In a closely-watched battle, the Fourth Circuit brought life back into Rosetta Stone's trademark infringement and dilution claims against Google stemming from its AdWords program. In 2010, the Eastern District of Virginia ruled overwhelmingly in favor of Google on summary judgment finding that it did not infringe Rosetta Stone's trademark or dilute the value of its marks by allowing others to purchase the "ROSETTA STONE" mark in its AdWords Program. On Monday, April 9, 2012, the Fourth Circuit vacated the district court's order with respect to direct trademark infringement, contributory infringement and dilution claims. Although the Fourth Circuit has resuscitated Rosetta Stone's claims against Google, the battle is far from over. The case is now remanded to the trial court for further proceedings where the parties will continue to wage war over keyword advertising. Click here for Venable's blog post on this case and continue reading for a detailed discussion of the case.
Google's AdWords Accused of Trademark Infringement
Google's AdWords program allows advertisers to purchase
"keywords" that launch the advertiser's ads when the
keyword is entered as a search term in Google. In 2004, Google
changed its AdWords policy to allow the use of trademarks as search
triggers even over the objection of the trademark owner. Later
Google introduced a tool that suggested relevant trademarks for
advertisers to bid on as keywords. In 2009, Google loosened its
policy further by permitting limited use of trademarks in the title
or text of advertisements for resellers of trademarked products,
makers or sellers of component parts for trademark products,
sellers of compatible goods for use with a trademarked product or
reviewers of trademarked products.
Rosetta Stone filed a complaint against Google in 2009 alleging
that Google's policies created a likelihood of confusion, as
well as actual confusion, leading Internet users into buying
counterfeit ROSETTA STONE products. The district court ruled in
favor of Google on all counts in 2010, but the appellate court
reversed the decision on three key claims.
Trademark Infringement Claim Reinstated
With respect to the first claim for direct trademark
infringement, the appellate court determined that there were still
issues of material fact with respect to whether or not Google's
use of the ROSETTA STONE mark was likely to cause confusion among
consumers.
Specifically, the appellate court reasoned that there were issues
that should be decided by a jury including Google's intent,
instances of actual confusion and the sophistication of the
consuming public. Rosetta Stone alleged that Google intended to
create confusion by permitting advertisers to use trademarked
terms. The record showed that Google's underlying reason for
changing its policy with respect to trademark terms was
"largely for financial reasons" and its own internal
study suggested that there was significant confusion as to the
source of ads among Internet users when trademarks were used in the
title or text of ads. The appeals court found that there was
sufficient evidence to suggest that a reasonable trier of fact
could find that Google intended to cause confusion since it had
knowledge that confusion was likely to result from its use of
trademarks.
The lower court also ruled that Rosetta Stone's five witnesses
who testified regarding their purchase of "bogus" ROSETTA
STONE software as a result of misleading Internet search results
was anecdotal, that the witnesses knew they were not buying
directly from Rosetta Stone and that the counterfeit ads conformed
to Google's policies that the advertisers used the ROSETTA
STONE marks in connection with the selling of genuine goods. The
appellate court agreed with Rosetta Stone that none of the district
court's reasons justified its rejection of the actual confusion
testimony. The lower court failed to consider Rosetta Stone's
evidence of 262 other complaints from customers which could imply
that there was a great number of customers confused regarding the
relationship or sponsorship of the ads by Rosetta Stone. Also, the
lower court placed undue emphasis on the consumers not being
confused as to the source of the goods, but failed to
consider that confusion as to the sponsorship of the goods
is also at issue in an infringement claim. Further, the ads'
conformance with Google's policies has no relevance to whether
or not the consuming public is confused by the actual use of
trademarks in sponsored ads.
In addition, the appellate court concluded that there were still
issues of fact with respect to whether or not consumers of Rosetta
Stone's products are sophisticated and able to distinguish
between paid advertising or organic search results on Google. The
record showed that Google's own study showed that even
well-educated and experienced Internet users were confused by the
nature of sponsored ads and even unaware that the ads are paid
advertisements.
The Functionality Doctrine is Not a Defense
Moreover, notwithstanding the lower court's finding of no
likelihood of confusion, the district court went a step further and
held that the functionality doctrine alone would protect
Google's use of the Rosetta Stone marks as keywords. The
district court reasoned that trademarked keywords are functional
when entered into the Google AdWords program in that they serve a
role in Google's indexing function and, therefore, such use of
trademarked terms was non-infringing as a matter of law.
However, the appellate court held that the functionality doctrine
"simply does not apply in these circumstances." The
functionality doctrine developed as a common law rule to prohibit
trade dress and trademark rights in purely functional features of a
product. Here, the question was not whether Google's
use of the Rosetta Stone mark was functional as the lower
court reasoned, but whether or not the mark was functional as
Rosetta Stone used it. The functionality doctrine is not
applicable where the ROSETTA STONE mark is not functional, and any
usefulness of the mark to Google in its software program is
irrelevant. The appellate court noted that Google may very well be
able to establish that its use of trademarked terms is
non-infringing, but summarily rejected any attempt to use the
functionality doctrine to do so.
Contributory Trademark Infringement Claim Reinstated
The second revived claim alleged that Google was liable for contributory infringement based on its specific knowledge that identified individuals were engaging in trademark infringement. The district court relied heavily on the Second Circuit's decision in Tiffany (NJ) Inc. v. eBay Inc. 600 F.3d 93 (2d Cir. 2010) which rejected a similar claim against eBay because eBay removed challenged listings from its site upon notice from Tiffany through its Verified Rights Owner Program. The appellate court found the lower court's reliance on Tiffany was "misplaced" due to the fact that the Tiffany court rendered its decision after a lengthy trial where the court weighted all the evidence presented and not on summary judgment. Here, there was sufficient evidence as to whether Google "continued to supply its services to known infringers" such that summary judgment should not have been granted.
Dilution Claim Reinstated
Finally, the Fourth Circuit vacated the lower court's
rejection of Rosetta Stone's claim of trademark dilution.
Trademark dilution is the slow whittling away of the ability of a
famous trademark to identify and distinguish its goods or services
through unauthorized uses by others. The district court ruled that
Rosetta Stone could not establish its dilution claim without
showing that Google used ROSETTA STONE as a trademark to identify
Google's products. However, the appellate court noted that this
requirement emanates from the fair use defense to a claim of
dilution that is the burden of Google to establish, not for Rosetta
Stone to prove in its prima facie case. Once Rosetta Stone
established a prima facie case for dilution, the burden shifts to
Google to demonstrate that its use was fair in that the mark was
not used as a trademark to identify Google's own goods or
services and that its use was in good faith.
The district court also ruled that, since ROSETTA STONE's brand
recognition was stronger subsequent to the shift in Google's
policies, there was no dilution. However, under the Federal
Trademark Dilution Act, only a likelihood of dilution need
be established, not actual economic loss or reputational injury.
Further the appellate court instructed the district court to
determine if ROSETTA STONE became famous as of 2004 when Rosetta
Stone alleges Google's diluting activities began.
The Battle Continues
Although the Fourth Circuit has resuscitated Rosetta Stone's
claims against Google, the battle is far from over. The case is now
remanded to the trial court for further proceedings where the
parties will continue to wage war over keyword advertising. Keyword
advertisers and trademark owners alike should keep an eye on this
case.
Until the law is clarified, Venable can provide guidance on the use
of keyword advertising and enforcement of trademark rights.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
