Nominative Fair Use Defense Recognized by Third Circuit
Published By World Trademark Law Report October 31, 2005

In Century 21 Real Estate Corporation v LendingTree Inc, a majority panel of the US Court of Appeals for the Third Circuit has adopted a modified version of the nominative fair use defence first applied by the Ninth Circuit.

LendingTree Inc operates an online referral network for residential real estate brokers. The network includes franchisees of major real estate brokerage franchise systems such as Century 21 Real Estate Corporation, Coldwell Banker Real Estate Corporation and ERA Franchise Systems Inc.

These three franchisors (referred to by the court as CCE) objected to LendingTree's use of block letter and logo forms of their marks on its website 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. The district court concluded that LendingTree's uses were likely to cause confusion and entered a preliminary injunction.

A majority of the Third Circuit reversed the preliminary injunction and remanded the case for further proceedings. The court made the following determinations regarding trademark cases involving nominative fair use:

  • The court recognized nominative fair use as a defence, which it defined as occurring when a defendant uses another's trademark to refer to the trademark owner or its products.
  • In cases involving nominative fair use, the plaintiff retains the initial burden of proving a likelihood of confusion. However, the court modified the list of factors typically applied in the analysis. Two factors - similarity of the marks and strength of the plaintiff's mark - should not be considered at all, as they are present by definition in most if not all nominative fair use cases. Other factors - such as channels of trade and target markets - could be relevant in some nominative fair use cases, but the court concluded they were not relevant here. The court identified only four factors as relevant:
    • the care and attention expected of consumers;
    • whether the defendant's nominative use was executed in a manner showing an intent to create confusion;
    • the length of time the defendant used the marks without evidence of actual confusion; and
    • the evidence of actual confusion.
  • If the plaintiff establishes a likelihood of confusion, then the burden shifts to the defendant to satisfy a three-pronged test for showing that its nominative use was fair:
    • Use of the plaintiff's mark must be necessary to describe both the plaintiff's and the defendant's products or services. (The Ninth Circuit focuses only on the plaintiff's product or service.)
    • The defendant uses only so much of the plaintiff's mark as is necessary to describe the plaintiff's product.
    • The defendant's conduct or language reflects the true and accurate relationship between the plaintiff and the defendant. (The Ninth Circuit requires the defendant to show that its use does not create confusion as to sponsorship or endorsement.)
  • Relying on language in the Supreme Court's recent KP Permanent Make-Up decision concerning 'classic' descriptive fair use, the court recognized that a nominative fair use may coexist with some level of confusion (see Supreme Court makes up its mind to hear case on fair use defence and Fair-use defence: the end of confusion?).

Judge Fisher concurred with the majority's conclusion that the case should be remanded, but dissented from the court's creation of a two-step analysis for nominative use cases (first, the plaintiff proves likelihood of confusion; second, defendant proves that its nominative use was fair). Fisher argued that the question of nominative use is one of likely confusion and not an affirmative defence, and objected that the two-step process places on the defendant the burden of negating likely confusion.

This article has been reprinted with permission from the October 31, 2005 edition of the World Trademark Law Report. © 2002-2006, Globe Business Publishing Ltd.

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