April 20, 2012

Rosetta Stone v. Google: Possible Implications for Internet Retailers

Seller Beware: Consumer Protection Insights for Industry

The Fourth Circuit (Traxler, C.J.) has issued a unanimous decision in Rosetta Stone Ltd. v. Google Inc., No. 10-2007 (4th Cir. Apr. 9, 2012), overturning the Eastern District of Virginia's opinion on several key grounds. The Fourth Circuit vacated the district court's ruling of summary judgment against Rosetta Stone on several key points, remanding on each of these claims. The impact of the case upon retailers and consumers is yet to be seen, but the decision may result in decreased use of others' trademarks in an advertiser's Sponsored Links on Google and other search engine results (those shaded boxes, set off from the rest of the advertising, in search engine results).

Rosetta Stone is this country's leading language software company. It sued Google in the Eastern District of Virginia, alleging among other things, direct and contributory trademark infringement, as well as trademark dilution. These claims arose out of Google's sale of Rosetta Stone's marks as "keywords" that third parties could purchase, triggering their advertisements when Internet users input Rosetta Stone's marks into the Google search engine. With Google's adoption of new policies in 2009, third parties were also allowed to use the keywords in their advertising text on Google in certain situations. According to Rosetta Stone, an increase in counterfeited software sales ensued. The district court granted Google's motion for summary judgment on the claims we discuss here; the Fourth Circuit remanded.

Direct Infringement. The appellate court concluded that the district court erred in granting summary judgment on direct infringement. First, the Fourth Circuit stated that intent to cause consumer confusion could be found because Google knew that confusion was likely to result from the ways in which it was allowing keyword purchasers to use others' trademarks in their ad text. Second, the Court accorded Rosetta Stone's evidence of actual confusion -- in the form of both a survey finding 17% confusion and anecdotal evidence of purchasers buying counterfeit, faulty software sold by third parties via the Google search engine results -- great weight. And while few individuals testified as to their confusion, Rosetta Stone presented evidence of hundreds of customer complaints regarding pirated software they had purchased. The Court's endorsement of this evidence is likely to be cited by future plaintiffs who can show many customer complaints, but only few witnesses willing or able to testify about confusion.

The Fourth Circuit also addressed, and refuted, the district court's holding that Google's activities were shielded by the "functionality" defense. The Fourth Circuit explained that the functionality doctrine prohibits acquisition of trade dress or trademark rights in functional features of a product or its packaging that are essential to the use or purpose of an item or affect its cost or quality. Focusing on their use in Google's search engine, the district court concluded that the ROSETTA STONE® marks were functional because they had both "indexing" and "advertising" functions. Rejecting functionality as an affirmative defense here, the Fourth Circuit stated emphatically that the functionality doctrine did not apply because the district court erred in focusing "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." Id. at 28. (Emphasis in the original.)

Dilution. The lower court had found no trademark dilution, a protection reserved for famous marks such as the COCA-COLAs or KODAKs of the world. The Fourth Circuit vacated and remanded on the dilution issue, finding a faux pas in the lower court's reliance on Rosetta Stone's increased brand awareness as a reason for rejecting its dilution claims. What this means is that a defendant trying to show that the plaintiff's mark is "diluted" and therefore not famous cannot establish this simply by showing that the brand has increased in recognition.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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