The companies agreed to settle all claims and dismiss the suit, according to a filing on Wednesday in U.S. District Court in Alexandria, Virginia. The terms of the settlement were not specified.

The case tested whether Google's sale of other companies' trademarks for sponsored links could give rise to liability for trademark infringement.

"Rosetta Stone Inc and Google have agreed to dismiss the three-year-old trademark infringement lawsuit between them and to meaningfully collaborate to combat online ads for counterfeit goods and prevent the misuse and abuse of trademarks on the Internet," the companies announced in a joint statement on Wednesday.

In the lawsuit filed in 2009, Rosetta Stone accused Google of committing trademark infringement by selling its trademarks to third-party advertisers for use as search keywords. Google allows advertisers to buy sponsored link ads at the top of search result pages.

Rosetta Stone argued that people searching for its products on Google were being redirected to competitors and software counterfeiters.

A federal court in Virginia had dismissed the case in 2010, finding that the sale of the keywords was not likely to confuse consumers. But the U.S. Court of Appeals for the 4th Circuit, in Richmond, Virginia, revived the bulk of the suit in April, allowing Rosetta Stone to pursue claims that Google committed trademark infringement and diluted the Rosetta Stone brand.

Rosetta Stone had presented testimony of consumers who purchased bogus Rosetta Stone software from sponsored links on Google that they mistook for the genuine brand.

The 4th Circuit had also cited an internal Google study finding that even sophisticated consumers were sometimes unaware that sponsored links were advertisements.

The case is Rosetta Stone Ltd v. Google Inc, U.S. District Court for the Eastern District of Virginia, No. 09-736.

(Reporting by Terry Baynes in New York; Editing by Bob Burgdorfer and Leslie Adler)

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