Federal appeals court orders reconsideration of Rosetta Stone's trademark claims against Google

The U.S. Court of Appeals in Richmond, Va., (4th Cir.) ordered a lower court yesterday to reconsider several of Rosetta Stone’s claims against Google over the search engine's use of trademarks in its web advertising platform.

Rosetta Stone, a language learning software company, claimed Google’s advertising platform policy on the use of trademarked terms created confusion for Internet users, who mistakenly bought counterfeit software. The company sued Google for direct, contributory, and vicarious trademark infringement, as well as trademark dilution and unjust enrichment. According to the opinion, Rosetta Stone’s registered trademarks, which include Rosetta Stone and Rosettastone.com, have “the highest level of brand recognition by far in the domestic language-learning market.”

Rosetta Stone has advertised with Google since 2002. According to the opinion, words entered into Google's search engine produce — in addition to links of websites it determines to be relevant based on an algorithm — paid advertisements, known as “Sponsored Links.” Under Google’s AdWords advertising platform, ad sponsors may purchase keywords that, when entered as a search term, will trigger the appearance of sponsored ads above and beside the natural search results.

The lower court dismissed Rosetta Stone's claim for unjust enrichment, and granted Google summary judgment on all the other claims. However, the appellate court vacated the lower court’s ruling with respect to several of the claims, and remanded them for reconsideration.

First, the court held a trier of fact, such as a jury, could find Google both “intended to” cause — and actually caused — consumer confusion, factors relevant to the question of whether Google directly committed trademark infringement. The court cited examples of consumers who were confused by Google’s AdWords in purchasing what they thought were Rosetta Stone products, and noted that two of Google’s trademark attorneys could not — when shown a Google results page for a search of the phrase “Rosetta Stone” — readily discern which sponsored links were authorized sellers of the product.

The court next held that the level of sophistication of potential consumers of Rosetta Stone products — a third factor relevant to the question of direct trademark infringement — could weigh against Google, as a Google study showed that “even well-educated, seasoned Internet consumers" were confused by the sponsored links.

The court also found inapplicable the functionality doctrine, which prohibits registration of or protection for marks that constitute functional product features — those features that are “essential to the use or purpose of the article or . . . affect[] [its] cost or quality.” While the lower court had found it applied since the Rosetta Stone trademark made Google’s product more useful, that was the wrong inquiry, the court ruled. Instead, the relevant question was whether the use of the trademark was essential for the functioning of Rosetta Stone’s products, which it was not, the court ruled, as they “would operate no differently if Rosetta Stone had branded its product ‘Sphinx’” instead.

The court ruled that Google could also be liable for contributory trademark infringement for facilitating or encouraging direct infringement, citing evidence that even after Rosetta Stone notified Google of instances of advertising for counterfeit products in Sponsored Links, Google continued to allow those advertisers to use Rosetta Stone trademarks in links.

Finally, the court held Google could potentially be found liable for diluting the trademarks in that its use of a “famous” mark had, by virtue of its similarity to the original, created an association between the marks, thereby harming its reputation or distinctiveness. The court therefore ordered the lower court to reconsider whether Rosetta Stone’s mark was in fact famous, and if it was so when Google ostensibly began to make “diluting” use of the mark.

Lawyers for both parties were not available for comment.