Breaking News: 4th Circuit paves a partial path for Rosetta Stone in Google Adwords case

The AmeriKitten bewildered by the
amount of IP judgments landing
at her paws this week
IP judgments are like buses, it seems.  After weeks and months of prowling around her room waiting for judgments, the AmeriKat has suddenly been inundated with several of them over the past week.  Today was no exception with the Court of Appeals for the Fourth Circuit handing down their decision in the Google AdWords case involving Rosetta Stone.  Their decision marks the first appellate decision to discuss whether Google's AdWords program gives rise to trade mark infringement liability against Google.

The AmeriKat will be delving into the nitty-gritty of the decision on Sunday once she has time to fully absorb the 47-page decision, but in the meantime, she quickly summarizes the background and key points of the judgment.  


In 2009 Rosetta Stone, the language-learning software company, sued Google in relation to Google’s use of its trade mark names, namely ROSETTA STONE, as part of its Google’s AdWords program.  In a 6-year period from 2003-2009, Rosetta Stone spent approximately $57 million for TV and radio advertising, $40 million for print media marketing and $212.5 million to advertise on the Internet.  The Appeals Court referred to Rosetta’s Stone as enjoying, in 2009, “the highest level of brand recognition by far in the domestic language-learning market.”  There was, it follows, a lot of reputation for parties to take advantage of, including purchasing AdWords from Google which included Rosetta Stone’s trade marks. For a quick re-cap on AdWords in relation to this case, specifically, please click here for a little summary put together by the AmeriKat.  

Rosetta Stone’s court filling claimed  that under the Lanham Act Google was liable for direct trade mark infringement, contributory trade mark infringement, vicarious trade mark infringement, trade mark dilution and unjust enrichment.  Rosetta Stone also argued that Google’s AdWords policies created a likelihood of confusion by directing users to Rosetta Stone’s competitors and actual confusion in misleading internet users to purchasing counterfeit ROSETTA STONE software; a problem that Rosetta Stone argues has increased since Google's 2009 policy change which permitted purchasers of AdWords to use trade mark words in the body of a Sponsored Link's text (see previous AmeriKat reports here, including on the other US AdWords cases). 

In 2010, Judge Gerald Bruce Lee of the Eastern District of Virginia (4th Circuit) granted Google’s summary judgment motion in respect of all of the claims, save for the unjust enrichment claim which Google moved to dismiss and which the court also granted.  Rosetta Stone appealed.  

Summary of Appeals Court Decision

Today the Appeals Court vacated the District Court’s judgment in favor of Google in respect of Rosetta Stone’s (1) direct trade mark infringement claim, (2) contributory trade mark infringement claim and (3) trade mark dilution claim and remanded these claims for further proceedings.  The Appeals Court affirmed the District Court's judgment in favor of Google in respect of vicarious trade mark liability and unjust enrichment claims.  

Direct Trade Mark Infringement 

Under the Lanham Act, to establish trade mark infringement, a claimant must prove that it owns a valid mark, that the defendant has used the mark, without authorization, in commerce in connection with the sale, offering for sale, distribution or advertising of goods and the defendant’s use of the mark is likely to confuse consumers.  It is this final limb that has proved the most difficult for claimants in the US in relation to the Google Adwords cases.  Indeed, in this case Google did not dispute that Rosetta Stone could surmount all the criteria in its claim except the last one.   The Appeals Court therefore stated that Google’s AdWord’s program would be assumed for the purposes of the appeal as unauthorized use in commerce in connection with the sale, offering for sale distribution or advertising of any goods or services (section 1114(1)(a))

The massive hurdle is, as stated, confusion.  The US has a multifactor test for confusion and the test varies from Circuit to Circuit.  In the 4th Circuit, the multifactor test set out in George & Co, LLC v Imagination Entm’t Ltd (2009) lists the factors as follows:
1.  the strength or distinctiveness of the plaintiff’s mark as actually used in the marketplace;
2.  the similarity of the two marks to consumers;
3.  the similarity of the goods or services that the marks identify;
4.  the similarity of the facilities used by the markholders;
5.  the similarity of advertising used by the markholders;
6.  the defendant’s intent;
7.  actual confusion;
8.  the quality of the defendant’s product; and
9.  the sophistication of the consuming public. 

The District Court entered summary judgment for Google by holding that (A) there was no genuine issue of fact as to whether Google’s use of ROSETTA STONE created a likelihood of confusion and (B) that the functionality doctrine shielded Google in any event.  The Appeals Court held that the District Court erred in these findings.

In relation to (A) the Appeals Court considered that the District Court viewed the evidence on the disputed confusion factors -- the intent of the Defendant, actual confusion and consuming public’s sophistication -- as it would during a bench trial, instead of properly applying the summary judgment standard.  The thrust of the Appeals Court decision was that there was substantial evidence on record  ( by way of survey evidence, expert reports, etc adduced by Google and by Rosetta Stone) to create genuine issues of fact on the various elements to be taken into account when assessing likelihood of confusion, and therefore was not suitable to be resolved on summary judgment.  

The District Court's application of
the "functionality doctrine"
found no favor in the Court of Appeals
In relation to (B),  the “functionality doctrine” prohibits trade dress or trade mark rights in functional features of a product or its packaging, i.e., anything that is essential to the use of or affects the cost or quality of the article – Qualitex (1995)/Inwood (1982). The District Court had concluded that trade mark keywords are “functional” when entered into Google’s AdWord’s program because: 
“The keywords . . . have an essential indexing function because they enable Google to readily identify in its databases relevant information in response to a web user’s query . . . [T]he keywords also serve an advertising function that benefits consumers who expend the time and energy to locate particular information, goods, or services, and to compare prices.”
Making quick work of this ruling the Appeals Court held that the functionality doctrine simply did not apply in these circumstances because the District Court had incorrectly focused on whether Rosetta Stone’s mark made Google’s product more useful, ignoring whether the mark was functional in how the proprietor, Rosetta Stone, used it.  The functionality doctrine’s touchstone must first reference back to the proprietor’s use of the mark in determining whether it is functional, not the defendant’s use.  Rosetta Stone’s use of ROSETTA STONE, the Appeals Court held, is not essential for the functioning of its language-learning products.  In closing on this point the Appeals Court said:
“As the case progresses on remand, Google may well be able to establish that its use of Rosetta Stone’s marks in its AdWords program is not an infringing use of such marks; however, Google will not be able to do so based on the functionality doctrine. The doctrine does not apply here, and wereject it as a possible affirmative defense for Google.”
Contributory Trade Mark Infringement

Under the judicially created doctrine of contributory infringement, liability may be imposed upon those who facilitate or encourage infringement.  General knowledge that some users of a service will use it to engage in infringing activities is not enough – a claimant has to show that the defendant “intentionally induce[ed] its customers to make infringing uses” of the marks or “supplied] its products to identified individuals known by it to be engaging in continuing infringement” (Von Drehle (2010)).

The District Court had acknowledged Rosetta Stone’s evidence that Google, even after notification by Rosetta Stone of the presence of infringing activity, allegedly continued to permit known infringers and counterfeiters to bid on Rosetta Stone marks as keywords.  However, the District Court was “unpersuaded” by the evidence and based its finding for Google on this issue on the 2010 decision of Tiffany v eBay, i.e.,  that Rosetta Stone failed to establish with the requisite specificity that Google knew or should have known of the infringing activity -generalized knowledge was not enough and , unlike eBay, Google had been notified of even fewer instances of infringement.  The Appeals Court did not find favor with this reasoning and distinguished the present case from Tiffany because Tiffany was the subject of a full trial, not a summary judgment motion.  The Appeals Court held:   
“The only question in this appeal is whether, viewing the evidence and drawing all reasonable inferences from that evidence in a light most favorable to Rosetta Stone, a reasonable trier of fact could find in favor of Rosetta Stone, the nonmoving party. Of course, the  Tiffany court did not view the evidence through the lense of summary judgment; rather,  Tiffany involved an of judgment rendered after a lengthy bench trial.  Because of its procedural posture, the district court in Tiffany appropriately weighed the evidence sitting as a trier of fact. 
Accordingly, Tiffany is of limited application in these circumstances, and the district court’s heavy reliance on Tiffany was misplaced. We conclude that the evidence recited by the district court is sufficient to establish a question of fact as to whether Google continued to supply its services to known infringers. Accordingly, we vacate the district court’s order to the extent it grants summary judgment in favor of Google on Rosetta Stone’s contributory infringement claim.”
Vicarious Liability, Unjust Enrichment and Trade Mark Dilution

10 points if you can spot Virginia
For a finding of vicarious liability for trade mark infringement a claimant must show that the defendant and the infringer “have an apparent or actual partnership, have authority to bind one another in transactions with third parties or exercise joint ownership or control over the infringing product” (Hard Rock Café Licensing Corp v Concession Servs., Inc (1992).  Although Rosetta Stone argued that the evidence already put forward was sufficient to create a question of fact regarding whether Google jointly controls the appearance of the ads or sponsored links the Appeals Court held that this was not evidence that Google acts jointly with advertisers in controlling the counterfeit Rosetta Stone products.  The Appeals Court thus affirmed the District Court’s summary judgment in favor of Google in this respect. 

Chief Judge Traxler writing for the Court, also affirmed the District Court’s dismissal of Rosetta Stone’s unjust enrichment claim, but vacated the lower court's decision against Rosetta Stone in respect of its trade mark dilution claim. For sake of space and time, the AmeriKat will not go into the details of these claims until Sunday.  

What judges wear when they conduct de novo reviews
The long and short of the Court of Appeal's decision is that there appears to have been substantial disputed evidence on record to make the direct infringement claim a genuine issue of fact ripe, not for summary judgment, but for a full trial. It is also important to remember, that the Appeals Court standard of review was a de novo review.  In conducting a de novo review the appellate court views "the facts and draws all reasonable inferences therefrom in the light most favorable to [Rosetta Stone], as a non-moving party",(i.e. the party who did not make the summary judgment motion).  That means that the decision can be viewed from a rosy Rosetta Stone perspective.  When these issues are revisited on remand there may not be such a Rosetta-tint on the evidence.  Just like with the Viacom v YouTube news of last week, we will have to await the next stage before we have clarity on Google's potential liability for the AdWords program.  

For more information see these articles on MSNBC, Bloomberg and Business Week.    
Breaking News: 4th Circuit paves a partial path for Rosetta Stone in Google Adwords case Breaking News: 4th Circuit paves a partial path for Rosetta Stone in Google Adwords case Reviewed by Annsley Merelle Ward on Tuesday, April 10, 2012 Rating: 5

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