Non-consumer Confusion May be Relevant to Likelihood of Confusion Analysis: Ninth Circuit

Practical Law Legal Update 5-520-1185 (Approx. 5 pages)

Non-consumer Confusion May be Relevant to Likelihood of Confusion Analysis: Ninth Circuit

by PLC Intellectual Property & Technology

Key Litigated Issues

The key litigated issues in Rearden LLC v. Rearden Commerce, Inc., were whether the US District Court for the Northern District of California erred in granting summary judgment to the defendant, Rearden Commerce, Inc. (Rearden Commerce), on the plaintiffs', Rearden LLC and related companies incorporating the name REARDEN (Rearden LLC), trademark infringement and related claims under the Lanham Act and California law. Rearden LLC's claims included:

False designation of origin under the Lanham Act.
Common law trademark infringement and unfair competition under California law.
Cybersquatting under the Lanham Act.

Among other issues, the US Court of Appeals for the Ninth Circuit analyzed the existence of genuine issues of material fact on two key elements of a trademark infringement claim, namely, whether:

Rearden LLC's use of its marks satisfied the Lanham Act's use in commerce requirement for establishing a protectable ownership interest in a mark used for services.
There was a likelihood of consumer confusion and the relevance, if any, that evidence of non-consumer confusion should play in the analysis.

Background

Rearden LLC's businesses are technology incubators and artistic production companies, the first of which was founded in 1999. The Rearden name was chosen, at least in part, because it was a reference to the Hank Rearden character from Ayn Rand's novel Atlas Shrugged. As an incubator, Rearden LLC provides new ventures with funding as well as management and infrastructure support. Rearden LLC owns federal trademark registrations for REARDON STUDIOS.

The alleged infringer, Rearden Commerce, offers web-based travel concierge services that allow businesses and professionals to search for, compare, and purchase services from various well-known companies. While Rearden Commerce was founded in 1999, it did not officially change its name to Rearden Commerce until 2005. In 2005, Rearden Commerce filed applications with the US Patent and Trademark Office for various REARDEN marks. After the applications were published for opposition, Rearden LLC became aware of Rearden Commerce and its claimed marks. Rearden Commerce also registered various domain names incorporating "Rearden," including domain names incorporating "ReardenLLC."

In 2006, Rearden LLC informed Rearden Commerce of the alleged conflict between the parties' names and marks. When Rearden Commerce failed to substantively reply, Rearden LLC filed suit alleging federal and state trademark claims. The parties filed motions for summary judgment. In two separate orders, the district court granted Rearden Commerce's motions for summary judgment and denied Rearden LLC's motions. On the trademark infringement and related claims, the district court questioned whether Rearden had shown any evidence of actual use in commerce of their marks, as required for trademark protection. The district court assumed, without deciding, that a material issue of fact existed on that issue. Further, the district court concluded that no reasonable jury could find that Rearden Commerce's use of "Rearden" created a likelihood of confusion among the relevant consuming public. Notably, in a separate order on Rearden LLC's motion for reconsideration of the court's initial summary judgment decision on the infringement claims, the district court rejected Rearden LLC's argument that confusion on the part of investors, vendors and suppliers could support a finding of confusion, in the absence of any evidence of actual consumer confusion. Rearden LLC appealed to the Ninth Circuit.

Outcome

In its June 27, 2012 opinion, the Ninth Circuit panel vacated the district court's orders granting summary judgment in favor of Rearden Commerce and remanded the case to the district court. In finding that the district court erred in granting summary judgment to Rearden Commerce on Rearden LLC's infringement claims, the Ninth Circuit found that there were genuine issues of material fact on the elements of:

The use in commerce requirement for protection of a service mark under the Lanham Act.
Likelihood of confusion.

The court also found genuine material issues of fact that precluded summary judgment on Rearden LLC's cybersquatting claims under the Lanham Act, including on the issue of bad faith.

Use In Commerce

To acquire a protectable ownership interest in a mark it must be used in commerce. Use in commerce means bona fide use of a mark in the ordinary course of trade and not merely to reserve a right to the mark. Citing the Lanham Act definition, the Ninth Circuit indicated that use of a mark in commerce for services requires both:

Use or display of the mark in the sale or advertising of services.
Rendering of the services in commerce.

The Ninth Circuit analyzed the issue under its "totality of the circumstances" approach which turns on evidence showing adoption of the mark and use in a sufficiently public way to identify the services to an appropriate segment of the public. The court stated that:

Evidence of sales or lack of sales was not dispositive.
Non-sales activity was potentially relevant to whether the mark was adequately displayed and whether a service was rendered in commerce under the mark.

Citing to its earlier decision in Chance v. Pac-Teletrac Inc., the court explained that when considering non-sales activities, district courts should be guided by a number of factors, including:

The activities' genuineness and commercial character.
Whether the mark was sufficiently public to identify the service to an appropriate segment of the public as those of the mark's owner.
The scope of non-sales activity relative to what would be a commercially reasonable attempt to market the service.
The degree of the holder's ongoing activity to conduct business using the mark.
The amount of business transacted.
Other similar factors that might distinguish whether a service was actually rendered in commerce.

(242 F. 3d 1151.)

On the issue of whether Rearden LLC's services were rendered in commerce, the court found that there were genuine issues of material fact that precluded summary judgment, specifically whether Rearden LLC had provided incubation services to anyone other than themselves. Further, the court found that there was evidence that Rearden LLC had provided enough non-incubation services, including film production, to preclude granting summary judgment to Rearden Commerce on use in commerce grounds.

Likelihood of Confusion

On the issue of likelihood of confusion, the court held that the district court erred in its analysis and found genuine issues of material fact regarding some of the relevant factors. In particular, the court, as part of its assessment of the actual confusion factor, focused on the relevance of evidence of non-consumer confusion to analyzing likelihood of consumer confusion. The court explained that litigants can usually satisfy the likelihood of confusion test by providing direct evidence of actual consumer confusion, but held that non-consumer confusion may also be relevant to the likelihood of confusion inquiry in certain circumstances, namely, where there is confusion among:

Potential consumers.
Non-consumers whose confusion could create an inference that consumers are likely to be confused.
Non-consumers whose confusion could influence consumers.

The court explained its holding by noting that the relevance of potential consumers' confusion is well-established and that the court had recognized in a closely-related context that non-consumer confusion could serve as a proxy or substitute for consumer confusion. Further, the court noted non-consumer confusion could contribute to consumer confusion.

Analyzing Rearden LLC's evidence of non-consumer confusion, the court noted evidence of confusion among trade magazines, reporters and other publications as well as trade show organizers and attendees. The court stated that these groups' confusion could conceivably fall under any of the three categories of non-consumer confusion that would be relevant to the likelihood of confusion assessment. The court noted that the confusion among trade journalists and trade show organizers, who are presumably knowledgeable and experienced, could influence consumer purchasing decisions. The court also mentioned various other non-consumer groups that Reardon LLC argued could either influence consumers or serve as a proxy for consumer confusion, including:

Reardon LLC's prospective employees.
A vendor.
An investor.
Reardon LLC's auditors.
Reardon LLC's patent attorneys.

The court noted that considering the potential relevance of non-consumer confusion reflects a flexible approach to the likelihood of confusion analysis and is consistent with its own precedent as well as precedent in other circuits.

As for the remaining factors, the court held that there were genuine issues of material fact regarding, among other factors:

The strength of Rearden LLC's marks.
The similarity of the marks.
The proximity of the goods.

Practical Implications

Trademark litigants should take note of the potential role of evidence of non-consumer confusion in establishing likelihood of confusion in the Ninth Circuit. In particular, under the Ninth Circuit's reasoning, non-consumer confusion is relevant if confusion among non-consumers can either:

Serve as a proxy or substitute for consumers.
Contribute to consumer confusion.

This evidence may be particularly important in cases where the brand owner lacks extensive consumer sales but has engaged in non-sales activities using the mark.

The decision also highlights for litigants the considerations and evidence required to satisfy the use in commerce requirement for protection of a service mark, in particular the potential relevance of non-sales activity.

Court Documents

Rearden LLC v. Rearden Commerce, Inc., No 10-16665 (9th Cir. June 27, 2012).

Non-consumer Confusion May be Relevant to Likelihood of Confusion Analysis: Ninth Circuit | Practical Law