676 F.3d 144 (4th Cir. 2012)
Rosetta Stone Ltd. began in 1992 as a small, family-owned business that marketed its language-learning software under the brand name "Rosetta Stone."
By 2006, Rosetta Stone had become an industry leader in technology-based language-learning products and online services, and, by January 2010, it had become a publicly traded corporation with 1,738 employees and gross revenues of approximately $252 million. Its products consist of "software, online services and audio practice tools" available in over thirty languages.1
Rosetta Stone owns and uses several registered marks in connection with its products and services: ROSETTA STONE, ROSETTA STONE LANGUAGE LEARNING SUCCESS, ROSETTASTONE.COM, and ROSETTA WORLD.2 From 2003 through 2009, Rosetta Stone spent approximately $57 million for television and radio advertising, $40 million for print media marketing, and $12.5 million to advertise on the Internet. In 2009, Rosetta Stone's marks enjoyed the highest level of brand recognition by far in the domestic language-learning market.
Google operates one of the world's most popular Internet search engines—programs that enable individuals to find websites and online content, generally through the use of a "keyword" search. Google's AdWords advertising platform permits a sponsor to "purchase" keywords that trigger the appearance of the sponsor's advertisement and link when the keyword is entered as a search term. Most sponsors advertising with Google pay on a "cost-per-click" basis, meaning that the advertiser pays whenever a user of Google's search engine clicks on the sponsored link.
Prior to 2004, Google's policy precluded both the use of trademarks in the text of an advertisement and the use of trademarks as keywords upon request of the trademark owner.3 In 2004, Google loosened its trademark usage policy to allow the use of third-party trademarks as keywords even over the objection of the trademark owner.4 Google, however, continued to block the use of trademarks in the actual advertisement text at the request of a trademark owner.5 Finally, in 2009, Google changed its policy to permit the limited use of trademarks in advertising text in four situations: (1) the sponsor is a reseller of a genuine trademarked product; (2) the sponsor makes or sells component parts for a trademarked product; (3) the sponsor offers compatible parts or goods for use with the trademarked product; or (4) the sponsor provides information about or reviews a trademarked product. Google's policy shift came after it developed the technology to automatically check the linked websites to determine if the sponsor's use of the trademark in the ad text was legitimate.6
Rosetta Stone began advertising in connection with Google's website and online services in 2002 and has continued to do so since that time. According to Rosetta Stone, between September 3, 2009, and March 1, 2010, it was forced to report 190 instances to Google in which one of Google's sponsored links was marketing counterfeit ROSETTA STONE products.7 Rosetta Stone presented evidence that from April 1, 2009, through December 9, 2009, Rosetta Stone's customer care center received 123 complaints "from individuals who ha[d] purchased pirated/counterfeit software believing the software to be genuine Rosetta Stone product," J.A. 5427, and Rosetta Stone received 139 additional complaints from December 9, 2009, through March 8, 2010. The record includes the deposition testimony of five consumers who attempted to buy a ROSETTA STONE software package via the Internet in 2009 after Google began permitting use of ROSETTA STONE and other trademarks in the text of the sponsored links.
Rosetta Stone filed this action against Google, asserting several claims: direct trademark infringement under the Lanham Act, see 15 U.S.C. § 1114(1)(a); contributory trademark infringement; (3) vicarious trademark infringement; (4) trademark dilution, see 15 U.S.C. § 1125(c)(1); and (5) unjust enrichment. Google filed a motion for summary judgment as to all claims except unjust enrichment.8 As to that claim, Google moved to dismiss.9 The district court granted Google's motion for summary judgment on all claims and granted the motion to dismiss the unjust enrichment claim.10 Rosetta Stone appealed.11 For the reasons that follow, we affirm the district court's order with respect to the vicarious infringement and unjust enrichment claims; however, we vacate the district court's order with respect to the direct infringement, contributory infringement and dilution claims and remand these claims for further proceedings.
Whether Google's policy of permitting advertisers to use Rosetta Stone's marks as keywords in the AdWords program and in the text of sponsored links creates a genuine issue of material fact on likelihood of consumer confusion for direct trademark infringement?
To establish trademark infringement under the Lanham Act, a plaintiff must prove that the defendant used the mark in commerce without authorization in connection with the sale or advertising of goods and that the use is likely to confuse consumers. 15 U.S.C. § 1114(1)(a). Courts consider nine factors including the defendant's intent, actual confusion, and the sophistication of the consuming public.12
Yes. The ESTABLISHED FACTS establish that after Google's 2009 policy change five deposed customers clicked sponsored links they believed were authorized resellers of genuine ROSETTA STONE products, received defective counterfeit software, and contacted Rosetta Stone for support believing it was genuine. Rosetta Stone received 123 complaints from April to December 2009 and 139 more through March 2010 from customers who purchased counterfeit software believing it genuine. An internal Google study showed high confusion rates when trademarks appeared in ad text.13
Dr. Van Liere's survey yielded a 17 percent net confusion rate. These facts create triable issues on intent, actual confusion, and consumer sophistication.
The district court's grant of summary judgment on the direct infringement claim is vacated and the claim is remanded for further proceedings.14
Whether the functionality doctrine shields Google from liability for its use of Rosetta Stone's marks as keywords in the AdWords program?
The functionality doctrine prohibits trademark protection for functional product features that are essential to the use or purpose of the article or affect its cost or quality. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n.10 (1982).15 The doctrine preserves the boundary between trademark and patent law.16
No. The ESTABLISHED FACTS show that Rosetta Stone uses its registered marks as classic source identifiers for language-learning software and services. Nothing about the words ROSETTA STONE is essential to the functioning of those products. The functionality doctrine does not apply to Google's use of the marks as keywords because the marks are nonfunctional as used by Rosetta Stone.
The district court's alternative holding based on the functionality doctrine is reversed.17
Whether Rosetta Stone presented sufficient evidence to create a genuine issue of material fact on Google's contributory trademark infringement liability?18
Contributory trademark infringement liability arises when a defendant intentionally induces another to infringe or continues to supply its product or service to one whom it knows or has reason to know is engaging in trademark infringement. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854 (1982).
Yes. The ESTABLISHED FACTS show that between September 2009 and March 2010 Rosetta Stone notified Google of approximately 200 instances of sponsored links advertising counterfeit ROSETTA STONE products. Google continued to allow other sponsored links by the same advertisers to use the marks as keyword triggers and in ad text. This resulted in 356,675 displays of infringing links.19 This evidence creates a genuine issue whether Google continued to supply its services to known infringers.
The district court's grant of summary judgment on the contributory infringement claim is vacated and the claim is remanded for further proceedings.20
Whether Rosetta Stone presented sufficient evidence to create a genuine issue of material fact on Google's vicarious trademark infringement liability?21
Vicarious trademark infringement liability requires a finding that the defendant and the infringer have an apparent or actual partnership, authority to bind one another in transactions with third parties, or exercise joint ownership or control over the infringing product.22 Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1150 (7th Cir. 1992).23
No. The ESTABLISHED FACTS contain no evidence that Google acts jointly with any advertisers to control the counterfeit ROSETTA STONE products themselves.24 There is also no evidence that Google and the counterfeiters have a partnership or authority to bind one another.
The district court's grant of summary judgment on the vicarious infringement claim is affirmed.
Whether Rosetta Stone sufficiently pleaded a claim for unjust enrichment under Virginia law arising from Google's keyword auctions?25
A claim for unjust enrichment under Virginia law requires the plaintiff to show that it conferred a benefit on the defendant, the defendant knew of the benefit and should reasonably have expected to repay the plaintiff, and the defendant accepted or retained the benefit without paying for its value. Schmidt v. Household Finance Corp., 661 S.E.2d 834, 838 (Va. 2008).26
No. The ESTABLISHED FACTS show that Rosetta Stone alleged Google knowingly used the goodwill in the marks to derive revenues through keyword auctions.27 Rosetta Stone failed to allege facts supporting that Google should reasonably have expected to pay for the use of marks in its keyword query process.28 Rosetta Stone also did not allege that Google pays any other mark holder for such use.29
The district court's dismissal of the unjust enrichment claim is affirmed.30
Whether Rosetta Stone presented sufficient evidence to create a genuine issue of material fact on likelihood of dilution by blurring or tarnishment of its famous marks?31
To establish a prima facie trademark dilution claim under the FTDA, the plaintiff must show that it owns a famous distinctive mark, the defendant has commenced using a mark in commerce that is diluting the famous mark, the similarity between the marks gives rise to an association, and the association is likely to impair the distinctiveness of the famous mark or harm its reputation.32 Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 507 F.3d 252, 264-65 (4th Cir. 2007).33
Yes. The ESTABLISHED FACTS show that five individuals purchased counterfeit products believing the sponsored links were authorized resellers. Rosetta Stone received hundreds of complaints from customers who purchased counterfeit software believing it genuine. There is evidence of decreased brand equity after Google's policy changes.34 This evidence creates a genuine issue on likelihood of dilution by blurring or tarnishment.
The district court's grant of summary judgment on the dilution claim is vacated and the claim is remanded for further proceedings.
Whether Google's use of Rosetta Stone's marks qualifies for the fair use defense to trademark dilution under the FTDA?35
The FTDA excludes from dilution liability any fair use, including nominative or descriptive fair use, of a famous mark by another person other than as a designation of source for the person's own goods or services, provided the use is in good faith. 15 U.S.C. § 1125(c)(3)(A).36
No. The ESTABLISHED FACTS show that Google used the ROSETTA STONE marks in a brand marketing strategy appearing in the text of sponsored links. Google continued to allow known infringers to bid on the marks.37 This creates a question of fact whether Google used the marks as a designation of source for its own services and whether the use was in good faith.38
The district court's grant of summary judgment on the fair use defense to dilution is vacated and the claim is remanded for further proceedings.
Whether Rosetta Stone's marks were famous before Google commenced its allegedly diluting use in 2004 for purposes of the FTDA claim?39
Under the FTDA, the owner of a famous mark may obtain relief against a person who, at any time after the owner's mark has become famous, commences use of a mark in commerce that is likely to cause dilution. 15 U.S.C. § 1125(c)(1). Fame is measured at the time of the defendant's first diluting use.40
No. The ESTABLISHED FACTS show that Google's use of the marks as keyword triggers began at least as early as 2004.41 Survey evidence indicated only 2 percent unprompted and 13 percent prompted recognition in 2005.42 This requires factual determination on remand whether the marks were famous before that first use.43
The district court's ruling on the fame element is vacated and the issue is remanded for further proceedings.44