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RICHMOND, Va. - (Mealey's) A Fourth Circuit U.S. Court of Appeals panel on April 9 found 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 a trial court's summary judgment in the Internet giant's favor (Rosetta Stone Ltd. v. Google Inc., No. 10-2007, 4th Cir.; 2012 U.S. App. LEXIS 7082).
(Opinion. Document #24-120419-032Z.)
The panel, which comprised Judges William B. Traxler Jr., Barbara Milano Keenan and Clyde H. Hamilton, reversed judgment on claims of direct trademark infringement, contributory infringement and trademark dilution brought by Rosetta Stone Ltd., while affirming judgment in Google's favor on claims of vicarious infringement and unjust enrichment.
In July 2009, Rosetta Stone, a maker of language education software, sued Google in the U.S. District Court for the Eastern District of Virginia for trademark infringement, trademark dilution and related claims under the Lanham Act and Virginia law. The claims were based on Google's AdWords program, under which clients can purchase particular keywords that, when entered as search query terms in Google's search engine, will return a link to the purchaser's webpage as a sponsored link on the search results page.
Rosetta Stone asserted that by allowing third-party AdWords clients to purchase "Rosetta Stone" and other of its federally registered trademarks, Google was guilty of infringing its trademarks and service marks directly, vicariously and contributorily. Rosetta Stone further claimed that this practice created consumer confusion by leading its potential customers to the websites of competitors and counterfeit software makers that had purchased its trademarks through the program.
Google moved to dismiss the unjust enrichment claim and moved for summary judgment on the rest of the claims. Both motions were granted. Rosetta Stone appealed to the Fourth Circuit.
In its direct infringement ruling, 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. Rosetta Stone contended that the lower court's failure to consider all of the other factors constituted reversible error. The panel disagreed, holding that courts are not required to conduct a "robotic application of each and every factor" if some, as in the present case, are irrelevant. However, the panel held that in the future, district courts "should provide at least a brief explanation of its reasons" for not considering certain George & Co. factors.
Turning to the factors that were addressed, the panel held that the District Court erred by not properly applying the summary judgment standard. The lower court had found no evidence that Google exhibited the necessary intent to create confusion by permitting use of Rosetta Stone's marks in the AdWords program. However, the panel ruled that Rosetta Stone had presented sufficient evidence to create a triable issue on the matter to survive summary judgment. Rosetta Stone submitted survey and anecdotal evidence of actual consumer confusion in which Google users believed that purported Rosetta Stone software purchased via sponsored links was authentic when it was, in fact, counterfeit. The trial court also failed to properly consider evidence that cast doubt as to the sophistication of language software purchasers.
The District Court erred in finding that Google was protected from direct trademark liability under the functionality doctrine, holding that the "doctrine does not apply in these circumstances." The functionality doctrine "explicitly prohibit[s] trademark registration or protection under the Lanham Act for a functional product feature," the panel said. The lower court held that the Rosetta Stone marks were used functionally by Google. However, the panel held that this was in error because the trial court "neglect[ed] to consider whether the mark was functional as Rosetta Stone used it." Because Rosetta Stone uses its marks "as a classic source identifier in connection with its language learning products," the panel held that this was not functional, making application of the doctrine inappropriate.
Contributory, Vicarious Infringement
The District Court based its judgment in Google's favor on the contributory infringement count in Tiffany (NJ) Inc. v. eBay Inc. (600 F.3d 93 [2nd Cir. 2010]), finding that Rosetta Stone did not sufficiently show that Google "knows or has reason to know" of infringement, as required by Inwood Laboratories Inc. v. Ives Laboratories Inc. (456 U.S. 844, 850 n10 ). The panel stated that in Tiffany, the Second Circuit U.S. Court of Appeals had held that "evidence of willful blindness" would have met the Inwood standard. Considering the evidence in the light most favorable to Rosetta Stone, as the District Court should have with a summary judgment motion, the panel ruled that there was a question of fact as to whether Google allowed known infringers to participate in the AdWords program. Thus, the panel reversed judgment on the contributory infringement claim.
However, the panel affirmed dismissal of the vicarious infringement count. Rosetta Stone contended that Google's ability to control the appearance of ads or sponsored links constituted "an apparent or actual partnership" to establish vicarious liability for the third parties' infringing actions. The panel disagreed, finding that this did not show the necessary joint actions necessary to show vicarious infringement.
The unjust infringement claim was also properly dismissed, the panel ruled. The panel took issue with the District Court's dismissal of this claim based on Rosetta Stone's failure to allege "facts which imply that [Google] promised to pay the plaintiff for the benefit received" from use of its marks, holding that this "is not necessarily fatal to an implied contract theory" of unjust enrichment. However, the panel held that Rosetta Stone failed to allege "facts supporting its general assertion that Google 'should reasonably have expected' to pay for the use of its marks in its keyword query process."
The panel reversed judgment on the trademark dilution count, finding that the District Court omitted an analysis of whether Google acted in good faith, "collapsing the fair-use defense into one question" of whether Google used the Rosetta Stone marks as a source identifier for its own products. The panel also held that the District Court did not properly consider trademark dilution in light of the relative fame of Rosetta Stone's mark, which should be measured from when Google's alleged dilution began in 2004. The panel remanded this for further consideration, along with the direct and contributory infringement claims.
Rosetta Stone is represented by Clifford M. Sloan, Mitchell S. Ettinger and Jennifer L. Spaziano of Skadden, Arps, Slate, Meagher & Flom in Washington, D.C. Google is represented by Margret M. Caruso, Cheryl A. Galvin, Henry Lien and Austin D. Tarango of Quinn, Emanuel, Urquhart & Sullivan in Redwood Shores, Calif., and Jonathan D. Frieden of Odin, Feldman & Pittleman in Fairfax, Va.
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