U.S. Fourth Circuit revives the debate over Google’s keyword advertising practices (Rosetta Stone v. Google)

On 9 April 2012, the U.S. Court of Appeal for the Fourth Circuit issued an important decision reviving the legal debate over Google keyword advertising’s practices.

In this case, Rosetta Stone, a well-known publisher of language learning software programs, had filed a trademark infringement action against Google before the Eastern District of Virginia, as a result of Google’s practice of selling Rosetta Stone’s trademarks as “advertising triggers” (AdWords) to third parties, alleging that such practices created consumer confusion by directing end users to Rosetta Stone’s competitors and/or misleading consumers into buying counterfeit Rosetta Stone products. In 2010, the District Court for the Eastern District of Virginia found that Google had committed neither direct or indirect trademark infringement, nor dilution of trademark and therefore granted summary judgment for Google. This order was partially overturned by the Fourth Circuit on the following grounds.

(1)         Direct infringement

On the issue of direct infringement, the Appellate Court found that there was sufficient evidence on the record to create a question of fact as to each of the three factors – “intent to confuse”, “actual purchaser confusion” and “sophistication of the consuming public” – used by the District Court to conclude that no direct infringement existed.

To reach this conclusion, the Court relied, among others, on Google’s own studies (suggesting that Google may have had knowledge of the confusion created by its practice) and on Rosetta Stone’s survey and anecdotal evidence (consumers testimonies and complaints) showing actual consumer confusion between fake and genuine Rosetta Stone products.

(2)       Contributory infringement

On the issue of contributory infringement, the Fourth Circuit also held that there was a question of fact as to whether Google had allowed known infringers and counterfeiters to bid on Rosetta Stone’s trademarks. Absent clear and convincing evidence that it had no knowledge of such facts, Google could not be granted summary judgment.

(3)      Trademark Dilution

The Fourth circuit also reversed the District Court’s findings that Google was not liable for trademark dilution on the ground of the Federal Trademark Dilution Act’s “fair use” defense, since it had not used Rosetta Stone’s mark to identify its own good and services. Indeed, in the appellate court’s view, for such an act to apply, the District Court should have first determined whether Google had used Rosetta Stone’s mark in good faith.

(4)     Rejection of the functionality doctrine

The Fourth Circuit finally reversed the District Court’s findings that Google’s use of Rosetta Stone’s trademark would be “non infringing” based on the fact that it would have an “essential indexing function in providing essential information to users’ queries”. The Appellate Court stressed that the relevant test for a trademark to be deemed functional was not the use of this mark by a third party but its use by its owner. In the present case, the appellate Court ruled that Rosetta Stone’s use of its marks was not “functional” and that this doctrine had thus been misapplied by the District Court.

It remains to be seen how these principles will be applied by the Court on remand and whether Google’s keyword advertising practices might be impacted by this decision. [Béatrice Martinet Farano]