November 15, 2012

As the Internet begins to feature more and more prominently in American consumerism, businesses have found new ways to compete with each other in the ever-evolving digital marketplace. Having determined that Internet users are apparently more likely to click on ads that appear higher up on the search results page, advertisers attempting to capture buyers’ interests can purchase the rights to prime page-positioning from Internet search engines such as Google and Bing. Through online ads, a link to their business appears when certain terms are searched by users.

Bidding on search results is akin to the practice where businesses chose names with letters at the start of the alphabet so they could appear at the beginning of their section in the phone book. But with the Internet, the opportunities for businesses to target a particular audience are much greater.

For example, the owner of Joe’s Watches, a fictional business, could purchase online ad space and tag the ad with keywords to optimize users’ searches such as “watches,” “inexpensive,” and “delivery” so that anyone searching for cheap watch retailers would find his site. Or, if Joe’s biggest competitor is Al’s Watch Barn, Joe might tag his online ad with the keywords “Al’s,” “watch,” and “barn” so that anyone searching for his competitor’s business would stumble across an ad for Joe’s. And, if Joe's sells fake designer watches, he might consider the term “Rolex” as a keyword to entice the unassuming buyer to click on his ad that states, “Buy Rolexes here.”

Unfortunately for Joe, at least two of his keyword searches threaten to run afoul of longstanding trademark law. Should search engines such as Google permit Joe’s to use “Al’s” and “Rolex” in this way? Arguably not if the use is unauthorized and likely to confuse consumers. Perhaps the biggest question is, if Google does permit Joe’s to use these keywords and misdirect consumers with false advertising, can it be held liable for trademark infringement by Al’s Watch Barn or Rolex?

The answer is decidedly “yes,” according to the Fourth Circuit’s recent decision in Rosetta Stone v. Google, Inc. The plaintiff in that case developed its own line of language-learning computer software. It sued Google for trademark infringement (among other things) after learning that Google’s policies concerning the use of trademarks as keywords and ad text allowed businesses to market counterfeit Rosetta Stone software. The trial court granted summary judgment in favor of Google, but the Fourth Circuit reversed that determination with respect to Rosetta Stone’s direct infringement claim among others.

The Fourth Circuit noted that, prior to 2004, Google expressly prohibited the unauthorized use of another’s trademark in keyword searches or in the text of ads itself. When the company determined that 7% of its ad revenue was driven by the sale of items using trademarked keywords in Google ads, it loosened its restrictions, ostensibly to increase sales.

From 2004 to 2009, Google permitted the unauthorized use of trademarks as keywords in online ads but not in the text of the ad itself. This line was drawn due to internal studies that showed that if entities other than the true owners of a mark or brand were permitted to use them in the text of the ad itself, the likelihood of customer confusion was high. Nevertheless, in 2009, Google began permitting even these uses when advertising “genuine goods.” The problem, according to Rosetta Stone, was that counterfeiters were equally able to take advantage of the new policy to masquerade as legitimate resellers and Google, despite being informed of the violations, did not do anything to stop it.

The final chapter on this case, which was sent back to the trial court for further proceedings, has yet to be written. But the Fourth Circuit’s decision represents a cautionary tale for now. Although Internet marketing may be the latest frontier, Rosetta Stone v. Google just goes to show that it is not entirely lawless.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.