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A federal appellate court has considered whether a website’s use of various trademarked terms constituted a nominative fair use of the terms.
Century 21 Real Estate Corporation, Coldwell Banker Real Estate Corporation, and ERA Franchise Systems, Inc. (collectively, “Companies”) are all corporate subsidiaries of the Cendant Corporation (“Cendant”). The Companies each oversee a network of franchisees who are allowed to provide real estate services under the Companies’ trademarked brand names. Each of the franchisees have a license to use the franchisor’s trademarks only in connection with its “d/b/a” name.
LendingTree, Inc. (“Website”) is a self-described “diversified customer oriented Internet business” that helps its customers select a service provider in a wide-range of industries, including a real estate licensee referral service. The real estate referral service works by asking consumers to identify the type of home they seek and then refers the consumer to up to four real estate brokerages who participate in the Website’s referral program. If the consumer successfully purchases a property using one of the referred real estate companies, then the consumer will receive certain “rewards” from the Website, such as airline miles or a gift card. Approximately 40% of the real estate brokerages who participate in the Website’s referral program are a franchisee of one of the Companies.
The Website used the Companies’ trademarked names and logos in advertisements. In 2003, Cendant requested that the Website stop using the Companies’ trademarks in its advertisements. Following the receipt of the letter, the Website stopped using the Companies’ logos in advertisements, but continued using the trademarked names in block letters on its webpages. Cendant again requested that the Website stop using its trademarked names, and eventually filed a lawsuit seeking to stop the Website from this behavior. The trial court entered a preliminary injunction ordering the Website to stop using the Companies’ names in its advertisements, finding that the Website’s advertisements were likely to cause confusion among consumers. The Website appealed.
The United States Court of Appeals for the Third Circuit reversed the trial court and sent the case back to the lower court for further proceedings. The issue before the court was whether the Website’s use of the trademarked terms constituted a “nominative fair use” of those terms. A nominative fair use occurs when the alleged infringer uses another’s trademark to describe its own product or service. An example of a nominative fair use is an auto mechanic stating he/she repairs Volkswagens. In this case, the Website was using the Companies’ trademarked terms to describe its referral network. The question before the court was whether the way in which the Website was using these terms would cause confusion among members of the public over the relationship of the parties.
The issue of a “nominative fair use” had not been previously addressed by the court in earlier decisions. Rejecting the test used by other courts because the court did not believe those courts had used the proper criteria, the court created its own two-step test for evaluating a nominative fair use. First, the party bringing the lawsuit must demonstrate the likelihood of confusion which will result from the defendant’s use of the trademarked terms.
If the trademark holder can demonstrate the likelihood of confusion, then the second step involves the defendant showing that its use of the other party’s trademarked terms is “fair”. Fairness is demonstrated in three ways: first, the use of the trademarked terms is necessary to describe the defendant’s products or services; second, the defendant only uses the trademark as much as necessary to describe the other party’s product; and finally, the defendant’s use of the trademarked terms accurately portrays the relationship between the products and services offered by the parties. If the defendant can answer “yes” to these questions, then the defendant’s use will constitute a fair use. Ruling that the trial court did not apply the proper test in analyzing the Website’s fair use defense, the court sent the case back to the trial court to apply the above test to determine whether the Website’s use of the Companies’ trademarked terms constituted a fair use.
Century 21 Real Estate Corp. v. LendingTree, Inc., 425 F.3d 211 (3rd Cir. 2005).