Courts in Australia And the U.S. Address Google's AdWords Program

The Australian Approach

On April 3, 2012, the Federal Court of Australia found Google violated Australian trademark laws through the use of trademarks as keywords in its AdWords program. See, Australian Competition and Consumer Commission v. Google Inc., 2012 FCAFC 49 (Federal Court of Australia Apr. 3, 2012) [hereinafter ACCC]. The court addressed four advertisements. First, STA Travel purchased the keywords “Harvey World Travel” and “harvey travel,” a competitor's trademark. After Harvey World Travel lodged a complaint with Google, Google confirmed the ads no longer would include “Harvey World Travel” in the headline of the sponsored link. Second, CarSales used as a keyword the domain name www.honda.com.au. Third, the Dog Trainer Pty Ltd (Ausdog) purchased “alpha dog” keywords. Alpha Dog was a competitor of Ausdog. When searching for Alpha Dog, Ausdog's website address would appear as a sponsored link. Fourth, the Trade Post is a competitor of Just Magazines Pty, Ltd. and Just Magazines publishes a magazine entitled “Just 4X4s.” On May 29, 2007, “Just 4X4s” appeared as a headline for the Trading Post. Some of the allegedly infringing advertisements included the competitor's trademark in the advertisement's headline and the sponsor's website as a link.

Section 52(1) of Australia's Trade Practices Act provides: “A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive.” Trade Practices Act 1974 s 52 (Austl.). The court noted a party may engage in misleading or deceptive conduct “without an intention to mislead or deceive.” ACCC, at '79. The court relied on relevant precedent, including Universal Telecasters (Qld) v. Guthrie, (1978) 18 ALR 531, which held a television station may be held liable for advertisements it telecasts. Id., at ”38-39. The court noted later cases clarified that where a corporation was a mere conduit for information, and expressly or impliedly disclaimed the information, liability may not arise. ACCC, at ”81-86.

The court stressed Google displays the sponsored links in response to a user's inquiry and Google's search engine effects the display of the link in response to that inquiry. Id. at '88. The court also noted the sponsors are able to choose keywords because Google makes the AdWords program available to the sponsors and found that the “ordinary and reasonable user would conclude ' Google ' was displaying the sponsored link in collocation with the sponsor's URL in response to the user's search.” Id. at '89. Moreover, even if the user would not make such a conclusion, the court found Google was “more than a mere conduit,” ACCC, at ”89, 92, reasoning that by responding to the inquiry, Google is informing the user the sponsored link is relevant. Id. at '92. The court distinguished Google's conduct from that of a billboard owner, an owner of a television network, a publisher of a newspaper or a telecaster who “simply displays an advertisement of another.” Id. at '94. It noted the question was not whether Google's conduct of displaying the advertisement was for Google or for a third party; rather, the question was whether “Google's conduct in response to the user's interaction with Google's search engine was misleading.” Id. at '96.

The court discussed the terms and conditions of the AdWords program, which required the sponsor to be responsible for all advertising, keywords and URLs, and required the advertisement and keywords to “directly relate” to the advertisement's landing page. ACCC, at '97. However, it found that even if these terms and conditions were breached, Google's conduct in relation to the user still was misleading. Id.

The court ordered Google to implement a compliance program, and laid out the requirements of the program. Although no fine was imposed, the implementation of and conformity with the program will require the expenditure of funds and the court ordered Google to pay the ACCC's costs. ACCC, at '117.

The United States Approach

In 2004, Google changed its AdWords policy in the United States, which previously precluded the use of trademarks in the text of an advertisement and the use of trademarks as keywords upon request of the trademark owner. The 2004 policy permitted sponsors to use third-party trademarks as keywords even if the trademark owner objected. In 2009, Google again changed its policy. As of 2009, Google permits the use of trademarks in advertising text where the sponsor was a reseller of a genuine trademark product, made or sold component parts for a trademarked product, offered compatible parts or goods for use with the trademarked product; or provided information about or reviews of a trademarked product.

Rosetta Stone Ltd. filed a lawsuit against Google alleging Google violated various trademark laws because it allowed sellers of counterfeit Rosetta Stone products to purchase Rosetta Stone trademarks as keywords, and, therefore, to advertise the counterfeit product when a user entered a Rosetta Stone trademark into the search engine. Rosetta Stone Ltd. v. Google, Inc., No. 10-2007, 2012 U.S. App. LEXIS 7082, at 73 (4th Cir., Apr. 9, 2012). Rosetta Stone alleged the following claims: 1) trademark infringement; 2) contributory trademark infringement; 3) vicarious trademark infringement; 4) trademark dilution; and 5) unjust enrichment. The United States District Court for the Eastern District of Virginia granted Google's summary judgment motion for the trademark infringement claim, contributory trademark infringement claim, the vicarious trademark infringement claim, and the trademark dilution claim, and granted Google's motion to dismiss the unjust enrichment claim.

The United States Court of Appeals for the Fourth Circuit vacated the district court's opinion with respect to the direct infringement, contributory infringement and dilution claims. The court affirmed the district court with respect to the vicarious liability and unjust enrichment claims. For the vicarious liability claim, the court reasoned no evidence established that Google acted jointly with the advertisers to control the counterfeit Rosetta Stone products. Rosetta Stone, at 50. For the unjust enrichment claim, the court found Rosetta Stone failed to allege it conferred a benefit on Google and Google should reasonably be expected to repay Rosetta Stone for this benefit. Id. at 53-54.

Direct Infringement Claim

In discussing the direct infringement claim, the Fourth Circuit focused on whether sufficient evidence existed to establish the likelihood of confusion factor of a direct infringement claim. (To establish a trademark infringement claim under the Lanham Act, a plaintiff must establish: 1) it owns a valid mark; 2) the defendant used the mark in commerce and without authorization; 3) the defendant used the mark “in connection with the sale, offering for sale, distribution, or advertising” of goods or services; and 4) the defendant's use of the mark is likely to confuse consumers.” Rosetta Stone, at 12-13 (citing 15 U.S.C. '1114(a)). The court analyzed three of the nine likelihood of confusion factors. First, the court found a reasonable trier-of-fact could find Google intended to cause confusion because it acted with knowledge the confusion was “very likely to result from its use of the marks.” Rosetta Stone, at 23-24. The court noted internal studies conducted by Google in 2004 showed “significant source confusion” among Internet users where a trademark was included in the advertisement's body or text. Id. at 23.

Second, the court addressed whether actual purchaser confusion existed. Rosetta Stone, at 24-33. The court noted the deposition of five consumers who testified they attempted to purchase Rosetta Stone software after Google changed its policy in 2009 and purchased counterfeit Rosetta Stone software from a sponsored link, believing the product was genuine and believing the sponsored link was affiliated with Rosetta Stone. The court reasoned it did not matter that the purchasers did not believe they were purchasing the product directly from Rosetta Stone. Rather, the issue was whether the unauthorized use of a trademark was likely to confuse a consumer “as to the source or sponsorship of the goods.” Id. at 27 (emphasis deleted). In addition, similar to the Australian appellate court, the Fourth Circuit found the sponsored link and advertisement's compliance with Google's terms and conditions was irrelevant. Id. at 27-28. Whether the link and advertisement conformed to Google's policy does not impact whether consumers would be confused by the use of the trademark in the sponsored links. The relevant question is whether Google's practice was likely to produce consumer confusion. Id. Further, Rosetta Stone had presented evidence it received 124 complaints from April 1, 2009 to Dec. 9, 2009 from individuals who purchased counterfeit software and received 139 more complaints from Dec. 9, 2009 to March 8, 2010. The court found it was reasonable to infer a “great number of these individuals were confused” due to a sponsored link. Id. at 29. The circuit court also found the district court should have considered the studies conducted by Google, which indicated there was a likelihood of confusion where trademarks were used in the advertisement's text or body; the testimony of Google's corporate witnesses, who were unable to determine without additional research which sponsored links were authorized Rosetta Stone sellers; and a consumer confusion survey report, which concluded a significant portion of consumers are likely to be confused regarding the origin, sponsorship or approval of the sponsored links. Id. at 29-33.

Third, the Fourth Circuit considered the sophistication of the consuming public, finding there was sufficient evidence presented to create a question of fact regarding the consumer confusion factor. The court reasoned there was deposition testimony of customers who purchased counterfeit Rosetta Stone products and the Google internal study indicated well-educated, seasoned consumers were unaware the sponsored links were advertisements. Rosetta Stone, at 33-36.

The court also found the functionality doctrine, which prohibits trade dress or trademark rights in the functional features of a product or its packaging, did not apply. The doctrine applies only where the trademark owner's use of the mark was functional; not where the alleged infringer's use of the mark is functional.

The Contributory Infringement Claim

The Fourth Circuit also found sufficient evidence was presented to create an issue of fact regarding Rosetta Stone's contributory infringement claim. The court noted Rosetta Stone submitted evidence it notified Google of approximately 200 instances of sponsored links advertising counterfeit Rosetta Stone products, and that Google continued to allow the sponsored links for other websites by the same sponsors to use the Rosetta Stone trademarks as a keyword. Rosetta Stone, at 45-46.

The Trademark Dilution Claim

The court remanded the trademark dilution claim to the district court for reconsideration. The court reasoned the district court required Rosetta Stone to establish Google was using the Rosetta Stone mark as a source identifier of Google products, which was an element of Google's fair use defense, not an element of the prima facie dilution case. Rosetta Stone, at 61. (To state a prima facie case of trademark dilution, a plaintiff must establish: 1) the plaintiff owns a famous trademark that is distinctive; 2) the defendant has commenced using the mark in commerce that allegedly is diluting the famous mark; 3) a similarity between the defendant's mark and the famous mark that gives rise to an association between the marks; and 4) the association is likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark. Rosetta Stone, at 58 (quoting Louis Vuitton, 507 F.3d at 264-65)). The district court also misapplied the fair use exception, making it coextensive with non-trademark use of a mark. The court also remanded for reconsideration the district court's conclusion regarding the likelihood of dilution factors. Rosetta Stone, at 66-67. In addition, the court remanded the dilution claim for reconsideration of when the Rosetta Stone trademarks became famous, reasoning the court must determine whether the Rosetta Stone trademarks were famous in 2004, the year Google began to permit the use of trademarks as keywords, because trademark dilution can occur only if the defendant's use began after the trademark became famous. Id., at 67-72.

Conclusion

The Australian court, relying on its precedents, focused on whether Google was a “mere conduit” for the advertisements to determine whether Google's conduct was “misleading or deceptive.” In contrast, the U.S. Court of Appeals focused on whether Google's conduct was likely to confuse the consumer and on whether Google permitted the sponsors' conduct to continue after Google had knowledge of a trademark violation. The courts reviewed similar items, such as how Google's AdWords program worked and how the program interfaced with Internet users. The Australian Court, however, focused on Google's conduct and Google's interaction with the Internet users, i.e., whether Google provided relevant responses, including sponsored links, to an Internet user's inquiry. The Fourth Circuit focused on the end result of the AdWords program, i.e., whether the sponsored links displayed in response to a user inquiry confused the consumer as to the source and sponsorship of the goods.

Both approaches led to loses for Google and its AdWords program. However, as the attorney for Google in Australia has indicated, Google may appeal the decision, and the case in the United States is headed back for further consideration and a possible trial. Only time will tell whether Google's AdWords program will require alterations.

Appellate courts in both the United States and Australia recently addressed whether Google, Inc. violated the country's respective trademark laws through the use of third-party trademarks as keywords in Google's AdWords advertising program. Google suffered legal losses in both countries: A finding of liability of trademark infringement in Australia and a denial of summary judgment for a direct trademark claim, a contributory trademark claim, and a trademark dilution claim in the United States.

Background on the AdWords Program

Users of Google enter a word or phrase into its search engine and Google returns a list of website links relevant to the user's inquiry. Google uses a sophisticated algorithm to determine the most pertinent links. In addition to organic search results, Google's search engine also displays “sponsored links,” which are advertisements for which sponsors pay Google on a per click basis. Google determines which sponsored links to display in response to a user inquiry using its AdWords program. AdWords permits a sponsor to purchase keywords that will trigger the display of a sponsor's advertisement and link in response to a user's search request. When a user enters a word or phrase into the Google search engine, AdWords generates, through an auction process, the relevant sponsored advertisements and links that will appear on the results page.

The Australian Approach

On April 3, 2012, the Federal Court of Australia found Google violated Australian trademark laws through the use of trademarks as keywords in its AdWords program. See , Australian Competition and Consumer Commission v. Google Inc. , 2012 FCAFC 49 (Federal Court of Australia Apr. 3, 2012) [hereinafter ACCC ]. The court addressed four advertisements. First, STA Travel purchased the keywords “Harvey World Travel” and “harvey travel,” a competitor's trademark. After Harvey World Travel lodged a complaint with Google, Google confirmed the ads no longer would include “Harvey World Travel” in the headline of the sponsored link. Second, CarSales used as a keyword the domain name www.honda.com.au. Third, the Dog Trainer Pty Ltd (Ausdog) purchased “alpha dog” keywords. Alpha Dog was a competitor of Ausdog. When searching for Alpha Dog, Ausdog's website address would appear as a sponsored link. Fourth, the Trade Post is a competitor of Just Magazines Pty, Ltd. and Just Magazines publishes a magazine entitled “Just 4X4s.” On May 29, 2007, “Just 4X4s” appeared as a headline for the Trading Post. Some of the allegedly infringing advertisements included the competitor's trademark in the advertisement's headline and the sponsor's website as a link.

Section 52(1) of Australia's Trade Practices Act provides: “A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive.” Trade Practices Act 1974 s 52 (Austl.). The court noted a party may engage in misleading or deceptive conduct “without an intention to mislead or deceive.” ACCC, at '79. The court relied on relevant precedent, including Universal Telecasters (Qld) v. Guthrie, (1978) 18 ALR 531, which held a television station may be held liable for advertisements it telecasts. Id., at ”38-39. The court noted later cases clarified that where a corporation was a mere conduit for information, and expressly or impliedly disclaimed the information, liability may not arise. ACCC, at ”81-86.

The court stressed Google displays the sponsored links in response to a user's inquiry and Google's search engine effects the display of the link in response to that inquiry. Id. at '88. The court also noted the sponsors are able to choose keywords because Google makes the AdWords program available to the sponsors and found that the “ordinary and reasonable user would conclude ' Google ' was displaying the sponsored link in collocation with the sponsor's URL in response to the user's search.” Id. at '89. Moreover, even if the user would not make such a conclusion, the court found Google was “more than a mere conduit,” ACCC, at ”89, 92, reasoning that by responding to the inquiry, Google is informing the user the sponsored link is relevant. Id. at '92. The court distinguished Google's conduct from that of a billboard owner, an owner of a television network, a publisher of a newspaper or a telecaster who “simply displays an advertisement of another.” Id. at '94. It noted the question was not whether Google's conduct of displaying the advertisement was for Google or for a third party; rather, the question was whether “Google's conduct in response to the user's interaction with Google's search engine was misleading.” Id. at '96.

The court discussed the terms and conditions of the AdWords program, which required the sponsor to be responsible for all advertising, keywords and URLs, and required the advertisement and keywords to “directly relate” to the advertisement's landing page. ACCC, at '97. However, it found that even if these terms and conditions were breached, Google's conduct in relation to the user still was misleading. Id.

The court ordered Google to implement a compliance program, and laid out the requirements of the program. Although no fine was imposed, the implementation of and conformity with the program will require the expenditure of funds and the court ordered Google to pay the ACCC's costs. ACCC, at '117.

The United States Approach

In 2004, Google changed its AdWords policy in the United States, which previously precluded the use of trademarks in the text of an advertisement and the use of trademarks as keywords upon request of the trademark owner. The 2004 policy permitted sponsors to use third-party trademarks as keywords even if the trademark owner objected. In 2009, Google again changed its policy. As of 2009, Google permits the use of trademarks in advertising text where the sponsor was a reseller of a genuine trademark product, made or sold component parts for a trademarked product, offered compatible parts or goods for use with the trademarked product; or provided information about or reviews of a trademarked product.

Rosetta Stone Ltd. filed a lawsuit against Google alleging Google violated various trademark laws because it allowed sellers of counterfeit Rosetta Stone products to purchase Rosetta Stone trademarks as keywords, and, therefore, to advertise the counterfeit product when a user entered a Rosetta Stone trademark into the search engine. Rosetta Stone Ltd. v. Google, Inc., No. 10-2007, 2012 U.S. App. LEXIS 7082, at 73 (4th Cir., Apr. 9, 2012). Rosetta Stone alleged the following claims: 1) trademark infringement; 2) contributory trademark infringement; 3) vicarious trademark infringement; 4) trademark dilution; and 5) unjust enrichment. The United States District Court for the Eastern District of Virginia granted Google's summary judgment motion for the trademark infringement claim, contributory trademark infringement claim, the vicarious trademark infringement claim, and the trademark dilution claim, and granted Google's motion to dismiss the unjust enrichment claim.

The United States Court of Appeals for the Fourth Circuit vacated the district court's opinion with respect to the direct infringement, contributory infringement and dilution claims. The court affirmed the district court with respect to the vicarious liability and unjust enrichment claims. For the vicarious liability claim, the court reasoned no evidence established that Google acted jointly with the advertisers to control the counterfeit Rosetta Stone products. Rosetta Stone, at 50. For the unjust enrichment claim, the court found Rosetta Stone failed to allege it conferred a benefit on Google and Google should reasonably be expected to repay Rosetta Stone for this benefit. Id. at 53-54.

Direct Infringement Claim

In discussing the direct infringement claim, the Fourth Circuit focused on whether sufficient evidence existed to establish the likelihood of confusion factor of a direct infringement claim. (To establish a trademark infringement claim under the Lanham Act, a plaintiff must establish: 1) it owns a valid mark; 2) the defendant used the mark in commerce and without authorization; 3) the defendant used the mark “in connection with the sale, offering for sale, distribution, or advertising” of goods or services; and 4) the defendant's use of the mark is likely to confuse consumers.” Rosetta Stone, at 12-13 (citing 15 U.S.C. '1114(a)). The court analyzed three of the nine likelihood of confusion factors. First, the court found a reasonable trier-of-fact could find Google intended to cause confusion because it acted with knowledge the confusion was “very likely to result from its use of the marks.” Rosetta Stone, at 23-24. The court noted internal studies conducted by Google in 2004 showed “significant source confusion” among Internet users where a trademark was included in the advertisement's body or text. Id. at 23.

Second, the court addressed whether actual purchaser confusion existed. Rosetta Stone, at 24-33. The court noted the deposition of five consumers who testified they attempted to purchase Rosetta Stone software after Google changed its policy in 2009 and purchased counterfeit Rosetta Stone software from a sponsored link, believing the product was genuine and believing the sponsored link was affiliated with Rosetta Stone. The court reasoned it did not matter that the purchasers did not believe they were purchasing the product directly from Rosetta Stone. Rather, the issue was whether the unauthorized use of a trademark was likely to confuse a consumer “as to the source or sponsorship of the goods.” Id. at 27 (emphasis deleted). In addition, similar to the Australian appellate court, the Fourth Circuit found the sponsored link and advertisement's compliance with Google's terms and conditions was irrelevant. Id. at 27-28. Whether the link and advertisement conformed to Google's policy does not impact whether consumers would be confused by the use of the trademark in the sponsored links. The relevant question is whether Google's practice was likely to produce consumer confusion. Id. Further, Rosetta Stone had presented evidence it received 124 complaints from April 1, 2009 to Dec. 9, 2009 from individuals who purchased counterfeit software and received 139 more complaints from Dec. 9, 2009 to March 8, 2010. The court found it was reasonable to infer a “great number of these individuals were confused” due to a sponsored link. Id. at 29. The circuit court also found the district court should have considered the studies conducted by Google, which indicated there was a likelihood of confusion where trademarks were used in the advertisement's text or body; the testimony of Google's corporate witnesses, who were unable to determine without additional research which sponsored links were authorized Rosetta Stone sellers; and a consumer confusion survey report, which concluded a significant portion of consumers are likely to be confused regarding the origin, sponsorship or approval of the sponsored links. Id. at 29-33.

Third, the Fourth Circuit considered the sophistication of the consuming public, finding there was sufficient evidence presented to create a question of fact regarding the consumer confusion factor. The court reasoned there was deposition testimony of customers who purchased counterfeit Rosetta Stone products and the Google internal study indicated well-educated, seasoned consumers were unaware the sponsored links were advertisements. Rosetta Stone, at 33-36.

The court also found the functionality doctrine, which prohibits trade dress or trademark rights in the functional features of a product or its packaging, did not apply. The doctrine applies only where the trademark owner's use of the mark was functional; not where the alleged infringer's use of the mark is functional.

The Contributory Infringement Claim

The Fourth Circuit also found sufficient evidence was presented to create an issue of fact regarding Rosetta Stone's contributory infringement claim. The court noted Rosetta Stone submitted evidence it notified Google of approximately 200 instances of sponsored links advertising counterfeit Rosetta Stone products, and that Google continued to allow the sponsored links for other websites by the same sponsors to use the Rosetta Stone trademarks as a keyword. Rosetta Stone, at 45-46.

The Trademark Dilution Claim

The court remanded the trademark dilution claim to the district court for reconsideration. The court reasoned the district court required Rosetta Stone to establish Google was using the Rosetta Stone mark as a source identifier of Google products, which was an element of Google's fair use defense, not an element of the prima facie dilution case. Rosetta Stone, at 61. (To state a prima facie case of trademark dilution, a plaintiff must establish: 1) the plaintiff owns a famous trademark that is distinctive; 2) the defendant has commenced using the mark in commerce that allegedly is diluting the famous mark; 3) a similarity between the defendant's mark and the famous mark that gives rise to an association between the marks; and 4) the association is likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark. Rosetta Stone, at 58 (quoting Louis Vuitton, 507 F.3d at 264-65)). The district court also misapplied the fair use exception, making it coextensive with non-trademark use of a mark. The court also remanded for reconsideration the district court's conclusion regarding the likelihood of dilution factors. Rosetta Stone, at 66-67. In addition, the court remanded the dilution claim for reconsideration of when the Rosetta Stone trademarks became famous, reasoning the court must determine whether the Rosetta Stone trademarks were famous in 2004, the year Google began to permit the use of trademarks as keywords, because trademark dilution can occur only if the defendant's use began after the trademark became famous. Id., at 67-72.

Conclusion

The Australian court, relying on its precedents, focused on whether Google was a “mere conduit” for the advertisements to determine whether Google's conduct was “misleading or deceptive.” In contrast, the U.S. Court of Appeals focused on whether Google's conduct was likely to confuse the consumer and on whether Google permitted the sponsors' conduct to continue after Google had knowledge of a trademark violation. The courts reviewed similar items, such as how Google's AdWords program worked and how the program interfaced with Internet users. The Australian Court, however, focused on Google's conduct and Google's interaction with the Internet users, i.e., whether Google provided relevant responses, including sponsored links, to an Internet user's inquiry. The Fourth Circuit focused on the end result of the AdWords program, i.e., whether the sponsored links displayed in response to a user inquiry confused the consumer as to the source and sponsorship of the goods.

Both approaches led to loses for Google and its AdWords program. However, as the attorney for Google in Australia has indicated, Google may appeal the decision, and the case in the United States is headed back for further consideration and a possible trial. Only time will tell whether Google's AdWords program will require alterations.