Use of another company’s trademarks in your web-based advertising can be risky business

Rosetta Stone, Ltd. sells language-learning software.  Google, Inc. operates a web-based search engine and sells keywords as part of its AdWords advertising program.  Google’s AdWords policy allowed advertisers to use a competitor’s trademark as a keyword in its AdWords advertisements.  Because many counterfeit versions of Rosetta Stone’s software were being advertised and sold via Google’s AdWords program, Rosetta Stone sued Google for (1) direct trademark infringement, (2) contributory trademark infringement, (3) vicarious trademark infringement, (4) trademark dilution, and (5) unjust enrichment under Virginia law.  The trial court dismissed the unjust enrichment claim and granted summary judgment in favor of Google on all other claims.

The Fourth Circuit Court of Appeals reversed on Rosetta Stone’s direct infringement, contributory infringement and trademark dilution claims.  On Rosetta Stone’s direct infringement claim, the court found: (a) there was sufficient evidence in the record to establish a genuine issue of fact over likelihood of confusion including (i) Google’s shift in its AdWords policy to allow unauthorized use of a trademark in the text of a sponsored link demonstrated possible intent to cause confusion in the market and (ii) there were multiple sources of evidence of actual confusion that the trial court improperly dismissed, and (b) the argument that the trademark “Rosetta Stone” was necessary to Google’s indexing thus raising a “functionality” defense was misplaced because the functionality defense applies only in the context of the trademark owner’s use of the trademark in connection with the owner’s goods/services.  On the contributory infringement claim, which requires underlying direct infringing conduct by another and that the alleged contributory infringer knows or should know of such direct infringement and yet continues to encourage or facilitate the infringing conduct, the court, again, found there was sufficient evidence to warrant a genuine issue of fact that should have gone to a jury.  And, on the dilution claim, the Fourth Circuit Court found that the trial court (a) failed to address the question of whether Google’s use of the Rosetta Stone trademark was a “fair use” which includes the element of “good faith” even though it was clearly a nominative use (i.e not used in connection with advertising Google’s goods/services); (b) failed to properly analyze whether Google’s use of Rosetta Stone was likely to cause dilution; and (c) failed to properly determine if Rosetta Stone was a “famous” mark at the time Google commenced use of the mark in its AdWords program.  A mark must first be famous before it can be subject to dilution.  In other words, a non-famous mark cannot be diluted so if Google’s use began before the mark Rosetta Stone became famous even if it later becomes famous, Google’s continuing use would not subject it to a claim for trademark dilution.

Note: Using another company’s trademark in your web-based advertising presents a risk of numerous types of claims and should not be undertaken without due consideration of each type of claim.

Case Name: Rosetta Stone, Ltd. v. Google, Inc.

Date: April 9, 2012

Jurisdiction: Fourth Circuit Court of Appeals

Case Type: Trademark, Internet, Key Words, Metadata

Case Status: Appeal from summary judgment

Trial Court: Granted summary judgment against Rosetta Stone dismissing its claims

On Appeal: Affirmed in part and reversed in part