Google is set to defend its use of AdWords before a US federal appeals court. Rosetta Stone, the language-software producer, has had its dismissed trade mark infringement case against Google revived on appeal. The principal matter to be determined in the appeal is whether the sale by Google of search keywords subject to trade mark protection to competitors of Rosetta Stone for sponsored links renders Google liable for trade mark infringement.

Initially Google prohibited the use of trade marks as keywords. In 2009 the policy was changed to allow the practice to be permitted in certain situations, i.e. when the sponsor makes or sells component or compatible parts for a trade marked product, or is a reseller of an authentic trade marked product, or when it supplies information regarding the trade marked product. However, Rosetta Stone reported numerous instances in which a sponsored link advertised counterfeit Rosetta Stone goods, contrary to the terms of Google’s AdWords policy.  

In a 2010 ruling, a US district court held that customers were not likely to be confused or misled by a competitor’s sponsored link as permitted by Google. The court outlined that Rosetta Stone had failed to prove that Google was liable for trade mark infringement as it failed to establish with “requisite specificity” that Google “knew or should have known of the infringing activity". However, the US federal appeals court has since rejected the district court's dismissal of the claim and allowed the appeal in finding that “A reasonable trier of fact could find that Google intended to cause confusion in that it acted with the knowledge that confusion was very likely to result from its use of the marks.”

If Rosetta Stone is successful in its action, the decision could result in modifications to Google’s AdWords policy. Such changes, which could prevent bidding on trade mark protected terms, could alter the advertisement strategy for many companies. However, if the current policy is not changed, it is anticipated that Google will continue to be under attack for trade mark infringement.