Original URL: http://www.theregister.co.uk/2012/04/13/google_adwords_rosetta_stone_case/

Appeals court cracks open Google AdWords v Rosetta Stone case

Second look at whether keyword ad policy infringed trademark rights

By OUT-LAW.COM

Posted in Law, 13th April 2012 08:41 GMT

Google may be liable for direct and contributory trade mark infringement as well as trade mark dilution because of the way it allowed a language learning software company's trademarks to be bought as "keyword advertising" terms by others, a US court has ruled.

The US Court of Appeals overturned (47-page/122KB PDF) a district court's decision to award summary judgment to Google on the infringement and dilution claims and has instead ordered that the issues be examined in more detail by the district court. It upheld the district court's findings that Google is not liable for vicarious trade mark infringement or unjust enrichment.

Rosetta Stone has claimed that Google infringed its rights by allowing others to buy keyword advertising terms, including 'Rosetta Stone', through the internet giant's 'AdWords' system. Google's AdWords operates by allowing companies to buy the right for their ads to appear beside the natural results when certain terms are searched for.

Rosetta Stone has registered trade mark rights for 'Rosetta Stone' and other marks and claims that fake copies of its software have been sold by unauthorised resellers as a result of those businesses buying sponsored links identical or similar to its marks.

Under US trademark law a person claiming that their trade mark rights have been infringed must prove first that they own a valid mark and that the alleged infringer used the mark "in commerce" and without permission. They must also show that the alleged infringer used the mark, or an imitation of it, "in connection with the sale, offering for sale, distribution, or advertising" of goods or services; and that the use was likely to confuse consumers.

Google has not contested the direct infringement claim except in respect of the 'confusion' aspect. The district court, first hearing the case, accepted Google's arguments and rejected claims by Rosetta Stone that Google was liable for this direct infringement of its trade mark. The district court had determined that there was "not a genuine issue of fact as to whether Google's use of 'Rosetta Stone' created a likelihood of confusion".

The Court of Appeals said that Google had changed its AdWords policy in 2009 to enable potential keyword buyers to use trade mark terms in the advertising text in certain circumstances even if they were not the rights holders or had not obtained the rights holders' permission to do so. Overturning the district court, the Court of Appeals said that because of this change it was at least arguable that Google had "intended to cause confusion in that it acted with the knowledge that confusion was very likely to result from its use of the marks".

Therefore the appeals court said the district court was wrong to dismiss the claim in summary judgment.

The district court had also erred because it was "reasonable ... to infer that a great number of" people had been confused into thinking that there was a link between Rosetta Stone and the owners of sponsored links for the term that were in fact promoting counterfeits, the Court of Appeals ruled. In-house studies conducted by Google and a consumer survey also revealed evidence of actual confusion over the use of Rosetta Stone's marks in sponsored links, it said.

The court said that the district court was therefore wrong to dismiss the likelihood of confusion claims on this basis.

Making a summary judgment that consumers were sophisticated enough to differentiate between authentic Rosetta Stone products and unauthorised re-sellers who bought AdWord terms was also a mistake, the Court of Appeals ruled.

"We conclude that there is sufficient evidence in the record to create a question of fact as to consumer sophistication that cannot be resolved on summary judgment," it said. "The record includes deposition testimony from Rosetta Stone customers who purchased counterfeit 'Rosetta Stone' software from sponsored links that they believed to be either affiliated with or authorized by Rosetta Stone to sell genuine software."

Even 'well-educated' consumers confused by keyword links

"The evidence also includes an internal Google study reflecting that even well-educated, seasoned internet consumers are confused by the nature of Google’s sponsored links and are sometimes even unaware that sponsored links are, in actuality, advertisements. At the summary judgment stage, we cannot say on this record that the consumer sophistication factor favors Google as a matter of law. There is enough evidence, if viewed in a light most favorable to Rosetta Stone, to find that this factor suggests a likelihood of confusion," the court said.

The district court had ruled that even if there was a "genuine issue of fact" over likelihood of confusion Google could not be found liable for that infringement. That was because it said Rosetta Stone was prohibited from claiming protection for the functional features of Google's keywords 'Rosetta Stone'.

However, the Court of Appeals ruled that the 'functionality doctrine' - which the district court had said applied and that prohibits trade mark rights from extending to the functional features of a product or its packaging – "simply does not apply in these circumstances".

"Rosetta Stone uses its registered mark as a classic source identifier in connection with its language learning products," the Court said. "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'."

"Once it is determined that the product feature – the word mark 'Rosetta Stone' in this case – is not functional, then the functionality doctrine has no application, and it is irrelevant whether Google’s computer program functions better by use of Rosetta Stone’s nonfunctional mark. As the case progresses on remand, Google may well be able to establish that its use of Rosetta Stone’s marks in its AdWords program is not an infringing use of such marks; however, Google will not be able to do so based on the functionality doctrine," it said.

The district court had determined that Rosetta Stone had failed to show that Google was liable for contributory infringement. This was because the company did not "establish with the requisite specificity that Google knew or should have known of the infringing activity".

Case law in the US has shown that in order to qualify as a contributory trade mark infringer parties must be shown to have had knowledge or reason to know that infringement was taking place and to have intentionally induced customers to use the mark in an infringing fashion or have supplied its products to identified individuals known to be engaging in continuing infringement. There must also be underlying direct infringement.

The Court of Appeals rejected the district court's dismissal of the contributory infringement claim in summary judgment and said there was sufficient evidence of such infringement "to permit a trier of fact".

"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," it said.

Rosetta Stone has also alleged that Google has caused a dilution of its trade mark.

Under the Federal Trademark Dilution Act (FTDA) Rosetta Stone must show that it owns a distinctive famous mark and that Google has used a similar mark "in commerce" that in a way that "gives rise to an association between the marks" and that that association is "likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark".

The district court dismissed Rosetta Stone's claims, but the Court of Appeals ruled that it was wrong to do so. The district court had said there was a lack of evidence to show that Google had used Rosetta Stone's trade marks "to identify its own goods and services" and that in any case Google had a 'fair use' defence.

Under the FTDA "any fair use, including a nominative or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person’s own goods or services is not actionable as dilution by blurring or dilution by tarnishment," according to the Court of Appeals ruling.

The court said it was up to Google to show that it had used Rosetta Stone's mark in good faith "to describe its product and otherwise than as a trademark". Good faith would be determined on the basis of whether Google "intended to create consumer confusion as to source or sponsorship" in how it used the mark. Google would also have to show that it had only used the mark in a limited fashion which was "necessary to identify the product or service" and had not done anything to suggest "affiliation, sponsorship, or endorsement" by Rosetta Stone.

The district court had also said that Rosetta Stone had failed to show that Google's use of its marks were "likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark". However, the Appeals Court said that the district court's "truncated analysis" of the issue was not sufficient to dismiss the claim.

The Court of Appeals upheld the district court's summary judgment award in favour of Google in respect of the vicarious infringement claims brought by Rosetta Stone. This was because there was no evidence that Google acts in cahoots with adverts to "control the counterfeit 'Rosetta Stone' products," it said.

Google did not unjustly enrich itself at the expense of Rosetta Stone, the Court of Appeals ruled. The district court was therefore right to dismiss this claim in summary judgment.

"According to Rosetta Stone, the keyword trigger auctions constitute the unauthorized sale of the 'Rosetta Stone' marks," it said. "Rosetta Stone alleges that through the auctions it conferred a benefit 'involuntarily' on Google, and that Google 'is knowingly using the goodwill established in [the] trademarks to derive ... revenues.' Rosetta Stone, however, has not alleged facts supporting its general assertion that Google 'should reasonably have expected' to pay for the use of marks in its keyword query process."

"Indeed, Rosetta Stone does not contend, and did not allege, that Google pays any other mark holder for the right to use a mark in its AdWords program. In our view, these allegations are insufficient to surmount even the minimal barrier presented by a motion to dismiss," the Court ruled.

The district court will now re-examine in more detail at a full trial whether Google is liable for direct and contributory trade mark infringement and whether it is also liable for diluting Rosetta Stone's mark.

"While this is an interesting decision it must be viewed in the context of the standards of proof required for obtaining summary judgment rather than the standard that applies in full proceedings," Iain Connor, expert in intellectual property law at Pinsent Masons, said.

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