Google Gets Complete Win in Rosetta Stone Case

By Eric Goldman

Rosetta Stone Ltd. v. Google Inc., 1:09-cv-00736-GBL-TCB (E.D. Va.). Opinion granting Google’s motion to dismiss filed August 3, 2010, 2010 WL 3063152. Order granting Google’s motion to dismiss the unjust enrichment claim filed August 2, 2010, 2010 WL 3063857.

Back in late April, many of us were eagerly awaiting the impending trial in Rosetta Stone v. Google, which was going to be the first trial in a trademark owner v. search engine keyword advertising case since the GEICO v. Google case in 2004. Then, just days before the scheduled trial, the judge granted Google’s motions to end the case, which negated the scheduled trial. However, because the case had been moving too fast in the Rocket Docket, the judge made that ruling without providing any written explanation of why. For about 3 months, we’ve been wondering how good a win Google got.

The opinions are finally out, and we’ve learned that Google got a complete win, in that the judge endorsed Google’s basic business structure. As I explore below, the specifics are a little sketchy (the judge obviously cut some analytical corners), but the opinion’s overall tenor is that the judge completely rejected Rosetta Stone’s fundamental contention that Google was doing something wrong by making money off Rosetta Stone’s trademarks. Because Rosetta Stone’s core liability paradigm failed to convince the judge, all of opinion’s detailed reasoning is less essential.

Unfortunately for Google, the opinion contains several minor doctrinal errors that could attract attention from an appellate court. That makes this ruling vulnerable on appeal. I could see why Rosetta Stone would choose to appeal the case to fix those errors–although even a Fourth Circuit reversal would be only marginally helpful to Rosetta Stone if the case gets remanded to the same judge, who clearly isn’t going to find for Rosetta Stone.

Irrespective of subsequent proceedings in this case, for now this opinion could prove extremely useful to Google in trying to finish off the half-dozen remaining trademark lawsuits against AdWords (and thwarting new cases). In particular, I expect Google will tout two of the key rulings in this opinion–summary judgment on the likelihood of consumer confusion, and Google’s eligibility for the trademark functionality defense. If other judges accept either of these two rulings, Google might quickly clear its AdWords litigation docket.

A deeper look at some of the judge’s discussion:

* the judge grants Google summary judgment on the likelihood of consumer confusion question. The court says “no reasonable trier of fact could find that Google’s practice of auctioning Rosetta Stone’s trademarks as keyword triggers to third party advertisers creates a likelihood of confusion as to the source and origin of Rosetta Stone’s products.” This is just the latest defense win on the factual question consumer confusion attributable to keyword advertising, joining such recent cases as College Network v. Moore and Fair Isaac v. Experian (both trademark owner v. advertiser lawsuits). As precedent builds that trademark owners aren’t likely to win on the central consumer confusion question, we might see a categorical reduction in AdWords-related litigation.

* In reaching this conclusion, the court rejects several typical plaintiff arguments:

– on the question of Google’s intent, the court rejects that an intent to profit is sufficient, even if Google liberalized its trademark policy to goose its revenues. Instead, the judge requires evidence of palming off by Google–which keyword ad sales clearly are not.

– on the question of actual confusion, Rosetta Stone offers the testimony of 5 allegedly confused individuals. The court says this de minimis confusion out of the 100M ad impressions delivered on searches for Rosetta Stone’s trademarks. Further, those 5 testimonials apparently all relate to counterfeit Rosetta Stone purchases, and the court attributes those sales to confusing web vendors and not Google’s role in the keyword advertising of those sites. Other consumer complaints in Rosetta Stone’s logs weren’t necessarily attributable to keyword advertising. Finally, the court rejects the plaintiff’s survey on whether consumers thought Rosetta Stone “endorsed” the ads, saying endorsement confusion isn’t the same as source confusion. I’m not sure about that distinction, but clearly the court wasn’t interested in the survey.

– on the question of consumer sophistication, a language learning system is an expensive and complicated purchase, which makes consumers more cautious.

– the court says the parties didn’t contest the other likelihood of consumer confusion factors, although it’s unclear how many of those other uncontested factors favored Rosetta Stone. Thus, the court does a truncated multi-factor analysis, only looking at the 3 contested factors, saying they all weigh in favor of Google, and then finding this supports SJ for Google. I could see an appellate court wanting to look more closely at the other undiscussed factors.

* The court’s most novel ruling is that Google’s use of trademarks as keyword ad triggers qualifies for the trademark functionality doctrine. Typically, the functionality defense arises only in trade dress cases. The functionality defense in the keyword advertising context failed in the 9th Circuit’s Playboy v. Netscape ruling, which this court surprisingly doesn’t cite. The court says that the trademarked keyword triggers “have an essential indexing function because they enable Google to readily identify in its database relevant information in response to a web user’s query.” This is correct, of course, but doctrinally I think this conclusion better fits into a doctrinal conclusion that Google isn’t using the trademark as a mark. (See more on this point in my Deregulating Relevancy article). Nevertheless, Google and other keyword advertising sellers will be thrilled if other courts accept the functionality defense. I expect most other courts will address the 9th Circuit’s Netscape ruling before doing so.

* Google’s keyword suggestion tool does not constitute inducement for contributory trademark infringement. The court says it’s smart business practices, not inducement, for Google to upsell its advertisers. Per Tiffany v. eBay, Google also lacks the requisite scienter because it contractually prohibits counterfeiter ads, honors takedown notices, and has a Trust & Safety team looking for problems. Plus, like eBay, Google had no way of confirming if advertisers were selling legitimate or counterfeit goods.

* The court uses a goofy legal standard for vicarious trademark infringers, which it says can occur if “Google has joint ownership or controls the allegedly infringing advertisements appearing on its site.” This standard is WRONG. Unlike vicarious copyright infringement, vicarious trademark infringement is rooted strictly in agency law. So the vicarious infringer normally requires a principal/agency-like control over the direct infringer’s conduct. Here, the court devolves the vicarious trademark infringement test into a bastardized version of the vicarious copyright infringement test. This is a significant doctrinal error. Nevertheless, it proves to be harmless for Google because “Rosetta Stone has not shown that Google controls the appearance and content of the Sponsored Links and the use of the Rosetta Stone Marks in those Links.”

* I’m no fan of the dilution doctrine, but this court’s rejection of the dilution claim was bizarre. Google wins the dilution claim because it “does not sell language learning software,” i.e., Google wasn’t using the trademark as an identifier of its own products. Huh? The court also says blurring did not occur because Rosetta Stone’s brand awareness grew during the period of time Google is selling keyword-triggered ads. Huh? This confuses correlation with causation. What would Rosetta Stone’s brand awareness have been without the keyword ads? We have had very few rulings addressing keyword advertising and dilution (this uncited 2007 ruling is the only one that comes immediately to mind), so this conclusion on dilution could be a fairly influential ruling as well.

* In a separate opinion, the judge rejected Rosetta Stone’s unjust enrichment claim on a motion to dismiss. It’s a little odd to be dealing with a pending motion to dismiss when the case was on the brink of trial, but that’s the consequence of racing too fast in the Rocket Docket. The court rejects the unjust enrichment claim for failure to satisfy the requisite claim elements–basically, because this is not a quasi-contract situation where Google made an implied promise to pay Rosetta Stone. As I mentioned earlier, the court otherwise rejected Rosetta Stone’s basic contention that Google has money it doesn’t deserve. Interestingly, the court also rejects the unjust enrichment on 47 USC 230 grounds, basically treating the unjust enrichment claim as an attempt to hold Google liable for third party conduct. I didn’t totally follow the judge’s reasoning, and frankly I’m not sure 230 is the right basis to squelch the unjust enrichment claim. Nevertheless, unjust enrichment claims are almost always junky/throwaway claims, so a 230 immunity would be an effective way to clean them up fast.

In a mostly unrelated development, today Google liberalized its AdWords trademark policy in Europe. I’ll blog on that soon.

The roster of pending AdWords cases (I most recently thoroughly double-checked the status of these cases on June 6, 2010):

* Ezzo v. Google

* Rescuecom v. Google

* FPX v. Google

* John Beck Amazing Profits v. Google and the companion Google v. John Beck Amazing Profits

* Stratton Faxon v. Google

* Soaring Helmet v. Bill Me

* Ascentive v. Google

* Jurin v. Google 1.0 (voluntarily dismissed), succeeded by Jurin v. Google 2.0

* Rosetta Stone v. Google

* Flowbee v. Google

* Parts Geek v. US Auto Parts

* Dazzlesmile v. Epic