Much Ado About Standards of Review (But Not All That Much About AdWords)

As the Rosetta Stone court noted, from 2004 to 2009, Google maintained a policy prohibiting the use of third-party trademarks in the text of an ad. In 2009, Google changed its policy to permit the limited use of trademarks in ad text if the advertiser: 1) is a reseller of a genuine trademarked product; 2) makes or sells component parts for a trademarked product; 3) offers compatible parts or goods for use with the trademarked product; or 4) provides information about or reviews a trademarked product.

But, as the parties in this case found out, the changed policy made it possible for sellers of counterfeit products to use the AdWords program to push their sites to the top of the Sponsored Links and reach unsuspecting consumers in the process. According to Rosetta Stone, in the short period between Sept. 3, 2009 and March 1, 2010, it reported to Google 190 instances in which one of Google's Sponsored Links in a search for “Rosetta Stone” was a marketer of counterfeit Rosetta Stone products.

AdWords has been controversial since its beginning. On the one hand, stakeholders feel a significant sense of violation based on the fact that their marks (!) are being purchased by competitors to drive business to competitors' sites; on the other hand, the reason competitors do this is because it works, and, as a result, it is an attractive way to reach customers. This controversy has been mirrored in the courts, with various jurisdictions diverging on the two core issues in AdWords cases: 1) whether Google's auctioning of trademarks as keywords constitutes a “trademark use,” compare 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400 (2d Cir. 2005) (finding no trademark use) with Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. 2009) (declining to reverse 1-800 Contacts, but nonetheless finding trademark use); and 2) assuming an affirmative answer to the “trademark use” issue, whether there is any likelihood of confusion. Compare J.G. Wentworth, S.S.C. Ltd. Partnership v. Settlement Funding LLC, 85 U.S.P.Q.2d 1780 (E.D. Pa. 2007) (no likelihood of confusion) with Gov't Employees Ins. Co. v. Google, Inc., 77 U.S.P.Q.2d 1841 (E.D. Va. 2005) (finding a likelihood of confusion; the case later settled).

Typical Facts and Allegations

Rosetta Stone's facts are typical of the AdWords genre. Rosetta Stone produces and markets a widely renowned language-learning product under the “Rosetta Stone” trademark. In its opinion, the Fourth Circuit said that Rosetta Stone is the most recognized brand in the domestic language-learning market. And, as is par for the course in these cases, Google sold the words “Rosetta Stone” as targeted search terms through AdWords. After the 2009 shift in Google's AdWords policy, Rosetta Stone alleged that it became “plagued” with counterfeiters.

Rosetta Stone sued on various theories of trademark liability: 1) direct infringement; 2) contributory infringement; 3) vicarious infringement; 4) dilution; and 5) state-law unjust enrichment. The district court granted Google's motion for summary judgment on all claims and granted Google's motion to dismiss on the unjust enrichment claim.

Some Preliminary Matters

Notably, the district court stated that Google did not dispute that Rosetta Stone was able to surmount the summary judgment barrier with respect to the “use in commerce” question. This finding is surprising because it is precisely this question ' whether the sale of a trademark as a search term to trigger targeted ads is a “trademark use” ' that has been so hard for judges and scholars to wrap their heads around. It's even more surprising in light of Chief Judge William B. Traxler, Jr.'s statement that lower courts need not engage in a “robotic application of each and every factor in a case involving a referential, nontrademark use.” If there's no trademark use, then there's no potential for liability; but if the court assumes that there is trademark use because Google has not disputed that fact, then Rosetta Stone can't be a case of “nontrademark use.”

Direct Infringement: Likelihood of Confusion and Functionality

Rosetta Stone challenged the lower court's grant of summary judgment on two grounds: first, that the lower court erred in finding that there is no genuine issue of fact as to whether Google's use created a likelihood of confusion, and second, that the lower court erred in finding that the functionality doctrine shielded Google from liability in any event. The Fourth Circuit agreed with Rosetta Stone on both issues.

As to likelihood of confusion, the panel, arguing that the likelihood of confusion test does not require “the robotic application of each and every factor” in every case, held that the district court did not commit reversible error in failing to address every factor. But the court of appeals' tone shifted considerably when it turned to whether there remained genuine issues of fact with respect to the three disputed factors: 1) intent; 2) actual confusion; and 3) customer care. On each issue, the panel found error in the lower court's analysis.

Intent

The panel found that, despite the lack of any evidence that Google was attempting to “pass off” its goods or services as Rosetta Stone's, a reasonable trier of fact could find that Google intended to cause confusion. The court pointed to Google's knowledge, based on internal consumer confusion surveys, that using third-party trademarks in ad text and titles was highly likely to cause confusion. On that basis, the court held that a trier of fact could reasonably find that Google actively disregarded the likelihood of confusion in its search for profits.

Actual Confusion

The lower court had dismissed evidence of actual confusion by five witnesses on the basis that, because the witnesses purchased from third parties rather than directly from Rosetta Stone, none of the witnesses “were confused about the source of their purchase but only as to whether what they purchased was genuine or counterfeit.” But, as Chief Judge Traxler recognized, the Lanham Act protects against confusion as to sponsorship as well as source. And where the witnesses thought they were purchasing Rosetta Stone products from authorized retailers and not counterfeiters, the court found that a reasonable fact-finder could, at the very least, weigh the evidence.

The panel then addressed Google's in-house studies and attorneys. The studies, which Google conducted prior to its 2009 policy change, found that “94% of users were confused at least once” by the display of third-party trademarks in ad text and that there was “[n]o difference between strong and weak trademarks” with respect to confusion. Buttressing this conclusion was the testimony of Google's in-house trademark attorneys, who were unable to tell immediately from a page of Google's search results for “Rosetta Stone” which sponsored links showed authorized resellers of Rosetta Stone products. The court found that this “uncertainty about the source of a product” was “quintessential actual confusion evidence.”

The panel then held that Rosetta Stone's own expert survey should not have been excluded. This survey found that when participants conducted a Google search using “Rosetta Stone” as a keyword, 17% of them were confused as to the origin, sponsorship or approval of the sponsored links. The lower court seemed to be confused about the nature of the survey's inquiry, as it stated, “Dr. Van Liere's opinion relied on responses to the question of whether a given link perceived by respondents to offer Rosetta Stone products was 'endorse[d]' by Rosetta Stone, which is not the same as confusion as to the source or origin of the products.” The Fourth Circuit noted, however, that the Lanham Act protects against confusion as to affiliation, connection or sponsorship ' i.e., “endorsement” ' and not simply confusion as to source or origin. Recognizing this, the court remanded, holding that the evidence as to actual confusion left open a genuine issue of fact. The court could not say that, as a matter of law, the evidence was insufficient for a reasonable fact-finder to conclude in Rosetta Stone's favor.

Consumer Sophistication

The district court, relying on Star Industries, Inc. v. Bacardi & Co. Ltd., 412 F.3d 373 (2d Cir. 2005), also had held that consumers willing to pay the $250-600 outlay for Rosetta Stone's products would tend to be “able to distinguish between the Sponsored Links and organic results displayed on Google's search results page.” While this interpretation may not be altogether unreasonable, the court pointed again to errors in the lower court's reasoning: In Star Industries, the Second Circuit was making findings of fact following a bench trial; it was not ruling on a motion for summary judgment. The panel reversed, holding merely that there was sufficient evidence in the record to create a question of fact as to consumer sophistication sufficient to withstand summary judgment.

Functionality

In perhaps the most surprising part of its opinion, the district court had concluded that, even if confusion was likely, Google's use was protected because the “Rosetta Stone” word mark was “functional.” The functionality doctrine precludes trademark protection for practical product features. In I.P. Lund Trading v. Kohler Co., 163 F.3d 27, 37 n.5 (1st Cir. 1998), the First Circuit defined the doctrine's reach as follows: “functional features or designs should be defined as those that are driven by practical, engineering-type considerations such as making the product work more efficiently, with fewer parts and longer life, or with less danger to operators, or be shaped so as to reduce expenses of delivery or damage in shipping.” For example, the rectangular shape of a computer screen exemplifies a functional product feature. To permit trademark rights in that shape would artificially inflate the “cost or quality” of competitors' goods in at least two ways: 1) research and development costs would rise as competitors sought out another appropriate shape for a computer screen (readers who watch the U.S. television show “The Office” may recall an episode in which Dunder-Mifflin's parent company releases a triangular computer tablet specifically intended by the writers to be ridiculous); and 2) if the competitor wishes to avoid (1), it might have to pay the rights-holder for a license to use the rectangular shape.

The lower court held that Rosetta Stone's word marks ' and, by implication, all other word marks ' are functional in the search context “because they enable Google to readily identify in databases relevant information in response to a web user's query[.]” But, as noted in the opinion, Google's use has nothing to do with whether the trademarked term is functional as used by Rosetta Stone. As Chief Judge Traxler noted in rejecting the lower court's application of the doctrine, “ Rosetta Stone uses its registered mark as a classic source identifier in connection with its language learning products[,]” and “ 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.”

Contributory Infringement

For one to be found liable for contributory infringement, “there must necessarily have been an infringing use of the plaintiff's mark that was encouraged or facilitated by the defendant.”

In holding that Google was not a contributory infringer, the lower court had again focused on what the Fourth Circuit considered an inapposite case; this time, Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010). Rosetta Stone provided evidence that, despite Rosetta Stone's advising Google repeatedly of the fraudulence of many Sponsored Links, Google continued to permit these same advertisers to use Rosetta Stone's marks as keyword triggers. In Tiffany, the Second Circuit held that a demonstration of generalized notice that “some portion” of the Tiffany goods sold on eBay might be counterfeit was insufficient to show that certain specific listings were counterfeit and, therefore, eBay was not liable as a contributory infringer. Playing off the Tiffany holding, the district court found that “Rosetta Stone has not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim.” But, as Chief Judge Traxler noted, the question whether Rosetta Stone should receive summary judgment was not before the lower court; rather, the question was, whether drawing all reasonable inferences in a light most favorable to Rosetta Stone, a reasonable fact-finder could find in Rosetta Stone's favor. By contrast, the Fourth Circuit noted, the procedural posture in Tiffany differed significantly ' that case involved an appeal of a full judgment rendered after a bench trial.

The panel held that the lower court's reliance on Tiffany was misplaced, and the evidence recited sufficed to establish a triable question of fact as to whether Google was a contributory infringer.

Vicarious Infringement and Unjust Enrichment

The court of appeals affirmed the district court's grant of summary judgment as to whether Google vicariously infringed Rosetta Stone's trademark rights and the lower court's dismissal of Rosetta Stone's state-law unjust enrichment claim. With respect to vicarious infringement, the court agreed that there was no evidence that Google acted jointly with any of the advertisers to control counterfeit Rosetta Stone products sold through the Sponsored Links. And as regards the unjust enrichment claim, the court agreed that Rosetta Stone had alleged no facts to support its assertion that Google “should reasonably have expected” to pay for the use of Rosetta Stone's marks as a part of the AdWords program.

Dilution

Finally, the court of appeals addressed Rosetta Stone's dilution claims. The Federal Trademark Dilution Act entitles the owner of a famous mark to injunctive relief against an “association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark[,]” or that “ harms the reputation of the famous mark.” 15 U.S.C. ' 1125(c)(2)(B) & (C). The district court granted summary judgment for Google based on two arguments: 1) that Rosetta Stone failed to present evidence that Google had used Rosetta Stone's marks to identify its own goods and services; and 2) that, because Rosetta Stone's brand awareness had increased from 19% to 95% during the term of allegedly dilutive use, Rosetta Stone had not shown that Google's use was likely to impair the distinctiveness of or harm the reputation of Rosetta Stone's marks.

As to the district court's first base of judgment, Chief Judge Traxler wrote that the lower court had impermissibly collapsed the fair use defense into the dilution inquiry while omitting the question of good faith. The panel held that only after a prima facie case of dilution has been established is it relevant whether the defendant used the mark-at-issue other than as a source identifier. And then, it is the defendant, not the plaintiff, who must establish the fact of non-trademark use. In this circumstance, the court of appeals pointed to the classic “descriptive” fair use doctrine, which applies where the defendant uses the famous mark to identify or compare the trademark owner's own product. The panel determined that the lower court, in using the fair use defense to invert the burdens of proof and persuasion, did not address a linchpin of the descriptive fair use defense ' namely, that good faith is required. If Google had not acted in good faith, then presumably it wouldn't matter whether Google's use was per se descriptive. The court remanded for a re-examination of fair use.

As for the second base of judgment, the panel held that, by addressing only Rosetta Stone's degree of recognition, the district court had impermissibly truncated the dilution analysis. Unlike the infringement inquiry, which is entirely judge-made, the dilution inquiry is built upon a non-exhaustive list of six factors specified by statute. In the panel's view, these six factors, at the very least, must be addressed. The panel remanded for a full explication of the six statutory factors.

In the last section of its opinion, the court addressed Google's arguments regarding the proper time for measuring dilution. Chief Judge Traxler wrote that because the law extends dilution protection only to those whose marks are “household names,” the defendant's dilutive use must have occurred after the mark already became famous. Rosetta Stone argued in its complaint that Google began diluting Rosetta Stone's marks as early as 2004, five years before those marks became “famous” within the meaning of the FTDA but that, for the purposes of its claim, the first relevant dilutive use was in 2009. The panel remanded, ordering the district court to first determine whether the first diluting use was in 2004 (Google's first sale of the Rosetta Stone marks) or 2009 (Google's change in policy to permit use of trademarks in ad text) and then to decide whether Rosetta Stone's mark was famous at that point in light of the statutory factors.

Conclusion

Ultimately, Rosetta Stone may simply manufacture false hope. It seems clear that the Fourth Circuit has no interest in allowing the trial court to mishandle standards of review and misapply fundamental doctrines of trademark law. And although commentary on the case has typically focused on Rosetta Stone's success before the court of appeals, it remains to be seen whether Google's AdWords program is actually in jeopardy.

Timothy Denny Greene is an associate in the Technology Transactions Group at Morrison & Foerster LLP in San Francisco. He can be reached at 415-268-7568.

On April 9, in Rosetta Stone Ltd. v. Google Inc., No. 10-2007 (4th Cir. Apr. 9, 2012), the Fourth Circuit issued the latest opinion in the Google AdWords wars, this time in support of the challenger, Rosetta Stone. While on the surface the Rosetta Stone opinion might seem to be a public rebuke of the merits of Google's AdWords program, on closer scrutiny it is clear that the Fourth Circuit's opinion is more properly read as a reprimand of the district court, which, according to the Fourth Circuit, improperly mixed its standards of review and made a hash of the functionality doctrine in the process. The panel remanded for a proper application of the summary judgment standard and took no firm stance on the hot-button issues of whether Google's AdWords program makes a “use in commerce” of stakeholders' trademarks and whether, assuming so, there is any likelihood of confusion.

Google AdWords

In order to understand the AdWords cases, it's important to understand how AdWords works. Basically, in addition to the expected list of search results that comes up when you run a search using Google's search engine, there is a short list of “Sponsored Links” above or to the side of the search results. AdWords allows advertisers to “purchase” keywords that trigger their advertisements when Google users search for those keywords. The price is based on an auction where advertisers bid competitively for page position on the search results page ' generally, the higher on the page, the more likely consumers are to click the link, and thus the higher the purchase price.

As the Rosetta Stone court noted, from 2004 to 2009, Google maintained a policy prohibiting the use of third-party trademarks in the text of an ad. In 2009, Google changed its policy to permit the limited use of trademarks in ad text if the advertiser: 1) is a reseller of a genuine trademarked product; 2) makes or sells component parts for a trademarked product; 3) offers compatible parts or goods for use with the trademarked product; or 4) provides information about or reviews a trademarked product.

But, as the parties in this case found out, the changed policy made it possible for sellers of counterfeit products to use the AdWords program to push their sites to the top of the Sponsored Links and reach unsuspecting consumers in the process. According to Rosetta Stone, in the short period between Sept. 3, 2009 and March 1, 2010, it reported to Google 190 instances in which one of Google's Sponsored Links in a search for “Rosetta Stone” was a marketer of counterfeit Rosetta Stone products.

AdWords has been controversial since its beginning. On the one hand, stakeholders feel a significant sense of violation based on the fact that their marks (!) are being purchased by competitors to drive business to competitors' sites; on the other hand, the reason competitors do this is because it works, and, as a result, it is an attractive way to reach customers. This controversy has been mirrored in the courts, with various jurisdictions diverging on the two core issues in AdWords cases: 1) whether Google's auctioning of trademarks as keywords constitutes a “trademark use,” compare 1-800 Contacts, Inc. v. WhenU.Com, Inc. , 414 F.3d 400 (2d Cir. 2005) (finding no trademark use) with Rescuecom Corp. v. Google Inc. , 562 F.3d 123 (2d Cir. 2009) (declining to reverse 1-800 Contacts , but nonetheless finding trademark use); and 2) assuming an affirmative answer to the “trademark use” issue, whether there is any likelihood of confusion. Compare J.G. Wentworth, S.S.C. Ltd. Partnership v. Settlement Funding LLC , 85 U.S.P.Q.2d 1780 (E.D. Pa. 2007) (no likelihood of confusion) with Gov't Employees Ins. Co. v. Google, Inc. , 77 U.S.P.Q.2d 1841 (E.D. Va. 2005) (finding a likelihood of confusion; the case later settled).

Typical Facts and Allegations

Rosetta Stone's facts are typical of the AdWords genre. Rosetta Stone produces and markets a widely renowned language-learning product under the “Rosetta Stone” trademark. In its opinion, the Fourth Circuit said that Rosetta Stone is the most recognized brand in the domestic language-learning market. And, as is par for the course in these cases, Google sold the words “Rosetta Stone” as targeted search terms through AdWords. After the 2009 shift in Google's AdWords policy, Rosetta Stone alleged that it became “plagued” with counterfeiters.

Rosetta Stone sued on various theories of trademark liability: 1) direct infringement; 2) contributory infringement; 3) vicarious infringement; 4) dilution; and 5) state-law unjust enrichment. The district court granted Google's motion for summary judgment on all claims and granted Google's motion to dismiss on the unjust enrichment claim.

Some Preliminary Matters

Notably, the district court stated that Google did not dispute that Rosetta Stone was able to surmount the summary judgment barrier with respect to the “use in commerce” question. This finding is surprising because it is precisely this question ' whether the sale of a trademark as a search term to trigger targeted ads is a “trademark use” ' that has been so hard for judges and scholars to wrap their heads around. It's even more surprising in light of Chief Judge William B. Traxler, Jr.'s statement that lower courts need not engage in a “robotic application of each and every factor in a case involving a referential, nontrademark use.” If there's no trademark use, then there's no potential for liability; but if the court assumes that there is trademark use because Google has not disputed that fact, then Rosetta Stone can't be a case of “nontrademark use.”

Direct Infringement: Likelihood of Confusion and Functionality

Rosetta Stone challenged the lower court's grant of summary judgment on two grounds: first, that the lower court erred in finding that there is no genuine issue of fact as to whether Google's use created a likelihood of confusion, and second, that the lower court erred in finding that the functionality doctrine shielded Google from liability in any event. The Fourth Circuit agreed with Rosetta Stone on both issues.

As to likelihood of confusion, the panel, arguing that the likelihood of confusion test does not require “the robotic application of each and every factor” in every case, held that the district court did not commit reversible error in failing to address every factor. But the court of appeals' tone shifted considerably when it turned to whether there remained genuine issues of fact with respect to the three disputed factors: 1) intent; 2) actual confusion; and 3) customer care. On each issue, the panel found error in the lower court's analysis.

Intent

The panel found that, despite the lack of any evidence that Google was attempting to “pass off” its goods or services as Rosetta Stone's, a reasonable trier of fact could find that Google intended to cause confusion. The court pointed to Google's knowledge, based on internal consumer confusion surveys, that using third-party trademarks in ad text and titles was highly likely to cause confusion. On that basis, the court held that a trier of fact could reasonably find that Google actively disregarded the likelihood of confusion in its search for profits.

Actual Confusion

The lower court had dismissed evidence of actual confusion by five witnesses on the basis that, because the witnesses purchased from third parties rather than directly from Rosetta Stone, none of the witnesses “were confused about the source of their purchase but only as to whether what they purchased was genuine or counterfeit.” But, as Chief Judge Traxler recognized, the Lanham Act protects against confusion as to sponsorship as well as source. And where the witnesses thought they were purchasing Rosetta Stone products from authorized retailers and not counterfeiters, the court found that a reasonable fact-finder could, at the very least, weigh the evidence.

The panel then addressed Google's in-house studies and attorneys. The studies, which Google conducted prior to its 2009 policy change, found that “94% of users were confused at least once” by the display of third-party trademarks in ad text and that there was “[n]o difference between strong and weak trademarks” with respect to confusion. Buttressing this conclusion was the testimony of Google's in-house trademark attorneys, who were unable to tell immediately from a page of Google's search results for “Rosetta Stone” which sponsored links showed authorized resellers of Rosetta Stone products. The court found that this “uncertainty about the source of a product” was “quintessential actual confusion evidence.”

The panel then held that Rosetta Stone's own expert survey should not have been excluded. This survey found that when participants conducted a Google search using “Rosetta Stone” as a keyword, 17% of them were confused as to the origin, sponsorship or approval of the sponsored links. The lower court seemed to be confused about the nature of the survey's inquiry, as it stated, “Dr. Van Liere's opinion relied on responses to the question of whether a given link perceived by respondents to offer Rosetta Stone products was 'endorse[d]' by Rosetta Stone, which is not the same as confusion as to the source or origin of the products.” The Fourth Circuit noted, however, that the Lanham Act protects against confusion as to affiliation, connection or sponsorship ' i.e., “endorsement” ' and not simply confusion as to source or origin. Recognizing this, the court remanded, holding that the evidence as to actual confusion left open a genuine issue of fact. The court could not say that, as a matter of law, the evidence was insufficient for a reasonable fact-finder to conclude in Rosetta Stone's favor.

Consumer Sophistication

The district court, relying on Star Industries, Inc. v. Bacardi & Co. Ltd. , 412 F.3d 373 (2d Cir. 2005), also had held that consumers willing to pay the $250-600 outlay for Rosetta Stone's products would tend to be “able to distinguish between the Sponsored Links and organic results displayed on Google's search results page.” While this interpretation may not be altogether unreasonable, the court pointed again to errors in the lower court's reasoning: In Star Industries , the Second Circuit was making findings of fact following a bench trial; it was not ruling on a motion for summary judgment. The panel reversed, holding merely that there was sufficient evidence in the record to create a question of fact as to consumer sophistication sufficient to withstand summary judgment.

Functionality

In perhaps the most surprising part of its opinion, the district court had concluded that, even if confusion was likely, Google's use was protected because the “Rosetta Stone” word mark was “functional.” The functionality doctrine precludes trademark protection for practical product features. In I.P. Lund Trading v. Kohler Co. , 163 F.3d 27, 37 n.5 (1st Cir. 1998), the First Circuit defined the doctrine's reach as follows: “functional features or designs should be defined as those that are driven by practical, engineering-type considerations such as making the product work more efficiently, with fewer parts and longer life, or with less danger to operators, or be shaped so as to reduce expenses of delivery or damage in shipping.” For example, the rectangular shape of a computer screen exemplifies a functional product feature. To permit trademark rights in that shape would artificially inflate the “cost or quality” of competitors' goods in at least two ways: 1) research and development costs would rise as competitors sought out another appropriate shape for a computer screen (readers who watch the U.S. television show “The Office” may recall an episode in which Dunder-Mifflin's parent company releases a triangular computer tablet specifically intended by the writers to be ridiculous); and 2) if the competitor wishes to avoid (1), it might have to pay the rights-holder for a license to use the rectangular shape.

The lower court held that Rosetta Stone's word marks ' and, by implication, all other word marks ' are functional in the search context “because they enable Google to readily identify in databases relevant information in response to a web user's query[.]” But, as noted in the opinion, Google's use has nothing to do with whether the trademarked term is functional as used by Rosetta Stone. As Chief Judge Traxler noted in rejecting the lower court's application of the doctrine, “ Rosetta Stone uses its registered mark as a classic source identifier in connection with its language learning products[,]” and “ 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.”

Contributory Infringement

For one to be found liable for contributory infringement, “there must necessarily have been an infringing use of the plaintiff's mark that was encouraged or facilitated by the defendant.”

In holding that Google was not a contributory infringer, the lower court had again focused on what the Fourth Circuit considered an inapposite case; this time, Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010). Rosetta Stone provided evidence that, despite Rosetta Stone's advising Google repeatedly of the fraudulence of many Sponsored Links, Google continued to permit these same advertisers to use Rosetta Stone's marks as keyword triggers. In Tiffany, the Second Circuit held that a demonstration of generalized notice that “some portion” of the Tiffany goods sold on eBay might be counterfeit was insufficient to show that certain specific listings were counterfeit and, therefore, eBay was not liable as a contributory infringer. Playing off the Tiffany holding, the district court found that “Rosetta Stone has not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim.” But, as Chief Judge Traxler noted, the question whether Rosetta Stone should receive summary judgment was not before the lower court; rather, the question was, whether drawing all reasonable inferences in a light most favorable to Rosetta Stone, a reasonable fact-finder could find in Rosetta Stone's favor. By contrast, the Fourth Circuit noted, the procedural posture in Tiffany differed significantly ' that case involved an appeal of a full judgment rendered after a bench trial.

The panel held that the lower court's reliance on Tiffany was misplaced, and the evidence recited sufficed to establish a triable question of fact as to whether Google was a contributory infringer.

Vicarious Infringement and Unjust Enrichment

The court of appeals affirmed the district court's grant of summary judgment as to whether Google vicariously infringed Rosetta Stone's trademark rights and the lower court's dismissal of Rosetta Stone's state-law unjust enrichment claim. With respect to vicarious infringement, the court agreed that there was no evidence that Google acted jointly with any of the advertisers to control counterfeit Rosetta Stone products sold through the Sponsored Links. And as regards the unjust enrichment claim, the court agreed that Rosetta Stone had alleged no facts to support its assertion that Google “should reasonably have expected” to pay for the use of Rosetta Stone's marks as a part of the AdWords program.

Dilution

Finally, the court of appeals addressed Rosetta Stone's dilution claims. The Federal Trademark Dilution Act entitles the owner of a famous mark to injunctive relief against an “association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark[,]” or that “ harms the reputation of the famous mark.” 15 U.S.C. ' 1125(c)(2)(B) & (C). The district court granted summary judgment for Google based on two arguments: 1) that Rosetta Stone failed to present evidence that Google had used Rosetta Stone's marks to identify its own goods and services; and 2) that, because Rosetta Stone's brand awareness had increased from 19% to 95% during the term of allegedly dilutive use, Rosetta Stone had not shown that Google's use was likely to impair the distinctiveness of or harm the reputation of Rosetta Stone's marks.

As to the district court's first base of judgment, Chief Judge Traxler wrote that the lower court had impermissibly collapsed the fair use defense into the dilution inquiry while omitting the question of good faith. The panel held that only after a prima facie case of dilution has been established is it relevant whether the defendant used the mark-at-issue other than as a source identifier. And then, it is the defendant, not the plaintiff, who must establish the fact of non-trademark use. In this circumstance, the court of appeals pointed to the classic “descriptive” fair use doctrine, which applies where the defendant uses the famous mark to identify or compare the trademark owner's own product. The panel determined that the lower court, in using the fair use defense to invert the burdens of proof and persuasion, did not address a linchpin of the descriptive fair use defense ' namely, that good faith is required. If Google had not acted in good faith, then presumably it wouldn't matter whether Google's use was per se descriptive. The court remanded for a re-examination of fair use.

As for the second base of judgment, the panel held that, by addressing only Rosetta Stone's degree of recognition, the district court had impermissibly truncated the dilution analysis. Unlike the infringement inquiry, which is entirely judge-made, the dilution inquiry is built upon a non-exhaustive list of six factors specified by statute. In the panel's view, these six factors, at the very least, must be addressed. The panel remanded for a full explication of the six statutory factors.

In the last section of its opinion, the court addressed Google's arguments regarding the proper time for measuring dilution. Chief Judge Traxler wrote that because the law extends dilution protection only to those whose marks are “household names,” the defendant's dilutive use must have occurred after the mark already became famous. Rosetta Stone argued in its complaint that Google began diluting Rosetta Stone's marks as early as 2004, five years before those marks became “famous” within the meaning of the FTDA but that, for the purposes of its claim, the first relevant dilutive use was in 2009. The panel remanded, ordering the district court to first determine whether the first diluting use was in 2004 (Google's first sale of the Rosetta Stone marks) or 2009 (Google's change in policy to permit use of trademarks in ad text) and then to decide whether Rosetta Stone's mark was famous at that point in light of the statutory factors.

Conclusion

Ultimately, Rosetta Stone may simply manufacture false hope. It seems clear that the Fourth Circuit has no interest in allowing the trial court to mishandle standards of review and misapply fundamental doctrines of trademark law. And although commentary on the case has typically focused on Rosetta Stone's success before the court of appeals, it remains to be seen whether Google's AdWords program is actually in jeopardy.

Timothy Denny Greene is an associate in the Technology Transactions Group at Morrison & Foerster LLP in San Francisco. He can be reached at 415-268-7568.