Rosetta Stone, Ltd. v. Google, Inc., No. 10-2007

Decided: April 9, 2012

Rosetta Stone appealed the grant of summary judgment in favor of Google on its five trademark claims related to Google’s AdWords policy allowing the purchase of keywords for a sponsored link.  The Fourth Circuit Court of Appeals affirmed the District Court’s order of summary judgment for the vicarious infringement claims and the dismissal of the unjust enrichment claim, but vacated the order on the direct infringement, contributory infringement, and dilution claims and remanded for further proceedings on those three claims.

Google’s search engine sells paid advertisements through its AdWords advertising platform.  The “sponsored links” are purchased by a sponsor bidding on a keyword related to its business; the highest bidder for the keyword wins the most prominent place for an advertisement.  In 2004, Google amended its policy to allow sponsors to purchase keywords of third-party trademarks, but did not allow the use of trademarks in the advertisement text.  In 2009, Google further amended their policy to allow the use of trademarks in text in four specific situations.  Rosetta Stone alleges that these policy changes have created confusion for consumers, and they have been “plagued with counterfeiters” since the 2009 change.

On the direct trademark infringement claim, the District Court concluded there was no genuine issue of material fact as to whether Google’s use of Rosetta Stone created a likelihood of confusion, and that the “functionality doctrine” shielded Google from liability.  The Fourth Circuit held that the District Court erred on both grounds.  First, the summary judgment standard was not properly applied regarding the likelihood of confusion because the evidence presented related to this element of the claim was not considered in the light most favorable to the nonmoving party, Rosetta Stone.  This Court reasoned that the District Court did not appropriately consider some evidence offered by Rosetta Stone such as customer depositions, expert testimony, and Google’s in-house studies.  Further, the District Court inappropriately concluded that consumer sophistication should favor a finding that Google’s use of the trademarks was not likely to create confusion.  This Court identified this inference made by the lower court as appropriate only in the bench trial context.  Second, the District Court’s alternate basis for granting summary judgment was that Rosetta Stone’s claim was barred by the “functionality doctrine.”  However, Rosetta Stone’s name is not a functional part of the design of the product, therefore the doctrine does not apply here and is not a possible affirmative defense for Google.

Regarding the contributory infringement claim, the District Court granted summary judgment to Google, reasoning that Rosetta Stone had not met its burden for a grant of summary judgment.  The appropriate standard for summary judgment is whether a reasonable trier of fact could find in favor of Rosetta Stone, the nonmoving party.  The District Court essentially turned the standard on its head and relied too heavily on a Second Circuit case which had a different procedural posture, and therefore limited applicability in this case.

The District Court granted summary judgment for the trademark dilution claim, reasoning that Rosetta Stone could not establish one element of the claim without showing that Google used Rosetta Stone’s mark to identify its own products and services.  In support of this conclusion, the court relied on the fair use defense found in 15 U.S.C. § 1125(c)(3)(A).  However, the Fourth Circuit views this as an affirmative defense that Google would have to establish, and furthermore, the District Court failed to determine if Google’s use constituted “fair use” as defined by the statute.  The District Court’s analysis incorrectly collapsed the questions of good faith and fair use into one inquiry – whether Google uses Rosetta Stone’s mark as a source identifier for its own products.

Also, the district court erred in its analysis regarding the fourth element of the trademark dilution claim because it only analyzed one of the factors: “likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark.”  The Court concluded that Rosetta Stone’s brand awareness had increased since the change in Google’s policy, and therefore they could not satisfy this element.  The Fourth Circuit remanded for that the District Court to determine whether Rosetta Stone’s mark was famous by 2004, which is the year that Google’s policy changed and Rosetta Stone alleges the trademark dilution began.

Full Opinion

-Jennifer Routh

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