On October 31, 2012, Google and Rosetta Stone entered into a confidential settlement agreement resolving Rosetta Stone’s claims that Google’s use of Rosetta Stone’s trademark name as a keyword in Google’s AdWord program violated Rosetta Stone’s trademark rights. The Google AdWord program has been under legal scrutiny for some time, and Google’s decision to settle rather than fight suggests that Google is sufficiently nervous about the outcome not to risk a trial. As a result, the AdWord program, which remains controversial in the trademark community and subject to legal attack, gets a reprieve for now.

For those unfamiliar with the AdWords program, Google allows persons or entities to pay to have its ads appear when a user of the Google search engine types in a “keyword.” In the case of Rosetta Stone, competitors purchased the trademarked name ROSETTA STONE as a keyword, so that their ads for competing products would appear either next to or above the search results when Google users typed in that phrase. The essential problems from the trademark owner’s point of view is that (1) Google is making money based on unauthorized use of their trademarks, and (2) competitors are using owner’s trademarks to compete against the owner’s products and services. Based on publicly available information, it appears that Google takes the view that AdWords are not trademark uses of the owners’ marks, do not cause consumer confusion, and therefore are not prohibited by federal trademark law.

Recent trends in the law appear to be favoring the trademark owners. In 2009, the U.S. Court of Appeals for the Second Circuit ruled in Rescuecom Corp. v. Google, Inc., 562 F.3d 123 (2d Cir. 2009), that Google’s sale to plaintiff’s competitors of keywords consisting of plaintiff’s trademarks could violate plaintiff’s trademark rights. The Court rejected Google’s arguments that its use of plaintiff’s trademark was not a “use in commerce” as required under U.S. trademark law, and that Google’s use of plaintiff’s trademark was no different than a retail vendor who uses “product placement” to benefit from a competitor’s name recognition. The Court of Appeals sent the case back to the trial court for further proceedings, and the case settled without further rulings on the merits.

At the time of the Rescuecom decision, Google did not allow the use of trademarks in the actual advertisements triggered by the keywords, upon request of the trademark owner. After 2009, however, Google changed its policies and practices with respect to AdWords. On the one hand, it started permitting unauthorized use of trademarks by non-trademark owners in certain limited circumstances. Additionally, Google implemented technology that would automatically check that the competitor’s websites being linked to in via the AdWords to determine whether use of the trademark in the advertisement was legitimate. Also, over time, Google changed the presentation of the ads generated by the AdWord, so that the ads generated by the keyword searches appear as “Ads related to” the search term, and are set off from the search results either by a colored block, or by appearing in a separate column to the right of the search results.

Despite these changes, in 2012, the U.S. Court of Appeals for the Fourth Circuit, following Rescuecom, held in Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144 (4th Cir. 2012) that plaintiff should be permitted to go to trial against Google for direct and contributory trademark infringement as well as trademark dilution based on the sale of ROSETTA STONE as a keyword (although affirming dismissal of Rosetta Stone’s claim for vicarious liability and unjust enrichment). The Court also indicated that Google could assert a fair use defense to plaintiff’s trademark dilution claim. As is Rescuecom, when faced with a trial on whether the AdWords program violates trademark owners’ rights, Google chose to settle.

Despite these decisions, no court of which we are aware has yet affirmatively ruled that Google infringed a plaintiff’s trademark rights by selling a plaintiff’s trademark to a competitor as part of the AdWords program. And at least one court has ruled in Google’s favor. In Jurin v. Google, Inc., 96 U.S.P.Q.2d 1674 (E.D. Cal. 2010), the United States District Court for the Eastern District of California dismissed plaintiff’s false advertising claim against Google on the grounds that Google permitted plaintiff’s competitors to bid on plaintiff’s trademark as part of the AdWords program. The court reasoned that, because Google was not a direct competitor of plaintiff (a manufacturer and seller of building materials), plaintiff failed to show how the use of the trademark in the AdWords program harmed plaintiff’s “ability to compete with Google.” The court rejected plaintiff’s reliance on the Rescuecom decision, stating that Rescuecom ruled only on the issue of whether use of the plaintiff’s mark by Google constituted a “use in commerce” for purposes of U.S. trademark law.

The legal status of the Google AdWords therefore remains in limbo, and will continue to do so for the time being. Whether Google will try to address trademark owner concerns voluntarily, such as implementing “notice and takedown” procedures for eliminating trademarks from the AdWords program, or taking other steps to reduce the risk that users who search using a trademark don’t get redirected from the trademark owner’s site to the competitor’s site, also remains to be seen. In the meantime, expect that Google will continue to vigorously defend itself in AdWords cases and then settle them before trial.