The Fourth Circuit Says, "Not So Fast," to Google and Revives Rosetta Stone's Direct and Contributory Trademark Infringement and Dilution Claims in Closely Watched AdWords Case

by Orrick, Herrington & Sutcliffe LLP

[authors: Goldman, Beth M.; Lee, Betsy Wang; Richmond, Michael T.]

Rosetta Stone Ltd. v. Google, Inc., No. 10-2007 (4th Cir. April 9, 2012)

In a widely awaited ruling, the Court of Appeals for the Fourth Circuit has overturned in part summary judgment initially granted to Google regarding its use of Rosetta Stone’s trademarks in its AdWords program and reinstated most of Rosetta Stone’s claims relating to infringement and dilution.  This ruling will require Google to defend at trial its program of selling companies’ well-known trademarks to the highest bidders, including to those companies’ competitors anxious to get favorable search placements for their own ads.

Rosetta Stone, a well-known language learning software company, filed suit in 2009 claiming that Google infringed Rosetta Stone’s trademarks by selling advertisers the right to use the marks as keyword triggers, thereby directing end users to Rosetta Stone’s competitors and, in some cases, misleading them into purchasing counterfeit Rosetta Stone products.
I.  Rosetta Stone’s Claims:

a)  Direct Infringement

The District Court for the Eastern District of Virginia found no genuine issue of fact as to whether Google’s use of Rosetta Stone’s trademarks caused a likelihood of confusion based on its analysis of only three likelihood of confusion factors—intent to confuse, actual purchaser confusion and sophistication of the consuming public—and entered judgment in Google’s favor. 

The court of appeals reversed, finding sufficient evidence in the record to create a question of fact as to each of the three factors considered by the district court.  For example, with respect to intent, the court of appeals concluded that “a reasonable trier of fact could find that Google intended to cause confusion in that it acted with the knowledge that confusion was very likely to result” from its use of third-party trademarks in its AdWords program, as its own internal studies suggested.  With respect to actual confusion, the court of appeals concluded a trier of fact could find that actual confusion occurred based on the deposition testimony of five consumers who unintentionally purchased counterfeit products from sponsored ads, as well as the hundreds of complaints Rosetta Stone received from purchasers of pirated/counterfeit software.

b)  Contributory Infringement

Contributory trademark infringement exists if a party intentionally induces another to infringe a mark or continues to supply a product to one it knows or has reason to know is engaging in trademark infringement. 

Despite evidence that Google allowed known infringers and counterfeiters to bid on Rosetta Stone’s trademarks as keywords, the district court granted summary judgment in Google’s favor, finding that Rosetta Stone had not met its burden of proving that summary judgment was proper as to its own contributory infringement claim.  The court of appeals noted, however, that whether Rosetta Stone was entitled to summary judgment was not the issue; rather, the issue was whether Google had met its burden for its summary judgment motion, which the court of appeals found it had not.

c)  Trademark Dilution

Relying on the Federal Trademark Dilution Act’s (FTDA's) “fair use” defense, the district court ruled that Google was not liable for trademark dilution because Rosetta Stone could point to no evidence that Google used Rosetta Stone’s marks to identify Google’s own goods and services.  The court of appeals reversed for two reasons.  First, the district court had not addressed whether Google used Rosetta Stone’s marks in good faith, which is a requirement of the FTDA’s “fair use” defense.  Second, the district court wrongly placed the burden of proof on Rosetta Stone, when the fair use defense should have been Google’s to prove.

II.  The District Court’s Treatment of the Functionality Doctrine

The district court found that Google’s use of Rosetta Stone’s trademarks as keywords was “functional” and thereby non-infringing as a matter of law because such keywords “have an essential indexing function” in providing relevant information to users’ queries.  But as the court of appeals correctly observed, functionality is a doctrine that applies to a trademark as used by its owner not by third parties.  For example, if the owner’s use of a product design is considered to be necessitated by the nature of the product, such as a bottle that is narrower where it needs to be grasped, that aspect of the product design is not protectable and others are free to use it.  The court of appeals stated baldly, “[t]he functionality doctrine simply does not apply in these circumstances,” and therefore reversed the district court’s application of the doctrine.
The court of appeals noted that the correct issue is not whether Google’s use of Rosetta Stone’s trademarks performed a function, as the district court found, but rather whether Rosetta Stone’s trademarks were a functional feature of its language software, which they were not.

The court of appeals stopped well short of asserting, however, that Google’s use of the Rosetta Stone marks was infringing.  “Google,” the court stated, “may well be able to establish that its use of Rosetta Stone’s marks in its AdWords program is not an infringing use of such marks; however, Google will not be able to do so based on the functionality doctrine.”  

III.  Observations

The most critical element of this decision was the appellate court's correction of the district court’s misapplication of the functionality doctrine.  It remains to be seen, however, whether the district court, on remand, will turn back the tide of cases allowing Google and other search engines to pursue their business model of selling others’ brands to the highest bidders regardless of their affiliation or purpose.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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