On Monday, the Court of Appeals for the Fourth Circuit reversed the district court’s decision ending Rosetta Stone’s trademark infringement case against Google.  Rosetta Stone’s complaint, filed in2009, alleged that Google infringed Rosetta Stone’s trademark rights by selling its trademarks as keywords to third-party competitors without Rosetta Stone’s permission.  Under Google’s AdWords program, Google offers advertisers the ability to select certain keywords that will trigger a ”sponsored link” to the advertiser’s chosen website.  Google displays the “sponsored link” above or next to the organic search results.  The Rosetta Stone trademarks at issue, which Google included as keywords in its AdWords program, included “language library,”  “global traveller” and “Rosetta Stone,” among others.  Rosetta Stone alleged that Google’s sale of its trademarks to unrelated third parties for use in sponsored advertising caused consumers to follow the unaffiliated sponsored link advertisements based on the mistaken belief that the associated links/websites were owned by or affiliated with Rosetta Stone when, in fact, they are not.

In 2010, the district court ruled in Google’s favor,  concluding (among other things) that “no reasonable trier of fact could find that Google’s practice of auctioning Rosetta Stone’s trademarks as keyword triggers to third party advertisers creates a likelihood of confusion as to the source and origin of Rosetta Stone’s products[.]“  In the end, the district court gave Google a total victory, granting its motions for summary judgment on Rosetta Stone’s claims of (1) direct trademark infringement; (2) contributory infringement; (3) vicarious infringement; (4) trademark dilution; and (5) unjust enrichment (under Virginia law).  The Fourth Circuit reversed, at least in part, remanding the issues of direct infringement, contributory infringement, and trademark dilution to the district court.  In so doing, the Fourth Circuit set forth the details of some interesting bits of evidence for the district court to consider on remand.  

Direct Trademark Infringement:

In addressing direct infringement, the Fourth Circuit rejected Rosetta Stone’s argument that the district court erred by failing to analyze each of the nine factors that are traditionally considered in assessing a likelihood of confusion.  The district court focused its analysis only on the three factors that were in dispute (defendant’s intent, actual confusion, and sophistication of the consuming public).  The Fourth Circuit found no error in this approach, finding that the traditional list of likelihood of confusion factors is not exhaustive or mandatory.  The Court did, however, provide the district court with the following guidance:  “[i]n the future . . . a district court opting not to address a given factor or group of factors should provide at least a brief explanation of its reasons .”  The Court then examined whether the district court had properly applied the summary judgment standard in reviewing the record evidence and concluded that it had not.  Rather, the Court determined that the district court viewed Rosetta Stone’s evidence “much as it would during a bench trial.”  It proceeded to review the evidence on the intent factor, which reflected Google’s awareness of source confusion among Internet searchers when trademarks were included in sponsored advertisements.  Viewing this evidence in the light most favorable to Rosetta Stone, the Court concluded that a reasonable fact finder could find that Google intended to cause consumer confusion.  On the issue of actual confusion, the Court reviewed deposition testimony of consumers who purchased bogus ROSETTA STONE software from businesses that were unaffiliated with Rosetta Stone source based on use of the ROSETTA STONE trademark in the sponsored advertisements.  It also reviewed Google’s in-house studies “to analyze user confusion (if any) associated with ads using [trademark] terms” as well as expert reports on the issue of confusion.  Because trademark infringement can be based on confusion as to affiliation, connection or sponsorship (as well as source), the Court concluded that the district court’s too readily rejected this evidence.  On the issue of consumer sophistication, the Court concluded that, at the summary judgment stage, it could not conclude that this favor weighed in Google’s favor in light of the record evidence that even well-educated, seasoned Internet consumers could be confused by the nature of Google’s sponsored links.  The Court also rejected the district court’s conclusion that Google’s made functional, non-infringing use of the ROSETTA STONE trademark. The Court noted that the district court had improperly focused on whether Rosetta Stone’s marks made Google’s product more useful and failed to examine whether the mark was functional as Rosetta Stone used it.  On remand, the Court foreclosed Google’s ability to rely on the affirmative defense of functionality, finding it inapplicable to the facts.

Contributory Infringement:

The Court found further fault with the district court’s analysis of Rosetta Stone’s contributory infringement claim.  The district court had been ”unpersuaded” by Rosetta Stone’s evidence reflecting “Google’s purported allowance of known infringers and counterfeiters to bid on the Rosetta Stone marks as keywords[.]” In reversing the award of summary judgment to Google on this issue, the Court stated that the district court “turned the summary judgment standard on its head.”  The lower court relied too heavily on the Second Circuit’s decision in Tiffany (NJ) Inc. v. eBay Inc.,  which rejected a contributory infringement claim against the Internet auction site based on use of the TIFFANY’S trademark by jewelry counterfeiters on the site.  Noting that the decision in Tiffany’s was based on a record at trial, and the decision under review by the Fourth Circuit was decided at the summary judgment stage, the Court concluded that the evidence submitted by Rosetta Stone was sufficient to raise an issue of fact as to whether Google continued to supply its services to known infringers.

Dilution:

The district court had granted Google’s summary judgment motion on Rosetta Stone’s dilution claim because (1) Rosetta Stone failed to present evidence that Google was “us[ing] the Rosetta Stone Marks to identify its own goods and services” and (2) Rosetta Stone failed to demonstrate that Google’s use of the mark was likely to impair the distinctiveness of or harm the reputation of the Rosetta Stone Marks.  The Fourth Circuit disagreed with both conclusions.  First, the Court stressed that Rosetta Stone was not required to show that Google used the ROSETTA STONE trademarks as a source identifier for Google’s own goods or services.  Section 1125(c)(3)(A) requires that the defendant (Google), not the dilution plaintiff (Rosetta Stone), establish that it made fair use of the trademark other than as a designation of source.  Second, the Court determined that the district court erred in concluding that Rosetta Stone could not, as a matter of law, prove its dilution by blurring claim because the evidence reflected that its marks had not been impaired (in fact, evidence reflected that Rosetta Stone’s “brand awareness” equity increased during the relevant time period).  The Fourth Circuit found that the district court relied improperly on its prior decision in Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC for the proposition that a trademark owner must prove actual economic loss or reputational injury to succeed on a dilution claim.  Dilution, however, requires a showing of alikelihood of dilution.

The case is now remanded back to the district court for further proceedings on Rosetta Stone’s direct infringement, contributory infringement, and dilution claims.