Rosetta Stone achieved limited success on its appeal against Google for Google’s use of Rosetta Stone’s trademarks in third-parties’ paid advertisements (sponsored ads) on Google search pages. Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144 (4th Cir. 2012) (available here). Rosetta Stone (“Rosetta”) sued Google for trademark infringement and dilution. The lower district court granted Google’s motion for summary judgment. The 4th Circuit affirmed the summary judgment for vicarious trademark infringement but vacated the district court’s order on direct infringement, contributory infringement, and dilution claims.
Rosetta markets language-learning software, including online services, in over thirty languages using the numerous trademarks ROSETTA STONE, ROSETTA STONE LANGUAGE LEARNING SUCCESS, ROSETTASTONE.COM, and ROSETTA WORLD. In 2002, Rosetta began advertising on Google’s search engine. Google also has paid advertisements, called “Sponsored Links” or “Sponsored Ads,” mixed in with the natural results for each “Rosetta Stone” search under its AdWords program, wherein a sponsor purchases keywords. Most of Google’s advertisement sponsors pay on a “cost-per-click” (“cpc”) basis.
In 2004, Google began allowing advertisers to use trademarks belonging to third-parties in the sponsored ads. Google has a trademark-specific keyword tool. However, Google did block the use of trademarks in the actual text of the advertisement at the request of the trademark owner. In 2009, Google revised its policy to allow use of trademarks in the advertisement text in four situations: “(1) the sponsor is a reseller of a genuine trademarked product; (2) the sponsor makes or sells component parts for a trademarked product; (3) the sponsor offers compatible parts or goods for use with the trademarked product; or (4) the sponsor provides information about or reviews a trademarked product.” Rosetta Stone, Slip. Op. P. 9. Google allowed this because it had created a technology to “automatically check the linked websites to determine if the sponsor’s use of the trademark in the ad text was legitimate.” Id.
The 4th Circuit reviewed whether Google’s use of Rosetta’s trademarks is likely to confuse consumers. There are nine established factors that the Court looks at to determine this: “(1) the strength or distinctiveness of the plaintiff’s mark as actually used in the marketplace; (2) the similarity of the two marks to consumers; (3) the similarity of the goods or services that the marks identify; (4) the similarity of the facilities used by the markholders; (5) the similarity of advertising used by the markholders; (6) the defendant’s intent; (7) actual confusion; (8) the quality of the defendant’s product; and (9) the sophistication of the consuming public.”
Rosetta Stone, Slip Op. Pp. 11-12.
Looking at the “likely to cause confusion” prong, the Court found that Google could have intended to cause trademark confusion because Google acted with knowledge that confusion was likely to result from its allowance of trademarks in advertisement text. Next, the Court looked at the “actual confusion” prong, and held that even though many of the individual users knew they were not buying Rosetta’s software from Rosetta, they may think they were purchasing it through authorized resellers, suggesting actual confusion between Rosetta and the sponsored links on Google’s page. To support this, the Court noted that Google’s in-house trademark counsel could not determine which Sponsored Ads were authorized resellers of Rosetta’s products, and that a study conducted by a market analysis and consumer behavior expert suggested actual trademark confusion. Rosetta Stone, Slip Op. Pp. 21-22. The Court found that there was enough evidence presented to create a question of fact as to consumer sophistication and vacated summary judgment for direct infringement. Rosetta Stone, Slip Op. P. 24.
The Court then looked at whether Google was protected from liability under the “functionality doctrine,” which prevents trademark and trade dress owners from asserting their rights over the functional features of a product or its packaging. Rosetta Stone, Slip Op. P.26. “A product feature is functional if it is essential to the use or purpose of the article or if it affects
the cost or quality of the article.” Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n.10 (1982); TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 32-33 (2001). The district court determined that Rosetta’s trademarks became functional when entered into Google’s AdWords program, because they took on an “indexing function.” Rosetta Stone, Slip Op. P. 28. However, the 4th Circuit disagreed, finding that the functionality doctrine did not apply because Rosetta’s own use of the words “Rosetta Stone” is not an essential feature for the products to function. Id.
As for Rosetta’s trademark dilution claim, Rosetta must show four things under the Federal Trademark Dilution Act, 15 U.S.C. §1125, (FTDA) for its trademark dilution claim: “(1) that the plaintiff owns a famous mark that is distinctive; (2) that the defendant has commenced using a mark in commerce that allegedly is diluting the famous mark; (3) that a similarity between the defendant’s mark and the famous mark gives rise to an association between the marks; and (4) that the association is likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark.” Rosetta Stone, Slip Op. P. 38.
The district court granted summary judgment in favor of Google on Rosetta’s dilution claim, finding that Rosetta did not show that Google was using Rosetta’s marks to identify its own goods and services, and that Rosetta failed to show that Google’s use was likely to impair Rosetta’s marks based on the fair use doctrine. “Descriptive, or classic, fair use applies when the defendant is using a trademark in its primary, descriptive sense to describe the defendant’s goods or services.” Rosetta Stone, Slip Op. P. 41 (emphasis in original). “Typically, nominative fair use comes into play when the defendant uses the famous mark to identify or compare the trademark owner’s product.” Id. (emphasis in original). Thus, the district court was to determine whether Google’s use of Rosetta’s trademarks was intended to create consumer confusion as to the sponsorship of the trademarks. However, the district court “omitted this analysis, impermissibly omitting the question of good faith and collapsing the fair-use defense into one question— whether or not Google uses the ROSETTA STONE mark as a source identifier for its own products.” Rosetta Stone, Slip Op. Pp. 41-42.