Addressing whether a district court properly dismissed a Lanham Act case as a sanction for failure to timely file an amended complaint, the US Court of Appeals for the Ninth Circuit concluded that the dismissal sanction was an abuse of discretion but nevertheless affirmed the dismissal on the alternative ground that the plaintiff failed to state a claim because the allegations of defendants’ use of the mark constituted nominative fair use. Applied Underwriters, Inc. v. Lichtenegger, Case No. 17-16815 (9th Cir. Jan. 15, 2019) (Smith, J).

Applied Underwriters owns the marks APPLIED UNDERWRITERS and EQUITYCOMP plus several stylized versions of those marks. According to Applied Underwriters, in November 2015, the defendants began offering a seminar (online and on DVD) that used Applied Underwriters’ marks in the title of the webcast.

Applied Underwriters brought claims for trademark infringement and dilution, false designation of origin, and federal and state unfair competition. The defendants moved to dismiss all of the claims under Rule 12(b)(6) on several grounds, including nominative fair use.

The district court agreed, finding that the defendants’ use of the marks constituted nominative fair use. At Applied Underwriters’ request, the district court granted leave to amend the complaint within 30 days, but Applied Underwriters neither filed an amended complaint nor advised the district court that it would not do so. After the deadline passed, the district court entered an order dismissing the case: “In light of Plaintiff’s failure to file an Amended Complaint pursuant to the Court’s Order (ECF No. [31]), this case is hereby DISMISSED. CASE CLOSED.” The clerk entered judgment accordingly. Applied Underwriters appealed.

On appeal, the parties disputed whether the district court’s dismissal had been under Rule 12(b)(6)—in which case the appellate court would conduct a de novo review—or under Rule 41(b) as a sanction—in which case the appellate court would review for an abuse of discretion. The Ninth Circuit first remanded the case for the limited purpose of allowing the district court to clarify why it had dismissed the complaint. The district court entered a clarification order stating that it had dismissed the complaint under Rule 41(b) as a sanction for failing to comply with the district court’s order.

The Ninth Circuit found that the district court abused its discretion by dismissing the complaint as a sanction under Rule 41(b). The Court acknowledged its precedent holding that a district court may dismiss an action under Rule 41(b) where a plaintiff fails to file an amended complaint or to advise the district court of its intent not to do so after being granted leave. But the Court clarified that the sanction is only appropriate where the district court required the plaintiff to file an amended complaint or some other document evidencing its decision not to file an amended complaint. Otherwise, the party cannot have failed to comply with a “court order.” As the panel explained, because the district court’s order granting leave to amend had been permissive, the district court could not dismiss the action under Rule 41(b) for failing to file an amended complaint timely.

The Ninth Circuit then went on to rule on the alternative ground that the complaint failed to state a claim on Rule 12(b)(6), assuming that should the Court remand for the district court’s reconsideration, it would again dismiss the complaint on the ground of nominative fair use. Specifically, the Court held that the defendants’ seminar exclusively critiqued Applied Underwriters’ EquityComp® program; that the defendants’ seminar did not use Applied Underwriters’ stylized marks, only plain text of its name; and that the plaintiff’s claim of a likelihood of confusion in light of the defendants’ more prominent, stylized use of their own mark was implausible.

Practice Note: A plaintiff seeking to appeal an adverse order on a motion to dismiss, even where leave to amend the complaint in a specific time period had been granted, need not wait for the amendment period to lapse before seeking entry of judgment and an appeal. However, failing to advise the district court of a decision not to amend creates a risk of loss of de novo review—especially if the district court used mandatory amendment language.