• by Wendy Davis  @wendyndavis, November 1, 2010

Arguing that Google's AdWords policies confuse consumers and allow companies to free-ride on the brand names of competitors, Rosetta Stone is asking an appellate court to reinstate the company's trademark infringement lawsuit against Google.

"Intellectual property law encourages entrepreneurs to develop brands and protect them as trademarks by prohibiting others from free-riding on the entrepreneurs' efforts," Rosetta Stone says in papers filed with the 4th Circuit Court of Appeals. "Google disregards this principle by selling third-party trademarks to generate revenue for itself without regard to the resulting consumer confusion or the negative impact on the trademarks of others."

Rosetta Stone sued Google for trademark infringement for allowing other companies to use the name Rosetta Stone to trigger search ads. The language learning company lost the closely watched lawsuit last year, when U.S. District Court Judge Gerald Bruce Lee in Alexandria, Va. issued a sweeping ruling in Google's favor. Lee not only ruled that ads triggered by the name Rosetta Stone didn't confuse consumers, but said that consumers' awareness of Rosetta Stone's brand "has only increased" since 2004, when Google began allowing trademarked terms to serve as keyword triggers.

Rosetta Stone is now asking an appellate court to vacate that ruling, arguing that Lee should not have dismissed the lawsuit because there was "significant evidence of actual consumer confusion."

In its appellate brief, Rosetta Stone says that Lee wrongly discounted evidence that five consumers who were confused by ads on Google bought counterfeit software. Rosetta Stone also argues that Lee gave short shrift to an expert, who concluded that 17% of consumers are confused when they search on a company's name and are served with ads sponsored by different companies.

In addition, Rosetta Stone asserts that Lee also wrongly rejected other evidence showing that AdWords ads confuse consumers. But many of those arguments were filed under seal and are not currently available to the public, making it difficult to assess how the 4th Circuit is likely to view the case.

Google has not yet filed its appellate brief, but the company has previously taken the position that allowing trademarks to trigger search ads benefits consumers by giving them more than one option when they search for a brand name. "It's completely normal for a supermarket to stock different brands of cereal on the same shelf or for a magazine to run Ford ads opposite of an article about Toyota, so it doesn't make sense to limit competition online by restricting the number of choices available to users," a company spokesperson said when Rosetta Stone first filed suit.

Several other companies -- including Ford Motor Co. and Viacom -- have weighed in by joining friend-of-the-court briefs filed on Rosetta Stone's behalf. "Because consumers often search online for known brands when seeking to locate goods and services (and, in doing so, rely on trademarks to signify a particular level of quality), there can be adverse consequences to such brand owners and to consumers when they are misled and/or confused by competitors or, worse, by counterfeiters," Ford, Viacom and others argue. "Accordingly, brand owners must often rely on good-faith efforts by operators of online advertising platforms."

The decision to file a brief under seal could in itself prove controversial in the high-profile case. Paul Levy, a lawyer with Public Citizen, recently questioned whether these redactions are appropriate in "one of the most important trademark appeals of the year." He adds that the appeal is likely to draw friend-of-the-court briefs on both sides "as well as a plethora of comment from scholarly and other writers, and addressing an issue on which various efforts have been made to enact legislation." (Public Citizen represents MediaPost in an unrelated matter.)

"Public Citizen has asked both Google and Rosetta Stone to agree to unseal their entire appellate briefs," Levy writes. "If they do not do so, and do not provide persuasive arguments showing genuine need for continued sealing of specific excerpts of their briefs, sufficient to overcome the presumption of public access to judicial records, we expect to intervene in the appeal to seek unsealing."