Ninth Circuit Applies Nominative Use Defense to Domain Names

In a decision that will likely help define the boundaries of trademark owners’ rights in domain names, the Ninth Circuit Court of Appeals recently reversed and remanded a district court’s broad injunction prohibiting any use of the trademark LEXUS in domain names used by an independent auto broker legally helping to sell LEXUS automobiles. In Toyota Motor Sales, U.S.A., Inc. v. Farzad Tabari, et al., No. 07-55344 (9th Cir. July 8, 2010), a unanimous panel robustly applied the doctrine of nominative fair use to domain names. The decision was authored by Chief Judge Alex Kozinski, who invented the nominative use defense in the New Kids on the Block case¹ 18 years ago.

The nominative fair use defense provides protection to those who use another’s trademark for the purpose of identifying the brand without suggesting affiliation or sponsorship with the brand owner. To determine whether nominative fair use applies, courts look to three factors: whether (1) the defendant’s product was “readily identifiable” without use of the plaintiff’s mark; (2) defendant used more of the mark than necessary; and (3) defendant falsely suggested sponsorship or endorsement by the trademark holder. New Kids, 971 F.2d at 308-09. By definition, if a defendant’s use of another’s mark is nominative fair use, it is not trademark infringement as it is not likely to confuse consumers. Once a defendant asserts a nominative fair use defense, it only needs to show that it used the mark to refer to the trademarked product; the burden then shifts to the plaintiff trademark owner to establish that there is no nominative fair use, as “the Lanham Act always places the ‘burden of proving likelihood of confusion … on the party charging infringement.’”²

In Toyota, defendants/appellants Lisa and Farzad Tabari, doing business as Fast Imports, are auto brokers who help purchasers buy LEXUS and other brands of automobiles at the lowest price. The Tabaris offered this service through two domain names that were the subject of this case: buy-a-lexus.com and buyorleaselexus.com.³ Toyota claimed the use of those domain names infringed its trademark rights, and the Tabaris asserted a nominative fair use defense. The district court issued an injunction that prohibited the Tabaris from using “any … domain name, service mark, trademark, trade name, meta tag or other commercial indication of origin that includes the mark LEXUS.” The Ninth Circuit reversed in light of the nominative fair use doctrine and First Amendment concerns.

In its opinion, the Court pointed out that the injunction was “plainly overbroad — as even Toyota’s counsel grudgingly conceded at oral argument — because it prohibits domain names that on their face dispel any confusion as to sponsorship or endorsement.” Toyota at 9706. The Court continued:

The Tabaris are prohibited from doing business at sites like independent-lexus-broker.com and we-are-definitely-not-lexus.com, although a reasonable consumer would not believe Toyota sponsors the websites using those domains. Prohibition of such truthful and non-misleading speech does not advance the Lanham Act’s purpose of protecting consumers and preventing unfair competition; in fact, it undermines that rationale by frustrating honest communication between the Tabaris and their customers.

Id.

Applying the New Kids factors, the Court found the Tabaris’ use of their domains constituted nominative fair use. The Court concluded that the Tabaris: (1) had to use the LEXUS mark to describe the genuine LEXUS products they were helping to sell; (2) were using no more of the mark as necessary (which in this case was the LEXUS mark in its entirety); and (3) did not create a likelihood of consumer confusion through the use of those domains.

The Court differentiated between the use of a domain name consisting only of a trademark followed by a .com, .net, or .org suffix and one of the above examples. The former (i.e., use of “trademark.com”) would be more likely to cause confusion among consumers that the domain name was in fact affiliated with or endorsed by the trademark owner. However, other domains that incorporate the trademark with other words (like “starbucksgossip.com” or “mercedes-talk.net”) do not infringe because they do not give the false impression that the domain name is owned or operated by that brand owner.

To illustrate its point, the Court indicated that “[c]onsumers who use the internet for shopping are generally quite sophisticated about such matters and won’t be fooled into thinking that the prestigious German car manufacturer sells boots at mercedesboots.com, or homes at mercedeshomes.com, or that comcastsucks.org is sponsored or endorsed by the TV cable company just because the string of letters making up its trademark appears in the domain.” Id. at 9709.

By contrast, the Court noted that domains such as trademark-USA.com, trademark-of-glendale.com, and e-trademark.com do generally suggest sponsorship or endorsement by the respective trademark owners. Id. at 9710.

As in the Ninth Circuit’s recent opinion, also authored by Chief Judge Kozinski, on trademark dilution in Visa Int’l Serv. Ass’n v. JSL Corp., No. 08-15206 (9th Cir. June 28, 2010) (finding “eVisa” diluted VISA mark) (see Foley’s July 6, 2010 Legal News Alert at http://www.foley.com/publications/pub_detail.aspx?pubid=7275), the Court assumed certain facts not in the record concerning consumer behavior; in this case, how people use and react to the Internet. For example, the Court indicated that Internet users are generally quite sophisticated as well as agnostic and not likely to be misled. While those facts seem non-controversial and perhaps self-evident, their assumption drew a concurrence from Judge Fernandez disassociating himself from the majority’s “factual statements whose provenance is our musings rather than the record.”

The Court further warned against that over-aggressive protection of trademark rights in domain names could have a chilling economic effect:

It is the wholesale prohibition of nominative use in domain names that would be unfair. It would be unfair to merchants seeking to communicate the nature of the service or product offered at their sites. And it would be unfair to consumers, who would be deprived of an increasingly important means of receiving such information. As noted, this would have serious First Amendment implications. The only winners would be companies like Toyota, which would acquire greater control over the markets for goods and services related to their trademarked brands, to the detriment of competition and consumers. The nominative fair use doctrine is designed to prevent this type of abuse of the rights granted by the Lanham Act.

Toyota at 9712.

The Court vacated the district court’s injunction and remanded the case for reconsideration consistent with its findings. In doing so, the Court instructed the district court to apply only the New Kids factors for nominative use and not the Sleekcraft⁴  factors for finding likelihood of confusion, which are used in the typical Ninth Circuit trademark infringement case. The Court also awarded the costs of appeal to the Tabaris, who are representing themselves pro se.⁵

This case provides further guidance for both brand owners and third parties with respect to acceptable use (and misuse) of domain names that incorporate trademarks. In the Ninth Circuit, and likely in other Circuits that have adopted the nominative fair use doctrine, the test will now also be applicable to domain names to ensure that resellers and other legitimate members of a distribution chain may use domains to identify the brands they sell. This opinion is consistent with prior decisions from both various courts and panels under the Uniform Domain Name Dispute Resolution Policy, which allow for use of another’s trademark in a manner that clearly identifies, but does not cause confusion with, the mark. Finally, the case stands as a reminder that notwithstanding large amounts that may be spent by big-brand owners to develop goodwill in their brands (in this case, Toyota spends more than $250 million per year advertising its LEXUS brand), trademark rights may be limited by doctrines of fair use and the First Amendment.

The Ninth Circuit’s opinion is accessible at http://pub.bna.com/eclr/0755344_070810.pdf.

¹New Kids on the Block v. News Am. Publ’g, Inc., 971 F.2d 302 (9th Cir. 1992).