Rosetta Stone v. Google Decision Extends AdWords Battle

13 April 2012 Publication
Authors: Andrew Baum

Legal News Alert: Intellectual Property

The legal campaign against Google’s offering of trademarks as keywords in its AdWords program, including its policy of permitting third-party trademarks to be used in sponsored links, will continue as a result of the Fourth Circuit’s decision this week in Rosetta Stone Ltd. v. Google, Inc. (April 9, 2012). This decision reversed, for the most part, the district court’s summary dismissal of the plaintiff’s trademark case. In remanding the plaintiff’s trademark infringement and contributory infringement claims, the Court gave the plaintiff the opportunity to show that Google’s use of ROSETTA STONE in its AdWords program creates a likelihood of consumer confusion.

The decision does not rule on the legality of Google’s program, and nothing in the opinion suggests that the plaintiff is likely to succeed in establishing that the sale of trademarks as keywords simply to trigger sponsored links will be found to be infringing. However, the Court pointed to evidence on which Rosetta Stone will likely rely at trial to threaten Google’s policy of allowing use of trademarks other than those of the sponsor within a sponsored link.

Until 2009, Google prohibited any use of any trademark, other than the sponsor’s, in the header or text of a sponsored link. This policy was changed in 2009 to permit limited use when the sponsor is a reseller of a genuine trademarked product, or when it makes or sells component or compatible parts for a trademarked product, or when it provides information or reviews about the trademarked product. Notwithstanding this policy, however, Rosetta Stone reported to Google, within a five-month period after the policy was changed, 190 instances in which a sponsored link was marketing counterfeit ROSETTA STONE products.

In summarily dismissing the plaintiff’s trademark infringement claim, the district court had disregarded this evidence, as well as the deposition testimony of five witnesses who claimed to be actually deceived by the sponsored links, on the ground that the deceptive links had not conformed to Google’s policy. The Fourth Circuit reversed on this point, holding that the reaction of the consuming public — irrespective of Google’s policy, to which the general public is not privy — is what counts.

The Court also focused on Google’s own in-house studies, which appeared to acknowledge that allowing trademarks in the text of sponsored links could result in consumer confusion, as well as deposition testimony of Google in-house lawyers, who were not able to determine, from the texts of the sponsored links themselves, which ones were legitimate and which were not. The Court also relied upon a consumer confusion survey, which the lower court had rejected as not being directed to the issue at hand.

This evidence of actual confusion led the district court to find that the “sophistication of purchasers” factor was subject to dispute. In doing so, it ignored cases from the Ninth Circuit, such as Toyota Motor Sales, USA, Inc. v. Tabari, 610 F.3d 1171 (9th Cir. 2010), which had held that consumers understand what sponsored links are due to their graphics and set-offs on search results pages. Here, the Court gave Rosetta Stone the opportunity to make a factual showing as to the level of sophistication of users of Google search. The district court also found that Google’s internal studies showing possible consumer confusion, and its expectation of increased revenues from its change in policy in 2009, could lead a trier of fact to conclude that Google intended to cause confusion. Because there were disputed issues of fact on the factors of actual confusion, sophistication of purchasers, and Google’s intent, the Court reversed the summary dismissal of Rosetta Stone’s infringement claims.

The Court also reversed the district court’s alternative basis for dismissal: that Google’s use of the ROSETTA STONE keywords was protected by the functionality doctrine. According to the Fourth Circuit, functionality is an issue that is determined by the trademark claimant’s own use of the mark, not the use that is made by the defendant. The mark itself is inarguably not functional as applied to Rosetta Stone’s language-learning products. Once it is determined that the mark is not functional as applied to the plaintiff’s goods, “the functionality doctrine has no application, and it is irrelevant whether Google’s computer program functions better by use of Rosetta Stone’s nonfunctional mark.” While Google may defeat Rosetta Stone’s infringement claim on the merits, said the Court, “it will not be able to do so based on the functionality doctrine.”

On the issue of contributory infringement, the Court again found sufficient evidence to warrant a trial on the merits. The district court had held that evidence of Google’s purported allowance of known infringers to bid on Rosetta Stone trademarks as keywords did not establish that Google “knew or should have known” of the infringing activity. Relying on the Second Circuit’s decision in Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010), the district court held that the evidence showed nothing more than “generalized notice” of infringing activity, and that Google’s prompt action after taking down infringing links after Rosetta Stone’s complaints showed that Google had not turned a “blind eye.” The Fourth Circuit reversed on a largely procedural ground: that Rosetta Stone had no burden to establish the defense at this stage, and that the evidence submitted by Rosetta Stone, drawing all inferences in its favor, was sufficient to create a triable issue of fact. It held that Tiffany was of “limited application,” since that decision arose after a bench trial in which the district court had “weighted the evidence as a trier of fact.”

The dismissal of Rosetta Stone’s dilution claim also was reversed. The district court had dismissed the claim on the ground that Google was not using Rosetta Stone’s marks to identify its own goods or services. The Court of Appeals reversed on the ground that the statutory basis for this holding is the “fair use” defense in Section 43(c) (3)(A) of the Lanham Act. Since this is a defense, it is not an element of Rosetta Stone’s case; rather, it is an affirmative defense on which Google has the burden of proof. Because success on the “fair use” defense requires an inquiry into the defendant’s good faith, the issue cannot be determined summarily on this record, said the Court. The Court of Appeals also reversed the district court’s summary holding on “dilution by blurring,” distinguishing its own decision in Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 507 F.3d 252, 267 (4th Cir. 2007). That case, said the Court, involved a parody, which in the Court’s view could actually “enhance the famous mark’s distinctiveness by making it an icon.” No such circumstances exist in this case.

The decision was not a clean sweep for Rosetta Stone. The Fourth Circuit dismissed the claims based upon vicarious liability and unjust enrichment. On the dilution claim, it saddled Rosetta Stone with the burden of proving that its mark was famous in 2004, when Google first allowed bidding on trademarks as keywords. It gave no express or implied instruction to the district court that the case should ultimately be decided in Rosetta Stone’s favor.

The decision is important, however, because it keeps alive the most significant legal challenge to Google’s AdWords program. Unless the case is settled, Google’s practice of allowing sponsors to include trademarks other than their own in sponsored links will continue to face a challenge.

A copy of the decision may be found online (http://pacer.ca4.uscourts.gov/opinion.pdf/102007.P.pdf).


Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Andrew Baum
New York, New York
212.338.3527
abaum@foley.com

Authors

Andrew Baum

Retired Partner