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Atlas Shrugged – Hank Rearden and Trademark Infringement

Posted in Trademark Law

By: James Kachmar

Two fans of Ayn Rand are slugging it out in federal court over each party’s use of one of Ms. Rand’s famous characters, Hank Rearden from Atlas Shrugged, in connection with their respective businesses.  The Ninth Circuit was forced to deal with the issue of whether plaintiff had produced enough evidence to show that it had used the name “in commerce” in order to state a claim for trademark infringement as well as offer sufficient evidence of the “likelihood of confusion.”

Rearden Steel, Inc. was founded in May 1999 by Steve Perlman who chose the name, in part, because it referred to the “Hank Rearden” character from Atlas Shrugged.  Rearden Steel later changed its name to Rearden Studios, Inc. and finally Rearden LLC and has several affiliated “Rearden” companies.  Plaintiff has offices in the Bay Area, employs approximately 100 employees and operates a number of websites, including their main website “rearden.com.”  These Rearden companies are “technology incubators and artistic production companies.”  Plaintiff obtained protection from the Patent and Trademark Office for the name “Rearden Studios” and later filed “intent to use” applications for several related marks such as “Rearden,” “Rearden Companies,” and “Rearden Commerce Email”. 

Defendant Rearden Commerce, Inc. is a web-based concierge company in Silicon Valley.  Its platform, Rearden Personal Assistant, links its clients, primarily businesses and professionals, to an online marketplace where they can search for, compare and purchase a variety of business and travel related services.   Although started as Gazoo Corporation and later changed to Talaris, defendant’s founder renamed the company “Rearden Commerce” because he also had “an infinity for Rand’s ‘Hank Rearden’ character.”   After losing its reservation for the corporate name “Rearden, Inc.” to plaintiff, defendant settled on the name “Rearden Commerce” and relaunched its website “ReardenCommerce.com” in February 2005.  Later that year, it filed applications with the PTO for the “Rearden Commerce with logo” and “ReardenCommerce” marks.  Rearden Commerce also began to acquire a bunch of internet domain names incorporating the name “Rearden”.  After being advised that Plaintiff had filed an opposition to its applications with the PTO, Rearden Commerce registered the “ReardenLLC.com” domain name.

In late 2006, plaintiff sued defendant and later amended its complaint to allege claims for trademark infringement under the Lanham Act, common law trademark infringement, unfair competition, false advertisement and violation of the Anti-Cybersquatting Consumer Protection Act (“ACPA”).  After the parties each filed cross-motions for summary judgment, the District Court granted defendant’s motion for summary judgment and found that plaintiff had not shown that it had used its mark in commerce nor had it established the likelihood of confusion and dismissed its trademark infringement claim.  (This article does not the address the respective court rulings as to plaintiff’s ACPA claim.)

In reversing the grant of summary judgment, the Ninth Circuit began by recognizing that “because of the intensely factual nature of trademark disputes, summary judgment is generally disfavored in the trademark arena.”  It continued by recognizing that a plaintiff has to prove the following to prevail on a Lanham Act trademark claim: “(1) that it has a protectable ownership interest in the mark; and (2) that defendant’s use of the mark is likely to cause consumer confusion.” Furthermore, “it is axiomatic in trademark law that the standard test of ownership is priority of use.”  The Ninth Circuit continued that simply registering a mark is not sufficient in itself to claim ownership but a party must show that it is “the first to actually use the mark in the sale of goods or services.”

On appeal, the defendant argued that the Court must reject plaintiff’s claim that it had used its mark in commerce prior to defendant by pointing to evidence that plaintiff’s use of the Rearden Studios mark did not begin until five months after defendant had started using its own marks in commerce. However, the Ninth Circuit recognized the well-established rule that it had to view the evidence in a favorable light to plaintiff.  In doing so, it found that there was a genuine issue of material fact with respect to plaintiff’s use of the “Rearden” marks and names.

In determining whether a mark has been used in commerce, the Court recognized that two elements must be satisfied: “a mark shall be deemed to be in use in commerce … on services when it [is] used or displayed in the sale or advertising of services and the services are rendered in commerce.”  Furthermore, the Court was required to follow a “totality of the circumstances” approach in determining whether these factors had been satisfied.  The court could also look at non-sales activity in determining “use in commerce” such as solicitations if the plaintiff was unable to produce evidence of actual sales.

With these rules in mind, the Ninth Circuit noted that there was evidence showing that plaintiff had offered incubation related services to a variety of startup companies prior to defendant’s use of the term Rearden.  Although many of these incubated companies were apparently created by Rearden’s founder himself, the Court held that there was evidence of at least one outside company and that this was an issue of fact for the jury as to when plaintiff first offered their incubation services to satisfy the use in commerce requirement.

Turning to the “likelihood of confusion” element, the Court recognized that an analysis of the Sleekcraft factors was necessary which requires a court to examine: “(1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) types of goods and the degree of care likely to be exercised by the purchaser; (7) defendant’s intent in selecting the mark; and (8) likelihood of expansion of the product lines.”  This multifactor approach must be applied in a “flexible fashion.”  The Court continued by noting that given the open ended nature of this multi-prong inquiry, summary judgment was generally disfavored on “likelihood of confusion” grounds.

The Ninth Circuit recognized that there were genuine issues of material fact with respect to at least some of the Sleekcraft factors.  First, the Court held that the lower court had found that two factors, namely strength of the mark and similarity of the marks favored plaintiff somewhat.  The Ninth Circuit concluded that a reasonable jury could have given greater weight to these two factors especially when viewed together.  The Ninth Circuit also determined that there were genuine issues of material fact as to the factors of proximity of the goods, evidence of actual confusion, marketing channels used and the likelihood of expansion of product lines.  With respect to the proximity of the goods factor, the Ninth Circuit agreed with Plaintiff that it did not need to establish that the parties are direct competitors.  The Court found that given that there was evidence at the parties offered similar technology platforms to their respective customers, attended the same tradeshows, appeared in the same publications and relied on the same sources of private investment funding, it was possible that a jury could find that the services offered by the parties “would be reasonably thought by the buying public to come from the same source if sold under the same mark.”

Turning to the evidence of actual confusion factor, the Court found that the district court should have taken into account evidence of relevant nonconsumer confusion in its analysis since “the test for likelihood of confusion is whether a ‘reasonably prudent consumer’ in the marketplace is likely to be confused as to the origin of the good or services bearing one of the marks.”  The Ninth Circuit concluded that in considering this factor, nonconsumer confusion may be relevant especially where there is confusion on the part of: (1) potential consumers; (2) nonconsumers whose confusion could create an inference that consumers are likely to be confused; and (3) nonconsumers whose confusion could influence other consumers.  The Court noted that this rule was consistent with well-established precedent that confusion on the part of potential consumers may be relevant in a trademark infringement claim.  The Court found that there was a real possibility that confusion on the part of at least certain nonconsumers could either: (1) turn into actual consumer confusion; (2) serve as an adequate proxy or substitute for evidence of actual consumer confusion; or (3) otherwise contribute to confusion on the part of the consumers themselves.  Plaintiff had offered evidence that nonconsumers had been confused by the respective services, including plaintiff’s prospective employees, a vendor, an investor, as well as plaintiff’s auditors and patent attorneys.

Given all this evidence, the Court found that plaintiff had shown the existence of a genuine issue of material fact as to the elements of “use in commerce” and “likelihood of confusion” sufficient to avoid summary judgment as to its trademark infringement claim.  The Ninth Circuit therefore reversed the lower court’s grant of summary judgment.  The Rearden case reinforces the idea that summary judgment is generally disfavored in trademark infringement claims and that the burden on a plaintiff is not very high to avoid summary judgment.