Google AdWords: A Tough Sell?

y Daniel J. Klein

Google’s AdWords program is no stranger to legal controversy, having been the subject of several trademark infringement lawsuits in the past.

The latest chapter in this controversy involves the educational language software giant Rosetta Stone. The company sued Google for trademark infringement for selling the keyword “ROSETTA STONE” to Rosetta Stone’s competitors through Google’s AdWords platform. Rosetta Stone argued that this created a likelihood of confusion in violation of federal trademark law.

Rosetta Stone’s lawsuit was originally dismissed on Google’s motion for summary judgment in 2010 by a federal district court judge in the Eastern District of Virginia. The district court ruled that no reasonable trier of fact could find that Google intended to create a likelihood of confusion.

Then in August, the Fourth Circuit Court of Appeals reversed the district court’s decision as to Rosetta Stone’s claims for direct and contributory trademark infringement and dilution. The decision was a significant turning point, as it marks the first time a federal court of appeals has ruled that Google’s AdWords program could infringe a trademark by creating a likelihood of confusion. The Fourth Circuit cited evidence that Google’s AdWords Policy permitted customers to use their competitors’ trademarks in advertisement texts. Further, Google allows this despite the results of its own internal study which reveals significant source confusion when trademarks were included in the title or body of advertisements. The Fourth Circuit concluded 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.”

In another significant development, the Fourth Circuit clarified the extent to which the “functionality doctrine,” which was invoked by Google, applies to word marks. The functionality doctrine provides a defense to infringement when a trademark is applied as a useful feature of a product. Notable examples of functional trademarks from case law include the shape of springs on a portable road construction sign, seeTrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001), and the pentagonal shape of a loudspeaker enclosure, seeIn re Bose Corp, 772 F.2d 866 (Fed. Cir. 1985).

The district court, in finding for Google on its functionality defense, focused on whether the use of Rosetta Stone’s mark made Google’s AdWords product more functional. However, the Fourth Circuit rejected this approach, ruling that the proper focus for the functionality doctrine is whether the mark is functional as used by the mark owner. The Fourth Circuit’s ruling effectively vitiates many functionality claims involving word marks because they are rarely used by trademark owners as product features.

Rosetta Stone will now have a second chance to prove its case at trial before the district court in the Eastern District of Virginia (unless the parties decide to settle). While the outcome of this case remains uncertain, the Fourth Circuit’s decision may present a serious challenges for Google going forward. With a path now cleared for plaintiffs to survive summary judgment, a significant hurdle in any lawsuit, many trademark owners whose marks were sold to competitors through AdWords may soon bring similar actions against Google.