Third Circuit Adopts Nominative Fair Use Defense
On Oct. 11, in Century 21 Real Estate Corp. v. LendingTree Inc., 425 F.3d 211 (3d Cir. 2005), the 3d U.S. Circuit Court of Appeals became only the second circuit, joining the 9th Circuit, to analyze and expressly adopt the nominative fair use defense in trademark cases. In doing so, the court set forth a two-step approach to analyze claims of nominative fair use, and, at the same time, confirmed that a fair use defendant need not negate a likelihood of confusion to successfully assert the defense.
The typical trademark infringement analysis focuses on whether the defendant's use of the plaintiff's mark, or an allegedly similar mark, is likely to cause consumer confusion. Sometimes, a defendant will assert the affirmative defense that its use is 'fair,' notwithstanding a likelihood of confusion. The concept of 'fair use' is sometimes confused because the term refers to two different types of fair use-'classic fair use' and 'nominative fair use.'
Generally, a defendant asserting a classic fair use defense argues that it is using the mark to describe its own products or services. For example, in the recent U.S. Supreme Court case of KP Permanent Make-Up Inc. v. Lasting Impression I Inc., 543 U.S. 111 (2004), the defendant successfully argued that its use of the plaintiff's registered mark Micro Color was fair because the defendant used the term to accurately describe attributes of the defendant's make-up product. Classic fair use is recognized in § 33(b)(4) of the Lanham Act.
The plaintiff's own products
In a nominative fair use case, on the other hand, the defendant contends that it is fairly using the plaintiff's mark to describe the plaintiff's own products or services. In an example highlighted by Judge Alex Kozinski in the 9th Circuit's seminal nominative fair use case, an automobile mechanic who specializes in repairs to Volkswagen cars may argue that his use of the Volkswagen trademark to advertise his services is fair. New Kids on the Block v. News America Pub. Inc., 971 F.2d 302, 307 (9th Cir. 1992). In this type of case, there is no dispute that the mechanic is using the Volkswagen trademark, or that he is referring to authentic Volkswagen products. The mechanic nevertheless argues that his use of the Volkswagen trademark is fair because otherwise he would have no way to accurately describe his specialty to the consuming public, namely, fixing Volkswagen cars.
LendingTree refers to itself on its Web site as a 'leading online lending and realty service exchange.' With respect to its realty services, consumers can visit the LendingTree site, input the location and other characteristics of the house they are seeking to purchase or sell, and then select from up to four real estate companies participating in the LendingTree network.
LendingTree also has an established mortgage referral program in accordance with relationships with participating mortgage institutions, including franchisees of Century 21, Coldwell Banker and ERA (collectively 'CCE'). CCE sued LendingTree under the Lanham Act for trademark infringement resulting from LendingTree's use of CCE's trademarks on LendingTree's site in connection with LendingTree's mortgage referral program. CCE objected to LendingTree's use of CCE's marks, both in block form and the logos, on the site and in printed materials.
For example, LendingTree stated that it is '[r]epresented by large independent real estate companies and members of major franchises-Coldwell Banker, Century 21, Prudential, ERA, ReMAX, GMAC . . . and Realty Executives.' CCE argued that these and other uses were likely to cause confusion as to affiliation with CCE. In response, LendingTree asserted that its use of CCE's trademarks constituted nominative fair use because LendingTree used those trademarks only to describe CCE's own services, and that it was necessary to use the CCE marks in this way to accurately describe the services provided both by LendingTree and CCE. LendingTree argued that an injunction would prohibit it from accurately informing its customers that CCE franchisees participated in the LendingTree mortgage referral program.
The district court preliminarily enjoined LendingTree's use of CCE's marks, ruling that it was likely to cause confusion, and that the nominative fair use doctrine did not shield LendingTree in this instance. In a 2-1 vote, the 3d Circuit reversed the preliminary injunction and remanded the case for further proceedings.
The 3d Circuit initially noted the recent Supreme Court case of KP Permanent Make-Up, which involved classic fair use. The Supreme Court ruled that the defendant's use of the registered mark Micro Color was fair because the defendant was using the phrase to accurately describe its own product. Century 21, 425 F.3d at 217. In doing so, the Supreme Court ruled that a plaintiff has the exclusive burden to demonstrate a likelihood of confusion, and only after the plaintiff has met its burden of showing a likelihood of confusion does the defendant have the burden to demonstrate the affirmative defense of fair use. KP Permanent Make-Up, 543 U.S. at 550. A party asserting a classic fair use defense has no affirmative duty to negate likelihood of confusion. The court noted that 'some possibility of consumer confusion must be compatible with fair use' because a defendant asserting fair use has no obligation to show confusion unlikely.
The 3d Circuit observed that few courts had expressly spoken to the precise issue of whether the doctrine of nominative fair use, as opposed to classic fair use, is a viable affirmative defense to a trademark infringement claim. Century 21, 425 F.3d at 218. The court then extensively discussed the seminal nominative fair use case from the 9th Circuit-New Kids, 971 F.2d at 302. In New Kids, the 9th Circuit considered whether two separate newspapers that had conducted polls asking readers to vote for their favorite New Kid on the Block had employed the New Kids trademark in such a way as to violate the Lanham Act.
The 9th Circuit in New Kids identified the following factors for nominative fair use cases, where the defendant contends that it uses a trademark to describe the plaintiffs' product rather than its own: The product or service in question must be one not readily identifiable without use of the trademark; only so much of the mark or marks may be used as is reasonable or necessary to identify the product or service; and the user must do nothing in conjunction with the mark to suggest sponsorship or endorsement by the trademark holder. New Kids, 971 F.2d at 308.
The 3d Circuit observed that the 9th Circuit in New Kids rejected traditional trademark-infringement analysis, which requires a plaintiff to first establish likelihood of confusion, in nominative fair use cases. Century 21, 425 F.3d at 221-22. Though the 3d Circuit agreed with the 9th Circuit's position that a distinct analysis is needed for nominative fair use cases, it ultimately rejected the 9th Circuit's test in favor of its own. In doing so, the 3d Circuit observed that the 9th Circuit test would improperly relieve the plaintiff of the burden of proving the key element in a trademark infringement case, likelihood of confusion. The 3d Circuit noted that this would run afoul of the Supreme Court's recent opinion in KP Permanent Make-Up, which clearly established that it was the plaintiff's burden in a classic fair use case to prove likelihood of confusion. The 3d Circuit further noted that the 9th Circuit's test also runs afoul of the Lanham Act, which requires the plaintiff to prove likelihood of confusion, as opposed to forcing the defendant in a fair use case to negate any likelihood of confusion.
The 3d Circuit's test
The 3d Circuit adopted a two-step approach in nominative fair use cases. First, a plaintiff must prove that confusion is likely due to the defendant's use of the plaintiff's mark. Once a plaintiff has met its burden of proof by showing a likelihood of confusion, the burden then shifts to the defendant to show that its use of the plaintiff's mark is nonetheless fair.
With respect to the first step, the 3d Circuit identified the following factors to analyze in a nominative fair use case to determine whether the plaintiff has shown likelihood of confusion: the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase; the length of time that the defendant has used the mark with evidence of actual confusion; the intent of the defendant in adopting the mark; and the evidence of actual confusion.
The court noted that other factors often utilized in traditional likelihood-of-confusion cases were not relevant in nominative fair use cases. For example, the similarity of the marks is not a relevant factor because there is no dispute that the defendant is using the plaintiff's marks. The court further noted that, in accordance with KP Permanent Make-Up and the Lanham Act, the plaintiff, even in a nominative fair use case, bears the burden of proving likelihood of confusion.
Once the plaintiff has shown likelihood of confusion, then the defendant can still show that its use is nonetheless fair. In doing so, the 3d Circuit identified the following relevant factors for this second step: whether the use of the plaintiff's mark is necessary to describe the plaintiff's products and services and the defendant's products or services; whether only so much of the plaintiff's mark was used as is necessary to describe the plaintiff's products or services; and whether the defendant's conduct or language reflect the true and accurate relationship between the plaintiff's and the defendant's products or services. Assuming that a nominative fair use defendant can show these factors, then the defendant's use of the plaintiff's trademark should be regarded as fair, even if the plaintiff shows that consumers are likely to be confused.
Although Judge D. Michael Fisher concurred with the decision to remand, he dissented from the creation of the new two-step approach. Fisher objected to the two-step process on the ground that, in his view, it places upon the defendant the burden to negate the likelihood of confusion. Fisher further argued that the issue of nominative fair use is at base whether likelihood of confusion exists at all, and therefore not an affirmative defense to likelihood of confusion.
Reprinted with permission from the January 23, 2006 edition of The National Law Journal. ©2006 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.