The Third Circuit has become only the second Circuit Court to recognize the "nominative fair use" doctrine, partially adopting it as an affirmative defense in a trademark infringement action. Century 21 Real Estate Corporation v. LendingTree, Inc. , 425 F.3d 211 (3d Cir. 2005). In 1992, the Ninth Circuit formulated the doctrine in The New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 23 U.S.P.Q.2d (BNA) 1534, 20 Media L. Rep. 1468 (9th Cir. 1992).
In The New Kids on The Block, defendants, both newspapers, used the trademark "NEW KIDS ON THE BLOCK" as part of a poll to determine which "new kid" was the most popular. Thus, the newspapers used phases such as "Which of the New Kids on the Block would you most like to move next door?" The newspapers asserted a First Amendment defense in the District Court, and were successful on summary judgment. In affirming, however, the Ninth Circuit crafted the nominative fair use doctrine and affirmed summary judgment on this basis:
Indeed, we may generalize a class of cases where the use of the trademark does not attempt to capitalize on consumer confusion or to appropriate the cachet of one product for a different one. Such nominative use of a mark - where the only word reasonably available to describe a particular thing is pressed into service - lies outside the strictures of trademark law: Because it does not implicate the source-identification function that is the purpose of trademark, it does not constitute unfair competition; such use is fair because it does not imply sponsorship or endorsement by the trademark holder. The New Kids on The Block, 971 F.2d at 307-308 (emphasis in original).
The Ninth Circuit held that a user of a trademark was entitled to assert the nominative fair use doctrine "provided he meets the following three requirements:
First, the product or service in question must be one not readily identifiable without use of the trademark; second, only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and third, the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder." The New Kids on The Block, 971 F.2d at 308.
The Court then held that the use by the newspapers met all three tests, as they could not have conducted the polls without using the mark, the references were limited to the name alone, and nothing in the announcements suggested participation or endorsement by the New Kids on the Block.
Over the next 13 years, the doctrine was adopted only by the Fifth Circuit, and then only in part. Pebble Beach Company v. Tour 18 Limited, 155 F.3d 526 (5th Cir. 1998). The Sixth Circuit acknowledged the existence of the doctrine, but declined to adopt it in PACCAR, Inc. v. Telescan Technologies, L.L.C., 319 F. 3d 243 (6th Cir. 2003). However, the Ninth Circuit continued to define the doctrine: in Playboy Enterprises, Inc., v. Wells, 279 F.3d 796 (9th Cir. 2002), it held that a former Playmate of the Year could use the terms "Playboy," Playmate" and "Playmate of the Year" to describe herself in her Web site; and in Cairns v. Franklin Mint Co., 292 F.3d 1139 (9th Cir., 2002), it permitted the use of "Princess Diana" to describe collectible figurines of her likeness. Through this line of cases, the doctrine has evolved to supplant entirely the traditional trademark infringement analysis, and instead assumes confusion and shifts the burden to the defendant to prove nominative fair use. The logic of this shift is that the defendant is using the exact trademark of the plaintiff, so the Court eliminated the need for the plaintiff to prove confusion.
In Century 21, the Third Circuit adopted the nominative fair use doctrine, with changes from the Ninth Circuit's formulation. Joining Century 21 as plaintiffs were Coldwell Banker Real Estate Corporation and ERA Franchise Systems, Inc., all realtors. Defendant LendingTree, as described by the court, is an Internet based company that provides referrals to lenders, insurers and real estate brokers. As regards realtor services, consumers visit the LendingTree Web site and submit information on their location and the characteristics of the home they are seeking. LendingTree matches the information to real estate companies participating in LendingTree's referral program, and returns four names to the consumer. At least 257 of the companies to which LendingTree made referrals were franchises of the three plaintiffs.
Plaintiffs complained that within its Web site, LendingTree used the trademarks of the plaintiffs in four manners: (1) LendingTree depicted a Coldwell Banker 'for sale' sign; (2) LendingTree stated it would provide referrals to Coldwell Banker, Century 21 and ERA realtors; (3) a statement that LendingTree is "represented" by realtors such as Century 21, Coldwell Banker and ERA (and others); and (4) use of printed materials stating that LendingTree is affiliated with Coldwell Banker, Century 21 and ERA (and others). After the Complaint was filed and before argument on plaintiffs' application for an injunction, LendingTree modified its Web site in such ways as changing the colors of the 'for sale' sign and adding a statement that the plaintiffs were not affiliated with LendingTree.
The District Court found that LendingTree's use of the marks created confusion, and rejected LendingTree's reliance on the nominative fair use doctrine. Thereupon, the District Court entered a preliminary injunction preventing any further use of the marks of plaintiffs.
The Circuit Court reviewed the history of the nominative fair use doctrine line of cases from the Ninth Circuit, and adopted the doctrine as a defense to an infringement action. However, significantly, the court rejected the Ninth Circuit's virtual assumption of confusion and the shifting of the burden of proof to the defendant. In KP Permanent Make-Up, Inc., v. Lasting Impressions I, Inc., 543 U.S. 111 (2004), the Supreme Court held that where a defendant is relying on the fair use doctrine (the traditional or "classic" fair use doctrine codified at 5 U.S.C. 1115(b)(4)), the plaintiff must still prove confusion, and if the plaintiff meets that burden, then the defendant must go forward with its burden of proving fair use. Relying on KP Permanent Make-Up, the Third Circuit broke from the Ninth Circuit, and held that in the Third Circuit, where a defendant asserts a nominative fair use, the plaintiff must first establish a likelihood of confusion. Only if the plaintiff meets this burden, as well as the remaining prerequisites for proving a trademark infringement action, will the defendant be required to go forward and establish the nominative fair use, as an affirmative defense. The court noted that its decision on the burden of proof is also supported by the Lanham Act, 32 and 43(a), which require a likelihood of confusion as a prerequisite to bringing an infringement action.
Thus, the Third Circuit adopted a two-step analysis for nominative fair use: the plaintiff must prove that there exists a likelihood of confusion, following which the defendant must establish nominative fair use as an affirmative defense. The nominative fair use defense will consist of a three part test, "derived to a great extent from the one articulated bythe Ninth Circuit," but which differs from the Ninth Circuit:
(1) that the use of plaintiff's mark is necessary to describe both the plaintiff's product or service and the defendant's product or service; (2) that the defendant uses only so much of the plaintiff's mark as is necessary to describe plaintiff's product; and (3) that the defendant's conduct or language reflect the true and accurate relationship between plaintiff and defendant's products or services. Century 21, 425 F.3d at 222 to 231.
The court then turned to its traditional 10-factor test for likelihood of confusion, known as the Lapp Test, after Interpace Corp. v. Lapp., Inc. , 721 F.2d 460 (3rd Cir., 1983). Noting that, as the Ninth Circuit held, traditional tests for likelihood of confusion do not fit nominative fair use cases, the court held that the first and second Lapp factors (i.e., the degree of similarity between the allegedly infringing mark and the strength of the owner's mark) will be meaningless in nominative fair use cases, as the marks are exactly the same. Therefore, these two factors are not to be used where nominative fair use is a defense. As for the remaining eight factors, the court held that the trial court is free to apply or reject them in the context of the case. Thus, it held that only four factors were relevant to this case, and remanded to the District Court for consideration of those factors.
Judge D. Michael Fisher authored a strong dissent, asserting, in part, that the majority had confused the entire area, as the Ninth Circuit's nominative fair use doctrine was really a replacement for its likelihood of confusion analysis, and the majority here had failed to recognize this. Thus, he wrote, the majority had adopted an approach which, although labeled an affirmative defense, actually requires a defendant to disprove confusion, when that burden should be on the plaintiff. Judge Fisher would have adopted the doctrine, using only Lapp factors two through ten, with the entire burden of proof on plaintiff. He concluded that the majority's formulation was "judicially unmanageable because it requires courts to examine identical likelihood of confusion factors on both sides of the analysis." Century 21, 425 F.3d at 233. Judge Fisher also analyzed two cases which, he noted, would be considered nominative fair use cases under the majority's opinion, but which were decided on the basis of likelihood of confusion, with the plaintiff bearing the burden of proof. Prestonettes, Inc. v. Coty, 264 U.S. 359 (1924); G.D. Searle & Co. v. Hudson Pharmaceutical Corp., 715 F.2d 837 (3d Cir. 1983). He concluded that "[b]oth cases make it clear that nominative fair use is nothing more that a likelihood of confusion inquiry" Century 21, 425 F.3d at 238.
On Dec. 27, 2005, the court denied plaintiff/appellant's petition for rehearing en banc.
David W. Phillips is a Partner at St. John & Wayne, in the firm's Newark and New York offices. His practice is focused on complex commercial litigation and trials with emphasis on intellectual property and unfair competition litigation. This article was first published in the March 13, 2006 issue of New Jersey Law Journal and is republished here with permission. 2005 ALM Properties, Inc. All rights reserved.