Rosetta Stone v Google: AdWords still not out of the woods

In Rosetta Stone Ltd v Google Inc (Case 10-2007, April 9 2012), the US Court of Appeals for the Fourth Circuit has reversed a Virginia district court’s summary judgment ruling that Google’s use of trademarks in its AdWords program was not likely to cause confusion as a matter of law. The appellate court acknowledged the possibility that Google intended to cause confusion and gave new life to Rosetta Stone’s claims of trademark infringement and dilution. The case has been closely watched, as more than two dozen parties filed amicus briefs in the Fourth Circuit.

Rosetta Stone sued Google contending that Google’s sale of Rosetta Stone’s trademarks as keywords in Google’s AdWords program was likely to cause confusion and dilution. Google’s AdWords program is well known and successful, accounting for more than 95% of Google’s revenue. In 2010 a Virginia district court ruled for Google on summary judgment on issues of direct infringement and contributory infringement, finding that Google’s sponsored links were unlikely to confuse customers. Importantly, the district court found that the functionality doctrine shielded Google from liability.

The Fourth Circuit vacated the decision, and remanded the case for trial. As to direct trademark infringement, the appellate court looked at several key likelihood of confusion factors and found issues of fact, including that:

• Google could have intended to cause confusion if it acted with knowledge that confusion was likely to result from its use of the marks in AdWords;
• the existence of five instances of confusion and an expert’s survey created an issue of fact as to actual confusion; and
• there were questions regarding the sophistication of consumers.

On this last point, the court differed from other recent appellate decisions to the effect that consumers were effectively sophisticated internet search engine users and confusion was unlikely. The direct infringement claim could therefore not be resolved on summary judgment.

Interestingly, the Fourth Circuit also reversed the district court’s ruling that keywords qualified for the functionality defence. Keywords do act as inputs for Google's software, so in a sense they are 'functional'. However, the appellate court reversed because the marks were being used to identify the brand, stating that "it is irrelevant whether Google’s computer program functions better by use of Rosetta Stone’s non-functional mark". On remand, the appellate court stated, without ruling, that Google's use could be a nominative one. That may be a key consideration at trial.

As to contributory infringement, Rosetta Stone argued that the district court had relied too heavily on the Tiffany v eBay decision. While the appellate court essentially cited the Tiffany v eBay standard with approval (“It is not enough to have general knowledge that some percentage of the purchasers... engage in infringing activities; rather, 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 Fourth Circuit pointed out that the Tiffany v eBay case was decided after trial on a full record and was, therefore, of limited value. At the summary judgment stage, the appellate court was impressed that Google had allowed known infringers and counterfeiter to bid on Rosetta Stone's marks as keywords, resulting in over 100 sponsored links offering counterfeit or infringing products. That knowledge was sufficient to preclude summary judgment for Google.

Thus, the district court was found to have erred, and the case sent back to it. It is easy to speculate that trademark owners looking to sue Google or other search engine companies that allow use of trademarks as part of their advertising programs will be encouraged by this decision. At the same time, the Fourth Circuit has found only that issues of fact existed, and those issues may yet be decided in Google’s favour. Regardless, Google’s AdWords program will be the subject of an upcoming trial and thus remains at risk.

Steve Schaetzel, McKeon Meunier Carlin & Curfman LLC, Atlanta