Applied Underwriters, Inc. v. Lichtenegger

Ninth Circuit affirms district court ruling that use of financial services company’s registered trademarks in webcast seminar critical of the company and in related promotional materials was nominative fair use.

Applied Underwriters Inc., the owner of several trademarks for its corporate name and a financial service product it provides titled “EquityComp,” sued Providence Publications LLC for using its marks in a webcast seminar titled “Applied Underwriters’ Equity Comp Program: Like it, Leave it, or Let it be?” and related promotional materials. Plaintiff alleged that defendants’ use of its marks constituted trademark infringement and dilution as well as unfair competition because defendants would be able to attract customers who mistakenly believed that they would attend a webcast seminar sponsored or affiliated with plaintiff.

Defendants moved to dismiss, arguing that their use of the trademarks were protected under the doctrine of nominative fair use. The district court agreed and dismissed the claims. At plaintiff’s request, the court also granted leave to amend the complaint within 30 days. Plaintiffs did not file an amended complaint and did not inform the court of their intent not to do so, which led the court to issue a minute order dismissing the case.

On plaintiff’s appeal, a threshold issue was whether the district court dismissed the complaint pursuant to Rule 12(b)(6) for failure to state a claim or as a sanction under Rule 41(b) for failure to comply with the court’s order. Rule 41(b) allows defendants to move to dismiss an action when the plaintiff fails to prosecute or comply with a court order, and the dismissal order will constitute an adjudication on the merits unless the order provides otherwise. Ninth Circuit precedent in Yourish v. Cal. Amplifier enumerates five factors that should be analyzed when deciding whether a case should be dismissed pursuant to Rule 41(b): “(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice to the defendants; (4) the public policy favoring disposition of cases on their merits; (5) the availability of less drastic alternatives.”

The Ninth Circuit remanded on this limited issue, and the district court responded with an order clarifying that it had dismissed the complaint under Rule 41(b) and explaining that three of the five Yourish factors strongly favored dismissal. On appeal, the Ninth Circuit concluded that the district court abused its discretion by invoking Rule 41(b) because it did not directly order plaintiff to file an amended complaint and it did not indicate that failure to do so would result in dismissal. Nonetheless, the panel decided not to remand the case a second time, as doing so would not serve the interest of judicial economy and dismissal was the correct legal result even if reached for the wrong reason. 

The Ninth Circuit then proceeded to analyze the district court’s dismissal pursuant to Rule 12(b)(6). Citing the 1992 precedent New Kids on the Block v. News Am. Publ’g, Inc., the panel found that the defendants’ nominative fair use defense applied to the various causes of action brought against them – trademark infringement and dilution and federal and state unfair competition – because their nominative use of the mark “does not implicate the source-identification function that is the purpose of trademark, it does not constitute unfair competition.” The panel also found that defendants’ commercial use of plaintiff’s marks constituted nominative fair use because defendants use satisfied the requirements enumerated in New Kids on the Block: (1) “the product or service in question must be one not readily identifiable without use of the trademark”; (2) only so much of the mark may be “used as is reasonably necessary to identify the product or service”; and (3) “the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.” Plaintiff challenged the district court’s conclusions on all three requirements, and the panel addressed each requirement in turn.

Plaintiff argued that defendants did not meet the first requirement because they could have utilized a generic or descriptive name for the web seminar, even though plaintiff conceded that the seminar specifically addressed its EquityComp product. Defendant was not required to use descriptive alternatives, according to the court, because the use of plaintiff’s marks was necessary to identify the specific product that defendants’ program critiqued. 

Plaintiff argued that defendants failed to meet the second nominative fair use requirement because their email promoting their seminar featured several uses of both the Applied Underwriters and EquityComp marks. The panel rejected that argument, explaining that the second factor “does not implicate the number of uses of a mark, but rather the nature of the uses[,]” and finding that defendants’ promotional email did not use a stylized font or design in connection with plaintiff’s marks.

Plaintiff argued that defendants failed to meet the third requirement because their promotional email displayed the ® registration symbol next to plaintiff’s Applied Underwriters and EquityComp marks, thereby allegedly creating consumer confusion as to whether plaintiff had sponsored or endorsed defendants’ seminar. The court rejected that argument, noting that defendants’ promotional email expressly stated that “EquityComp is the registered trademark of Applied Underwriters, Inc.” and found that “it was clear from the text of the email that the seminar was a critique of plaintiff’s program, and it is simply not plausible that it could have been construed as anything else.”

Summary prepared by Tal Dickstein and Peter Pottier