Addressing which party has the burden of establishing nominative fair use, the U.S. Court of Appeals for the Ninth Circuit reversed the district court and determined that the party charging trademark infringement has the burden to prove a likelihood of confusion. Toyota Motor Sales, U.S.A., Inc. v. Tabari., Case No. 07-55344 (9th. Cir., July 8, 2010) (Kozinski, C.J.)(Fernandez, J. concurring).

Toyota, owner of the Lexus brand, brought suit against two independent auto brokers alleging trademark infringement for their use of the Lexus mark. The two defendants operate an auto broker business that specializes in selling Lexus vehicles. They utilized two websites as part of their business: buy-a-lexus.com and buyorleaselexus.com. The district court, applying the eight-factor test for likelihood of confusion articulated by the Ninth Circuit in Sleekcraft Boats, found that the domain names infringed the Lexus trademark. The defendant, acting pro se, appealed.

On appeal, the court determined that the defendants had presented a nominative fair use defense to the district court. When the nominative fair use defense is raised, the court should use the three-factor test from New Kids. Under this test, the court must ask whether the product was “readily identifiable” without use of the mark; the defendant used more of the mark than necessary; or whether the defendant falsely suggested he was sponsored or endorsed by the trademark holder. If the nominative use satisfies all three factors, it does not infringe.

Toyota argued that defendants use of the word “lexus” in their domain name was both unnecessary, since the website could have used a different name; i.e., one without the Lexus mark, and the mark used suggested the website was endorsed by the trademark holder. The Ninth Circuit rejected these arguments, concluding that the defendants needed to communicate their specialty in Lexus vehicles. Noting that it is nearly impossible to let customers know that they are brokers of Lexus cars without mentioning the word Lexus, the court determined the use of the mark in their domain name was necessary to communicate their specialty. The court also rejected the argument that the defendant’s website suggested endorsement by Lexus. In this case, the defendant’s websites specifically disclaimed any endorsement from Lexus. The court accepted that domain names such as “trademark.com” or a domain name using a trademark combined with words such as “official” or “authorized” would likely suggest endorsement to customers. In this case, the court determined that a reasonable customer going to the defendants websites would be “agnostic” as to what she would find and, upon seeing the disclaimer would be disabused of any notion that the website is sponsored by Toyota.

The court also determined that its 2004 decision in KP Permanent Makeup notwithstanding, the district court incorrectly treated nominative fair use as an affirmative defense to be established by the defendants. Rather, the Ninth Circuit recognized that the Supreme Court, in Lasting Impression, has clearly instructed that the Lanham Act always places the burden of proving likelihood of confusion on the party charging infringement. A defendant seeking to assert nominative fair use as a defense need only show that it used the mark to refer to the trademarked good. The burden then reverts to the plaintiff to show a likelihood of confusion.