Rosetta Stone Ltd. v. Google, Inc.: Fourth Circuit Holds Google’s Keyword Advertising May Infringe Trademark

Rosetta Stone Ltd. v. Google, Inc., No. 10-2007 (4th Cir. Apr. 9, 2012) Slip opinion

The Fourth Circuit affirmed in part, vacated in part, and remanded to the Eastern District of Virginia, which had granted Google summary judgment in holding that Google was not liable on all trademark infringement and trademark dilution claims brought by plaintiff Rosetta Stone in 2009.

The Fourth Circuit held that a reasonable trier of fact could find Google liable for direct infringement, contributory infringement, or dilution of trademark by allowing advertisers to bid on the trademarks of third parties. The court flatly rejected Google’s functionality defense, while affirming summary judgment for Google on vicarious infringement and affirming the dismissal of Rosetta Stone’s unjust enrichment claim. The court restored the direct infringement claim because there was a question of fact about consumer confusion. On the contributory infringement claim, the court concluded that there was a question of fact as to whether Google continued to sell keywords to advertisers it knew were engaging in trademark infringement. In so holding, the court stated that the district court had applied the wrong standard of review for summary judgment but said little about the lawfulness of keyword advertising.

MSNBC.com provides an overview of the case. On the Technology & Marketing Law Blog, Eric Goldman criticized the decision for ignoring the policy interests at stake and delaying an “inevitable” consensus that keyword advertising does not violate trademark law.

In 2009, Rosetta Stone sued Google, claiming that Google had committed trademark infringement by selling Rosetta Stone trademarks to third-party advertisers for use as search keywords. A Virginia district court dismissed the case, holding that third party use of the keywords was not likely to confuse customers. The Fourth Circuit approved of the district court’s statement of the likelihood-of-confusion test but ruled that the lower court failed to construe the evidence in the light most favorable to Rosetta Stone. On each of three disputed factors in the likelihood-of-confusion test — intent, actual confusion, and the sophistication of the purchasing public — the Fourth Circuit disagreed with the lower court and held that a trier of fact could find in Rosetta Stone’s favor. Further, the court reversed the lower court on Google’s functionality defense. Such a defense is available to a defendant who alleges that the plaintiff attempted to trademark a functional product feature or a functional use of a mark, but not to a defendant who argues that its own use of the trademark performed a useful function. However, the court did discuss the proper handling of the likelihood-of-confusion test in cases of nominative use, hinting that Google might be able to avail itself of a nominative fair use defense on remand.

The Fourth Circuit found similar fault on the contributory infringement claim, concluding that the claim could survive on the basis of certain evidence presented by Rosetta Stone. For example, after Rosetta Stone notified Google that certain ads pointed to infringing sites, Google continued to sell keywords to the same advertisers as long as the links pointed to different websites. On the trademark dilution claim, the Fourth Circuit concluded that the lower court wrongly gave Rosetta Stone the burden of showing that Google used the Rosetta Stone trademark as a source identifier for Google’s goods. The court held that the burden was on Google to show, as a fair use defense, that its use of the trademark was a descriptive or nominative use rather than use as a source identifier.

Though the Fourth Circuit upended Google’s victory in district court, Google may still prevail at trial, possibly on the nominative fair use defense that the court alluded to in its analysis of direct infringement and trademark dilution. Regardless of the result in this case, it will likely spur further litigation over keyword advertising, and defendants like Google will find it harder to prevail at the summary judgment stage.

Michael Hoven is a 2L at Harvard Law School and the new Digest Content Editor for 2012-2013