• Third Circuit Creates New Test for Nominative Fair Use of Trademarks
  • January 3, 2006 | Author: Joseph E. Laska
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • In Century 21 Real Estate Corp. v. Lending Tree, Inc., the U.S. Court of Appeals for the Third Circuit created a new test to determine when a party's use of another's trademark to describe the party's own product constitutes a lawful, "nominative fair use." The test probably will make it easier for accused infringers to invoke this defense successfully.

    Century 21, Coldwell Banker and ERA Franchise Systems (collectively, "CCE") are real-estate companies whose names are registered as trademarks. Lending Tree is an Internet-based service that helps consumers select possible real-estate mortgage lenders based on information provided by the customers.

    The Lending Tree website contained several references to CCE's trademarked names. For instance, the website stated that it would "give you access to a national network of brokers representing the country's leading real estate companies, including Coldwell Banker, ERA and Century 21," and contained other statements suggesting that Lending Tree was affiliated with CCE. In addition, Lending Tree's website homepage featured a Coldwell Banker "For Sale" sign with the Coldwell Banker logo partially visible.

    CCE sued Lending Tree in federal court in Newark, NJ, alleging that these references infringed CCE's trademarks. Lending Tree raised a nominative fair use defense, that it was lawfully using the CCE trademarks merely to describe Lending Tree's services.

    The trial court applied the nominative fair use test from the U.S. Court of Appeals for the Ninth Circuit, on the West Coast, determined that Lending Tree did not have this defense, and issued a preliminary injunction against Lending Tree's further use of CCE's marks.

    Lending Tree appealed to the Third Circuit -- the federal appellate court for Delaware, New Jersey, Pennsylvania, and the U.S. Virgin Islands -- which created a new legal test and remanded the case to the lower court to apply the new test.

    The Third Circuit began its analysis by noting that the Ninth Circuit had developed the only existing test for nominative fair use. In the Ninth Circuit's formulation, a defendant claiming nominative fair use must show that (1) the defendant's product or service in question is not readily identifiable without use of the plaintiff's mark; (2) the defendant has used only so much of the mark as is necessary to identify the product or service; and (3) the defendant did not suggest sponsorship or endorsement by the plaintiff. The Third Circuit had various objections to this test. The Third Circuit created a different two-stage test, which is as follows:

    Stage one: the plaintiff has the initial burden of showing that there is a likelihood of confusion between the competing marks caused by the defendant. Here, likelihood of confusion is measured according to four factors primarily: (1) the care and attention expected of consumers when making a purchase; (2) the length of time the defendant has used the mark without evidence of actual confusion; (3) the intent of the defendant in adopting the mark; and (4) the evidence of actual confusion. Other factors may be appropriate for consideration on a case-by-case basis.

    Stage two: if the plaintiff makes a showing of likelihood of confusion, then the burden shifts to the defendant to prove a nominative fair use. To evaluate fair use, courts in the Third Circuit will answer three questions: (1) is the use of the plaintiff's mark necessary to describe (a) the plaintiff's product or service and (b) the defendant's product or service?; (2) is only so much of the plaintiff's mark used as is necessary to describe the plaintiff's products or services?; and (3) does the defendant's conduct or language reflect the true and accurate relationship between the products or services of the plaintiff and the defendant?

    Ultimately, the Third Circuit remanded the case to the trial court to apply this test.

    One concurring judge agreed that the case should have been remanded, but would have preferred to create a single-step test combining the likelihood-of-confusion factors with the nominative fair use factors.

    This decision is relevant to all trademark law practitioners. The Ninth Circuit test has enjoyed a long run as the only nominative fair use test in town, but all cases decided in the Third Circuit must now apply this new, different test. Because the new test is two stages, one of which puts a burden on the plaintiff, it is probable that more defendants in the Third Circuit and anywhere else where this test is adopted will be able to mount the nominative fair use defense successfully. And, perhaps most importantly, these conflicting circuit court tests could mean that the U.S. Supreme Court will eventually step in and articulate one test for all federal courts in the country.