In a decision that may be a harbinger of things to come with respect to key trademark issues, the Ninth Circuit recently clarified that the use of a trademark in a domain name does not, in and of itself, amount to an infringing and thus preventable use. Rather, as with most trademark disputes, the question is whether the unauthorized use of the trademark in the domain name gives rise to a likelihood of confusion. In reversing the district court’s grant of a permanent injunction (and remanding the case to the district court), the Ninth Circuit in Toyota found that the use of the domain names “buy-a-lexus.com” and “buyorleaselexus.com” in conjunction with a personal shopping service facilitating the sale of genuine LEXUS automobiles, amounted to fair, non-infringing uses of Toyota’s well-known LEXUS trademark.

The defendants in Toyota operated a sales brokerage service for LEXUS automobiles whereby they facilitated the sale or lease of genuine LEXUS automobiles by bringing interested consumers together with authorized LEXUS dealers in possession of LEXUS automobiles matching the consumer’s feature preferences and price point. Toyota objected to the use of the LEXUS name in the defendants’ domains arguing that it created a likelihood of confusion as to the source of the defendants’ web site. The district court agreed, issuing a permanent injunction preventing defendants from using “any . . . domain name, service mark, trademark, trade name, meta tag or other commercial indication of origin that includes the mark LEXUS.” Defendants appealed.

The Ninth Circuit, in an opinion written by Judge Kozinski, immediately made clear that this was not a typical likelihood of confusion trademark case; rather, it was a case focusing on whether the defendants’ use of the LEXUS name was a nominatively “fair” use of that term. In concluding that the district court’s injunction went too far because it precluded any use of the LEXUS mark, the court noted that under Ninth Circuit law the question as to the scope of an injunction in a nominative fair use case is not whether the use of the mark can be prevented; instead, it is whether the use of the mark must be modified so that such use satisfies the test set out in New Kids On The Block v. News Am. Publ’g, Inc., 971 F.2d 308, 308 (9th Cir. 1992), namely whether the: (i) product is readily identifiable without the use of the mark; (ii) defendant used more of the mark than necessary; and (iii) defendant falsely suggested he was sponsored or endorsed by the trademark owner. On the first two points, the court found that the defendants’ domains satisfied the New Kids test.

The Toyota court then addressed the false suggestion of sponsorship or endorsement question and explained that in the realities of today’s world, the appropriate consumer through whose eyes the question must be viewed is a consumer who is accustomed to shopping online and who thus will know, for example, that the trademark owner’s site is typically the one located at “trademark.com”, and that sites that include other terms in addition to the trademark are not as likely to be the trademark owner’s site. Thus, according to the court, consumers who use the internet for shopping know that “you can double-skim-no-whip latte at starbucksgossip.com”, without believing that these sites are sponsored or endorsed by Mercedes or Starbucks, as the case may be. References to the marks in those contexts, the court opined, are nominative fair uses.

The court was quick to point out however that a domain name containing a trademark cannot be nominative fair use if it suggests sponsorship or endorsement by the trademark holder, which the court took as a given for domain names consisting solely of the trademark together with “.com” (or .net, .org, etc.). Similarly, under the court’s reasoning, the use of other official-type terms such as “trademark- USA.com, trademark-of-glendale.com or e-trademark.com” and “official-trademark-site.com or we-aretrademark. com” will also generally suggest an inappropriate sponsorship or endorsement tie. The same holds true for logos and other indicia used by the trademark owner (e.g., trade dress and the overall look and feel of a website) -- there is no “fair use” basis for adopting a trade dress, using trademarked logos, or creating a website design that mirrors the trademark owner’s site; doing so gives rise to a likelihood of confusion.

Regarding the burden of proof in cases involving a fair use defense, the court made clear that where nominative fair use is asserted, the burden falls upon the trademark owner to establish that the accused use is not a fair use. A finding of nominative fair use, according to the court, “is a finding that plaintiff has failed to show a likelihood of confusion as to sponsorship or endorsement.” In the Ninth Circuit, therefore, the ruling in Toyota means that nominative fair use “‘replaces’ [the test set forth in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979)] as the proper test for likely consumer confusion whenever defendant asserts to have referred to the trademarked good itself.” Put another way, “a defendant . . . assert[ing] 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 [trademark owner] to show a likelihood of confusion.”

The use of the LEXUS trademark in the domain names “buy-a-lexus.com” and “buyorleaselexus.com”, was not a use that was likely to give rise to a finding of sponsorship or endorsement. As such, the language of the district court’s injunction was overly broad and required revision.

∗ A version of this article appeared in World Trademark Review Daily (July 30, 2010).