Fourth Circuit Reinstates Rosetta Stone’s Trademark Claims Against Google For Confusing “Sponsored Links” By Susan M. Freedman In a closely watched decision, on April 9, 2012, the U.S. Court of Appeals for the Fourth Circuit reversed a decision of the U.S. District Court for the Eastern District of Virginia. Rosetta Stone Ltd. v. Google, Inc., 676 F.3d. 144 (4th Cir., April 9, 2012). The case was so important to trademark owners that 33 companies, trade associations, and other entities filed amicus briefs with the court in favor of Rosetta Stone, including the International Trademark Administration (“INTA”). The district court had granted Google’s motion for summary judgment on Rosetta Stone’s claims of trademark infringement, contributory and vicarious trademark infringement, and trademark dilution. Rosetta Stone Ltd. v. Google, Inc., 730 F. Supp. 2d 531 (E.D. Va. 2010). On Rosetta Stone’s appeal, the Fourth Circuit affirmed the district court’s order on Rosetta Stone’s vicarious infringement and unjust enrichment claims, but vacated it with respect to the direct infringement, contributory infringement, and dilution claims, and remanded them back to the district court for trial. At issue in this case was the question whether Google’s use of the ROSETTA STONE mark in search engine keywords and in “Sponsored Links” generated by these keywords, is likely to cause consumer confusion. Courts have been split on the question whether using a trademark as a search engine keyword is even a “use in commerce” required for a Lanham Act violation. If so, they are likewise divided on the question whether that use is “likely to cause confusion.” If the trademark was used in the text of the “Sponsored Links” appearing in the search engine search results, courts have been more willing to find likelihood of consumer confusion than where they do not. Rosetta Stone’s case was filed after a 2009 Google policy shift for its Adwords program, permitting use of competitor’s trademarks in the title or text of “Sponsored Links” for the first time. Prior to 2004, Google’s Adwords policy precluded both the use of trademarks in the text of an advertisement and the use of trademarks as keywords, upon the request of a trademark owner. In 2004, Google loosened its policy to allow use of third‐party trademarks as keywords even over the objections of the trademark owners. However, during that time, Google continued to block the use of the trademarks in the actual text of the advertisement at the request of the trademark owner. At that time, Google’s internal studies suggested the unrestricted use of trademarks in the text of advertisements might confuse Internet users. In 2009, Google changed its policy to permit the limited use of trademarks in advertising text in four situations, including where the sponsor makes or sells compatible parts or goods for use with the trademarked product. 1 The Fourth Circuit vacated the district court’s holding that Rosetta Stone could not establish a direct infringement by Google of its ROSETTA STONE marks by selling those marks as Google keywords, and permitting their use in the text of “Sponsored Links,” which Rosetta Stone alleged had been plagued with counterfeiters since Google’s 2009 policy change. On appeal, on the direct infringement claim, the court expressed no opinion whether Google’s use of the ROSETTA STONE marks as keywords and in the texts of advertisements constituted a “use in commerce,” or whether the nominative fair use defense applied. The only question was whether that use was likely to cause consumer confusion and whether some defense applied. On that point, the court found summary judgment should not have been granted. On the issue of the defendant’s intent in adoption the mark, the appellate court found that, viewing the evidence in favor of Rosetta Stone, a reasonable trier of fact could find that Google intended to cause confusion, because it acted with knowledge that confusion was very likely to result from its use of the marks. The appellate court also found the district court improperly dismissed Rosetta Stone’s evidence of actual confusion in the form of survey and anecdotal evidence. The district court’s summary judgment holding was also dismissed to the extent it found the sophistication of the consuming public a reason for granting summary judgment, noting that such determinations usually involve deposition testimony, the credibility of which must be weighed by a jury, not a judge. When vacating the grant of summary judgment on the direct infringement claim, the court found that the district court had improperly applied the “functionality” defense. The district court’s inquiry had focused on whether Google’s use of the ROSETTA STONE marks was functional, rather than whether Rosetta Stone had made “functional” use of those marks. When properly focusing on Rosetta Stone’s use of the marks, the court held that the functionality doctrine just did not apply. On Rosetta Stone’s contributory infringement claim, the appellate court found that the district court did not view the light in favor of the non‐moving party on summary judgment. The Fourth Circuit vacated this decision as well, finding that the evidence on this issue was sufficient to establish a genuine issue of material fact whether Google had continued to supply its services to known infringers. That evidence included 200 occasions from September 2009 through March 2010 where Rosetta Stone notified Google of instances of counterfeit “Sponsored Links.” Rosetta Stone alleged that Google continued to permit the same advertisers to use Rosetta Stone’s marks as keyword triggers and in the text of “Sponsored Links” 110 different times from October 2009 to December 2009. On the dilution claim, the Fourth Circuit found that the district court should not have decided the fact‐intensive inquiry of when Rosetta Stone’s marks became famous on a motion for summary judgment. In remanding to the district court, the Fourth Circuit instructed the court to first determine whether the ROSETTA STONE mark is even famous, which will require it 2 first to determine when Google first made use of its allegedly diluting use of the mark. Second, the court must decide whether Rosetta Stone’s mark has famous at that point. In making this determination, the district court must assess fame in light of the relevant statutory factors, including the strong showing required to prove fame. The Fourth Circuit found that the vicarious infringement claim was properly dismissed on summary judgment, because there was no evidence of record that Google and the alleged infringers using Rosetta Stone’s trademarks as keywords and in “Sponsored Links” have an apparent or actual partnership. The unjust enrichment claim under Virginia law was also properly dismissed, although for a different reason given by the district court, because Rosetta Stone did not allege facts supporting its general assertion that Google “should reasonably have been expected” to pay for the use of the marks in its keyword query process. Depending on the ultimate disposition of this case, it may cause search engines to revisit their keyword policies to prohibit use of another party’s trademark when it is used in the text of the advertisement. This is the type of activity that many trademark owners believe are most likely to cause consumer confusion in this context. 3