By Brian Craig, J.D.
The creators of a seminar critical of Applied Underwriters Inc.’s EquityComp insurance program did not infringe or dilute Applied’s federally registered trademarks by using them in the name of their seminar or the promotional materials related to it, the U.S. Court of Appeals in San Francisco has held. In affirming a district court’s dismissal because use of the marks constituted nominative fair use, the appeals court concluded that Applied’s service was not readily identifiable without use of the trademarks, the seminar creators used only so much of the trademarks as was reasonably necessary, and use of the trademarks did not suggest sponsorship or endorsement (Applied Underwriters, Inc. v. Lichtenegger, January 15, 2019, Smith, M.).
Applied sells workers’ compensation insurance programs to businesses, and had been using the registered trademarks, Applied Underwriters and EquityComp, since 2001 and 2002, respectively, to sell financial services relating to workers’ compensation programs to brokers and their business clients. Defendants produce a seminar called "Applied Underwriters’ EquityComp Program, Like it, Leave it, or Let it be? Learn the best strategies for selling, competing with, or helping a prospect out of EquityComp mid-term." The seminar was available on DVD and webcast, and was critical of "EquityComp," one of Applied’s insurance programs. The defendants operated a website that promoted the seminars and they also sent promotional emails. Applied alleged that the defendants’ use of its name and the program’s name in their seminar’s title and related advertising infringed and diluted Applied’s trademarks. The district court dismissed all of the claims on the basis of nominative fair use. The district court clarified that it dismissed the complaint as a sanction pursuant to Rule 41(b) without actually ordering the plaintiff to amend its complaint. Applied appealed the district court decision.
Leave to amend. The Ninth Circuit first concluded that the district court abused its discretion when it dismissed the plaintiff’s complaint as a sanction pursuant to Federal Rule of Civil Procedure 41(b) without actually ordering the plaintiff to amend its complaint. But in the interest of judicial economy, remand is not necessary because the appeals court could analyze the district court’s dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.
Nominate fair use. The court then examined whether use of the mark is protected as nominative fair use. Nominative use of a mark—where the only word reasonably available to describe a particular thing is pressed into service—lies outside the strictures of trademark law. Because it does not implicate the source-identification function that is the purpose of trademark, it does not constitute unfair competition. New Kids on the Block v. News Am. Publ’g, Inc., 971 F.2d 302, 308 (9th Cir. 1992). In evaluating nominative fair use, the court looked at three factors: (1) whether defendants’ seminar was readily identifiable without use of the trademarks; (2) whether the defendants used only so much of the trademarks as was reasonably necessary; and (3) whether use of the trademarks suggested sponsorship or endorsement.
As to the first factor, the court found that because both marks were needed to identify the service (and company) that the defendants analyzed in their seminar, the district court correctly determined that the first factor was satisfied. The seminar did not discuss workers’ compensation programs generally, but rather Applied’s specific offering. Therefore, the defendants needed to communicate that they critiqued the EquityComp program, and so using the mark in the title and description of the program accomplished this goal.
The court also found that the second factor was satisfied when the defendants used only the words themselves, which were necessary to identify the plaintiff’s product. The email sent did not include distinctive lettering or design, but rather used only the term "Applied Underwriters" and "EquityComp" in describing its webcast.
In analyzing the third factor, the court recognized that it has previously held that criticism of a product tends to negate the possibility of confusion as to sponsorship and endorsement. It was clear from the text of the email that the seminar was a critique of the plaintiff’s program, and it is simply not plausible that it could have been construed as anything else. The complaint contained only scant, conclusory allegations of consumer confusion. The court refused to consider additional facts supporting consumer confusion not included in the complaint. Accordingly, the court found that the third factor was satisfied. Because the alleged infringement constituted nominative fair use, the Ninth Circuit affirmed the district court’s dismissal of the complaint.
This case is No. 17-16815.
Attorneys: Peter J. Felsenfeld (Barger & Wolen LLP) and Spencer Young Kook (Hinshaw & Culbertson LLP) for Applied Underwriters, Inc. Duffy Carolan (Jassy Vick Carolan LLP) for Larry J. Lichtenegger.
Companies: Applied Underwriters, Inc.
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