Rosetta Stone ruling leaves Google exposed

Google has suffered a setback in the keywords dispute with Rosetta Stone after a US court overturned much of a decision favouring the Internet powerhouse.

The US Court of Appeals for the Fourth Circuit largely disagreed with a Virginia district court, which had said Google did not infringe Rosetta Stone’s trademarks by selling them as keywords that triggered sponsored links.

Rosetta Stone, which provides language-learning software, filed a lawsuit in 2009 for trademark infringement. In August 2011, the US District Court for the Eastern District of Virginia ruled in favour of Google and dismissed all of Rosetta Stone’s trademark claims.

But on April 9, 2012, the Fourth Circuit remanded three of those claims: direct trademark infringement, contributory infringement and trademark dilution. The remaining two are vicarious infringement and unjust enrichment.

The functionality doctrine, which prevents trademark protection from extending to the functional features of a product or packaging, was the central area of disagreement. The district court said keywords containing trademarks were functional when entered into Google’s search engine, partly because they provided an indexing function for Google.

But the appeals court disagreed, saying the functionality doctrine “simply” did not apply. It said the district court failed to consider whether the Rosetta Stone marks were functional as the company used them.

Nick Rose, a partner at Field Fisher Waterhouse LLP, said: “This is good news for trademark owners because it means that infringers will not be able to fall back on the functionality defence where they claim that their use of someone else’s well-known trade mark is useful or beneficial in some way, or allows their business to operate better, thereby allowing them to avoid liability.”

Concerning trademark dilution, the appeal court said the district court had used the wrong legal standard. It said only a likelihood of dilution was required—not an actual economic loss or reputational injury, which had been relied on.

The case has been remanded back to the district court, which must reassess Rosetta Stone’s claims over direct and contributory infringement, as well as its dilution claim.