An interesting case discussing several aspects of trademark law is Rosetta Stone Ltd. v. Google, Inc., decided in April this year by the United States Court of Appeals, Fourth Circuit. Rosetta Stone, the company, was started in 1992 and, by 2006, had become a leader in technology-based language learning products and online services. It owns and uses several registered trademarks employing the words Rosetta Stone or the term RosettaStone. In 2002, Rosetta Stone began online advertising on Google’s website. Eventually, this led to a lawsuit.

As the court explained, Rosetta Stone’s suit resulted from changes in Google’s advertising policies. When an internet user enters a word or phrase into Google’s search engine, Google returns a results list of links to websites that it has determined to be relevant to the key words being searched. In addition to the natural list of results produced by the search, Google also displays paid advertisements known as “sponsored links.” Google’s AdWords advertising platform permits a sponsor to “purchase” keywords that trigger the appearance of the sponsor’s ad and link when one of the purchased keywords is a search term.

In other words, said the court, an advertiser purchases the right to have his ad and link displayed with the search results. According to the court, during the period of time in question in the case, Google displayed up to three sponsored links in a highlighted box immediately above the natural search results, and also displayed sponsored links to the right of the search results, separated by a vertical line.7

Prior to 2004, Google’s policy did not allow the use of trademarks in the text of an advertisement (other than the advertiser’s own marks). In addition, Google allowed a trademark to be used as a keyword for searches only when the trademark’s owner did not object to that use. But in 2004 Google loosened this policy and began allowing the use of trademarks as keywords in searches, even over the objection of a trademark’s owner. According to the court, the reason for the change was largely financial as Google’s research showed that about 7% of its total revenue was driven by trademarked keywords. Subsequently, Google even introduced a trademark-specific keyword tool that suggested relevant trademarks for Google’s advertising clients to purchase as keywords. However, Google continued its policy of prohibiting the use of trademarks in actual advertising if the trademark owner requested blocking use of the trademark.

Then, in 2009, Google changed that last policy and began allowing the use of trademarks in advertising in four situations: (1) when the sponsor was a reseller of the trademarked product; (2) when the sponsor made or sold component parts for a trademarked product; (3) when the sponsor offered compatible parts or goods for use with the trademarked product; and (4) when the sponsor provided information about a trademarked product. According to the court, this policy shift came after Google developed the technology to automatically check the linked websites to determine if the use of a trademark in an advertisement was “legitimate.”

The 2009 policy shift, however, created problems for Rosetta Stone, which claimed that since that change it had been plagued with counterfeiters selling fake Rosetta Stone products. According to Rosetta Stone, during the six months ending March 1, 2010, it reported to Google 190 separate instances in which one of Google’s sponsored links was marketing counterfeit Rosetta Stone products. Many of the purchasers of the phony products called Rosetta Stone and complained and were surprised to learn that the vendor they had found through Google was not authorized by or affiliated with the real Rosetta Stone. These calls led Rosetta Stone to contact Google and request that Google not allow sponsors to use Rosetta Stone’s trademarks. Google refused.

So Rosetta Stone sued, claiming direct trademark infringement, contributory infringement, vicarious infringement, trademark dilution and unjust enrichment. Google moved for summary judgment on all the claims except unjust enrichment. That count Google moved to dismiss for failure to state a claim.8 The trial court granted both of Google’s motions, in effect throwing out the case. Rosetta Stone appealed. The Fourth Circuit Court of Appeals reversed.

The Fourth Circuit noted that direct infringement of a trademark occurs when an unauthorized use of the mark confuses (or is likely to confuse) consumers about the origin of the goods or services in question. Federal courts have articulated at least nine factors that are relevant to the ‘likelihood of confusion’ inquiry:

  1. the strength or distinctiveness of the 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 presence of any of these factors may establish a likelihood of confusion, said the court. It is not necessary that they all be present, or even that a majority of them be present.

The Fourth Circuit then noted that Google’s use of the Rosetta Stone trademarks was “referential or nominative in nature.” It was not a situation in which Google was passing Rosetta Stone’s mark as Google’s own and confusing the public about who’s goods were being sold. It was, said the court gave, like an auto repair shop which specialized in fixing foreign cars and ran an ad using the trademarks of various foreign autos to highlight the kinds of cars they repair.

Thus, said the court, several of the nine relevant factors were not applicable. But the evidence showed that Google had performed an internal study in connection with the 2004 policy change which “suggested that there was significant source confusion among Internet searchers when trademarks were included in the title or body of the advertisements”. The study recommended that the only effective policy to eliminate this risk of confusion would be to allow trademarks to be used as keyword search terms but not to allow them to be used in advertising text.

Google’s studies had found that 945 users were confused at least once. This, said the court, was sufficient evidence for a jury to find that Google intended to cause confusion in the marketplace because it acted with knowledge that confusion was very likely to result from allowing trademarks to be used in sponsors’ advertising.

In addition, Rosetta Stone offered evidence of actual confusion – the testimony of consumers who attempted to buy a Rosetta Stone software package via the Internet and wound up purchasing a bogus product from a sponsored link. Rosetta Stone also presented evidence of receiving a substantial number of complaints from individuals who had purchased counterfeit software which they thought was genuine.

Rosetta Stone also presented a report from an expert in market analysis and consumer behavior, which the trial court had elected to ignore as unreliable. The expert’s conclusion was that a significant portion of consumers were likely to be confused as to the origin, sponsorship or approval of the sponsored links. He commented that a survey he had conducted yielded a net confusion rate of over 17 percent. The Fourth Circuit held that for purposes of considering whether to grant summary judgment, the expert’s report was evidence of confusion that should have been allowed to go to the trier of fact – the jury.

The trial court had also concluded that consumer sophistication was a factor in Google’s favor, The trial judge said that because the product was expensive and was only likely to be purchased by someone willing to make the time commitment to learn a foreign language, this demonstrated that the consumers in question were well-educated and able to distinguish the sponsored links as ads. But the Fourth Circuit disagreed and said that such a determination about the kinds of consumers involved and whether they were likely to be confused – should have been made by the jury.

In sum, the Fourth Circuit found that Rosetta Stone had pled enough, and offered enough evidence in support of its claim of direct trademark infringement, to be allowed a trial on the issue.

So it reversed the dismissal of that count.