Rosetta Stone v. Google, 676 F.3d 144 (4th Cir. 2012) was a decision of the United States Court of Appeals for the Fourth Circuit that challenged the legality of Google's AdWords program. The Court overturned a grant of summary judgment for Google that had held Google AdWords was not a violation of trademark law (see federal Lanham Act,(1)).
Though other cases had addressed trademark infringement in the context of online keyword advertising (see Playboy Enterprises, Inc. v. Netscape Communications Corp., Google, Inc. v. American Blind & Wallpaper Factory, Inc.) Rosetta Stone v. Google is considered the last serious American challenge to Google's AdWords program. Although Rosetta Stone 'won' an overturn of summary judgment, the subsequent settlement between the two parties led commentators to declare that Google had won the keyword advertising trademark fight.
Background
Google has used a version of keyword advertising, now known as Google Ads and previously known as Google AdWords, since October 2000. Google places paid ads at the top and bottom of its search results page. Every time someone enters a search, Google runs an auction to determine which ads to show. The auction takes into account the relevancy of the ad as well as the monetary bid that has been made for that keyword by each advertiser. Most advertisers with Google pay on a cost per click basis.
In 2004, Google changed its policy and began allowing advertisers to bid on trademarked words. In 2009, Google further changed its AdWord policy now allowing use of trademarks both in advertising text and as advertisement keywords. As a result of the policy change, more than twenty lawsuits were filed against Google alleging trademark infringement.
In response to the changed AdWord policy, Rosetta Stone, the maker of popular foreign language learning software, filed suit against Google for violating the Lanham Act, claiming Google was "helping third parties to mislead consumers and misappropriate the Rosetta Stone Marks by using them as "keyword" triggers for paid advertisements and by using them within the text or title of paid advertisements". Rosetta Stone sued specifically for: direct trademark infringement, contributory trademark infringement, vicarious trademark infringement, and trademark dilution. Rosetta Stone also sued for unjust enrichment under Virginia state law.
The district court granted Google's motion for summary judgment on all Lanham Act claims finding there had been no consumer confusion, Google's use of the trademarked keywords was functional, and the use of the trademarked keywords was either nominative fair use or contributed to an increase in Rosetta Stone's brand recognition. The district court also granted Google's motion to dismiss Rosetta Stone's unjust enrichment claim. Rosetta Stone appealed to the Fourth Circuit on all claims, which reviewed the case de novo.
Holding of the Court
The Fourth Circuit reversed the district court's grant of summary judgment for the direct trademark infringement, contributory trademark infringement and trademark dilution. The Court affirmed the grant of summary judgment for the vicarious trademark infringement claim and upheld the motion to dismiss for unjust enrichment on a different reasoning than the district court.
Analysis
Direct trademark infringement
To prevail on a direct trademark infringement under the Lanham Act a plaintiff must prove: That they own the valid mark Defendant used the mark in commerce and without the Plaintiff's authorization Defendant used the mark (or an imitation of it) "in connection with the sale, distribution, or advertising" of goods or services; and Defendant's use of the mark is likely to confuse consumers
On appeal only the 'likelihood of confusion' prong was in dispute. In the Fourth Circuit, the likelihood of confusion is determined by looking at nine factors: (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 Court first affirmed the district court's limited factor analysis. The district court had only looked at the intent, actual confusion, and sophistication of the consuming public factors. However, the Court faulted the district court's reasoning on all the three factors.