Fourth Circuit Breathes New Life Into Rosetta Stone Key-Word Advertising Suit

Does a search engine's sale of your company's brands to third parties as part of its key-word advertising program support a trademark infringement or dilution action? In 2010, the Eastern District of Virginia court granted summary judgment in favor of Google on these issues in Rosetta Stone Ltd. v. Google, Inc. But this week, the Fourth Circuit Court of Appeals vacated that judgment and left the question unsettled for the time being.

The Rosetta Stone case arose out of Google's practice of allowing advertisers to bid for keywords and, if their bid is successful, receive preferred ad placement above Google's regular search results when those keywords are searched. Rosetta Stone, the maker of popular language-learning software, brought claims of direct, contributory, and vicarious infringement and dilution against Google based on its sale of the keywords "Rosetta Stone" to third parties that posted ads for counterfeit goods on Google's search pages. The district court rejected the claims on the grounds that Rosetta Stone could not establish a likelihood of confusion or dilution. However, the Fourth Circuit vacated the lower court's order in most respects.

Direct Infringement

On the trademark infringement claim, the Fourth Circuit took issue with the district court's analysis of each of the three likelihood of confusion it considered: (i) intent, (ii) actual confusion and (iii) sophistication of the purchasers.

Intent

For the intent factor, it was Google's own due diligence that perhaps proved most damning on appeal. Google conducted internal studies suggesting that ads linked to trademark terms could lead some customers to become confused. Despite these internal studies, Google subsequently loosened its restrictions on third-party purchases of ads linked to trademark terms. The Fourth Circuit cited an internal communication where Google conceded that there would be "a slight increase in risk that we and our partners will be the subject of lawsuits from unhappy trademark owners." Viewing this evidence in the light most favorable to Rosetta Stone, the Fourth Circuit concluded that a trier of fact could find that Google intended to cause confusion.

Actual Confusion

With regard to actual confusion, Rosetta Stone presented evidence that five customers had purchased counterfeit software via Google ads, when intending to buy the real thing. The trial court discounted the evidence, however, for a number of reasons. First, the trial court held that...