Opinion ID: 626941
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Heading: Dr. Kent Van Liere's Report

Text: Rosetta Stone also presented a consumer confusion survey report from Dr. Kent Van Liere. Dr. Van Liere is an expert in market analysis and consumer behavior, with experience conducting and using focus groups and surveys to measure consumer opinions ... regarding products and services, J.A. 5448, and design[ing] and review[ing] studies on the application of sampling and survey research methods in litigation for a variety of matters including trademark/trade dress infringement, J.A. 5449. Dr. Van Liere tested for actual confusion regarding the appearance of sponsored links when consumers conducted a Google search for `Rosetta Stone.' J.A. 5449. Based on this study, Dr. Van Liere concluded that a significant portion of consumers in the relevant population are likely to be confused as to the origin, sponsorship or approval of the sponsored links that appear on the search results page after a consumer has conducted a Google search using a Rosetta Stone trademark as a keyword and/or are likely to be confused as to the affiliation, endorsement, or association of the websites linked to those sponsored links with Rosetta Stone. J.A. 5450. Specifically, Dr. Van Liere's survey yield[ed] a net confusion rate of 17 percentthat is, 17 percent of consumers demonstrate actual confusion. J.A. 5459. This result is clear evidence of actual confusion for purposes of summary judgment. Cf. Sara Lee Corp., 81 F.3d at 467 n. 15 (suggesting that survey evidence clearly favors the defendant when it demonstrates a level of confusion much below ten percent but noting caselaw that hold[s] that survey evidence indicating ten to twelve percent confusion was sufficient to demonstrate actual confusion). The district court, however, concluded that the survey report was unreliable evidence of actual confusion because the result contained a measure of whether respondents thought Google `endorsed' a Sponsored Link, a non-issue. Rosetta Stone, 730 F.Supp.2d at 544. Thus, the court did not consider this survey evidence to be viable proof of actual confusion for much the same reason it rejected the deposition testimony of the five individuals who purchased counterfeit software. As we previously stated, however, trademark infringement creates a likelihood of confusion not only as to source, but also as to affiliation, connection or sponsorship. 4 McCarthy on Trademarks § 23:8. Accordingly, this evidence should have been added to the other evidence of actual confusion to be considered in the light most favorable to Rosetta Stone. (c) Sophistication of the Consuming Public The district court concluded that the consumer sophistication factor also favored a finding that Google's use of the marks is not likely to create confusion. Noting the substantial cost of Rosetta Stone's products (approximately $259 for a single-level package and $579 for a three-level bundle), as well as the time commitment required to learn a foreign language, the district court concluded that the relevant market of potential purchasers is comprised of well-educated consumers who are more likely to spend time searching and learning about Rosetta Stone's products. Rosetta Stone Ltd., 730 F.Supp.2d at 545. From there, the court inferred consumer sophisticationconsumers willing to pay Rosetta Stone's prices and, presumably, make the required time commitment would tend to demonstrate that they are able to distinguish between the Sponsored Links and organic results displayed on Google's search results page. Id. The district court drew this inference relying on Star Industries, Inc. v. Bacardi & Co. Ltd., 412 F.3d 373 (2d Cir.2005), in which the Second Circuit noted that a court may reach a conclusion about consumer sophistication based solely on the nature of the product or its price. Id. at 390. This is correct if, as in Star Industries, the court is making findings of fact on the likelihood of confusion issue following a bench trial. See id. at 379. In the more relevant context of a summary judgment motion, however, that is not the case, as [c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge ... ruling on a motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). We conclude that there is sufficient evidence in the record to create a question of fact as to consumer sophistication that cannot be resolved on summary judgment. The record includes deposition testimony from Rosetta Stone customers who purchased counterfeit ROSETTA STONE software from sponsored links that they believed to be either affiliated with or authorized by Rosetta Stone to sell genuine software. The evidence also includes an internal Google study reflecting that even well-educated, seasoned Internet consumers are confused by the nature of Google's sponsored links and are sometimes even unaware that sponsored links are, in actuality, advertisements. At the summary judgment stage, we cannot say on this record that the consumer sophistication factor favors Google as a matter of law. There is enough evidence, if viewed in a light most favorable to Rosetta Stone, to find that this factor suggests a likelihood of confusion. In sum, we conclude that there is sufficient evidence in the record to create a question of fact on each of the disputed factorsintent, actual confusion, and consumer sophisticationto preclude summary judgment. Because the district court's likelihood-of-confusion analysis was limited only to these disputed factors, the likelihood-of-confusion issue cannot be resolved on summary judgment, and we vacate the district court's order in this regard. [5]
As an alternate to its conclusion that Rosetta Stone failed to forecast sufficient evidence to establish a likelihood of confusion, the district court held that the use of the ROSETTA STONE marks as keywords was protected by the functionality doctrine and, as such, was non-infringing as a matter of law. See Rosetta Stone, 730 F.Supp.2d at 545. Because the functionality doctrine does not apply in these circumstances, however, we conclude that the district court erred in awarding summary judgment to Google on this basis. The functionality doctrine developed as a common law rule prohibiting trade dress or trademark rights in the functional features of a product or its packaging. See Wilhelm Pudenz, GmbH v. Littlefuse, Inc., 177 F.3d 1204, 1207 (11th Cir.1999); 1 McCarthy § 7:63. The purpose of the doctrine is to preserve the distinction between the realms of trademark law and patent law: The functionality doctrine prevents trademark law, which seeks to promote competition by protecting a firm's reputation, from instead inhibiting legitimate competition by allowing a producer to control a useful product feature. It is the province of patent law, not trademark law, to encourage invention by granting inventors a monopoly over new product designs or functions for a limited time, after which competitors are free to use the innovation. If a product's functional features could be used as trademarks, however, a monopoly over such features could be obtained without regard to whether they qualify as patents and could be extended forever (because trademarks may be renewed in perpetuity). Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 164-65, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995) (internal citation omitted); see Georgia-Pacific Consumer Prods., LP v. Kimberly-Clark Corp., 647 F.3d 723, 727 (7th Cir.2011) (explaining that patent law alone protects useful designs from mimicry; the functionality doctrine polices the division of responsibilities between patent and trademark law by invalidating marks on useful designs (internal quotation marks omitted)). In 1998, Congress adopted the functionality doctrine by explicitly prohibiting trademark registration or protection under the Lanham Act for a functional product feature, see 15 U.S.C. § 1052(e)(5) (prohibiting registration of a mark which comprises any matter that, as a whole, is functional), and by making functionality a statutory defense to an incontestably registered mark, see 15 U.S.C. § 1115(b)(8); see generally 1 McCarthy § 7:63. Although the Lanham Act does not define the term functional, see 15 U.S.C. § 1127, the Supreme Court has explained 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. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982); see TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 32-33, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001). Under Inwood 's traditional rule, a product feature is functional if it is the reason the device works, Board of Supervisors v. Smack Apparel Co., 550 F.3d 465, 486 (5th Cir. 2008) (internal quotation marks omitted), or it constitute[s] the actual benefit that the customer wishes to purchase, as distinguished from an assurance that a particular entity made, sponsored, or endorsed a product, Clamp Mfg. Co. v. Enco Mfg. Co., 870 F.2d 512, 516 (9th Cir.1989) (internal quotation marks omitted); see I.P. Lund Trading v. Kohler Co., 163 F.3d 27, 37 n. 5 (1st Cir.1998). ([F]unctional features or designs should be defined as those that are driven by practical, engineering-type considerations such as making the product work more efficiently, with fewer parts and longer life, or with less danger to operators, or be shaped so as to reduce expenses of delivery or damage in shipping. (internal quotation marks omitted)). [6] The district court did not conclude, nor could it, that Rosetta Stone's marks were functional product features or that Rosetta Stone's own use of this phrase was somehow functional. Instead, the district court concluded that trademarked keywordsbe it ROSETTA STONE or any other markare functional when entered into Google's AdWords program: The 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. Rosetta Stone, 730 F.Supp.2d at 546. The functionality doctrine simply does not apply in these circumstances. The functionality analysis below was focused 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. Rosetta Stone uses its registered mark as a classic source identifier in connection with its language learning products. Clearly, there is nothing functional about Rosetta Stone's use of its own mark; use of the words Rosetta Stone is not essential for the functioning of its language-learning products, which would operate no differently if Rosetta Stone had branded its product SPHINX instead of ROSETTA STONE. See Playboy Enters., Inc. v. Netscape Commc'ns Corp., 354 F.3d 1020, 1030-31 (9th Cir. 2004) (Nothing about the marks used to identify PEI's products is a functional part of the design of those products since PEI could easily have called its magazine and its models entirely different things without losing any of their intended function.). Once it is determined that the product featurethe word mark ROSETTA STONE in this caseis not functional, then the functionality doctrine has no application, and it is irrelevant whether Google's computer program functions better by use of Rosetta Stone's nonfunctional mark. See id. at 1031 (concluding that [t]he fact that the [word] marks make defendants ' computer program more functional is irrelevant where plaintiff used its word marks merely to identify its products). As the case progresses on remand, Google may well be able to establish that its use of Rosetta Stone's marks in its Ad-Words program is not an infringing use of such marks; however, Google will not be able to do so based on the functionality doctrine. The doctrine does not apply here, and we reject it as a possible affirmative defense for Google.
Rosetta Stone next challenges the district court's grant of summary judgment in favor of Google on the contributory trademark infringement claim. Contributory infringement is a judicially created doctrine that derive[s] from the common law of torts, Von Drehle, 618 F.3d at 449, under which liability may be imposed upon those who facilitate or encourage infringement, see 4 McCarthy on Trademarks § 25:17. The Supreme Court explained in Inwood Laboratories that if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit. 456 U.S. at 854, 102 S.Ct. 2182. It is not enough to have general knowledge that some percentage of the purchasers of a product or service is using it to engage in infringing activities; rather, the defendant must supply its product or service to identified individuals that it knows or has reason to know are engaging in trademark infringement. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 439 n. 19, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (contributory trademark infringement requires a showing that the defendant intentionally induc[ed] its customers to make infringing uses of the marks or suppl[ied] its products to identified individuals known by it to be engaging in continuing infringement (internal quotation marks omitted)). Finally, for there to be liability for contributory trademark infringement, the plaintiff must establish underlying direct infringement. See Von Drehle, 618 F.3d at 451. In other words, there must necessarily have been an infringing use of the plaintiff's mark that was encouraged or facilitated by the defendant. The district court recognized that Rosetta Stone had come forward with evidence relevant to its contributory infringement claim. The most significant evidence in this regard reflected Google's purported allowance of known infringers and counterfeiters to bid on the Rosetta Stone marks as keywords: [The evidence included] a spreadsheet that Google received which reflects the dates when Rosetta Stone advised Google that a Sponsored Link was fraudulent, the domain names associated with each such Sponsored Link, the text of each Sponsored Link, and the date and substance of Google's response. As documented, from September 3, 2009 through March 1, 2010, Rosetta Stone notified Google of approximately 200 instances of Sponsored Links advertising counterfeit Rosetta Stone products. Rosetta Stone contends that even after being notified of these websites, 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. For example, between October 2009 to December 2009, 110 different Sponsored Links purportedly selling Rosetta Stone products used Rosetta Stone as a keyword trigger, and most of the Links included Rosetta Stone or Rosettastone in their display. Registered to the same individual, these 110 Links were displayed on 356,675 different search-results pages. Rosetta Stone, 730 F.Supp.2d at 547 (internal citations omitted). Nevertheless, the district court indicated it was unpersuaded by this evidence. Id. at 547. The district court's conclusion was based largely on Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir.2010), in which the Second Circuit rejected a contributory trademark infringement claim against an Internet auction site, eBay, by a trademark owner, Tiffany, whose mark was being used by jewelry counterfeiters on eBay's site. The record at trial in that case contained evidence demonstrat[ing] that eBay had generalized notice that some portion of the Tiffany goods sold on its website might be counterfeit, id. at 106, having received thousands of [Notice of Claimed Infringement Forms] [Tiffany] filed with eBay alleging . . . that certain listings were counterfeit, id. The Second Circuit concluded that such evidence was insufficient to satisfy Inwood 's knows or has reason to know requirement and that Tiffany would have to show that eBay knew or had reason to know of specific instances of actual infringement beyond those that it addressed upon learning of them. Id. at 107 (emphasis added; internal quotation marks omitted). The Second Circuit noted, however, that had there been evidence of willful blindness, that would have satisfied the Inwood standard. See id. at 109. [C]ontributory liability may arise where a defendant is (as was eBay here) made aware that there was infringement on its site but (unlike eBay here) ignored that fact. Id. at 110 n. 15. [7] Applying Tiffany, the district court concluded that Rosetta Stone failed to establish with the requisite specificity that Google knew or should have known of the infringing activity: Comparing the evidence of knowledge attributed to eBay to the roughly 200 notices Google received of Sponsored Links advertising counterfeit Rosetta Stone products on its search results pages, the Court necessarily holds that Rosetta Stone has not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim. See Rosetta Stone, 730 F.Supp.2d at 549 (emphasis added). The court also noted that Google did not turn a blind eye to Rosetta Stone's complaints about counterfeiters, explaining that [t]here is little Google can do beyond expressly prohibiting advertisements for counterfeit goods, taking down those advertisements when it learns of their existence, and creating a team dedicated to fighting advertisements for counterfeit goods. Id. at 548. On appeal, Rosetta Stone argues that the district court misapplied the standard of review and incorrectly awarded summary judgment to Google where the evidence was sufficient to permit a trier of fact to find contributory infringement. We agree. In granting summary judgment to Google because Rosetta Stone has not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim, the district court turned the summary judgment standard on its head. While it may very well be that Rosetta Stone was not entitled to summary judgment, that issue is not before us. The only question in this appeal is whether, viewing the evidence and drawing all reasonable inferences from that evidence in a light most favorable to Rosetta Stone, a reasonable trier of fact could find in favor of Rosetta Stone, the nonmoving party. See Von Drehle, 618 F.3d at 445. Of course, the Tiffany court did not view the evidence through the lense of summary judgment; rather, Tiffany involved an appeal of judgment rendered after a lengthy bench trial. Because of its procedural posture, the district court in Tiffany appropriately weighed the evidence sitting as a trier of fact. Accordingly, Tiffany is of limited application in these circumstances, and the district court's heavy reliance on Tiffany was misplaced. We conclude that the evidence recited by the district court is sufficient to establish a question of fact as to whether Google continued to supply its services to known infringers. Accordingly, we vacate the district court's order to the extent it grants summary judgment in favor of Google on Rosetta Stone's contributory infringement claim.
Rosetta Stone next challenges the district court's rejection of its vicarious liability theory. Vicarious liability in the trademark context is essentially the same as in the tort context: the plaintiff seeks to impose liability based on the defendant's relationship with a third party tortfeasor. Thus, liability for vicarious trademark infringement requires a finding that the defendant and the infringer have an apparent or actual partnership, have authority to bind one another in transactions with third parties or exercise joint ownership or control over the infringing product. Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1150 (7th Cir.1992). Rosetta Stone argues that the evidence proffered was sufficient to create a question of fact regarding whether Google jointly controls the appearance of the ads or sponsored links on Google's search-engine results page. This is not evidence, however, that Google acts jointly with any of the advertisers to control the counterfeit ROSETTA STONE products. Accordingly, we affirm the district court's grant of summary judgment in favor of Google on Rosetta Stone's vicarious liability claim.
Rosetta Stone contends that the district court improperly dismissed its claim for unjust enrichment under Virginia law. The district court dismissed this claim on two grounds, concluding that Rosetta Stone failed to allege facts sufficient to state a claim of unjust enrichment, see Rosetta Stone, 732 F.Supp.2d at 631-32, and that the Communications Decency Act (CDA), see 47 U.S.C. § 230(c)(1), bars the unjust enrichment claim, see Rosetta Stone, 732 F.Supp.2d at 633. We conclude that Rosetta Stone failed to sufficiently plead the elements of its unjust enrichment claim and therefore affirm, albeit on reasoning different than that of the district court. A cause of action for unjust enrichment in Virginia rests upon the doctrine that a man shall not be allowed to enrich himself unjustly at the expense of another. Kern v. Freed Co., 224 Va. 678, 299 S.E.2d 363, 365 (1983) (internal quotation marks omitted); see Nossen v. Hoy, 750 F.Supp. 740, 744 (E.D.Va.1990). To avoid unjust enrichment, equity will effect a `contract implied in law,' i.e., a quasi contract, requiring one who accepts and receives the services of another to make reasonable compensation for those services. Po River Water and Sewer Co. v. Indian Acres Club of Thornburg, Inc., 255 Va. 108, 114, 495 S.E.2d 478 (1998). A plaintiff asserting unjust enrichment must demonstrate the following three elements: (1) he conferred a benefit on [the defendant]; (2) [the defendant] knew of the benefit and should reasonably have expected to repay [the plaintiff]; and (3) [the defendant] accepted or retained the benefit without paying for its value. Schmidt v. Household Finance Corp., 276 Va. 108, 661 S.E.2d 834, 838 (2008). The district court concluded that Rosetta Stone failed to state a claim because it did not allege facts which imply that [Google] promised to pay the plaintiff for the benefit received or that there was an understanding by Google that it owed Rosetta Stone revenue earned for paid advertisements containing the Rosetta Stone Marks. Rosetta Stone, 732 F.Supp.2d at 631, 632. Failure to allege an implicit promise to pay, however, is not necessarily fatal to an implied contract theory. Virginia distinguishes between two types of implied contracts: contracts that are implied-in-fact and contracts that are implied-in-law. An implied-in-fact contract is an actual contract that was not reduced to writing, but the court infers the existence of the contract from the conduct of the parties. See Nossen, 750 F.Supp. at 744. To recover under a contract implied-in-fact, a plaintiff must allege facts to raise an implication that the defendant promised to pay the plaintiff for such benefit. Nedrich v. Jones, 245 Va. 465, 429 S.E.2d 201, 207 (1993) (internal quotation marks omitted & emphasis added). By contrast, the concept of an implied-in-law contract, or quasi contract, applies only when there is not an actual contract or meeting of the minds. See id. We understand Rosetta Stone's unjust enrichment claim to be an implied-in-law contract claim; thus, the failure to allege that Google implicitly promised to pay is not fatal. Nonetheless, this court can affirm the dismissal of the complaint on any basis fairly supported by the record. Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220, 222 (4th Cir.2002). We conclude that Rosetta Stone failed to allege facts showing that it conferred a benefit on Google for which Google should reasonably have expected to repay. According to Rosetta Stone, the keyword trigger auctions constitute the unauthorized sale of the ROSETTA STONE marks. Rosetta Stone alleges that through the auctions it conferred a benefit involuntarily on Google, and that Google is knowingly using the goodwill established in [the] trademarks to derive. . . revenues. J.A. 197. Rosetta Stone, however, has not alleged facts supporting its general assertion that Google should reasonably have expected to pay for the use of marks in its keyword query process. Indeed, Rosetta Stone does not contend, and did not allege, that Google pays any other mark holder for the right to use a mark in its AdWords program. In our view, these allegations are insufficient to surmount even the minimal barrier presented by a motion to dismiss. [8]
Rosetta Stone next challenges the district court's summary judgment order as to its trademark dilution claim. Unlike traditional infringement law, the prohibitions against trademark dilution . . . are not motivated by an interest in protecting consumers. Moseley v. V. Secret Catalogue, Inc., 537 U.S. 418, 429, 123 S.Ct. 1115, 155 L.Ed.2d 1 (2003). Dilution is not concerned with confusion in the marketplace. Rather, dilution theory provides that if customers or prospective customers see the plaintiff's famous mark used by other persons in a non-confusing way to identify other sources for many different goods and services, then the ability of the famous mark to clearly identify and distinguish only one source might be `diluted' or weakened. 4 McCarthy § 24:67. Thus, trademark dilution is the whittling away of the established trademark's selling power and value through its unauthorized use by others. Tiffany, 600 F.3d at 111 (internal quotation marks and alteration omitted). Until 1996, trademark dilution was based entirely upon state law because federal law did not recognize the dilution doctrine. The Federal Trademark Dilution Act (FTDA) was passed in 1996, see Pub.L. No. 104-98, 109 Stat. 985 (1996), and was amended substantially in 2006 with the passage of the Trademark Dilution Revision Act of 2006, see Pub.L. No. 109-312, § 2, 120 Stat. 1730 (2006). The FTDA currently provides: [T]he owner of a famous mark . . . shall be entitled to an injunction against another person who . . . commences use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury. 15 U.S.C. § 1125(c)(1) (emphasis added). The statute defines dilution by blurring as the association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark. 15 U.S.C. § 1125(c)(2)(B). [D]ilution by tarnishment is defined as the association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark. 15 U.S.C. § 1125(c)(2)(C). Thus, blurring under the federal statute involves the classic whittling away of the selling power and strength of the famous mark. Tarnishment, by contrast, creates consumer aversion to the famous brand e.g., when the plaintiff's famous trademark is linked to products of shoddy quality, or is portrayed in an unwholesome or unsavory context such that the public will associate the lack of quality or lack of prestige in the defendant's goods with the plaintiff's unrelated goods. Scott Fetzer Co. v. House of Vacuums Inc., 381 F.3d 477, 489 (5th Cir.2004) (internal quotation marks omitted). Finally, the FTDA expressly excludes from its reach [a]ny fair use, including a nominative or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person's own goods or services. 15 U.S.C. § 1125(c)(3)(A). The statute specifically provides comparative advertising and parody as examples of non-dilutive fair uses. See 15 U.S.C. § 1125(c)(3)(A)(i) & (ii). Accordingly, fair use, though not so labeled in the statute, essentially amounts to an affirmative defense against a claim of trademark dilution. Cf. KP Permanent Make-Up v. Lasting Impression I, Inc., 543 U.S. 111, 117-18, 125 S.Ct. 542, 160 L.Ed.2d 440 (2004). To state a prima facie dilution claim under the FTDA, the plaintiff must show the following: (1) that the plaintiff owns a famous mark that is distinctive; (2) that the defendant has commenced using a mark in commerce that allegedly is diluting the famous mark; (3) that a similarity between the defendant's mark and the famous mark gives rise to an association between the marks; and (4) that the association is likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark. Louis Vuitton, 507 F.3d at 264-65. The district court granted summary judgment for Google on the dilution claim on two bases. First, the district court held that Rosetta Stone was required but failed to present evidence that Google was us[ing] the Rosetta Stone Marks to identify its own goods and services. Rosetta Stone, 730 F.Supp.2d at 551. To support its conclusion, the district court relied on the text of the statutory fair use defense that shields a person's fair use of plaintiff's mark so long as such use is not as a designation of source for the person's own goods or services. 15 U.S.C. § 1125(c)(3)(A). Second, the district court concluded that Rosetta Stone failed to show that Google's use of the mark was likely to impair the distinctiveness of or harm the reputation of the ROSETTA STONE marks. Specifically, the district court indicated that there was no evidence of dilution by blurring when Rosetta Stone's brand awareness has only increased since Google revised its trademark policy in 2004, and the court noted evidence that Rosetta Stone's brand awareness equity also increased from 19% in 2005 to 95% in 2009. Rosetta Stone, 730 F.Supp.2d at 551. In support of this conclusion, the district court read our decision in Louis Vuitton to establish the proposition that no claim for dilution by blurring exists where a defendants' product only increases public identification of the plaintiffs' marks. Id.
We first consider the district court's grant of summary judgment based on the lack of evidence that Google used the ROSETTA STONE marks to identify its own goods and services. Id. The district court held that Rosetta Stone could not establish its dilution claim, specifically, the third element, without showing that Google used the mark as a source identifier for its products and services. See id. at 550-51. In support of this conclusion, however, the district court relied upon the fair use defense available under the FTDA. See 15 U.S.C. § 1125(c)(3)(A) (Any fair use, including a nominative or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person's own goods or services is not actionable as dilution by blurring or dilution by tarnishment.) Thus, the district court apparently concluded that Rosetta Stone was required, as part of its prima facie showing of dilution under the FTDA, to demonstrate that Google was using the mark as a source identifier for Google's own goods. We view § 1125(c)(3)(A) as affording a fair use defense to defendants in dilution actions. See Louis Vuitton, 507 F.3d at 265-66. In our view, once the owner of a famous mark establishes a prima facie case of dilution by blurring or tarnishment, it falls to the defendant to demonstrate that its use constituted a fair use . . . other than as a designation of source for the [defendant's] own goods or services, 15 U.S.C. § 1125(c)(3)(A). Whether Google used the mark other than as a source identifier and in good faith is an issue that Google, not Rosetta Stone, is obligated to establish. Thus, the district court erroneously required Rosetta Stone to demonstrate that Google was using the ROSETTA STONE mark as a source identifier for Google's own products. More importantly, the district court erred when it ruled that Google was not liable for dilution simply because there was no evidence that Google uses the Rosetta Stone marks to identify Google's own goods and services. In essence, the district court made nontrademark use coextensive with the fair use defense under the FTDA. The statute, however, requires more than showing that defendant's use was other than as a designation of sourcethe defendant's use must also qualify as a fair use. 15 U.S.C. § 1125(c)(3)(A). Indeed, if the district court's analysis is correctthat is, if a federal trademark dilution claim is doomed solely by the lack of proof showing that the defendant used the famous mark as a trademarkthen the term fair use as set forth in § 1125(c)(3)(A) would be superfluous. The district court failed to determine whether this was fair use. Although the FTDA does not expressly define fair use, the classic concept of fair use is well-established and incorporated as an affirmative defense to a claim of trademark infringement. See 15 U.S.C. § 1115(b)(4). The contours of the fair-use defense in the infringement context are therefore instructive on the classic or descriptive fair-use defense to a dilution claim. See Sullivan v. Stroop, 496 U.S. 478, 484, 110 S.Ct. 2499, 110 L.Ed.2d 438 (1990) ([I]dentical words used in different parts of the same act are intended to have the same meaning. (internal quotation marks omitted)). Descriptive, or classic, fair use applies when the defendant is using a trademark in its primary, descriptive sense to describe the defendant's goods or services. Fortune Dynamic, Inc. v. Victoria's Secret Stores Brand Mgmt., Inc., 618 F.3d 1025, 1031 (9th Cir.2010) (internal quotation marks omitted); see 15 U.S.C. § 1115(b)(4). The FTDA also expressly includes nominative fair use as a defense. See 15 U.S.C. § 1125(c)(3)(A). Typically, nominative fair use comes into play when the defendant uses the famous mark to identify or compare the trademark owner's product. See New Kids on the Block, 971 F.2d at 308; 4 McCarthy § 23.11. Regardless of the type of fair use claimed by a defendant, a common component of fair use is good faith. See, e.g., JA Apparel Corp. v. Abboud, 568 F.3d 390, 401 (2d Cir.2009) (Assessment of this defense thus requires analysis of whether a given use was (1) other than as a mark, (2) in a descriptive sense, and (3) in good faith. (internal quotation marks omitted)); Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 951 (7th Cir.1992) (To prevail on the fair use defense, the defendant must establish that it has used the plaintiff's mark, in good faith, to describe its (defendant's) product and otherwise than as a trademark. (internal quotation marks omitted)). In this context, the inquiry into the defendant's good faith `concerns the question whether the user of a mark intended to create consumer confusion as to source or sponsorship.' JA Apparel Corp., 568 F.3d at 400; see also Bd. of Supervisors v. Smack Apparel Co., 550 F.3d 465, 489 (5th Cir.2008) (explaining that in order to avail [itself] of the nominative fair use defense[,] the defendant (1) may only use so much of the mark as necessary to identify the product or service and (2) may not do anything that suggests affiliation, sponsorship, or endorsement by the markholder. (internal quotation marks omitted)). In short, the court's summary judgment order omitted this analysis, impermissibly omitting the question of good faith and collapsing the fair-use defense into one questionwhether or not Google uses the ROSETTA STONE mark as a source identifier for its own products. Accordingly, we vacate the district court's summary judgment order and remand for reconsideration of Rosetta Stone's dilution claim. If the district court determines that Rosetta Stone has made a prima facie showing under the elements set forth in Louis Vuitton, 507 F.3d at 264-65, it should reexamine the nominative fair-use defense in light of this opinion.
Alternatively, the district court held that Rosetta Stone failed to satisfy the fourth and final element of its trademark dilution claim requiring that the plaintiff show defendant's use is likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark. Id. at 265. The court based its conclusion solely on the fact that Rosetta Stone's brand awareness ha[d] only increased since Google revised its trademark policy in 2004. Rosetta Stone, 730 F.Supp.2d at 551. On the strength of this evidence, the district court concluded that the distinctiveness of the Rosetta Stone Marks has not been impaired and therefore that Rosetta Stone cannot show that Google's trademark policy likely caused dilution by blurring. Id. To determine whether the defendant's use is likely to impair the distinctiveness of the plaintiff's famous mark, the FTDA enumerates a non-exhaustive list of six factors that are to be considered by the courts: In determining whether a mark or trade name is likely to cause dilution by blurring, the court may consider all relevant factors, including the following: (i) The degree of similarity between the mark or trade name and the famous mark. (ii) The degree of inherent or acquired distinctiveness of the famous mark. (iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark. (iv) The degree of recognition of the famous mark. (v) Whether the user of the mark or trade name intended to create an association with the famous mark. (vi) Any actual association between the mark or trade name and the famous mark. 15 U.S.C. § 1125(c)(2)(B). Although [n]ot every factor will be relevant in every case, and not every blurring claim will require extensive discussion of the factors[,] . . . a trial court must offer a sufficient indication of which factors it has found persuasive and explain why they are persuasive. Louis Vuitton, 507 F.3d at 266. The district court addressed only one factorthe degree of recognition of Rosetta Stone's markand did not mention any other remaining statutory factor. The court's reliance on Louis Vuitton for the proposition that no claim for dilution by blurring exists when there is evidence that public recognition of the defendants' product increased was error. Louis Vuitton addressed a far different fact pattern, where the defendant's fair use claim was based on parody, which Congress expressly included as a protected fair use under the FTDA so long as the mark being parodied is not being used as a designation of source for the person's own goods or services. See 15 U.S.C.A. § 1125(c)(3)(A)(ii). We concluded that a successful parody might actually enhance the famous mark's distinctiveness by making it an icon. The brunt of the joke becomes yet more famous. Louis Vuitton, 507 F.3d at 267 (4th Cir.2007) (emphasis added). We disagree, therefore, the district court's reading of Louis Vuitton. Under the FTDA, Rosetta Stone must show only a likelihood of dilution and need not prove actual economic loss or reputational injury. See id. at 264 n. 2. The decision below employed a truncated analysis that placed a very heavy emphasis upon whether there had been any actual injury suffered by Rosetta Stone's brand. On remand, the court should address whichever additional factors might apply to inform its determination of whether Google's use is likely to impair the distinctiveness of Rosetta Stone's mark. See 15 U.S.C. § 1125(c)(2)(B).
Under the FTDA, the owner of a famous mark may obtain injunctive relief against any person who, at any time after the owner's mark has become famous, commences use of a mark . . . in commerce that is likely to cause dilution. 15 U.S.C. § 1125(c)(1) (emphasis added). A threshold issue, therefore, is whether the plaintiff's mark became famous, if at all, before the defendant began using the mark in commerce. Although the district court held that Rosetta Stone's mark had become famous before Google began using it, we are not limited to evaluation of the grounds offered by the district court to support its decision . . . [and] may affirm on any grounds apparent from the record. Pitt Cnty. v. Hotels.com, L.P., 553 F.3d 308, 311 (4th Cir.2009) (internal quotation marks omitted). Accordingly, we consider Google's argument that Rosetta Stone's marks were not famous in 2004 when Google allegedly began using the mark in commerce. Under the statute, a mark is famous if it is widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark's owner. 15 U.S.C. § 1125(c)(2)(A). This is not an easy standard to achieve. [C]ourts agree that a mark must be truly prominent and renowned to be granted the extraordinary scope of exclusive rights created by the Federal Antidilution Act. 4 McCarthy § 24:104. Because protection from dilution comes close to being a `right in gross,'. . . the FTDA extends dilution protection only to those whose mark is a `household name.' Nissan Motor Co. v. Nissan Computer Corp., 378 F.3d 1002, 1011 (9th Cir. 2004). Additionally, for § 1125(c)(1) to apply, the defendant must have commence[d] a diluting use of the plaintiff's mark after the point at which the mark became famous. The policy basis for this rule reflects the fair and equitable principle that one should not be liable for dilution by the use of a mark which was legal when first used. 4 McCarthy § 24:103. Professor McCarthy explains as follows: [I]f at the time of first use, Zeta's mark did not dilute Alpha's mark because Alpha's mark was not then famous, Zeta's use will not at some future time become diluting and illegal solely because Alpha's mark later became famous. That is, Alpha will not at some future time have a federal dilution claim against Zeta's mark. Thus, the junior user must be proven to have first used its mark after the time that plaintiff's mark achieved fame. . . . This rule is modeled after that applied in traditional confusion cases where the plaintiff must prove secondary meaning. In those cases, the senior user must prove that secondary meaning in its mark was established prior to the junior user's first use. . . . 4 McCarthy § 24:103 (footnote omitted). Stated differently, the defendant's first diluting use of a famous mark fixes the time by which famousness is to be measured for purposes of the FTDA. Nissan Motor Co., 378 F.3d at 1013. The district court concluded that Rosetta Stone Marks are famous and have been since at least 2009, when Rosetta Stone's brand awareness reached 75%. Rosetta Stone, 730 F.Supp.2d at 550. The court explained that [t]he Marks need not have been famous when Google revised its trademark policy in 2004. Instead, Rosetta Stone must only show that at any time after its Marks became famous, Google began using a mark or trade name in commerce that was likely to cause dilution of the Rosetta Stone Marks. Id. According to Google, however, even if ROSETTA STONE had become a famous brand by 2009, it was not famous when Google began its alleged facilitation of the use of ROSETTA STONE in 2004. Indeed, Rosetta Stone alleges in its Complaint that the use of ROSETTA STONE and other trademarks as keywords in Google's AdWords program lessen[ed] the capacity of Rosetta Stone's famous and distinctive. . . Marks to distinguish Rosetta Stone's products and services from those of others, and has diluted the distinctive quality of the marks. J.A. 56. The use of Rosetta Stone's mark as a keyword trigger began at least as early as 2004. Google points to survey evidence reflecting that, in 2005, two percent of the general population of Internet users recognized ROSETTA STONE without being prompted while 13 percent recognized ROSETTA STONE with prompting. In response, Rosetta Stone argues that Google first began permitting the use of Rosetta Stone's mark in sponsored ad text in 2009, by which time it had become famous. Thus, Rosetta Stone's position is that the phrase commences use in § 1125(c)(1) refers to any diluting use in commerce, not merely the first. This argument, of course, undercuts Rosetta Stone's own Complaint, which clearly asserts that Google diluted Rosetta Stone's mark beginning in 2004 by permitting the use of trademarks such as ROSETTA STONE as keyword triggers. Rosetta Stone asks us to ignore this alleged diluting use for purposes of § 1125(c)(1). The statute does not permit the owner of a famous mark to pick and choose which diluting use counts for purposes of § 1125(c)(1). See Nissan Motor Co., 378 F.3d at 1013 (If . . . first use for purposes of § 1125(c) turned on whatever use the mark's owner finds particularly objectionable, owners of famous marks would have the authority to decide when an allegedly diluting use was objectionable, regardless of when the party accused of diluting first began to use the mark.). The fame of Rosetta Stone's mark, therefore, should be measured from 2004, when Rosetta Stone alleges Google's diluting use of its mark began. Alternatively, Rosetta Stone suggests that it produced evidence showing that its mark was famous in 2004. It is, however, unclear from the voluminous record precisely which evidence reflects ROSETTA STONE's fame in 2004, and we think the better course is for the district court to handle this fact-intensive question of when Rosetta Stone's mark became famous in the first instance, particularly since other facets of the dilution claim will be reconsidered on remand. Thus, on remand, the district court should reconsider whether ROSETTA STONE was a famous mark for purposes of its dilution claim against Google. That will require the court first to determine when Google made its first ostensibly diluting use of the mark. Second, the court must decide whether Rosetta Stone's mark was famous at that point. In making the latter determination, the district court should assess fame in light of the relevant statutory factors, see 15 U.S.C. § 1125(c)(2)(A), as well as the strong showing required to establish fame under this statute, see, e.g., I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 46 (1st Cir.1998) (explaining that to satisfy the famousness requirement, a mark had to be truly prominent and renowned (internal quotation marks omitted)).
For the foregoing reasons, we affirm the district court's order with respect to the vicarious infringement and unjust enrichment claims. We vacate, however, the district court's order with respect to Rosetta Stone's direct infringement, contributory infringement and dilution claims, and we remand the case for further proceedings on those three claims. AFFIRMED IN PART, VACATED IN PART, AND REMANDED