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Nominative Fair Use of a Lexus

Posted in Trademark Law

By: W. Scott Cameron

Farzad and Lisa Tabari are auto brokers specializing in matching customers with new Lexus automobiles through authorized Lexus dealers. They used two Internet domain names to market their business – buy-a-lexus.com and buyorleaselexus.com. Toyota Motor Sales U.S.A. (“Toyota”), the exclusive distributor of new Lexus vehicles, objected to the Tabari’s use of their trademark “Lexus” in the domain names, and sued for infringement. The district court found infringement after a bench trial, and granted Toyota’s request for an injunction. Specifically, it enjoined the Tabari’s use of the Lexus mark in any domain names. The Tabaris appealed to the Ninth Circuit, which agreed with the Tabaris and reversed. Toyota Motor Sales U.S.A., Inc. v. Tabari (9th Cir. July 8, 2010).

The district court found that the Tabari’s use of the Lexus mark in their websites infringed after applying the familiar eight-factor test from AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979). This was the district court’s first error, because, as the Ninth Circuit pointed out, the Sleekcraft test does not apply when the defendant uses the mark to refer to the actual trademarked good itself. This is clearly the case, as it would always lead to a conclusion that the use is infringing. Use of a trademark to refer to the actual good is a fair use, namely nominative fair use. “Fair use is, by definition, not infringing.” Tabari, Slip Op. p. 9705. 

A different test is used to determine whether the nominative fair use defense will excuse the otherwise infringing use of a trademark when referring to the actual trademarked good. Here, the Tabaris were brokering Lexus automobiles. Indeed, “when they say Lexus, they mean Lexus.” Id. The test for nominative use requires the court to ask whether (1) the product was “readily identifiable” without use of the mark; (2) defendant used more of the mark than necessary; or (3) defendant falsely suggested he was sponsored or endorsed by the trademark holder. Tabari, Slip Op. at 9705. If the use meets all three factors of the test, it is not infringing. If the use does not meet one or more of these factors, the court can enjoin the use of the mark to the extent necessary so that the use does meet these factors as enjoined.

The Ninth Circuit faulted the district court for enjoining completely the Tabari’s use of the Lexus mark. “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.” Id. Therefore, such an injunction must be carefully tailored to eliminate only the specific harm alleged.

Here, the court easily found that the injunction was overbroad because it prohibits domain names that on their face dispel any confusion as to sponsorship or endorsement by Lexus. For example, the injunction would preclude use of the domain name we-are-definitely-not-lexus.com. However, that did not end the inquiry. For if the domain name suggests sponsorship or endorsement by the trademark owner, the nominative use of the mark will still be found infringing. Toyota argued that because the domain name contained the entire trademark, “Lexus,” it suggested such sponsorship or endorsement. Not so, said the Ninth.

As a starting point, the court acknowledged that a domain name that is trademark.com will generally be considered suggesting sponsorship. However, just because the trademark is in the domain name does not always mean the site belongs to or is sponsored or endorsed by the owner. Online shoppers, the court noted, are more sophisticated than that. If they don’t find the site they are looking for at trademark.com, they will go to a search engine or word of mouth. In fact, the court said such online shoppers expect to get sites that are not the ones they are looking for, and are ready to hit the back button as they skip from site to site. The court said “this is sensible agnosticism, not consumer confusion.” Tabari, Slip Op. at 9711. The court found that the domain names in question here do not suggest sponsorship or endorsement by Toyota. 

Toyota argued that even if the injunction was overbroad, it could be modified to restrict the use to the Tabari’s actual domain names. The court then applied the three-part test for nominative fair use to determine, if it could, the necessary scope of any injunction. The use of the mark was deemed necessary to convey the fact that the Tabaris specialized in Lexus vehicles. Using the Lexus mark in their domain names accomplished this goal. “One way or another, the Tabaris need to let consumers know that they are brokers of Lexus cars, and that’s nearly impossible to do without mentioning Lexus.” Id. at 9713. It made no difference whether they used the name in the domain name, or through other means, they had to use the name. 

The court remanded to the district court to reconsider whether the injunction was necessary in light of the holding that the use of Lexus in the domain name did not suggest sponsorship or endorsement, and if an injunction was necessary, the district court would, in the first instance, need to determine the scope of injunctive relief necessary. At the very least, the court stated, the district court must modify the injunction to allow some use of the Lexus mark in the Tabaris domain names. Not a bad result for the Tabaris. Especially considering they were pro se both at the district court level and before the Ninth Circuit. For the rest of us, the case gives us something else to keep in mind. Using a trademark in a domain name might draw complaints from the trademark owner. But if the domain name user is careful to avoid a domain that suggests the trademark owner sponsors or endorses the domain user, that use is probably safe as nominative fair use of the trademark.