The Fourth Circuit Court of Appeals breathed new life into Rosetta Stone's claim for trademark infringement against Google, reversing the Eastern District of Virginia's 2010 ruling that Google did not infringe Rosetta Stone's trademark or dilute the value of its marks by allowing others to purchase the 'rosetta stone' mark in its AdWords program. Rosetta Stone Ltd. v. Google Inc., No. 10-2007 (4th Cir. April 9, 2012).

AdWords is an advertising program that allows advertisers to purchase "keywords" that Google then uses to display ads in response to search queries containing those keywords. In 2004, the Google AdWords policy was changed to allow the use of trademarks as keywords. Google then introduced a tool that suggested keywords, including third party trademarks, for advertisers to purchase. In 2009, Google further altered its AdWords policy by permitting limited use of third party trademarks in the title or text of advertisements for, inter alia, resellers of trademarked products, makers or sellers of component parts, or sellers of compatible goods for use with a trademarked product.

Rosetta Stone—known for its language education software programs—filed an action for trademark infringement and dilution in the District Court for the Eastern District of Virginia in July 2009, alleging that Google's policies created a likelihood of confusion, as well as actual confusion, misleading potential customers into buying counterfeit 'Rosetta Stone' products. The District Court ruled in favor of Google on all counts in 2010 and Rosetta Stone appealed the decision to the Fourth Circuit. The Appellate Court's April 9, 2012 opinion states Rosetta Stone presented sufficient evidence to create an issue of fact as to whether Google Inc. had committed direct infringement by allowing the use of third-party trademarks by participants in its AdWords program, reversing in part the trial court's summary judgment in the Internet giant's favor.

On the issue of direct infringement, the District Court had considered the nine 'likelihood of confusion' factors in George & Co. LLC v. Imagination Entertainment Ltd., 575 F.3d 383, 393 (4th Cir. 2009), finding that the three disputed factors weighed in Google's favor. On appeal, Rosetta Stone argued that the District Court's failure to consider each of the nine factors constituted reversible error and that the Court had not properly applied the summary judgment standard for the three factors at issue. Addressing the first argument, the Fourth Circuit held that courts are not required to conduct a "robotic application of each and every factor," although courts "should provide at least a brief explanation of its reasons" for not considering certain factors. The Appellate Court then ruled that Rosetta Stone's survey and anecdotal evidence of actual consumer confusion between the false Rosetta Stone products and the actual goods constituted sufficient evidence to create a triable issue of fact to survive summary judgment.

On the issue of contributory infringement, the Fourth Circuit reversed judgment adverse to Rosetta Stone's claim, ruling that there was a question of fact as to whether Google allowed known infringers to participate in the AdWords program.

In addition, the Fourth Circuit found that the District Court erred in finding Google was protected from liability under the functionality doctrine, which prohibits trademark registration or protection under the Lanham Act for a functional product feature. Reversing the District Court, the Fourth Circuit reasoned that Rosetta Stone uses its marks "as a classic source identifier in connection with its language learning products," which is not a functional product feature.

The case is now remanded to the District Court for further proceedings.