The Third Circuit Carves Out New Real Estate for Itself: A New Standard for Nominative Fair Use in the Trademark Context

A trademark identifies the source of a particular good or service, and trademark law seeks to protect against a third party's use of a mark that “is likely to cause confusion, or to cause mistake, or to deceive” as to source. 15 U.S.C. '1114(1). That is, certain aspects of trademark law “preven[t] producers from free-riding on their rivals' marks.” New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 305, (9th Cir. 1992).

However, there are occasions when the use of another's trademark may be non-infringing. Two of these instances are “classic” fair use and “nominative” fair use.

Fair Use in the Trademark Context

Classic fair use occurs where a defendant uses a plaintiff's mark to describe the defendant's own product. Id. at 308. An example of this is the Volkswagenwerk Aktiengesellschaft v. Church, 411 F. 2d 350 (9th Cir. 1969) case where an automobile repair shop used the word “Volkswagen” in advertising highlighting the types of cars serviced at the particular establishment. The court recognized that in “advertising [the repair of Volkswagens, it] would be difficult, if not impossible, for [the defendant] to avoid altogether use of the word 'Volkswagen' or its abbreviation 'VW,' which are the normal terms, which to the public at large, signify appellant's cars.” Id. at 352.

On the other hand, nominative fair use is “use of another's trademark to identify, not the defendant's goods or services (as in classic fair use), but the plaintiff's goods or services. This has been dubbed a non-confusing 'nominative use' because it 'names' the real owner of the mark.” J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, Vol. 3, 23-55 (2005). The most common situation where this occurs is in the context of comparative advertising where competitors use a rival's trademark to identify the rival's product, and the advertiser or competitor's object is not to confuse but to compare. Indeed, such a use is allowed as long as the use is not false, misleading or confusing. For example, in Smith v. Chanel, Inc., 402 F.2d 562 (9th Cir. 1968), the maker of imitation perfume was permitted to use the original's trademark in promoting the imposter fragrance.

The Nominative Fair Use Test in the Ninth Circuit

The Ninth Circuit Court of Appeals explored the nominative fair use concept in a case that can be distinguished from the classic comparative advertising situation. In The New Kids on the Block v. News America Publishing, Inc., the defendants, USA Today et al., used the plaintiff's mark, The New Kids on the Block, in a newspaper survey. 971 F.2d 302. Since “[t]he New Kids trademark [was] used to refer to the New Kids themselves,” the situation fell into the nominative fair use bucket. Id. at 308. In analyzing the case, the Ninth Circuit articulated a three-prong test to help determine when a nominative fair use defense is available: 1) The product or service in question must be one not readily identifiable without use of the trademark; 2) only so much of the mark or marks may be used as is reasonably necessary to identify the products or service; 3) the user must do nothing that would in conjunction with the mark suggest sponsorship or endorsement by the trademark holder. Id.

This test has been applied in various circumstances and to date is readily applied by the courts.

The Third Circuit's New Rule for Nominative Fair Use

It is interesting then, that a divided panel of the Third Circuit recently rejected the Ninth Circuit's standard and developed its own measure for nominative fair use in Century 21 Real Estate Corp. v. LendingTree Inc., 425 F.3d 211 (3rd Cir. 2005).

In this case, plaintiffs, Century 21, Coldwell Banker and ERA, are all well-established real estate companies that oversee large networks of franchisees. Id. at 214-215. Defendant, LendingTree, is a “diversified consumer-oriented Internet business that helps consumers identify and select qualified lenders, real estate brokers, auto insurers and other financial service companies.” Id. at 215. As part of its services, LendingTree operates a Web site-based real estate referral service. Plaintiffs sued LendingTree for trademark infringement, basing their claims on various uses of the companies' marks on the LendingTree Web site. The District Court determined that the defendant's use of the plaintiffs' names was “likely to cause consumer confusion, that the nominative [fair] use defense did not shield LendingTree,” and granted the motion for summary judgment in favor of plaintiffs. Id. at 216.

On appeal, the Third Circuit was compelled to consider the “proper” test to apply in the situation where a defendant is asserting a nominative fair use defense, in spite of the fact that the Ninth Circuit's test as articulated in The New Kids on the Block case has long been the leading case on the subject. Nevertheless, the Third Circuit, in a case of first impression in the Circuit, took the opportunity to “[d]etermine what role likelihood of confusion plays in a trademark infringement case where the defendant claims that its use was nominative and fair.” Id. at 214, 218.

The Third Circuit adopted a “bifurcated approach” ' that tests a likelihood of confusion and fairness in two separate inquiries. First, one must look to four factors to determine whether there is a likelihood of confusion: 1) the price of the goods and other factors indicative of 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. Id. at 232.  

Once the plaintiff has met its burden of proving that there is a likelihood of confusion, the burden shifts to the defendant to show that its nominative use of the plaintiff's mark is indeed fair. In the new test, one must look to the following three factors: 1) is the use of plaintiff's mark necessary to describe both plaintiff's product or service and defendant's product or service; 2) is only so much of the plaintiff's mark used as is necessary to describe plaintiff's products or services; and 3) does the defendant's conduct or language reflect the true and accurate relationship between plaintiff and defendant's products or services. Id. The court further clarified that “if the answer to these questions is answered in the affirmative, the use will be considered a fair one, regardless of whether a likelihood of confusion exists.” Id.

The Third Circuit reversed the order for the injunction and remanded the case to the District Court for application of this new rule.

A trademark identifies the source of a particular good or service, and trademark law seeks to protect against a third party's use of a mark that “is likely to cause confusion, or to cause mistake, or to deceive” as to source. 15 U.S.C. '1114(1). That is, certain aspects of trademark law “preven[t] producers from free-riding on their rivals' marks.” New Kids on the Block v. News America Publishing, Inc ., 971 F.2d 302, 305, (9th Cir. 1992).

However, there are occasions when the use of another's trademark may be non-infringing. Two of these instances are “classic” fair use and “nominative” fair use.

Fair Use in the Trademark Context

Classic fair use occurs where a defendant uses a plaintiff's mark to describe the defendant's own product. Id. at 308. An example of this is the Volkswagenwerk Aktiengesellschaft v. Church , 411 F. 2d 350 (9th Cir. 1969) case where an automobile repair shop used the word “Volkswagen” in advertising highlighting the types of cars serviced at the particular establishment. The court recognized that in “advertising [the repair of Volkswagens, it] would be difficult, if not impossible, for [the defendant] to avoid altogether use of the word 'Volkswagen' or its abbreviation 'VW,' which are the normal terms, which to the public at large, signify appellant's cars.” Id. at 352.

On the other hand, nominative fair use is “use of another's trademark to identify, not the defendant's goods or services (as in classic fair use), but the plaintiff's goods or services. This has been dubbed a non-confusing 'nominative use' because it 'names' the real owner of the mark.” J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, Vol. 3, 23-55 (2005). The most common situation where this occurs is in the context of comparative advertising where competitors use a rival's trademark to identify the rival's product, and the advertiser or competitor's object is not to confuse but to compare. Indeed, such a use is allowed as long as the use is not false, misleading or confusing. For example, in Smith v. Chanel, Inc., 402 F.2d 562 (9th Cir. 1968), the maker of imitation perfume was permitted to use the original's trademark in promoting the imposter fragrance.

The Nominative Fair Use Test in the Ninth Circuit

The Ninth Circuit Court of Appeals explored the nominative fair use concept in a case that can be distinguished from the classic comparative advertising situation. In The New Kids on the Block v. News America Publishing, Inc., the defendants, USA Today et al., used the plaintiff's mark, The New Kids on the Block, in a newspaper survey. 971 F.2d 302. Since “[t]he New Kids trademark [was] used to refer to the New Kids themselves,” the situation fell into the nominative fair use bucket. Id. at 308. In analyzing the case, the Ninth Circuit articulated a three-prong test to help determine when a nominative fair use defense is available: 1) The product or service in question must be one not readily identifiable without use of the trademark; 2) only so much of the mark or marks may be used as is reasonably necessary to identify the products or service; 3) the user must do nothing that would in conjunction with the mark suggest sponsorship or endorsement by the trademark holder. Id.

This test has been applied in various circumstances and to date is readily applied by the courts.

The Third Circuit's New Rule for Nominative Fair Use

It is interesting then, that a divided panel of the Third Circuit recently rejected the Ninth Circuit's standard and developed its own measure for nominative fair use in Century 21 Real Estate Corp. v. LendingTree Inc., 425 F.3d 211 (3rd Cir. 2005).

In this case, plaintiffs, Century 21, Coldwell Banker and ERA, are all well-established real estate companies that oversee large networks of franchisees. Id. at 214-215. Defendant, LendingTree, is a “diversified consumer-oriented Internet business that helps consumers identify and select qualified lenders, real estate brokers, auto insurers and other financial service companies.” Id. at 215. As part of its services, LendingTree operates a Web site-based real estate referral service. Plaintiffs sued LendingTree for trademark infringement, basing their claims on various uses of the companies' marks on the LendingTree Web site. The District Court determined that the defendant's use of the plaintiffs' names was “likely to cause consumer confusion, that the nominative [fair] use defense did not shield LendingTree,” and granted the motion for summary judgment in favor of plaintiffs. Id. at 216.

On appeal, the Third Circuit was compelled to consider the “proper” test to apply in the situation where a defendant is asserting a nominative fair use defense, in spite of the fact that the Ninth Circuit's test as articulated in The New Kids on the Block case has long been the leading case on the subject. Nevertheless, the Third Circuit, in a case of first impression in the Circuit, took the opportunity to “[d]etermine what role likelihood of confusion plays in a trademark infringement case where the defendant claims that its use was nominative and fair.” Id. at 214, 218.

The Third Circuit adopted a “bifurcated approach” ' that tests a likelihood of confusion and fairness in two separate inquiries. First, one must look to four factors to determine whether there is a likelihood of confusion: 1) the price of the goods and other factors indicative of 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. Id. at 232.  

Once the plaintiff has met its burden of proving that there is a likelihood of confusion, the burden shifts to the defendant to show that its nominative use of the plaintiff's mark is indeed fair. In the new test, one must look to the following three factors: 1) is the use of plaintiff's mark necessary to describe both plaintiff's product or service and defendant's product or service; 2) is only so much of the plaintiff's mark used as is necessary to describe plaintiff's products or services; and 3) does the defendant's conduct or language reflect the true and accurate relationship between plaintiff and defendant's products or services. Id. The court further clarified that “if the answer to these questions is answered in the affirmative, the use will be considered a fair one, regardless of whether a likelihood of confusion exists.” Id.

The Third Circuit reversed the order for the injunction and remanded the case to the District Court for application of this new rule.