Rosetta Stone LTD v. Google Inc.

Filing 82

Memorandum in Support re 81 MOTION for Leave to File A FIRST AMENDED COMPLAINT filed by Rosetta Stone LTD. (Allen, Warren)

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 1 of 9

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION ____________________________________ ROSETTA STONE LTD., ) ) Plaint iff, ) ) vs. ) ) GOOGLE INC., ) ) Defendant. ) ____________________________________)

Civ. Action No. 1:09-cv-00736(GBL/TCB)

MEMORANDUM IN SUPPORT OF PLAINTIFF'S UNOPPOSED MOTION FOR LEAVE TO FILE A FIRST AMENDED COMPLAINT On July 10, 2009, Rosetta Stone filed an eight-count Complaint against Defendant Google Inc. ("Google") seeking to stop Google's unauthorized use and sale of Rosetta Stone's trademarks as keywords that trigger third-part y, paid advert isements on Google search-result s webpages. For approximately five years, Google has sold Rosetta Stone's registered trademarks to compet itors of Rosetta Stone as well as to illegit imate, and so met imes fly-by-night, companies that sell illegal pirated and counterfeit software under the Rosetta Stone brand. Google's

practices of explo it ing Rosetta Stone's trademarks without authorizat ion not only have financially harmed Rosetta Stone by diverting Rosetta Stone's customers to compet itors and pirates, but also have allowed Google to unjust ly reap millio ns of dollars in advertising profits fro m Rosetta Stone's famous marks. After engaging in limited discovery, Rosetta Stone now wishes to amend its complaint to narrow the issues for trial and to add an alternative theory o f recovery. Without accepting the arguments presented herein, Defendant Google does not oppose this motion.

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 2 of 9

BACKGROUND Rosetta Stone is a leading provider of inno vat ive, interactive language-learning software. (Compl. ¶ 14.) Founded in 1992, Rosetta Stone provides language-learning so lut ions in 30 languages to governments, corporations, and individual customers in 150 countries. (Id.) To promote its products and its brand, Rosetta Stone invests approximately $100 millio n annually in worldwide advert ising and market ing. Rosetta Stone's registered trademarks are a crit ical component of its effort to build the Co mpany's fame, reputation, and goodwill. (Id. ¶¶ 19-20.) Indeed, Rosetta Stone's substant ial investment in advert ising and pro motion has resulted in wide public acceptance and recognit ion of its trademarks as being uniquely associated with Rosetta Stone and its products. (Id. ¶ 19-21.) Thus, these marks are assets of immense value to Rosetta Stone, as they serve as dist inct ive symbo ls o f Rosetta Stone, its high-qualit y products and services, and its goodwill. (Id. ¶ 21.) Google is an enormously successfully mult inat ional corporation. In 2009, the company generated approximately $23 billio n in gross revenue. Google is best known for its popular search engine through which it derives 99% of its revenues fro m advert ising. The centerpiece of Google's advertising plat form is its AdWords program, which allows companies to purchase advertising on Google's search-result s pages that is triggered when web users enter certain keywords into Google's search engine. (Id. ¶ 36.) Google ho lds an auct ion through which it sells to third parties the right to have certain search terms, which are known as keywords and include registered trademarks, trigger their ads. Google refers to these advertisements as "Sponsored Links," and the bidders most attractive to Google receive the most desirable and visible advert ising positions along the top and right-hand side of the search-results page. (Id. ¶¶

2

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 3 of 9

36-39.) The advertisers then pay Google each time a web user clicks on or accesses the advert iser's Sponsored Link. (Id. ¶ 37.) Before 2004, Google did not permit companies to bid on, or use, the trademarks of other companies as keyword triggers without express authorizat ion fro m the trademark owner. (Id. ¶ 42.) In 2004, however, Google decided to change it s policy so that it could generate hundreds of millio ns, if not billio ns, in gross revenues by selling trademarks of others in the United States and Canada. (Id. ¶ 44.) Although incredibly lucrative, the new policy also was fraught with significant risk. In light of this, Google was co mpelled to warn investors of the potential adverse consequences o f explo it ing other companies' trademarks without authorizat ion: As a result of this change in policy, we may be subject to more trademark infringement lawsuits. . . . Adverse results in these lawsuits may result in, or even compel, a change in this practice which could result in a loss of revenue for us, which could harm our business. (Id. ¶ 45 (quoting Google's Form S-1 Registration Statement, April 29, 2004, at 10).) In 2009, Google once again revised its trademark policy in an effort to generate hundreds of millio ns in addit ional annual revenue. Under its new and current policy, Google allows advert isers to use other companies' trademarks in the text of their advertisements ­ even when the trademark owner has expressly prohibited the advertiser's use of its marks. (Id. ¶ 50.) Rosetta Stone never provided Google permission to use or sell Rosetta Stone's trademarks to promote the goods and services of third parties. (Id. ¶ 48.) Yet, under its

AdWords program, as governed by the revised trademark policies described above, Google allows ­ indeed, even encourages ­ third parties to bid on and purchase Rosetta Stone's marks to generate ads for compet itor and pirated goods and to appear in the text of their advertisements. (Id. ¶¶ 31, 49, 52-53, 57.) Google's unauthorized explo itat ion of Rosetta Stone's trademarks "generates profits for Google and its advertisers that are directly attributable to their 3

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 4 of 9

unauthorized explo itation o f the value and name recognit ion associated with the Rosetta Stone marks." (Id. ¶ 33.) In addit ion to the lost sales and profits caused by the diversio n of Rosetta Stone customers to compet itors and pirates, Rosetta Stone receives no compensat ion, including licensing fees or royalt ies, fro m Google or the third parties for use of the marks. (Id. ¶ 62.) Google's actions therefore have allowed it and it s advertisers "to benefit financially fro m and trade off the goodwill and reputation of Rosetta Stone without incurring the substant ial expense that Rosetta Stone has incurred in building its popularit y, name recognit io n, and brand lo yalt y. " (Id. at 58.) Rosetta Stone has repeatedly expressed its disapproval of Google's unauthorized use of its marks and has asked that Google end the practice, but Google has ignored Rosetta Stone's pleas. Because of Google's refusal to address Rosetta Stone's concerns, Rosetta Stone had no choice but to file the instant action to protect its intellectual property rights. To that end, Rosetta Stone filed a co mplaint seeking relief based on the fo llowing claims: Trademark/service mark infringement under the Lanham Act (Count I); contributory trademark/service mark infringement under the Lanham Act (Count II); vicarious trademark/service mark infringement under the Lanham Act (Count III); false representation under the Lanham Act (Count IV); trademark/service mark dilut ion under the Lanham Act (Count V); trademark infringement under Virginia law (Count VI); unfair compet it ion under Virginia law (Count VII); and vio lations of sect ion 18.2-499 of the Virginia Code (Count VIII). All the counts relate to Rosetta Stone's claim that Google is profit ing unjust ly fro m the sale of Rosetta Stone's intellectual property and trademarks. Because Google has filed a responsive pleading, Rosetta Stone must seek leave o f the Court to file its First Amended Co mplaint. See Fed. R. Civ. P. 15(a)(2). If permitted to do so,

4

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 5 of 9

Rosetta Stone would amend its Co mplaint in three ways.1 First, Rosetta Stone would simplify presentation of the issues for trial by reducing the number of trademarks that will be at issue. Accordingly, Rosetta Stone seeks leave to remove the fo llowing eight marks from its Co mplaint: GLOBAL TRAVELER, LANGUAGE LIBRARY, DYNAMIC IMMERSION, THE FASTEST WAY TO LEARN A LANGUAGE. GUARANTEED., ADAPTIVE RECALL,

CONTEXTURAL FORMATION, SHAREDTALK and AUDIO COMPANION. Second, as an administrative matter, Rosetta Stone would further simplify presentation o f the issues for trial by remo ving Counts IV and VIII, which were dismissed pursuant to the Court's September 21, 2009 Order.2 Third, Rosetta Stone would add a single count to pursue recovery under an alternate theory o f liabilit y--Virginia co mmo n law unjust enrichment--that depends on the same facts as other claims in the Complaint. ARGUMENT When a party requests leave to amend its pleadings after service of a responsive pleading, "the court should freely give leave when just ice so requires." Fed. R. Civ. P. 15(a)(2). The Supreme Court has explained that "this mandate is to be heeded." Foman v. Davis, 371 U.S. 178, 182 (1962). The Fourth Circuit "reads Rule 15(a) to mean that leave to amend should be denied only when the amendment would be prejudicial to the opposing party, there has been bad fait h on the part of the moving party, or amendment would be fut ile." Matrix Capital Mgmt.

1

Plaint iff's proposed amended Co mplaint is attached to Rosetta Stone's Motion as Exhibit 1. For the Court's convenience, a redlined copy of Plaint iff's proposed amended Complaint showing the proposed changes is attached as Exhibit 2. In doing so, Rosetta Stone does not intend to waive any rights it has to appeal dismissal o f the counts at issue and hereby expressly reserves its right to appeal dismissal of these claims.

2

5

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 6 of 9

Fund v. BearingPoint, Inc., 576 F.3d 172, 193 (4th Cir. 2009) (finding district court abused its discretion by refusing to grant leave to amend). Rosetta Stone easily meets its burden under Fourth Circuit jurisprudence because the amendments would not prejudice Google, are not submitted in bad fait h, and would not be futile. See Laber v. Harvey, 438 F.3d 404, 429 (4th Cir. 2006) (en banc) (failure to grant leave to amend in such circumstances was erroneous). A. Rosetta Stone's Proposed Amendments Will Not Prejudice Google. The lack of any prejudice to Google is evident from both the proposed changes to the Complaint and Google's non-opposit ion to the motion. The first two proposed changes ­ reducing the number of trademarks at issue and removing the claims already dismissed by this Court ­ are not controversial. Indeed, reducing the number of trademarks that Google has allegedly infringed fro m 12 to four will streamline the issues for trial. Moreover, conforming the complaint to the Court's earlier ruling by remo ving Counts IV and VIII is a housekeeping matter of no consequence to either party. The third proposed amendment pertains to the addit ion of an unjust enrichment claim as an alternat ive theory of liabilit y. Proof of Rosetta Stone's unjust enrichment claim, however, is derived fro m the same core of operative facts that gives rise to the Lanham Act vio lat ions. Paragraphs 13 through 69 of the Complaint allege that Google has used Rosetta Stone's marks wit hout Rosetta Stone's authorization, has sold its trademarks as keyword triggers for third-party advert ising, and has retained these profits without paying for the value that Rosetta Stone has created in its intellectual property. Those same facts, which support the claims currently in the Co mplaint, also establish that Google has been unjust ly enriched by it s abilit y to collect advert ising revenue fro m its unauthorized use of Rosetta Stone's intellectual property. Indeed, the background sect ion o f this memorandum articulates the factual basis for Rosetta Stone's unjust enrichment, and each material fact is cited direct ly to allegat ions previously plead 6

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 7 of 9

in the Co mplaint. Accordingly, there is no prejudice to Google in permitt ing the Amended Complaint to be filed. B. Rosetta Stone's Claim For Unjust Enrichment Is Neither Frivolous Nor Futile. Rosetta Stone is seeking leave to amend its Complaint because unjust enrichment is a viable basis for recovery based on the facts of this case. Leave to amend should only be denied on the ground of fut ilit y when the proposed amendment is "clearly insufficient or frivo lous on its face." Johnson, 785 F.2d at 510. Rosetta Stone's proposed amendments easily clear this hurdle. As explained above, the facts alleged in the Complaint state a claim for unjust enrichment liabilit y. As alleged in the Co mplaint, Google has seized the benefit of use o f Rosetta Stone's marks for its own benefit, it has done so knowingly, and it is inequitable for Google to retain that money that it derived from unlicensed use of Rosetta Stone's marks. See Schmidt, 276 Va. at 116, 661 S.E. 2d at 838; In re Bay Vista of Virginia, Inc., 2009 WL 2900040 at *5. Therefore, the facts alleged in the Complaint give rise to a claim for unjust enrichment liabilit y. Rosetta Stone's proposed amendment likewise is neit her futile nor frivo lous because it is perfect ly permissible for a lit igant to pursue alternative theories o f liabilit y. See Polar Commc'ns Corp. v. Oncor Commc'ns, Inc., 927 F. Supp. 894, 896 (D. Md. 1996) ("Parties may plead alternat ive theories of liabilit y, indeed as many theories as the facts will fit."). More specific to the instant case, plaint iffs have routinely pled Lanham Act claims and co mmon law unjust enrichment claims in the same co mplaint. Indeed, courts throughout the Fourth Circuit have considered unjust enrichment claims concurrently wit h Lanham Act claims. See

Cardservice Int'l, Inc. v. McGee, 950 F. Supp. 737 (E.D. Va. 1997) (finding defendant's use o f "cardservice.co m" and "Card Service on the Caprock" constituted trademark infringement in

7

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 8 of 9

vio lat ion of the Lanham Act; ordering a permanent injunction and attorneys' fees); see also, e.g., Cagan v. Popeye's of Maryland, No. 98-1291, 163 F.3d 598 (Table), 1998 WL 637343 (4th Cir. Aug. 31, 1998) (affirming lower court grant of summary judgment without discussio n); Innovative Value Corp. v. Bluestone Financial, LLC, No. DKC 2009-0111, slip op., 2009 WL 3348231 (D. Md. Oct. 15, 2009) (granting injunctive relief for, among other claims, trademark infringement and unjust enrichment where plaint iff suffered irreparable injury and further infringement was a continuing threat, making remedies at law insufficient). CONCLUSION For the foregoing reasons, Rosetta Stone respectfully requests that this Court grant its Unopposed Motion for Leave to File a First Amended Co mplaint. Respect fully submitted, March 3, 2010 Of Counsel: Mitchell S. Ettinger (Pro hac vice) Cliff Sloan (Pro hac vice) Jennifer L. Spaziano (Pro hac vice) Skadden, Arps, Slate, Meagher & Flo m, LLP 1440 New York Avenue, N.W. Washington, D.C. 20005-2111 [phone] /s/ Warren T. Allen II Virginia Bar Number 72691 Attorney for Plaintiff Rosetta Stone Ltd. Skadden, Arps, Slate, Meagher & Flo m, LLP 1440 New York Avenue, N.W. Washington, D.C. 20005-2111 [phone] [phone] [e-mail] m

8

Case 1:09-cv-00736-GBL-TCB Document 82

Filed 03/03/10 Page 9 of 9

CERTIFICATE OF SERVICE I hereby certify that on March 3, 2010 I will electronically file the foregoing with the Clerk of the Court using the CM/ECF system which will then send a notificat ion of such filing (NEF) to the fo llowing: Jonathan D. Frieden ODIN, FELDMAN & PETTLEMAN, P.C. 9302 Lee Highway, Suite 1100 Fairfax, VA 22031 jo nathan. frieden@o fplaw.co m Counsel for Defendant, Google Inc. March 3, 2010 Of Counsel: Mitchell S. Ettinger (Pro hac vice) Cliff Sloan (Pro hac vice) Jennifer L. Spaziano (Pro hac vice) Skadden, Arps, Slate, Meagher & Flo m, LLP 1440 New York Avenue, N.W. Washington, D.C. 20005-2111 [phone] /s/ Warren T. Allen II Virginia Bar Number 72691 Attorney for Plaintiff Rosetta Stone Ltd. Skadden, Arps, Slate, Meagher & Flo m, LLP 1440 New York Avenue, N.W. Washington, D.C. 20005-2111 [phone] [phone] [e-mail] m

9