At the heart of the Rosetta Stone v Google lawsuit is whether the sale of trademarks as search keywords for sponsored links makes Google liable for trademark infringement. Recently, the United States Court of Appeal for the Fourth Circuit in Rosetta Stone Ltd v Google, Inc reversed a significant portion of a Virginia district court decision and remanded several issues for further proceedings.

Google’s AdWords platform allows an advertiser to “bid” on the right to have an advertisement link displayed with search results for a word or combination of words relevant to the advertiser’s business. Rosetta Stone is accusing Google of trademark infringement on the basis that Google is “selling” trademarked words and phrases, such as “Rosetta Stone” and “The Fastest Way to Learn a Language …”, to advertisers on Google pages and the result pages are confusing to consumers. A full list of registered Rosetta Stone trademarked phrases may be found on the USPTO Trademark Electronic Search System (TESS) website. The Google AdWords platform determines where advertisements are placed by assigning an “Ad Rank” based on factors such as an advertiser’s maximum monetary bid and “quality score” metrics. A summary of how the AdWords platform works may be found here.

Rosetta Stone asserted several claims in the district court: 1) direct trademark infringement; 2) contributory trademark infringement; 3) trademark dilution; 4) vicarious trademark infringement; and 5) unjust enrichment. The district court disposed of the case in Google’s favour by summary judgment and dismissed the unjust enrichment claim. The Court of Appeal, however, vacated the district court’s summary judgment with respect to direct infringement, contributory infringement and dilution claims.

Overall, in vacating the district court’s summary judgment on 3 claims, the Court of Appeal remanded issues for further proceedings by objecting to the lower court decision on doctrinal and procedural points. On several points of evidence, the Court of Appeal held that the testimony and evidence considered in the district court could not sustain the summary judgment and that there was evidence to establish several questions of fact. On the claim of trademark dilution, the Court of Appeal found that the lower court erred by incorrectly placing a burden of proof on Rosetta Stone to demonstrate that Google was using trademarks as a source identifier for Google’s own products. The Court of Appeal also found the lower court omitted a “fair use” analysis for trademark infringement.

As the Court of Appeal reviewed evidence and testimony from the lower court, several interesting events were brought to light. Firstly, the court considered the Google AdWords policy changes that occurred over the years. The record shows that prior to 2004, trademarks as keyword search triggers for unauthorized advertisers were not allowed. In 2004, restrictions were loosened. The court heard evidence, however, that a Google study at the time (in 2004) suggested that the unrestricted use of trademarks in the text of an advertisement might confuse Internet users. Despite these finding, in 2009, restrictions were further loosened, allowing trademark terms to be used in ads without the approval of a trademark owner. Google’s research showed that about 7% of its total revenue was driven by trademarked keywords. The court heard testimony that Google’s policy changes were revenue driven. Secondly, the court heard testimony from 5 consumers who, in 2009, mistakenly purchased counterfeit software from links on a Google search page. The consumers mistakenly believed the software to be affiliated or authorized by Rosetta Stone for distribution.  Thirdly, the court heard evidence that Google purportedly allowed known infringers and counterfeiters to bid on Rosetta Stone trademarks as advertising search keywords. On many points of testimony, the Court of Appeal concluded there to be sufficient evidence to create questions of fact that cannot sufficiently be resolved by summary judgment.

This case is important for a few reasons. To start, it is one of the first United States appellate court opinions on a “trademark owner v. search engine keyword advertiser” case addressing whether trademark infringement liability may arise. Secondly, a decision against Google could impact the future of Google’s AdWords platform and the Internet keyword search advertising business model. On the other hand, if the court ends up deciding in favour of Rosetta Stone, the result could spur many more cases over keyword advertising. Any company with a website could assert that customers are being mislead by Google’s AdWords program and bring similar lawsuits.

On his Technology & Marketing Law Blog, Professor Goldman, Associate Professor of Law at Santa Clara University School of Law, criticizes the Court of Appeal decision as failing to provide a judgment based on “the big picture normative conclusion that keyword ad sales shouldn’t violate trademark law.” As the Court of Appeal remanded the case for further proceedings, we’ll need to wait at least a few more years for the landscape to settle on whether keyword advertisement sales violate trademark law.

Stephen Lam is a JD candidate at Osgoode Hall Law School.