Rosetta Stone v. Google: Lost in translation

[stextbox id=”alert”]This is a summary and analysis of the recent (August 2, 2010) decision in Rosetta Stone Ltd. v. Google Inc., 2010 WL 3063152 (E.D. Va.). The case has been added to Jane Coleman‘s highly-praised online treatise Secondary Trademark Infringement; availability of the full 2010 update will be announced shortly.  Below is an adaptation of the integration of Rosetta Stone into the treatise text.[/stextbox]

When courts consider search engine company liability for trademark infringement, whether direct or indirect, they typically focus on the sale of “trademarked” keywords, or search terms, to third parties for use in advertising and directing internet traffic to websites that compete with the trademark owner, as recently demonstrated in Rescuecom v. Google. If such use were itself infringing, contributory liability could arise out of the search engine company’s role in selling the infringing keywords to third parties.

There’s another way, however, in which contributory liability under Inwood could extend to a search engine company—or at least, so it has been argued: If the company knowingly continued to supply its services to an infringing third party.  This was the basis for liability urged unsuccessfully by Tiffany in its suit against eBay.  In the recent decision in Rosetta Stone Ltd. v. Google Inc., the court drew extensive comparisons between the two cases in reaching its decision.

In Rosetta Stone, the plaintiff language-learning company argued both theories of liability against the search engine Google, and the court declined to find contributory liability under either approach.  It granted summary judgment to Google, though in doing so the court limited its ruling to “advertisers selling counterfeit Rosetta Stone products,” leaving the precedential value of the opinion unclear.

The dispute in Rosetta Stone arose out of Google’s “AdWords Propram,” an “auction-style advertising program that displays advertisements to users of Google’s search engine in the form of Sponsored Links.”  With the AdWords Program, advertisers can use Google to cause a Sponsored Link to their website to appear whenever a user searches on Google for certain keywords. Prospective advertisers can select keywords they choose themselves or from a list provided by Google. Lists of keywords provided by Google are “filtered” by Google to remove “trademarked” terms for which Google has received a complaint.

At the time of the litigation, Google’s AdWords policy expressly allowed a given keyword to be used both as a trigger to a Sponsored Link advertisement and as part of the advertisement itself. More fundamentally, Google’s policy permitted not only the brand owner and its authorized licensees, but also other advertisers to include another’s trademark-protected term in their advertisement text under certain, non-infringing conditions.  To address fraud and counterfeiting associated with its AdWords Program, Google had created a “Trust and Safety Team.” The Trust and Safety Team responded to “notices of counterfeit advertisements on Google’s website and [took] down any advertisements confirmed to violate its AdWords Program.”

Notwithstanding Google’s internal policing, Rosetta Stone asserted that some advertisers were able to beat the system and create Sponsored Links that “deceive[d] and misdirect Google’s users to websites that [sold] counterfeit Rosetta Stone products or suggest[ed] to consumers a connection to Rosetta Stone that [did] not exist.” It therefore sued Google, alleging, in addition to direct infringement, both contributory and vicarious trademark infringement.

In support of the contributory liability claim, Rosetta Stone argued the two theories of infringement outlined above, tracking the two-prong test under Inwood. Thus, as to intentional inducement, Rosetta Stone contended that Google’s practice of including brand names as suggested keywords “directly induce[d] advertisers to infringe on Rosetta Stone’s marks.”

Secondly, Rosetta Stone argued that “by allowing counterfeiters to open AdWords accounts and bid on Rosetta Stone Marks, despite receiving notice of their counterfeit status, Google [was] supplying a service to those it [knew] or ha[d] reason to know [were] engaging in trademark infringement.” To demonstrate Google’s knowledge of ongoing infringement, Rosetta Stone pointed to an admission by Google in its Registration Statement filed with the Securities and Exchange Commission acknowledging that as a result of its policy allowing the purchase of trademark-protected keywords, it could be subject to more trademark infringement lawsuits. It pointed furthermore to “approximately 200 instances of Sponsored Links advertising counterfeit Rosetta Stone products[,]” and asserted that even after being notified about the counterfeit websites involved, “Google continued to allow Sponsored Links for other websites by these same advertisers to use the Rosetta Stone Marks as keyword triggers and in the text of their Sponsored Link advertisements.”

While recognizing, per Tiffany v. eBay, that further the application of Inwood liability beyond manufacturers and distributors can extend to service providers who “exercise sufficient control over the infringing product,” the court nonetheless rejected both of Rosetta Stone’s theories of recovery against Google.Applying Inwood, the court reiterated that “To prevail on a contributory trademark infringement claim, a plaintiff must show that the defendant “intentionally induces another to infringe a trademark, or [] continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement…”

As to intentional inducement, the court disagreed with Rosetta Stone’s stance on Google’s program regarding keywords, reasoning that “the mere existence of a tool that assists advertisers in optimizing their advertisements does not, in itself, indicate intent to induce infringement.” Because Google’s policy could be attributed to “good business practice” rather than intent to induce infringement, the court declined to extend contributory liability based on this theory, concluding that “[a] desire for economic gain alone does not translate into contributory trademark infringement.”  Note that the court did not elucidate at this point whether it referred to the infringement arising out of the use of the trademark-protected keywords, or that associated with websites selling counterfeit Rosetta Stone products.

The court drew heavily on the Second Circuit’s reasoning in Tiffany v. eBay to reject Rosetta Stone’s second argument, finding that it failed to show that Google knew or had reason to know that it was supplying its services to parties engaging in trademark infringement.  In Tiffany, “eBay’s generalized knowledge of infringement” on its website was insufficient to impose contributory liability on the online sales site eBay.  Compared to eBay, the court reasoned, Google had been presented with even fewer notices of infringement. It therefore declined to find the “specific” knowledge required by the court in Tiffany. Additionally, the court approvingly noted Google’s own internal policing procedures regarding advertisements for counterfeit goods, acknowledging that “Google [had] worked closely with law enforcement and brand owners to combat counterfeiting because it [knew] that those advertisements [could] create a bad experience for  web users, who Google ultimately reli[ed] on for its business.” Comparing the two cases further, the court observed that like eBay, Google was in no position to determine which websites were selling counterfeit Rosetta Stone products. Rosetta Stone thus failed to convince the court to extend contributory liability based on the “continues to supply” argument under Inwood.

In finding that Rosetta Stone had not met its burden of showing that summary judgment was proper as to the contributory trademark infringement claim, the court’s language left unclear what its conclusions were regarding Google’s liability for the sale of trademark-protected keywords to competitors who were not necessarily counterfeiters. Specifically it found that “no reasonable trier of fact could find that Google intentionally induce[d] or knowingly continue[d] to permit third party advertisers selling counterfeit Rosetta Stone products to use the Rosetta Stone Marks in their Sponsored Link titles and advertisement text.”  If indeed the court intended to limit its holding to direct trademark infringement arising out of counterfeit websites, then it is not clear how or whether its decision would apply to the scenarios presented in the cases of GEICO and American Blind. In these two earlier cases, the courts left open the possibility that search engine operators who use third parties’ trademarks might, in appropriate circumstances, bear contributory liability for trademark infringement arising out of those advertisements.

The court also rejected Rosetta Stone’s claims based on vicarious liability.  Citing the ruling in Perfect 10, the court in Rosetta Stone stated that “absent an agency relationship, vicarious liability can only be imposed if the defendant and infringer “exercise joint ownership or control over the infringing product.”  It denied Rosetta Stone’s claim for vicarious trademark infringement because “Google [had] no control over third party advertisers’ Sponsored Links or their use of the Rosetta Stone Marks in the advertisement text.”  The court also declined to accept Rosetta Stone’s suggestion that Google should be vicariously liable because it had “a legal right to stop the infringing conduct and the ability to do so, but fail[ed] to act.” Distinguishing Perfect 10 because it dealt with allegations of copyright infringement, the court held that “the mere fact that Google has a financial relationship with the alleged infringers [did] not demonstrate Google’s control of the Sponsored Links appearing on its website.

The Rosetta Stone court furthermore noted that Google was not in the business of selling goods, but rather in the business of providing advertising space. It compared Google to “the building owners in New York’s Times Square who [sic] sell space for billboards.” Just as those owners offered prime, high-visibility advertising space, the court reasoned, so did Google’s search engine offer its customers “a great opportunity to display their advertisements.”  The court found that Rosetta Stone had failed to show that Google “direct[ed] or influence[ed] advertisers to bid on the Rosetta Stone Marks” and that consequently it had “not shown that Google control[ed] the appearance and content of the Sponsored Links and the use of the Rosetta Stone Marks in those Links.” It therefore declined to impose vicarious liability on Google.

Note however, that in reaching its decision on the vicarious liability claim, the court in Rosetta Stone appeared to limit its language to infringement arising out of “the Sponsored Links or [advertisers’] use of the Rosetta Stone Marks in the advertisement text.”  In the litigation, as discussed above, the plaintiff had also raised and the court extensively discussed, contributory liability arising out of Google’s actions regarding counterfeit websites using Rosetta Stone’s marks. In its vicarious liability discussion, however, the court did not address Google’s control over infringing websites, but rather of the advertisements themselves, creating a discrepancy between the two outcomes and doubt, as well, as to the precedential value of the opinion.