Tuesday, July 13, 2010

Ninth Circuit Gives Victory to Pro Se Defendants Fighting Against Toyota

The Ninth Circuit Court of Appeals reversed a lower court decision issuing an injunction against two individual defendants that were sued by Toyota for trademark infringement over their ownership and use of two domain names that contained the trademark LEXUS. See Toyota Motor Sales, U.S.A., Inc. v. Tabari, Appeal No. 07-55344 (9th Cir. July 8, 2010). News reports on the decision here and here.

Justice Alex Kozinski – fresh off his recent controversial trademark dilution decision in Visa Int'l Serv. Ass'n v. Jsl Corp., 2010 U.S. App. LEXIS 13380 (9th Cir. June 28, 2010) – issues another trademark related decision that has all of the hallmarks of a Kozinski opinion (a trademark Kozinski opinion). This time, the decision addresses the nominative fair use doctrine with respect to domain names.

A lower district court enjoined the defendants, Farzad and Lisa Tabari, from using the domain names buy-a-lexus.com and buyorleaselexus.com on the basis of infringement of Toyota’s LEXUS trademark. The Ninth Circuit reversed and remanded, finding the injunction overbroad.

The Tabaris worked as auto brokers – “the personal shoppers of the automotive world” – and offered their services through the aforementioned websites. Lexus objected to their use of the term “lexus” in the domain names, sued and after a bench trial, the district court found infringement (on the basis of liklihood of confusion) and enjoined the Tabaris from using their domain names. The Tabaris appealed.

The Court of Appeals knocked out the lower court’s application of the eight-factor test for likelihood of confusion articulated in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979), by noting that “the Sleek-craft analysis doesn't apply where a defendant uses the mark to refer to the trademarked good itself. See Playboy Enters., Inc. v. Welles, 279 F.3d 796, 801 (9th Cir. 2002); New Kids on the Block v. News Am. Publ'g, Inc., 971 F.2d 302, 308 (9th Cir. 1992).” In this case, the Tabaris were using the term Lexus to describe their business of brokering Lexus automobiles. “We've long held that such use of the trademark is a fair use, namely nominative fair use. And fair use is, by definition, not infringement.”

The Court then turned its attention to the scope of the district court’s injunction. “A trademark injunction, particularly one involving nominative fair use, can raise serious First Amendment concerns because it can interfere with truthful communication between buyers and sellers in the marketplace. . . . To uphold the broad injunction entered in this case, we would have to be convinced that consumers are likely to believe a site is sponsored or endorsed by a trademark holder whenever the domain name contains the string of letters that make up the trademark.”

In finding the injunction overbroad, the Court stated:

The injunction here is 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. 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 wouldn't 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.

The Court went on to note that the district court’s injunction, even if modified to exclude domain names that expressly disclaim sponsorship or endorsement, would still be too broad because it would prevent the Tabaris from doing business at lexus-broker.com, “even though that's the most straightforward, obvious and truthful way to describe their business. The nominative fair use doctrine allows such truthful use of a mark, even if the speaker fails to expressly disavow association with the trademark holder, so long as it's unlikely to cause confusion as to sponsorship or endorsement. . . . Speakers are under no obligation to provide a disclaimer as a condition for engaging in truthful, non-misleading speech.”

The Court then discusses a very important point (and does so in a truly articulate manner that one expects from Kozinski -- so well that I've chosen to simply quote most of it rather than simply paraphrase the discussion and not do his words justice) about trademarks appearing in domain names and the sophistication of modern internet users – a point with which I would imagine many trademark owners are likely to disagree:

When a domain name consists only of the trademark followed by .com, or some other suffix like .org or .net, it will typically suggest sponsorship or endorsement by the trademark holder. Cf. Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1327 (9th Cir. 1998). This is because “[a] customer who is unsure about a company's domain name will often guess that the domain name is also the company's name.” Id. (quoting Cardservice Int'l v. McGee, 950 F. Supp. 737, 741 (E.D. Va. 1997)) (internal quotation marks omitted); see also Brookfield Commc'ns, Inc. v. W. Coast Entm't Corp., 174 F.3d 1036, 1045 (9th Cir. 1999). . . .
But the case where the URL consists of nothing but a trademark followed by a suffix like .com or .org is a special one indeed. See Brookfield, 174 F.3d at 1057. The importance ascribed to trademark.com in fact suggests that far less confusion will result when a domain making nominative use of a trademark includes characters in addition to those making up the mark. Cf. Entrepreneur Media, Inc. v. Smith, 279 F.3d 1135, 1146-47 (9th Cir. 2002). Because the official Lexus site is almost certain to be found at lexus.com (as, in fact, it is), it's far less likely to be found at other sites containing the word Lexus. On the other hand, a number of sites make nominative use of trademarks in their domains but are not sponsored or endorsed by the trademark holder: You can preen about your Mercedes at mercedesforum.com and mercedestalk.net, read the latest about your double-skim-no-whip latte at starbucksgossip.com and find out what goodies the world's greatest electronics store has on sale this week at frys-electronics-ads.com. Consumers 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.
When people go shopping online, they don't start out by typing random URLs containing trademarked words hoping to get a lucky hit. They may start out by typing trademark.com, but then they'll rely on a search engine or word of mouth. If word of mouth, confusion is unlikely because the consumer will usually be aware of who runs the site before typing in the URL. And, if the site is located through a search engine, the consumer will click on the link for a likely-relevant site without paying much attention to the URL. Use of a trademark in the site's domain name isn't materially different from use in its text or metatags in this context; a search engine can find a trademark in a site regardless of where exactly it appears. In Welles, we upheld a claim that use of a mark in a site's metatags constituted nominative fair use; we reasoned that “[s]earchers would have a much more difficult time locating relevant websites” if the law outlawed such truthful, non-misleading use of a mark. 279 F.3d at 804. The same logic applies to nominative use of a mark in a domain name.

(footnotes omitted) (bold underline emphasis added).

The court recognized that there would be exceptions to nominative fair use for those cases where the domain name containing a mark suggested sponsorship or endorsement by the trademark holder (e.g., trademark-USA.com, trademark-of-glendale.com, e-trademark.com, official-trademark-site.com, we-are-trademark.com). However, the district court’s injunction was not limited to this type of usage.

The Court again articulates a modern, Internet-saavy take on the use of trademarks in domain names:

When a domain name making nominative use of a mark does not actively suggest sponsorship or endorsement, the worst that can happen is that some consumers may arrive at the site uncertain as to what they will find. But in the age of FIOS, cable modems, DSL and T1 lines, reasonable, prudent and experienced internet consumers are accustomed to such exploration by trial and error. Cf. Interstellar Starship, 304 F.3d at 946. They skip from site to site, ready to hit the back button whenever they're not satisfied with a site's contents. They fully expect to find some sites that aren't what they imagine based on a glance at the domain name or search engine summary. Outside the special case of trademark.com, or domains that actively claim affiliation with the trademark holder, consumers don't form any firm expectations about the sponsorship of a website until they've seen the landing page --if then. This is sensible agnosticism, not consumer confusion. See Jennifer E. Rothman, Initial Interest Confusion: Standing at the Crossroads of Trademark Law, 27 Cardozo L. Rev. 105, 122-24, 140, 158 (2005). So long as the site as a whole does not suggest sponsorship or endorsement by the trademark holder, such momentary uncertainty does not preclude a finding of nominative fair use.

(bold underline emphasis added).

In response to Toyota’s arguments regarding its entitlement to the exclusive use of the string “lexus” in any internet domain names because of its hundreds of millions of dollars spent every year investing in the name, the Court notes that such wholesale prohibition of the nominative use of Lexus in domain names “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.”

After setting forth the general principles regarding nominative fair use in domain names, the court then specifically directed its attention to applying the doctrine to the two domain names at issue in the case. The court found the Tabaris' use of the mark “necessary” given the near impossibility of informing consumers that they are Lexus car brokers without mentioning Lexus. And the fact that the Tabaris sold other cars was irrelevant given their right to focus on one particular car brand: “The Tabaris are entitled to decide what automotive brands to emphasize in their business, and the district court found that the Tabaris do in fact specialize in Lexus vehicles. Potential customers would naturally be interested in that fact, and it was entirely appropriate for the Tabaris to use the Lexus mark to let them know it.”

The Tabaris had also used the stylized Lexus mark and “Lexus L” logo on their website – something that Toyota argued was more than necessary and suggested sponsorship or endorsement by Toyota. The Court agreed, but also noted that the site had changed by the time of trial (removing the stylized logos and adding a disclaimer). Toyota claimed that the revised site with its disclaimer “came too late to protect against confusion caused by their domain names, as such confusion would occur before consumers saw the site or the disclaimer.” The Court disagreed since the domain names by themselves did not contain words suggesting that it was like “authorized” or “official.” “Reasonable consumers would arrive at the Tabaris' site agnostic as to what they would find. Once there, they would immediately see the disclaimer and would promptly be disabused of any notion that the Tabaris' website is sponsored by Toyota. Because there was no risk of confusion as to sponsorship or endorsement, the Tabaris' use of the Lexus mark was fair.”

The Court reversed and remanded – sending the case back to the district court to determine if an injunction was even necessary given that the Tabaris had stopped all infringing activities by the time of trial and where there may be no risk that any infringing conduct would recur. And to the extent an injunction would be necessary in the case of the Tabaris, then the proper injunction would be one that does not entirely prohibit use of the domain names at issue in this case and which allows the use of the Lexus mark in the two domain names owned by the Tabaris.

The Court’s remand included the following guiding principle for the district court: “The important principle to bear in mind on remand is that a trademark injunction should be tailored to prevent ongoing violations, not punish past conduct. Speakers do not lose the right to engage in permissible speech simply because they may have infringed a trademark in the past.” The Court also reminded the district court that the case should be analyzed solely “under the rubric of nominative fair use” – thus putting the burden on Toyota to establish that the Tabaris' use of the Lexus mark was not nominative fair use given that the Tabaris used the mark to refer to the trademarked goods. Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en banc).

What makes the Ninth Circuit's decision all the more interesting is the fact that the trial and appeal were pursued pro se by the two individual defendants, Farzad Tabari and Lisa Tabari. Apparently, they had a lawyer, but when legal fees got to be too much [ed.—the unfortunate price of justice], they decided to go at it by themselves. According to one of the articles, Lisa Tabari was quoted as saying “everyone in the court system, they were so wonderful to us.” And they have shown that with enough hard work and dedication, the little guy can pursue justice in our legal system and be victorious against the big corporation and its army of overpriced lawyers without hiring a lawyer and incurring thousands of dollars in legal fees (although, as a lawyer, I certainly wouldn't advise such a course of action -- after all, they may not have had to shell out dollars to lawyers, but they certainly did pay a cost if you put a monetary value on the amount of time the Tabaris likely spent on the case, including this appeal, along with all of the other things they could have done with their time, but instead had to be devoted to this case).

On a related note, the Court couldn’t help but take one final jab at both the district court and Toyota’s lawyers. In the opinion’s concluding paragraph, the Court stated: “Many of the district court's errors seem to be the result of unevenly-matched lawyering, as Toyota appears to have taken advantage of the fact that the Tabaris appeared pro se . . . . To avoid similar problems on remand, the district court might consider contacting members of the bar to determine if any would be willing to represent the Tabaris at a reduced rate or on a volunteer basis.”

Of course, what’s truly sad and most pathetic is that Toyota’s lawyers, rather than doing the right thing at this stage and just ending the litigation (possibly with a consent agreement, but on terms that allow the Tabaris to keep their domain names but which alleviates any concerns Toyota has regarding confusion) will more than likely continue to push for the domain names even though the Tabaris have clearly shown that they will not back down in this case and will continue to fight. Toyota may even be foolish enough to appeal this Court's decision to the U.S. Supreme Court (although not before filing a motion for reconsideration, possibly en banc). One wonders why Toyota would want to continue paying its high-priced attorneys in the face of such a defeat against two unrepresented parties. But based on the Ninth Circuit’s decision and the Tabaris’ unwielding determination (and acquired acumen regarding the legal system and due process), who really has the better chance of winning in the end?

1 comment:

Rusty said...

This is a great story. Not only is it an interesting bit of trademark law, but the fact that the defendants, as non-lawyers, represented themselves, just makes it all the more impressive: http://legalmatch.typepad.com/intellectualproperty/2010/07/representing-yourself-isnt-always-a-bad-idea.html