With Google still digesting last week’s Full Federal Court’s decision on sponsored links, the US Court of Appeals for the Fourth Circuit has effectively revived Rosetta Stone’s dispute with the search engine giant.

In July 2009 Rosetta Stone - a provider of language learning solutions - filed a lawsuit against the search giant alleging that Google had committed trademark infringement by selling Rosetta’s trademarks to third-party advertisers for use as keywords, and that the search engine giant had “set up a system wherein Rosetta Stone and others are, de facto, forced to pay Google to reduce the likelihood that consumers will be confused by Google’s own practices”.  A year later, a judge from the US District Court for the Eastern District of Virginia dismissed Rosetta Stone's case, finding that consumer confusion was unlikely.

As WTR reported previously, part of the evidence that Rosetta Stone filed in its appeal was a study that Google itself carried out, which suggested that use of trademarks in sponsored link text resulted in a "high" degree of consumer confusion, with 94% of users confused “at least once” during the study.

Yesterday the US Court of Appeals for the Fourth Circuit overturned most of the lower court’s ruling, stating “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 the marks”.

While affirming the district court’s findings with respect to the claims of vicarious infringement and unjust enrichment, it vacated “the district court’s order with respect to Rosetta Stone’s direct infringement, contributory infringement and dilution claims”, and remanded the case for further proceedings on the latter claims.

One of the issues scrutinised was that of functionality. The district court previously stated that the trademarks used as keywords effectively became functional when used on Google’s search engine, as they perform an “essential indexing function” and enable Google to identify in its databases relevant information in response to a web user’s query.

However, in yesterday’s decision the Fourth Circuit found that “the functionality doctrine simply does not apply in these circumstances. The functionality analysis was 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. Rosetta Stone uses its registered mark as a classic source identifier in connection with its language learning products. Clearly, there is nothing functional about Rosetta Stone’s use of its own mark… Once it is determined that the product feature  - the word mark ROSETTA STONE in this case - is not functional, then the functionality doctrine has no application, and it is irrelevant whether Google’s computer program functions better by use of Rosetta Stone’s non-functional mark…  As the case progresses on remand, Google 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.”

While the battle is set to continue, writing in his blog Michael Atkins argues that the decision is the right one, but predicts that the end result will be the same – that Google “won’t be directly or indirectly liable for counterfeiters’ purchase of Rosetta Stone’s trademark as a search engine keyword. But this time, the analysis won’t be tortured and misleading”.