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Fourth Circuit Rejects Use of Functionality Doctrine As a Defense to Trademark Infringement Based on Alleged Infringer’S Use of the Mark

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Fourth Circuit Rejects Use of Functionality Doctrine As a Defense to Trademark Infringement Based on Alleged Infringer’S Use of the Mark APRIL 18, 2012 Fourth Circuit rejects use of functionality doctrine as a defense to trademark infringement based on alleged infringer’s use of the mark By Gina M. McCreadie In Rosetta Stone Ltd. v. Google, Incorporated, No. 10-2007 (4th Cir. Apr. 9, 2012), the Fourth Circuit rejected use of the functionality doctrine as a defense in a trademark infringement claim stemming from the use of a trademark as an keyword in Google’s AdWord advertising program. Contrary to the district court’s ruling, the Fourth Circuit ruled that the functionality doctrine is applicable only where the trademark owner’s use of the mark is functional, and any functional use of the mark made by the alleged infringer has no bearing on the analysis. Rosetta Stone offers technology-based language-learning products and online services under several ROSETTA STONE marks. In 2002, Rosetta Stone began advertising its products using Google’s AdWord advertising program. Google’s AdWord program allows a sponsor to “purchase” a keyword, which triggers display of the sponsor’s advertisement as a “Sponsored Link” when the purchased keyword is used as a search term in Google’s search engine. Beginning in 2004, Google’s trademark usage policy changed to allow a sponsor to use a trademark as a keyword. In 2009, Google changed its policy to allow use of a trademarked term in advertising text in certain situations. Over a six-month period beginning in September 2009, Rosetta Stone claims that it reported to Google nearly 200 instances in which a Sponsored Link was marketing counterfeit ROSETTA STONE products. Rosetta Stone sued Google for trademark infringement, contributory and vicarious liability trademark infringement, trademark dilution, and unjust enrichment, claiming, among other things, that Google’s trademark usage policy creates a likelihood of confusion by misleading Internet users into purchasing counterfeit ROSETTA STONE products. The parties filed cross-motions for summary judgment. With respect to the trademark infringement claim, the district court entered summary judgment against Rosetta Stone, finding that Rosetta Stone could not show likelihood of confusion as a matter of law and, in the alternative, Google was protected from liability based on the “functionality” doctrine. Specifically, the district court held that Google’s use of the ROSETTA STONE marks as keywords constituted functional, and thus non-infringing, use of the marks. The Fourth Circuit reversed, holding that the functionality doctrine has no application in this case. The functionality doctrine was originally a common law rule that prohibited trade dress or trademark rights in the functional features of a product or the product’s packaging. The purpose of this rule was to preserve the distinction between trademark law and patent law. In 1998, Congress adopted this common law rule by prohibiting trademark registration or protection for functional product features. 15 U.S.C. § 1116(b)(8). The Lanham Act does not define the term “functional,” but the Supreme Court has ruled that “a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” On appeal of this issue, the Fourth Circuit noted that the district court did not—and could not—find that the ROSETTA STONE marks constituted functional product features or that Rosetta Stone’s own use of its marks were functional. Rather, in applying the functionality doctrine, the district court focused on how Google was making use of the ROSETTA STONE marks, ruling that trademarked keywords are “functional” as used in Google’s AdWord program. In particular, the district court found that “[t]he keywords . have an essential indexing function because they enable Google to readily identify in its databases relevant information in response to a web user’s query . [T]he keywords also serve an advertising function that benefits consumers who expend the time and energy to locate particular information, goods, or services, and to compare prices.” The Fourth Circuit disagreed, finding that the district court improperly focused its functionality analysis on “whether Rosetta Stone’s mark made Google’s product more useful, neglecting to consider whether the mark was functional as Rosetta Stone used it.” The Fourth Circuit noted that there was nothing functional about how Rosetta Stone used its own marks. Indeed, use of the ROSETTA STONE marks were not essential for the functioning of any of its products, which products would not operate any differently if they were sold under a different mark. Accordingly, the Fourth Circuit ruled that once there is a determination that the product feature is not functional, that the functionality doctrine is not applicable; it is irrelevant to the analysis whether Google’s search engine “functions” better because it is making use of the ROSETTA STONE marks. The Fourth Circuit has clarified the limits of the functionality doctrine under trademark law, and has made clear that the determination of whether a trademark is functional depends solely on the use made by the trademark owner. For more information on the content of this alert, please contact your Nixon Peabody attorney or: Gina M. McCreadie at 617-345-6189 or [email protected] Robert A. Weikert at 415-984-8385 or [email protected] 2.
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