Member Article

The Fourth Circuit has just released its highly anticipated keyword advertising decision in Rosetta Stone Ltd. v. Google Inc., No. 10-2007 (4th Cir. Apr. 9, 2012), vacating much of a district court order favorable to Google. The question of Google’s liability for direct and contributory trademark infringement and trademark dilution remains unanswered, however, leaving the district court that initially granted summary judgment in Google’s favor to reassess these claims with the Fourth Circuit’s more than 40-page opinion in mind … and leaving brand owners and advertisers with little additional clarity on the boundaries for enforcing and defending the use of trademarks as Internet keywords.

Background

The Rosetta Stone case centers on Google’s AdWords Program, a keyword advertising tool enabling advertisers to buy words or phrases, including third-party trademarks like “Rosetta Stone,” to trigger paid advertisement listings that appear alongside or on top of organic search results responsive to related Google search engine queries. In certain contexts such as genuine or compatible product resale, Google has, pursuant to a change in policy in 2009, also allowed advertisers to incorporate third-party trademarks into ad text.

Rosetta Stone alleged that Google’s AdWords Program enabled, and even encouraged, counterfeiters to purchase Rosetta Stone’s trademarks as keyword triggers to display advertisements intended to deceive and misdirect consumers and, thus, Google should be liable for direct, contributory, and vicarious trademark infringement; unjust enrichment; and trademark dilution under federal law. Rosetta Stone contends that customers have actually been deceived by such counterfeiters, particularly due to Google’s 2009 policy shift allowing the use of third-party trademarks in ad text. In August 2010, the District Court for the Eastern District of Virginia issued an opinion granting summary judgment to Google on all claims except the unjust enrichment claim, which it dismissed in a separate order. Rosetta Stone appealed the decisions to the Fourth Circuit. See our previous discussion of the lower court decision and appeal.

Fourth Circuit’s Ruling

The Fourth Circuit revived Rosetta Stone’s claims of direct and contributory trademark infringement, and trademark dilution, but affirmed the district court’s decision as to vicarious infringement, finding that there was no evidence that Google was acting in concert with advertisers to control the counterfeit products. It also affirmed Google’s win on the unjust enrichment claim, albeit on different grounds than the district court’s analysis, because Rosetta Stone failed to properly plead all the elements of an unjust enrichment claim under state law.

Fourth Circuit Sidesteps “Use in Commerce” and “Nominative Fair Use”

With respect to the direct infringement claim, the Fourth Circuit declined to express an opinion as to whether Google “used” Rosetta Stone’s marks as contemplated by the Lanham Act, and instead focused on the district court’s likelihood of confusion analysis. See Rosetta Stone, slip op. at 11 n.4. In doing so, it noted that the district court did not err in discussing only the relevant three of the nine likelihood of confusion factors – namely, Google’s intent, actual confusion, and consumer sophistication – but deemed that the evidence regarding those three factors created questions of fact that rendered summary judgment inappropriate. Interestingly, while the appeals court discussed how certain likelihood of confusion elements are more relevant “when the offending use of the plaintiff’s mark is referential or nominative in nature,” id. at 13, it expressly declined to comment on “the viability of the nominative fair-use doctrine as a defense to trademark infringement or whether this doctrine should formally alter [its] likelihood of confusion test in some way.” Id. at 15.

Turning to the likelihood of confusion factors examined, the Fourth Circuit noted that viewing the evidence and all reasonable inferences under the summary judgment lens in a light most favorable to Rosetta Stone, “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.” Id. at 17. Moreover, on the issue of actual confusion, the Fourth Circuit deemed that the district court incorrectly refused to consider survey evidence and 30(b)(6) testimony on the basis that they both evidenced confusion as to affiliation, connection, or sponsorship, instead of confusion only to source. The appellate court did not provide any additional qualitative analysis of the presented evidence, only noting that whether such evidence “is entitled to enough weight to carry the day on the ultimate issue is a matter for trial.” Id. at 22.

Functionality Doctrine Not Applicable

One of the few substantive takeaways from this decision is that the Fourth Circuit corrected the district court’s unusual application of the functionality doctrine, which prohibits trademark rights in the functional aspects of a product. The district court had found that because Google’s use of Rosetta Stone’s mark was functional, i.e., it served an indexing function in Google’s database and an advertising function for consumers, Google was protected from liability for trademark infringement. The Fourth Circuit clarified, however, that only a trademark owner’s use of a mark is relevant to a functionality analysis. “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 nonfunctional mark.” Id. at 28-29.

Contributory Infringement

The appellate court also concluded that the district court applied the wrong summary judgment standard to its analysis of the contributory infringement claim, holding that “viewing the evidence and drawing all reasonable inferences from that evidence in a light most favorable to Rosetta Stone, a reasonable trier of fact could find in favor of Rosetta Stone, the nonmoving party.” Id. at 32. In its discussion, the court of appeals also concluded that the district court’s “heavy reliance” on the Tiffany (NJ) Inc. v. eBay Inc. decision rejecting a contributory trademark infringement claim by Tiffany against Internet auction site eBay, was “misplaced,” mainly because the Tiffany court did not view the presented evidence through the summary judgment lens, but instead involved an appeal of judgment rendered after a lengthy bench trial.

Dilution

The court of appeals also faulted the district court’s rationale for awarding summary judgment on Rosetta Stone’s dilution claim to Google. The district court had reasoned that because Google was not using the Rosetta Stone mark to identify its own products and services, it could not be liable for trademark dilution. The Fourth Circuit rejected this conclusion, indicating that the district court improperly converted part of the affirmative fair use defense found in the Federal Trademark Dilution Act (FTDA), 15 U.S.C. § 1125(c)(3)(A), into a required element of a dilution plaintiff’s prima facie case.

The court of appeals also disagreed with the district court’s reasoning that because the public’s awareness of the Rosetta Stone brand actually increased with the use of keyword advertising, the distinctiveness of Rosetta Stone’s mark was not impaired and no actual injury was suffered. The Fourth Circuit indicated that this rationale placed too much emphasis on a single factor in the dilution analysis, namely, the degree of recognition of the famous mark, and on the existence of actual injury to the plaintiff. And under the FTDA a dilution plaintiff need only demonstrate a likelihood of dilution, rather than actual harm.

There was one silver lining for Google: Rosetta Stone may have pled itself out of its dilution claim by asserting in its complaint that Google began diluting Rosetta Stone’s mark in 2004 through keyword sales. The Fourth Circuit stated that for the purposes of the FTDA, which confers liability only where a defendant “commences use” of a plaintiff’s mark after that mark is famous, a mark’s fame must be analyzed at the point when the first diluting use occurs, regardless of what additional use comes after. The court therefore rejected Rosetta Stone’s argument that Google “commenced use” of its mark in 2009 when it began allowing third-party marks in ad text. As such, on remand, Rosetta Stone will have to prove its mark was famous by 2004.

Closing

The Fourth Circuit has cleared up some of the murkier issues arising out of the district court’s summary judgment opinion, but trademark owners, advertisers, and lawyers are left with many unanswered questions. It’s now back to court for Google and Rosetta Stone. Google very well may prevail again at the district court level, but it will have to do so with fewer legal arguments in its bag of ammunition.

If you have any questions, please contact one of the attorneys below.