Rosetta Stone’s Trademark Infringement Suit Against Google Resuscitated by Fourth Circuit

Rosetta Stone sued Google over Google’s keyword search and advertising trademark use policies, contending that those policies create both a likelihood of consumer confusion and actual consumer confusion.  Rosetta Stone asserted that the likelihood of confusion and actual confusion misleads Internet purchasers into purchasing counterfeit Rosetta Stone software.  Rosetta Stone claimed the Lanham Act (trademark law) claims of direct, contributory and vicarious trademark infringement and trademark dilution, and the state law claim of unjust enrichment.

The district court granted Google’s summary judgment motion on the Lanham Act claims and dismissed the unjust enrichment claim.  On appeal, the Fourth Circuit affirmed the district court’s rulings on the vicarious infringement and unjust enrichment claims, but vacated the district court rulings on the direct infringement, contributory infringement and dilution claims and remanded those claims to the district court for further proceedings.

Rosetta Stone is an industry leader in technology-based language-learning products and online services.  Its software, online service and audio practice tools are available in over thirty languages.  Google operates an extremely popular Internet search engine.  Users can search the Internet using “keyword” searches, i.e. entering a word or phrase into the search box.  Natural search results are those that appear through the operation of Google’s algorithms.  Paid advertising search results, known as “Sponsored Links,” appear above and to the right side of the natural results.  Advertisers can purchase keywords, so that their ads will appear along with the natural search results, through Google’s AdWords advertising platform.  This case arises out of Google’s sale of Rosetta Stone’s trademarks to advertisers.

Direct Infringement.  The district court ruled that there was no genuine issue of fact on whether Google’s use of Rosetta Stone’s trademark created a likelihood of confusion.  The district court further concluded that under the functionality doctrine, Google cannot be liable.  The Fourth Circuit disagreed.

Likelihood of Confusion.  Courts in the Fourth Circuit examine the following set of factors to aid them in determining the likelihood of confusion:

  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.

The likelihood of confusion is “an inherently factual issue that depends on the facts and circumstances in each case.”  (Opinion pdf page 12).

The district court determined that only three factors were in dispute:  the defendant’s intent, actual confusion and the consuming public’s sophistication.  Rosetta Stone argued that the district court erred when it failed to consider the effect of the other factors.  The Fourth Circuit disagreed, pointing out that when the trademark is used by the defendant to refer to the plaintiff’s own goods, also called a referential or nominative use, some of the factors are irrelevant.  The list of factors grew out of the situation in which the defendant passes off the plaintiff’s mark as the defendant’s own mark, confusing the public as to whose goods the defendant is selling.  The Fourth Circuit indicated that while the district court is not required to blindly apply every factor, it should provide a brief explanation of its reasons for not addressing a particular factor.

The Fourth Circuit ruled that there was a genuine issue of material fact on the three factors the district court determined were in dispute.  The district court failed to properly apply the standard of review for summary judgment and examined the evidence as if it were a bench trial.

                        Intent.  Google did not attempt pass off its goods or services as those of Rosetta Stone’s, but it did change its policies regarding the use of trademarks as keywords in searches twice after 2002, which is when Rosetta Stone first began advertising using Google’s services.  Before 2004, Google did not allow unauthorized advertisers to use trademarks as keyword search triggers or in advertisements.  In 2004, Google changed its policy, so that it could generate more advertising revenue.  Google began allowing advertisers to use third-party trademarks as keywords, even if the trademark owners objected, but did not allow advertisers to use third-party trademarks in ad text or ad titles, unless authorized by the trademark owner.

[I]nternal studies performed by Google at this time suggested that there was significant source confusion among Internet searchers when trademarks were included in the title or body of the advertisements.

(Opinion pdf page 16).

Despite the results of its internal studies, Google further changed its policy in 2009 to allow advertisers to use third-party trademarks in ad text and ad titles.  Google expected both revenue and litigation to increase as a result of this policy change.  The Fourth Circuit ruled

[W]e conclude that a reasonable trier of fact could find that Google intended to cause confusion in that it acted with the knowledge that confusion was very likely to result from its use of the marks.

(Opinion pdf page 17).

                        Actual Confusion.  Rosetta Stone relied on survey and anecdotal evidence to demonstrate actual confusion.  The district court rejected the anecdotal evidence, indicating that the consumers who purchased counterfeit Rosetta Stone products were not confused about the source of the products they purchased, but were only confused about whether the products were genuine.  This was not a basis upon which to reject the anecdotal evidence, according to the Fourth Circuit.

The confusion that is remedied by trademark and unfair competition law is confusion not only as to source, but also as to affiliation, connection or sponsorship.

(Opinion pdf page 19).

The district court rejected consumer confusion survey evidence for the same reason as it rejected the anecdotal evidence.  The Fourth Circuit also ruled that the district court erred when it rejected the consumer survey evidence.

Google’s own corporate witnesses were unable to determine by looking at Google search results which of the paid advertisement results were from authorized dealers.  “The district court rejected this evidence as proof of actual confusion because the testimony appeared to the district court to ‘reflect a mere uncertainty about the source of a product rather than actual confusion.’”  (Opinion pdf page 22).  The Fourth Circuit ruled that the district court should have accepted this testimony as evidence of actual confusion, since “uncertainty about the origin of a product, however, is quintessential actual confusion evidence.”  (Opinion pdf page 22).

                        Sophistication of the Consuming Public.  The district court concluded that Rosetta Stone customers are sophisticated consumers who would be able to distinguish between the natural search results and the paid-for advertising links.  The district court reached this conclusion based on the price of the Rosetta Stone products (starting at around $259) and the presumption that learning a foreign language requires a time commitment.  The Fourth Circuit ruled that the district court’s reasoning is fine if there has been a bench trial, but is not correct for a summary judgment motion.  The Fourth Circuit ruled that the anecdotal evidence of consumer confusion and the internal Google studies indicating that even experienced Internet consumers could confuse natural search results with paid-for ads raised a genuine issue of material fact on this factor.

The Fourth Circuit rejected Rosetta Stone’s argument that it is entitled to a presumption of confusion on the infringement claim.  The presumption of confusion applies when the defendant intentionally copies the plaintiff’s mark, intending to exploit the goodwill created by plaintiff’s mark.  The court indicated that there was no evidence that Google intentionally copied Rosetta Stone’s mark in an effort to pass off its own goods as those of Rosetta Stone.  However, the Fourth Circuit overlooked the existence of evidence showing that Google intended to profit by increasing its revenues from its use of others’ trademarks and knew that its decision to allow trademarks to be used in ad titles and text could cause consumer confusion.

            Functionality.  The district court ruled that Google’s use of the Rosetta Stone trademark as key words is protected by the functionality doctrine, precluding Google’s liability.  The Fourth Circuit ruled that the functionality doctrine does not apply under these circumstances. 

The functionality doctrine prohibits “trade dress or trademark rights in the functional features of a product or its packaging.”  (Opinion pdf page 26).  It prevents trademark owners from using trademark law to inhibit legitimate competition by controlling useful product features. 

[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.

(Opinion pdf page 27).

The district court decided that keywords that are trademarks become functional when entered into Google’s AdWords program. 

The Fourth Circuit rejected the district court’s analysis:

The functionality doctrine simply does not apply in these circumstances.  The functionality analysis below was focused on whether Rosetta Stone’s mark made Google’s product more useful, neglecting to consider whether the mark was functional as Rosetta Stone used it.  Rosetta Stone uses its registered mark as a classic source identifier in connection with its language learning products.  Clearly, there is nothing functional about Rosetta Stone’s use of its own mark:  use of the words “Rosetta Stone” is not essential for the functioning of its language-learning products, which would operate no differently if Rosetta Stone had branded its product “SPHINX” instead of ROSETTA STONE.

(Opinion pdf page 28).

Contributory Infringement.  Under the theory of contributory infringement, those who facilitate or encourage infringement are liable for the infringement.  There must also be direct infringement, i.e. actual infringement by someone who was helped by the facilitator.  Further, the contributory infringer “must supply its product or service to identified individuals that it knows or has reason to know are engaging in trademark infringement.”  (Opinion pdf page 29).

Rosetta Stone presented evidence that Google allowed advertisers to use Rosetta Stone trademarks for different websites after Rosetta Stone notified Google that those same advertisers were selling counterfeit Rosetta Stone products.  After Rosetta Stone notified Google of counterfeit products being sold on specific websites, Google would allow the owners of the counterfeit product websites to use Rosetta Stone’s trademarks as keywords for searches and in ad text for different websites, thus allowing the alleged counterfeiters to continue using Google’s services simply by changing websites.

The district court ruled that Rosetta Stone did not show that summary judgment was proper on its contributory trademark infringement claim and granted summary judgment to Google on that issue.  The Fourth Circuit vacated the district court’s ruling:

In granting summary judgment to Google because ‘Rosetta Stone has not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim,’ the district court turned the summary judgment standard on its head….We conclude that the evidence recited by the district court is sufficient to establish a question of fact as to whether Google continued to supply its services to known infringers.

(Opinion pdf pages 32-33).

Vicarious Infringement.  Liability for vicarious trademark infringement requires the plaintiff to show that the defendant and infringer have a relationship in which there is an actual partnership, authority to bind each other in dealings with third parties or control or joint ownership of the infringing product.  The Fourth Circuit ruled that Google’s ability to control the appearance of ads on its website is not evidence “that Google acts jointly with any of the advertisers to control the counterfeit ROSETTA STONE products.”  (Opinion pdf page 33).  The Fourth Circuit affirmed the district court ruling granting summary judgment to Google on this issue.

Trademark Dilution.  Trademark dilution law does not protect consumers, but instead, protects famous trademarks from being weakened by unauthorized uses.  Dilution by blurring occurs when the similarity between a trademark and a famous trademark impairs the distinctiveness of the famous trademark.  Dilution by tarnishment affects the reputation of the famous mark and occurs when the defendant creates consumer aversion to plaintiff’s famous trademark by portraying the famous trademark in an unsavory light.  17 U.S.C. §1125(c) is the Federal Trademark Dilution Act (FTDA).

The plaintiff must show the following for a 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.

Google’s Non-Trademark Use of Rosetta Stone’s Marks.  The district court blended fair use into the third element of trademark dilution.  The district court erred by requiring Rosetta Stone to “demonstrate that Google was using the ROSETTA STONE mark as a source identifier for Google’s own products.”  (Opinion pdf page 40). 

Fair use is a defense that does not come into play until after plaintiff has established its case.  But since the district court did consider fair use, the Fourth Circuit addressed it and declared it is up to Google to establish its good faith use of the mark in a fair use defense. 

The district court erred by failing to consider good faith as part of the fair use defense.  The good faith inquiry asks whether the trademark user intended to create consumer confusion as to source or sponsorship.  The Fourth Circuit vacated the district court’s ruling and remanded for reconsideration on the dilution claim, specifically directing the district court to “reexamine the nominative fair-use defense in light of this opinion” if Rosetta Stone makes a prima facie case of trademark dilution.

            Likelihood of Dilution.  The district court ruled that because Rosetta Stone’s brand awareness increased since Google revised its trademark policy in 2004, the distinctiveness of Rosetta Stone’s marks was not impaired and that Rosetta Stone could not show that Google’s  trademark policy likely caused dilution by blurring. 

This non-exhaustive list of factors is considered in determining whether the defendant’s use is likely to impair the distinctiveness of the plaintiff’s famous mark:

  1. The degree of similarity between the mark or trade name and the famous mark.
  2. The degree of inherent or acquired distinctiveness of the famous mark.
  3. The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark.
  4. The degree of recognition of the famous mark.
  5. Whether the user of the mark or trade name intended to create an association with the famous mark.
  6. Any actual association between the mark or trade name and the famous mark.

The district court considered only the degree of recognition of Rosetta Stone’s mark and did not consider any other factor.  The Fourth Circuit indicated that Rosetta Stone need only show the likelihood of dilution and does not have to show actual economic loss or reputational injury to establish a trademark dilution claim.  The Fourth Circuit stated that the district court should consider some of the other factors on remand.

            When did Rosetta Stone’s marks become famous?  A trademark is famous when it is a “household name.”  Trademark dilution can occur only when the defendant’s activities that are likely to cause dilution begin after the mark has already become famous.  It would be unfair for activities of the defendant that were legal before the mark became famous to suddenly become unlawful just because the mark became famous.  The district court ruled that the Rosetta Stone marks have been famous since at least 2009.  However, Rosetta Stone complains of Google’s use of its marks starting in 2004.  The Fourth Circuit remanded the question of whether Rosetta Stone’s marks were famous before Google began using those marks to the district court for further fact finding.

This case is Rosetta Stone Ltd. v. Google, Inc., No. 10-2007, Fourth Circuit Court of Appeals.

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