I. Overview of the Toyota case and court’s rationale

Plaintiff Toyota Motor Sales U.S.A. is the exclusive distributor of Lexus vehicles in the U.S., and the owner of the Lexus mark. Defendants are auto brokers, performing their brokerage through buy-alexus.com and buyorleaselexus.com. Plaintiff alleged domain name infringement by defendants. Later defendants removed the plaintiff’s photograph and logo from their websites and added a disclaimer in large letters, but refused to give up the domain names. Plaintiff sued and the district court found infringement for which defendants appealed to the Ninth Circuit.

The Court of Appeals then applied the three-factor New Kids test to the domain names. Plaintiff claimed that defendants could have used some other domain names or the text of their website to explain their business. The court held that it is enough to satisfy the test for necessity that defendants needed to communicate that they specialize in Lexus vehicles and using the Lexus mark in the domain names accomplished this goal. Plaintiff claimed using Lexus in the defendants’ domain names was not the only way to communicate the nature of their business, but defendants could publish advertisements in print or rely on word of mouth, which would also be upbraided and such draconian definition of necessity has never been adopted. One way or the other, defendants need to let consumers know that they are brokers of Lexus cars and that’s nearly impossible to do without mentioning Lexus. Therefore, the defendants satisfied the first New Kids factor. As for the second and third steps of the court analysis, defendants submitted images of an entirely changed site at the time of trial: The stylized mark and “L” logo were gone, and a disclaimer appeared in their place.

The disclaimer read, prominently and in large letters, “We are not an authorized Lexus dealer or affiliated in any way with Lexus. We are an Independent Auto Broker.” Plaintiff claimed that defendants’ disclaimer came too late to protect against confusion caused by their domain names, as such confusion would occur before consumers saw the site or the disclaimer. The court held that nothing about the defendants’ domains would give rise to such confusion; the defendants did not run their business at lexus.com, and their domain names did not contain words like “authorized” or “official.” Reasonable consumers would arrive at the defendants’ site agnostic as to what they would find. Once there, they would immediately see the disclaimer and would promptly be disabused of any notion that the defendants’ website is sponsored by the plaintiff. The court, therefore, decided to vacate the injunction and remand for reconsideration.

II. Brief introduction of four other cases relating to nominative fair use of trademarks

The peculiarity of domain names has caused insufficiencies of New Kids factors to be fully exposed in Toyota. Unfortunately, the judges failed to address this issue and the opinion of the case still focuses on the New Kids factors. Even so, the steps of the court opinion may not be convincing. For the sake of convenience, the following cases heard in U.S. courts are briefly listed for a comparative analysis.

1. New Kids on the Block v. News America Publishing, Inc. (New Kids)
 
Decision of Ninth Circuit of July 24th 1992. Plaintiff the New Kids on the Block is reputedly one of today’s hottest musical groups. Defendants, News America Publishing, Inc. and Gannett Satellite Information Network, Inc., two newspapers of national circulation, run The Star and USA Today newspapers respectively. Gannett Satellite Information Network, Inc. conducted a poll of its readers seeking an answer to a pressing question: “Who’s the best on the block?” USA Today’s announcement contained a picture and name of the New Kids. Readers were directed to a 900 number to register their votes; each call costed 95 cents per minute. News America Publishing, Inc. also conducted similar polls on The Star. Plaintiff sued the two defendants for unauthorized use of its trademark without paying license fees. The court found that there was no suggestion on the part of defendants for any sponsorship or licensing relationship; that although plaintiffs have trademark right for their group name, and held that “the trademark laws do not give the New Kids the right to channel their fans’ enthusiasm (and dollars) only into items licensed or authorized by them.”

2. Cairns v. Franklin Mint Co. (Princess Diana’s Personal Effects)

Decision of Ninth Circuit of June 19th 2002. Plaintiffs are the trustees of the Diana Princess of Wales Memorial Fund and the executors of the Estate of Diana, Princess of Wales. The Fund was established in 1997 after Princess Diana’s death to accept donations to be given to various charities with which Princess Diana was associated during her lifetime. The Estate exclusively authorized the Fund to use Princess Diana’s name and likeness for this purpose.

Since 1981, when Princess Diana married Prince Charles, the defendant has produced, advertised, and sold collectibles - jewelry, plates, and dolls - bearing her name and likeness. The plaintiffs sued the defendant alleging infringement upon the Diana trademark. The court held that the defendant’s use of Princess Diana’s name and likeness was a permissible classic fair use.

3. Volkswagenwerk Aktiengesellschaft v. Church (Volkswagen )

Decision of Ninth Circuit of May 7th 1969. The word “Volkswagen” and the initials “VW” are registered trademarks of plaintiff Volkswagenwerk Aktiengesellschaft (Volkswagen). In 1958 defendant opened an automobile repair business in Long Beach, California, specialized in the repair of Volkswagen and Porsche vehicles, taking as his trade name “Modern Volkswagen Porsche Service.” This continued to be his trade name until 1960, during which year, in response to objections from plaintiff, he changed it to “Modern Specialist.” At various times, also in response to plaintiff’s demands, defendant incorporated the word “Independent” into various phases of his advertising, in order to distinguish his business from those of Volkswagen’s authorized or franchised dealers. Thus he began using this term on his business cards in 1960, in his telephone directory advertisements in 1962, on his truck and on various “giveaways” such as matchbooks, pencils, paper towels, etc., in 1963. A large sign on the front of his premises continued to read “Modern Volkswagen Porsche Service” until after the complaint in this action was filed in 1964, when it was changed to “Independent Volkswagen Porsche Service.” At about the same time defendant began to use the word “Independent” on his repair order forms.

The district court found that while defendant’s early use of the word “Volkswagen” as part of his business name was unlawful, none of his subsequent practices infringed Volkswagen’s rights, primarily because defendant’s extensive use of the word “Independent” sufficiently distinguished his business from those affiliated with plaintiff’s. The Ninth Circuit held that defendant may specialize in the repair of Volkswagen vehicles and may also advertise to the effect that he does so, and in such advertising it would be difficult, if not impossible, for him to avoid altogether the use of the word “Volkswagen” or its abbreviation “VW,” which are the normal terms to the public at large, signify plaintiff’s cars. But the defendant must not do so in a manner which is likely to suggest to his prospective customers that he is part of Volkswagen’s organization of franchised dealers and repairmen. The defendant’s prominent use of the word “Independent” whenever the terms “Volkswagen” or “VW” appeared in his advertising was sufficient to distinguish his business to the eye of the customer. Therefore, the Court of Appeals affirmed the judgment of the district court.

4. Prestonettes, Inc. v. Coty (Coty Perfumes)

Decision of U.S. Supreme Court of April 7th 1924. Defendant Prestonettes, a New York corporation, purchased toilet powders and perfumes from plaintiff Coty, a citizen of France. Defendant purchased the genuine powder, subjected it to pressure, added a binder to give it coherence, and sold the compact in a metal case. Defendant bought the genuine perfume in bottles and sold it in smaller bottles. Plaintiff requested the defendant to stop use of its “Coty” and “L’Origan” trademarks. The decree from the district court allowed defendant to put upon the rebottled perfume some indication in letters of the same size, color, type that it was not connected with plaintiff, and that the contents were plaintiff’s which were independently rebottled in New York; and that it was not connected with Coty for the compact of face powder therein independently compounded by it from the plaintiff’s loose powder and its own binder. Loose powder - percent, Binder - percent.” The Second Circuit, considering the very delicate and volatile nature of the perfume, its easy deterioration, and the opportunities for adulteration, issued an injunction against the use of the above marks by the defendant. The U.S. Supreme Court believed that the circuit court had gone too far, and overturned the decision by reinstating the district court decision. Justice Holmes, in writing the famous announcement quoted at the beginning of this article to correct a common misunderstanding, declared that a trademark is not a copyright.

III. Insufficiencies in the Toyota decision

The first two of the above four cases are analyzed on the strict basis of New Kids factors. The remaining two took place earlier than New Kids , but the alleged trademark uses in the two cases accord apparently with the factors set forth in New Kids case, and both cases have the same grounds of judgments as those in New Kids. In the four cases, the alleged acts have something in common, that is, the trademark at issue may be used lawfully not only by the plaintiff and the defendant, but also by any third party in similar circumstances. In New Kids , other media may also, just as the newspapers have done, conduct similar polls and use the name of the plaintiff in newspapers and hot-lines. Neither the plaintiff nor the two papers can interfere. In the Princess Diana case, other sellers of collectibles may also use the Diana trademark in the same way as the defendant, and both the trademark holder and the defendant have no right to interfere. In Volkswagen case, any repairman of the same kind may use the Volkswagen trademarks in the same way as the defendant. In Coty case, any third party with the same business model may have the right to use the trademark at issue in the same manner as the defendant. In Toyota case, however, the defendant’s use of the trademark differs greatly from the aforesaid cases. The defendant’s use of the domain names of buy-a-lexus.com and buyorleaselexus.com will prevent others running the same business from operating at the same websites, or even from using similar domain names.

Nominative fair use is established aiming primarily at resolving conflicts between the exclusive trademark holder and trademark users in exchanging information in business operations, so that legitimacy of using the trademark as a nominative sign in mutual communications can be protected, and that the trademark cannot be created as a private right exclusively owned by the trademark holder. If an act has been determined to be a nominative fair use, the act can be performed by the relevant qualified public. In the same circumstance, any individuals, with the same needs, may have the right to indiscriminately and repeatedly use the nominative sign of the trademark. Therefore, one of the must-have attributes of the nominative fair use is replicability, in other words, the act may be replicated by any third party.

IV. Further analysis of the Toyota case

It is not difficult to identify the harm the defendant’s conduct will do to the plaintiff, as claimed by the plaintiff in the complaint, the domain name will cause consumer confusion. Even if the Court of Appeals failed to deny this, the court held that the defendant’s website disclaimer can promptly dispel possible consumer confusion that may arise. Therefore, we may come to the conclusion that some consumers may mistake the website as a property of the plaintiff and pay visits. Such visits are not what the defendant deserves, but extra gains. The increase of website visitors will expand the fame of the defendant and its websites, and accordingly increase business opportunities of the defendant.

In addition, people always access domain names not through computers and going online, but through business cards, print ads and print media, then the confusion caused by the domain names may not be timely dispelled due to failure to visit the website; even if people go online, there will also be circumstances of failure to visit the website due to lack of motives.

Based on the above, the confusion caused by the domain names may not be timely dispelled. The Toyota case fails to address the harm as a result of diversified uses of domain names.

The main part of the alleged domain name “buy-a-lexus” has a literal meaning stating one of several business links of the plaintiff, therefore, it is highly related and substantially important to the plaintiff. If similar phrases which are associated with the plaintiff’s business operations and related industrial chains, such as sell-lexus, repair-lexus, rent-lexus, lexus-service and barginlexus, are registered as domain names and held by others, though domain names are not as highly exclusive as a registered trademark, registration of the domain names will lead to restrictions in use of the aforesaid phrases, it will also bring about restrictions and inconvenience to the plaintiff’s normal business operations, and the plaintiff will at least make sustained efforts to clarify and differentiate. The new domain name registrant, as an intruder to the industry, has made no contribution to the industry, but the registrant has obtained exclusive privileges arising from the registration, it will be unfair to trademark owners. The meaning of “Buy-a-lexus” is built on the meaning of the word Lexus. The meaning of Lexus depends on the plaintiff’s sustained and stable investment and maintenance, therefore, the plaintiff is the most qualified exclusive owner of the phrase. The exclusive rights of other registrants are based on the plaintiff’s investment, therefore, the registrants will be suspected of obtaining effortless gains and free-riding on the achievements of the plaintiff. In addition, there is also the likelihood of confusion as discussed before. The domain name registrants have an edge over their competitors, which is also unfair, because such edge has been taken in the name of fair use, but exclusively owned by the registrant.

Use of the domain name Buy-a-lexus will direct visitors to the registrant, and the domain name will have a new meaning and stand as a new sign. Literally, the new sign is closely associated with the plaintiff’s business operations, but the sign is directed to a subject that is unrelated to the plaintiff. Such inherent contradiction causes the sign to lack good stability, while the contradictory use of the sign is also uneconomical. The disclaimer at the defendant’s website also supports such a viewpoint from another perspective. If a sign is accompanied by repeated explanations or clarifications, this will be a convincing proof of the instability and likelihood of confusion of the sign. Nominative fair use is permissible under the circumstances of repeated use by unspecified number of people. Since users are not specified, the object of the use will not be specified, and there is no likelihood of fixed association, in the public minds, between the user and the object of the use due to repeated uses by a specified subject; the use will continue to be the use per se only and the object of the use will not obtain other meanings, therefore, the trademark right will not be harmed. The nominative fair use has only the literal meaning and has no way got any new meaning. The registrant obtains the domain name in the name of fair use, but the use of the domain name has been monopolized by the registrant, obtaining the secondary meaning directed to the registrant. The primary purpose of the nominative fair use is to protect conducts of the relevant public, but here a private property right has thus been set up.

One exception is that if the nominative fair use of a trademark has obtained a new meaning and been specified, the use then will be fair. In Playboy Enterprises, Inc. v. Terri Welles, decided by the Court of Appeals on January 1st 2002, the defendant Terri Welles was chosen by the plaintiff to be the Playboy Playmate of the Year for 1981. Her use of the title “Playboy Playmate of the Year 1981” as the masthead of her website is fair and permissible, although the “Playmate of the Year” is a registered trademark of the plaintiff. The reason is that the defendant’s use has not created new meanings for the domain name, and the domain name prior to the registration is directed to the plaintiff.

V. Further analysis of criteria of nominative fair use

The essential nature of the nominative fair use is to weigh the interests between different stakeholders that superficially refer to the trademark holder and an individual trademark user, but, in fact, behind the trademark user are potential people that all have identical demand for use. Therefore, both sides of the game are the trademark holder and unspecified people with identical demand for use. The foregoing attribute requires the nominative fair use to be replicable. Secondly, the aim of the doctrine of nominative fair use is to justify the need to use by the user, requiring the use by the user to be necessary, and such necessity should be the common need shared by people all having the need to use, and a special need from a particular individual cannot create such necessity. Finally the ultimate goal of the nominative fair use is to achieve proper balance of interests of both sides; therefore, the use by the user must be restrained to maintain the balance, the demand for such use must have limits. The forgoing replicability, necessity and limitedness have constituted the complete attributes of the nominative fair use.

It is not enough for limitedness to refer only to the limited use, and such a vaguely defined attribute will make it difficult for people to draw a clear boundary. The third factor in New Kids focuses on the opposite direction and defines a boundary from the negative point of view. The third factor, as a matter of fact, is the supplement and description of the second, and the two factors combined define the limitedness of the nominative fair use from both the positive and negative aspects. Such approach to draw the boundary is desirable, but it should be complete, but the third factor of New Kids is not. The trademark use beyond the limit is to take advantage of the good fame or reputation of the trademark, either the user may disguise itself as the trademark holder (or having particular association with the trademark holder), or exploit the fame or reputation of the trademark to direct consumer attention to the user (or the user’s products or services). The former is just the content of the third factor of New Kids, namely, to confuse the trademark user with the trademark holder. As for the latter, the trademark user, generally speaking, does not intend to get confused with the trademark holder, but expects to use the trademark to grab consumer attention to the user or its products or services. As for the attention to the user, circumstances include use of the trademark as a business name and prominent use of the trademark on its signs but downplaying its shop names. As for the use of the trademark to attract attention to the products (or services), the products refer not to those initially designated for use by the trademark holder, but those of the trademark user or a third party, and the products and those under the trademark have certain association. For example, in the trademark infringement action brought by Volvo Trademark Holding AB against Zhejiang Ruian Changsheng Oil Filter Co., Ltd.

In summary, this article proposes that nominative fair use of trademarks have the following required elements: 1) replicability. People with identical qualifications all have the right to use; 2) necessity. It will be difficult to describe specific products and services without use; 3) limitedness. The trademark use is limited to the necessity to distinguish the products or services under the trademark; 4) The trademark user should not disguise itself as the trademark holder or exploit the trademark for unjustified interests, namely, the user should not suggest implicitly any sponsorship or endorsement with the trademark holder, or use the trademark to attract attention to the user or its products or services.

(Translated by Wang Hongjun)