Fourth Circuit Faults Summary Dismissal of Rosetta Stone: 'Functionality' a Non-Issue

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By Amy E. Bivins  

Google Inc. may have intended to create confusion by selling trademarks as advertising keywords, based on the record in AdWords infringement litigation, so a federal trial court should not have granted the search giant's motion for summary judgment, the U.S. Court of Appeals for the Fourth Circuit ruled April 9 (Rosetta Stone Ltd v. Google Inc., 4th Cir., No. 10-2007, 4/9/12).

The ruling adds to an already-bumpy week for Google on the IP litigation front. On April 5, the U.S. Court of Appeals for the Second Circuit similarly concluded that a trial court was too hasty in finding for Google at the summary judgment stage. The Second Circuit reinstated copyright infringement litigation against Google involving YouTube, holding that if Google was willfully blind to infringement occurring on the video-sharing service, it could be liable for it, Viacom International Inc. v. YouTube Inc., No. 10-3270 (2d Cir. April 5, 2012).

Google could ultimately prevail in this litigation, Chief Judge William B. Traxler Jr., writing for the panel, remarked. But it has not won yet.

Jordan S. Weinstein, Oblon Spivak McClelland Maier & Neustadt, LLP, Alexandria, Va., told BNA that this decision is a “very narrow” one that does not give anything away in the overall litigation. It was to be expected, Mr. Weinstein said, given the summary judgment stage of the proceedings.

“Google led with its chin by focusing on the issue of confusion at this stage,” Weinstein said, invoking a boxing analogy. That strategy was a clear loser, he said, at least at this point.

The appeals court faulted the U.S. District Court for the Eastern District of Virginia for disposing of the case when, taking Rosetta Stone's allegations as true, genuine issues of fact remained surrounding (1) Google's intent in selling marks as AdWords and (2) the question of consumer confusion caused by that practice.

Instead of properly applying the summary judgment standard, the district court viewed the evidence related to a potential likelihood of confusion as it would during a bench trial, the court said.

The district court also erroneously applied trademark law's “functionality” doctrine, the court added.

The district court held that because Google's AdWords are used to trigger the display of an ad, they are “functional”--and thereby beyond the scope of trademark protection, Rosetta Stone Ltd. v. Google Inc., 730 F. Supp. 2d 531 (E.D. Va. 2010). This judge-made doctrine, added to the Lanham Act in 1998, was meant to preserve the distinction between patent and trademark protection. It provides that purely “functional” features cannot be used as trademarks.

The doctrine does not apply here: Rosetta Stone uses its mark as a brand identifier. Google's use of it as a keyword did not take the mark outside the realm of trademark protection.

“The functionality doctrine simply does not apply in these circumstances[,]” the court said.

The court reversed the court's grant of summary judgment on direct and contributory trademark infringement against Google, as well as for trademark dilution.

'Functionality' Turns on Mark, Not How Google Used It.

In Inwood Labs Inc. v. Ives Labs Inc., 456 U.S. 844 (1982), the U.S. Supreme Court explored the trademark law's “functionality” doctrine, stating that “a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.”

The doctrine has not come up frequently in search advertising litigation since the Ninth Circuit's refused to apply it to the Netscape search engine in Playboy Enterprises Inc. v. Netscape Communications Corp., 354 F.3d 1020 (2004)(9 ECLR 55, 1/21/04).

Nonetheless, the district court in this case held that the doctrine barred this claim because it centered on Google's use of the mark as a functional keyword. That conclusion was in error, the appeals court held.

The court should have focused on whether Rosetta Stone's use of the mark was functional. It was not, the appeals court said.

“Clearly, there is nothing functional about Rosetta Stone's use of its own mark; use of the words “Rosetta Stone” is not essential for the functioning of its language-learning products, which would operate no differently if Rosetta Stone had branded its product 'SPHINX' instead of 'ROSETTA STONE.' ”

The doctrine did not apply to Google's sale of marks as invisible AdWords, and allowance in some cases for entities to use marks in the text of their AdWords.

Evidence of Confusion Not Properly Weighed.

In the ruling below, the court considered only three of the nine traditional likelihood-of-confusion factors, as set forth in George & Co. LLC v. Imagination Entertainment Ltd., 575 F.3d 383 (4th Cir. 2009): Google's intent, actual confusion, and the consuming public's sophistication.

On appeal, the court rejected Rosetta Stone's argument that the court should have considered all nine of the factors. The factors are non-exclusive, the court noted.

And in cases where a use is referential or nominative, many of the factors--such as similarity of goods--are irrelevant because these types of cases do not involve a defendant's alleged passing off a mark as its own, the court said, looking to Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010).

Nonetheless, the appellate court said, the trial court did not properly analyze the three factors it did explore.

Google's Shifting Policies, Surveys Could Show Intent.

With respect to intent, a review of the record in Rosetta Stone's favor weighed against summary judgment.

Google has shifted its trademark policies, which could indicate an intent to confuse, the court said. Before 2004, it did not allow the use of trademarks at all. In 2004, it decided to allow the use of trademarks as invisible ad triggers--a reason that appeared to be financially motivated, the court found.

Google decided against allowing the use of marks in the ad text because its internal studies indicated a significant risk of source confusion. But it again changed course in 2009 to allow the use of marks in advertising text, albeit in a limited capacity.

Making all reasonable inferences in Rosetta Stone's favor, a reasonable fact-finder could conclude that Google intended to cause confusion, the court held.

The same was true for evidence of actual confusion. The district court held that anecdotal evidence showing that five consumers mistakenly purchased knockoff products was inadequate to demonstrate confusion. That was in error, the court said.

Rosetta Stone also presented evidence that it received 123 complaints from individuals who had purchased pirated software believing it to be genuine. Although that evidence did not indicate if any customer made a purchase via a sponsored link, the court said it was reasonable to infer that a great number of those individuals were confused by the apparent relationship between Rosetta Stone and a sponsored link.

What's more, Google's own witnesses had trouble distinguishing between ads linked to sponsored links for authorized Rosetta Stone resellers and those posted by counterfeiters.

The court rounded out the reversal by rejecting the trial court's emphasis on Rosetta Stone's prices. Since its products cost hundreds of dollars, the district court held that consumers would spend time searching and researching the product, and so were unlikely to be confused.

The court relied on Star Industries Inc. v . Bacardi & Co. Ltd., 412 F.3d 373 (2d Cir. 2005), where the court held that consumer sophistication could be ascertained based solely on the nature of a product or its price.

That ruling occurred after a bench trial, the Fourth Circuit noted here. At this stage of the case, the court could not conclude as a matter of law that the sophistication factor favored Google.

Too Early for Tiffany v. eBay Test.

The court similarly reversed the court's dismissal of a contributory trademark infringement claim.

In the ruling below, the court looked to Tiffany v. eBay to conclude that the claim must fail for a lack of evidence that Google had specific knowledge of infringing content.

The district court turned to the test too early.

In Tiffany v. eBay, the record at trial showed that eBay had only generalized knowledge of infringement. The Second Circuit said that generalized knowledge of infringement was inadequate for secondary liability, and that Tiffany would have had to show that eBay knew or had reason to know of specific instances of actual infringement that it failed to address.

“In granting summary judgment to Google because 'Rosetta Stone has not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim,' the district court turned the summary judgment standard on its head[,]” the court said.

While Rosetta Stone may not have been entitled to summary judgment, that did not mean that Google was.

Evidence of Google's knowledge established a genuine question of fact, the court held.

Dilution Claims Reinstated Too.

The district court applied Louis Vuitton Malletier S.A. v. Haute Diggity Dog LLC, 507 F.3d 252 (4th Cir. 2007), to conclude that Google was not liable for trademark dilution, either. Like the other claims, more analysis was needed, the Fourth Circuit held.

Louis Vuitton held that to state a dilution claim, a plaintiff must demonstrate that:

  • the plaintiff owns a famous, distinctive mark;
  • that the defendant commenced using a mark in commerce that allegedly is diluting it;
  • that a similarity between the defendant's mark and the famous mark gives rise to an association between the marks; and
  • that the association is likely to impair the distinctiveness of the famous mark or is likely to harm the famous mark's reputation.

The district court held that Rosetta Stone could not successfully claim that Google's use of its mark created a likelihood of dilution because it did not use the mark to identify its services. It relied on the statutory “fair use” defense that shields a fair use of a mark so long as it is not as “a designation of source for the person's own goods and services.”

The district court also concluded that Rosetta Stone failed to show that Google's use was likely to impair the mark's distinctiveness because its brand awareness increased after Google's change in its AdWords policy.

The Fourth Circuit disagreed.

The dilution cause of action, at 15 U.S.C. §1125(c)(3)(A) affords a fair use defense to defendants in dilution actions, such as nominative or descriptive fair use. The defendant must demonstrate the fair use.

“Thus, the district court erroneously required Rosetta Stone to demonstrate that Google was using the ROSETTA STONE mark as a source identified for Google's own products.” The fair use inquiry turns on good faith, the court added, a factor the district court should have explored.

If the district court finds the Louis Vuitton factors are satisfied, it should then reexamine the nominative fair use defense, the court added.

Clifford M. Sloan, Skadden Arps Slate Meagher & Flom LLP, Washington, D.C., argued for Rosetta Stone Ltd. Margret Mary Caruso, Quinn Emanuel Urquhart & Sullivan LLP, Redwood Shores, Calif., argued for Google Inc.

By Amy E. Bivins  

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