Not so fast, says the 4th Circuit.  Many lawyers and bloggers had assumed Google would win its case in which Rosetta Stone alleged that Google was contributing to the infringement of Rosetta Stone’s trademarks . . . but Google mostly lost on appeal.

The Rosetta Stone case involves use of “adwords” – Google adwords are purchased and give the user the right to place sponsored advertising on the front page and other pages, when a user searches for the term that was purchased.  If the term is a trademark, often the advertising links to sites that are either not authorized to sell the goods, sell infringing goods, or sell competing goods.

In Rosetta Stone, Ltd. v Google, the 4th Circuit held that Rosetta Stone’s claims for direct trademark infringement, contributory trademark infringement and dilution arising from Google’s adword program could proceed to trial.

On direct infringement, the Court “assume[d] […] that Google’s policy permitting advertisers to use Rosetta Stone’s marks as keywords in the AdWords program and to use Rosetta Stone’s marks in the text of advertisements constituted an unauthorized use “in commerce” and “in connection with the sale, offering for sale, distribution, or  advertising of any goods or services.”  That left only likelihood of confusion to be addressed.  In reviewing the lower court decision, the 4th Circuit agree that not all of the 9 factors must be used, particularly where the competing use is nominative – that is, where the use actually identifies the trademark owners’ goods.  So, it focused on three factors – intent, actual confusion, and sophistication of the consuming public.

Evidence was presented that showed that Google believed that allowing use of trademark Adwords might cause some confusion (based in part on Google’s change in policy that allowed trademarks also to be included in titles and on ads – something it did not permit until 2009), and this was enough to overcome the intent element weighing solely in favor of Google as the lower court had found.

On actual confusion, evidence was presented both anectodally – by consumers who were confused, and by survey evidence.    Google itself had done internal confusion studies, that showed 94% of users who saw ads with trademark terms in them were confused at least once.

Finally on the sophistication of the consuming public element, the 4th Circuitheld that the lower court wrongfully rejected evidence of lack of sophistication based solely on price (the product is expensive) noting that “[t]he evidence also includes an internal Google study reflecting that even well-educated, seasoned Internet consumers are confused by the nature of Google’s sponsored links and are sometimes even unaware that sponsored links are, in actuality, advertisements.”

Hence, after rejecting other defenses such as the functionality defense, the direct infringement claim was permitted to go to trial.

On the claim of contributory infringement, Google lost because evidence was presented that Rosetta Stone notified Google that known infringers were purchasing adwords for sponsored links – however, Google never terminated such users.

Finally, Google lost on the dilution claim, largely because the lower court had applied a defense (the defense that the defendant must have used the mark on its own goods and service and such use must have been fair), as an affirmative element of the claim.  If anything on this point, which Google might win at trial, the case stands for the proposition that a plaintiff need not plead or prove the absence of statutory defenses, as a part of its claim.

If Google allows this to go to trial (unlikely) and loses, it could be subject to substantial damages, and worse, could open the door to many other claims by other trademark holders.

For our clients, this decision bolsters the ability to assert that Google might be directly and contributorily infringing a trademark when it allows adwords and advertising to be placed on its site that causes customer confusion.  Not every use of a trademark term will do so, but if a trademark owner can obtain such information on confusion, this case would support at least a notice and demand to Google to cease such use.  In addition, this case certainly supports an active trademark protection effort – to police misuse of trademarks and report them to Google (and any other search system provider) as the failure to remove such infringing content can constitute indirect contributory infringement.

For our clients that provide such portals and search services, this case essentially reinforces what our advice has been all along – that you must build into the system a means to remove allegedly infringing content upon notice.  While there is no equivalent DMCA protection for trademarks, the failure to remove infringing content after notice can lead to a lawsuit like this.

For more information, contact Mike Oliver.