namely, that Google (a) allows advertisers to bid on keywords that are also trademarks (including, if not especially, the trademarks of competitors), and (b) in fact recommends trademarks that would serve as relevant keywords. In 2009, Rosetta Stone brought suit, alleging that Google, via its AdWords program, aided third parties to mislead consumers and misappropriate its ROSETTA STONE trademarks, resulting in both likely and actual consumer confusion, some of which allegedly led to consumers accidentally purchasing counterfeit Rosetta Stone software. Specifically, Rosetta Stone brought counts of direct, contributory, and vicarious trademark infringement, trademark dilution, and unjust enrichment. The district court granted Google’s motion to dismiss the unjust enrichment claim, and granted Google’s motion for summary judgment on the remaining claims. Rosetta Stone appealed, and the Fourth Circuit reversed and remanded all but the vicarious infringement and unjust enrichment claims, some interesting points of which follow.

Direct Trademark Infringement

The Fourth Circuit explained that, while the district court did not err in its application of the traditional multi-factor likelihood of confusion test for trademark infringement, summary judgment was improper because “the district court did not properly apply the summary judgment standard of review but instead viewed the evidence much as it would during a bench trial.” Specifically, the district court did not properly view the available evidence and all reasonable inferences in a light most favorable to Rosetta Stone (the non-moving party), which would have led to the conclusion that a reasonable trier of fact could find that (a) Google intended to cause confusion, or knew that confusion was very likely to result from its use of the Rosetta Stone marks, and (b) the available evidence -- instances of actual confusion presented by Rosetta Stone, testimony from Google in-house attorneys, internal Google studies, and a consumer confusion survey produced by Rosetta Stone -- demonstrated actual confusion.

Additionally, the district court erred in its conclusion that trademark keywords are per se “functional” when entered into Google’s AdWords program because they “have an essential indexing function because they enable Google to readily identify in its databases relevant information in response to a web user’s query” and “also serve an advertising function that benefits consumers who expend the time and energy to locate particular information, goods, or services, and to compare prices.” The Fourth Circuit, noting that the functionality doctrine “simply does not apply in these circumstances,” explained that this analysis incorrectly focused on whether “Rosetta Stone’s mark made Google’s product more useful, neglecting to consider whether the mark was functional as Rosetta Stone used it.” Since the answer to the latter question was clearly “no,” it was “irrelevant whether Google’s computer program functions better by use of Rosetta Stone’s nonfunctional mark.”

Contributory Trademark Infringement

Contributory trademark infringement occurs when an entity induces another to infringe a trademark, or if it supplies products or services to those whom it knows or has reason to know are engaging in trademark infringement. General knowledge is not enough; instead, the defendant must supply its product or service to "identified individuals" that it knows or has reason to know are engaging in trademark infringement. The most relevant evidence presented by Rosetta Stone in the district court proceeding was evidence of Google’s purported allowance of known infringers and counterfeiters to bid on the Rosetta Stone trademarks as keywords. Further, Rosetta Stone itself submitted nearly 200 notices to Google regarding keyword-generated sponsored links advertising counterfeit Rosetta Stone products. Basing its conclusion on the Second Circuit’s decision in Tiffany (NJ) Inc. v. eBay Inc., the district court had determined that Rosetta Stone failed to establish that Google knew or should have known of the infringing activity, and therefore had “not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim.” Wait a minute, said the Fourth Circuit, explaining that the district court misapplied -- reversed, actually -- the standard of review applied to a non-moving party on a summary judgment motion. Indeed, “while it may very well be that Rosetta Stone was not entitled to summary judgment, that issue is not before us. The only question in this appeal is whether, viewing the evidence and drawing all reasonable inferences from that evidence in a light most favorable to Rosetta Stone, a reasonable trier of fact could find in favor of Rosetta Stone, the nonmoving party.” The Fourth Circuit answered that question in the affirmative, and vacated the district court’s summary judgment order with respect to the contributory infringement claim.

What Does It Mean?

Legally, possibly not as much as Rosetta Stone would like to believe. Although the Fourth Circuit, clearly displeased with the district court’s analysis, reversed and remanded the core infringement and dilution claims, giving Rosetta Stone a second bite at the apple, little in the opinion suggests that the ultimate disposition of these claims will be significantly different the second time around (though the second time around may take a good deal longer). As a practical matter, the opinion injects a bit of uncertainty back into the keyword game that will last for years to come. While this will likely have little effect on the risks associated trademark keyword purchasing or the analyses involved in a potential challenge thereto, no doubt the opinion will bring some players, heretofore standing on the sidelines, back into the fray to challenge Google’s keyword practices -- which, in any event, are unlikely to change as a result of this opinion. One suspects that entities with the most to lose -- that is, other companies that can show widespread counterfeit sales linked to ads generated by trademark keywords -- are the most likely challengers.