RICHMOND, Va. (CN) - Rosetta Stone, the popular language-learning program, can sue Google over keyword advertising, the 4th Circuit ruled.
Monday's 47-page decision partially vacates the decision of a Virginia federal judge, who ruled against Rosetta Stone's trademark claims in 2010.
Though the three-judge appellate panel upheld the dismissal of the vicarious trademark infringement and unjust enrichment claims, it said the software company may have a case for direct trademark infringement, contributory infringement and dilution.
In 2009, Google changed its policy regarding keywords that advertisers can use to drive traffic to their sites through the AdWords program. Though Google had initially forbade advertisers from using trademarks as keywords, if the trademark owner objected, the new policy permitted four situations where the practice would be permitted.
Google said it made the change because it had developed software that determined whether an advertiser had used the trademark phrases legitimately.
Rosetta Stone claims, however, that it has been "plagued with counterfeiters since Google announced its policy shift in 2009." It has allegedly reported 190 instances in which a Google-sponsored link marketed counterfeit Rosetta Stone products.
The court notes that Google expected the policy change to create an uptick both in profits and in litigation from trademark owners.
Google sells the same keywords to multiple companies, and multiple "sponsored links" appear on the website when a consumer enters a search term. Companies pay more to have their sponsored link listed higher.
In pretrial briefing, Google did not dispute that Rosetta Stone would exceed the summary-judgment barrier on all the elements of trademark infringement except the likelihood of confusion, which is necessary to prove infringement. The District Court dismissed Rosetta's claim based on three of nine factors required to establish consumer confusion, including defendant's intent, actual confusion and the consuming public's sophistication.
"Rosetta Stone contends that Google's policies concerning the use of trademarks as keywords and in ad text created not only a likelihood of confusion but also actual confusion as well, misleading Internet users into purchasing counterfeit Rosetta Stone software," according to the three-judge appellate panel.
Five consumers gave deposition testimony that they bought counterfeit Rosetta Stone software from a sponsored link because they were mislead about the company's affiliation with Rosetta Stone. In each case, the counterfeit software did not work.
In a customer-confusion survey, Rosetta Stone's economic consultant expert Kent Van Liere concluded that 17 percent "of consumers in the relevant population are likely to be confused as to the origin, sponsorship or approval of the 'sponsored links' that appear on the search results page."
Based on this evidence, "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," Judge William Traxler wrote for the court.
The "evidence recited by the district court is sufficient to establish a question of fact as to whether Google continued to supply its services to known infringers," he added.
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