Fourth Circuit Speaks Rosetta Stone's Language in Google Suit

A federal appeals court in Virginia on Monday revived a software company’s trademark infringement claims against Google Inc., allowing the closely watched intellectual property dispute to move forward to trial.

The U.S. Court of Appeals for the Fourth Circuit said in a unanimous three-judge ruling that language software maker Rosetta Stone Ltd. can proceed with its suit against Google over whether an Internet advertising program creates brand confusion.

Rosetta Stone sued Google in 2009 in Alexandria federal district court, saying the company’s AdWords advertising program unlawfully allowed the use of trademarks in the text of ads that accompany Google search results. Rosetta Stone’s lawyers said Internet consumers were purchasing counterfeit Rosetta Stone software.

“We are very pleased with the opinion, and we think it is an important precedent,” said Clifford Sloan, the Skadden, Arps, Slate, Meagher & Flom partner who argued for Rosetta Stone in the Fourth Circuit.

The 47-page appellate court ruling, written by Chief Judge William Traxler Jr., is the second litigation setback for Google in as many weeks.

The Fourth circuit’s decision comes on the heels of a defeat in a dispute in the U.S. Court of Appeals for the Second Circuit in a copyright dispute. In that case, the appeals court revived claims that Google’s YouTube site violated copyright claims of Viacom programming.

Margret Caruso, a partner in the Redwood Shores, Calif., office of Quinn Emanuel Urquhart & Sullivan, argued for Google in the Fourth Circuit. Caruso was not immediately reached for comment Monday afternoon. A Google representative also was not immediately reached.

Companies buy advertisements to run with a Google search engine’s results, and Google allows sponsors to “purchase” certain keywords that trigger the inclusion of the sponsor’s advertisement.

In 2009, Google began allowing the limited use of trademarks in advertising text, the appeals court said. Google policy had earlier prohibited the use of trademarks in the text of advertising.

Google, the appeals court said, anticipated a boost in revenue from the change in addition to increased legal wrangling with owners of trademarks.

Rosetta Stone sued on claims that included, among others, direct trademark infringement. The company’s attorneys presented survey and anecdotal evidence that would-be customers were buying fake Rosetta software via Google advertisements.

U.S. District Judge Gerald Lee in Alexandria ruled for Google on a summary judgment motion, saying that there was no likelihood of confusion and that the “functionality doctrine” shielded the company from liability. The appeals court reversed Lee.

“[W]e conclude that a reasonable trier of fact could find that Google intended to cause confusion in that it acted with the knowledge that confusion was very likely to result from its use of the marks,” Traxler wrote.

The Fourth Circuit also refused to allow Google to rely on the so-called “functionality doctrine,” which addresses the division between patent and trademark law. The appeals court said Lee determined that trademarked words — such as “Rosetta Stone” — are “‘functional’ when entered into Google’s AdWords program.”

Reed Smith partner Brad Newberg, who filed an amicus brief in support of Rosetta Stone, said in an e-mail that the Fourth Circuit decision prohibiting the functionality defense was a big win for trademark owners as a whole.

“This was the finding that was perhaps most troublesome to the trademark community, and thankfully, the Fourth Circuit made very clear that the functionality doctrine cannot apply when discussing the use that defendant makes of the trademark,” Newberg said.

Mike Scarcella can be contacted at [email protected].

This article originally appeared in The National Law Journal.