The Ninth Circuit shrugs; nonconsumer confusion can be evidence of consumer confusion

Rearden LLC v. Rearden Commerce, Inc., --- F.3d ----, 2012 WL 2402012 (9^th Cir.)

HT Eric Goldman

Rearden LLC, Rearden Productions LLC, Rearden Studios LLC, Rearden, Inc., and Rearden Properties LLC appealed from summary judgment granted to Rearden Commerce on Rearden LLC etc.’s Lanham Act and ACPA claims.  The court of appeals found that genuine issues of material fact precluded summary judgment.  To my mind, the most notable part of this opinion is something that neither party really had the incentive to argue (in part because of pending trademark applications): they claimed that “Rearden” was suggestive, when I would think that it’s quite obviously descriptive in that it is a surname.

Both parties took their inspiration from Ayn Rand’s Hank Rearden.  Steve Perlman founded Rearden Steel, Inc. in May 1999, then changed its name to Rearden Studios, Inc. in March 2002, Rearden, Inc. in October 2004, and, finally, Rearden LLC in June 2006.  Perlman founded several other Rearden companies: Rearden Studios LLC (which also went through a bunch of Rearden name changes), Rearden Productions LLC (which began life as Look Aside but quickly changed to a Rearden variant), and Rearden Properties LLC.

These entities have offices in San Francisco and Palo Alto, employing approximately one hundred employees in total, and they have a number of websites, including the main rearden.com (since April 2001), reardensteel.com (Nov. 1999), reardenstudios.com (Mar. 2002), and reardenlabs.com (May 2005).  They are technology incubators and artistic production companies.  Tech incubators provide resources and support for start-ups, including “office space, personnel, equipment, IT infrastructure, funding, credit guarantees, insurance, administrative services, benefits, travel services, marketing, creative ideas, intellectual property, and domain names.”  They’ve entered into a partnership with TriNet, a human resources company, to provide their affiliates with “online access to payroll and benefits management services as well as the ability to purchase such services as airline, hotel, and dining reservations, car services, and event tickets.”

Rearden LLC is the one that really does this; Rearden Productions LLC and Rearden Studios LLC specialize in high definition and animated movie production services, while Rearden Properties LLC is a property ownership and management company that rents three units in a San Francisco building to the other Rearden entities.

Appellants have a registration for “Rearden Studios” and logo.  They also filed ITUs for “Rearden,” “Rearden Companies,” “Rearden Commerce Email,” “Rearden Personal Email,” “Rearden Mobile,” “Rearden Wireless,” and “Rearden Communications.”  And they alleged infringement of other claimed Rearden marks, including most of the above along with “Rearden LLC,” “Rearden Productions,” “Rearden Properties,” “Rearden Entertainment,” “Rearden, Inc.,” “Rearden Labs,” “and “Rearden Steel.”  The district court, encouraged by appellants, focused on “Rearden.”

Rearden Commerce, Inc., is “a Silicon Valley-based business concierge company. Simply put, it offers a proprietary web-based platform called the ‘Rearden Personal Assistant,’ which links its clients, specifically businesses and professionals, to an online marketplace where they then are able to search for, compare, purchase, and manage a variety of business and travel-related services from more than 130,000 different vendors (including such well-known companies as American Airlines, Hertz, Hilton, and WebEx). The available services include air, car, hotel, and dining reservations, event tickets, web conferencing, and package shipping.”  Patrick Grady founded the company in 1999, when it was Gazoo Corp. and then Talaris.  Talaris reserved “Rearden, Inc.” as a California corporate name in August 2004, but lost the reservation to appellants in October, so it reserved “Rearden Commerce” in November and changed its name to Rearden Commerce in January 2005. ReardenCommerce.com launched in February 2005 (it had been purchased in August 2004). In March 2005, it filed trademark applications for “Rearden Commerce” and its associated logo.  When they were published for opposition in July/October 2006, appellants became aware of Rearden Commerce.

Rearden Commerce also bought various domain names in March 2005, registering .com/.org etc. families for reardeninc, reardenco and reardenc.  On the same day in October 2006 that it agreed to an extension of time for appellants to oppose its registrations, Rearden Commerce registered reardenllc.com, and soon thereafter reardenllc.net, reardenmobile.com, and mobilerearden.com.  The reardenllc domain names soon began redirecting to Rearden Commerce’s main site.  Appellants sued in November 2006.  Rearden Commerce then ceased the redirection and “parked” the domain names, refusing to assign them to appellants.  It refused to agree to a stipulated preliminary injunction limiting it to reardencommerce, but offered to maintain the domain names in parked status in return for appellants’ agreement to withdraw their applications for “Rearden Commerce Email, Rearden Personal Email, Rearden Mobile, Rearden Wireless, Rearden Communications, Rearden Companies, and Rearden,” which Rearden Commerce suggested were based on its marks and products.  The district court granted a preliminary injunction against Rearden Commerce only as to reardenllc domain names.

The district court first asked whether the Rearden companies had used “Rearden” in commerce; it was dubious, because the evidence suggested that the Rearden companies had served only to incubate Perlman’s ideas, and that no one actually paid Rearden to have their ideas incubated.  Appellants suggested that people could come to Rearden.  However, the district court ultimately assumed without deciding that there was a triable issue of fact on use in commerce.

Instead, the court found that there was no likely confusion.  The suggestiveness of the Rearden mark and the similarities between the parties’ marks weighed, albeit only somewhat, in favor of likely confusion.  The other factors, however, weighed against likely confusion, particularly the proximity of the services and the degree of purchaser care, with marketing channels also weighing against confusion and no help from actual confusion or bad faith intent.  “According to the District Court, no reasonably prudent consumer seeking to obtain start-up support would mistake Rearden Commerce's online marketplace for Appellants' incubation business. In turn, no prudent consumer seeking a web-based means to search, compare, and purchase a variety of business services would mistake Appellants' start-up incubation services for Rearden Commerce's online personal assistant program.”  In addition, the district court rejected appellants’ evidence of confusion, which came from vendors/industry insiders, not members of the relevant consuming public.  E.g., “a Rearden Commerce customer known as QubicaAMF expressed confusion as to which “Rearden” it conducted business with after receiving a subpoena in this lawsuit, and Appellants received dozens of misdirected emails originally intended for Rearden Commerce, some of which were sent by Rearden Commerce's own customers).”  This latter at most involved confusion over proper names/addresses (what other courts have characterized as lookup errors, from the days of yellow pages).

The district court, after some motion practice, turned to the cybersquatting claims.  It determined that appellants couldn’t establish a valid interest in any Rearden mark before July 2005, thus entitling Rearden Commerce to summary judgment for domain names acquired before that date.  A reasonable jury could, however, find use after that, such as appellants’ entry in a “Reel Directory” and an agreement to provide editing services to Electronic Arts.  This left ReardenLLC.com, ReardenLLC.net, ReardenMobile.com, MobileRearden.com, and ReardenC.com.  The district court found that the statutory factors generally favored Rearden Commerce on the issue of whether it acted with a bad faith intent to profit with respect to those domain names, though matters were complicated with respect to the reardenllc domain names.  The court ultimately found good faith because of Rearden Commerce’s belief that it was the mark owner and its unconditional offer, at oral argument on summary judgment, to transfer the domain names to appellants.

The court of appeals reversed.  Summary judgment is disfavored in trademark cases.

First, the court found genuine issues of material fact on use in commerce before July 2005.  Use means bona fide use, not use made merely to reserve rights in a mark.  Mere advertising by itself can’t establish priority of use.  But the circuit applies a totality of the circumstances approach.  Evidence of actual sales or lack thereof isn’t dispositive.  Non-sales activity can be relevant to show that the mark has been adequately displayed to the public and that a service has been rendered in commerce.

Appellants argued that they offered incubation-related services to a variety of start-up companies, including securing millions in outside funding for Rearden Steel Technologies (2001), spinning the company off as Moxi Digital (2002), providing incubation services to Ice Blink Studios (2004), and other activities after 2005.  Many, and possibly all, of these incubated companies were created by Perlman himself.  If appellants had only ever incubated Perlman’s ventures and never provided or even offered their services to outsiders, that wouldn’t be use in commerce because it wouldn’t be sufficiently public to identify or distinguish their services to an appropriate segment of the public.  But, the court of appeals thought, there were genuine issues of material fact about whether appellants provided incubation services to outsiders.  Rearden did have a written contract to provide studios to Ice Blink.

Also, there was “more than enough” evidence that appellants provided non-incubation services to prevent summary judgment.  Appellants “participated in” a 2001 Cinemax movie project, and one of the Rearden entities was expressly identified in the credits of “How to Make a Monster” as furnishing motion capture services.  There was also a 2003 licensing agreement with Life Aquatic Productions, a 2006 editing services agreement between Electronic Arts and Rearden Studios, the “Reel Directory” published in July 2005 identifying Rearden Studios as providing various editing-related services and welcoming independent filmmakers, a 2005 DVD identifying Rearden Studios as providing DVD design and editoral studios, and two 2005 DVD independent films listing Rearden Studios in the credits.  This created a genuine issue of material fact as to whether appellants’ services were rendered in commerce, and also used or displayed in the sale of services.  As to the latter, appellants generated publicity about their services and the marks, including stories in trade and other publications (19 pre-2005 news stories), appearances at trade shows and publicity parties including Rearden Steel’s own launch party, and distribution of Rearden merchandise.

A reasonable finder of fact would not be required to find in favor of appellants, but the issue did have to be resolved at a trial.  Facts favoring Rearden commerce include the undisputed assertion before the district court that appellants only ever provided services to Perlman himself and no one actually paid for idea incubation, and appellants’ failure to file trademark applications for the “Rearden,” “Rearden Companies,” “Rearden Commerce Email,” and “Rearden Personal Email” marks until May 2007.  Perlman claimed under oath, in connection with the “Rearden Studios” trademark applications, that the “Rearden Studios” mark was not used until February 23, 2005, at which point Rearden Commerce had already changed its name from Talaris.

Turning to likely confusion, appellants’ theory was unjust enrichment: “consumers could be more inclined to do business with Rearden Commerce because they mistakenly believe that its services are sponsored by or affiliated with Appellants.”  (Sorry, Mark McKenna.)  If true, this would deprive appellants of the opportunity to charge for the use of their marks and could also risk damage to their reputation or goodwill if Rearden Commerce’s services were bad.

Here again, a reasonable jury could go either way.  Two factors, strength of the mark and similarity of the marks, weighed in favor of appellants.  “Indeed, a reasonable jury could give great weight to these two factors, especially when viewed together.”  And there were genuine issues of material fact on proximity of goods, evidence of actual confusion, marketing channels, and likely expansion of product lines.

The Ninth Circuit specifically stated that the district court properly characterized Rearden as a suggestive mark because “it takes only a small exercise of imagination to associate this name, made famous in the business community (and elsewhere) as an image or paragon of entrepreneurial success by Rand's highly successful and influential novel, with the incubation of start-up enterprises.”  Sigh.  Also, it was correct to reject Rearden Commerce’s argument that the mark was weak because over 840 other companies use Rearden or some variation in their names.  Only four identify as tech or engineering firms, and each of those has headquarters outside of California, lacks an Internet presence, and employs fewer than five people. “A reasonable finder of fact could accord more significant weight to this factor than did the District Court, particularly in light of evidence that Appellants have undertaken efforts to promote the mark in association with their services; we have observed that ‘advertising expenditures can transform a suggestive mark into a strong mark.’”  

Similarity, of course, also favored appellants, especially given that Rearden Commerce naturally often referred to itself as “Rearden.”  True, it’s common for multiple companies to use similar names and marks, such as Johnson & Johnson, Johnson Publications, Howard Johnson's, Johnson Controls, Johnson Products, and S.C. Johnson.  But a reasonable jury could determine that this factor weighs “significantly” in appellants’ favor, especially given the possible cumulative effect of strength and similarity.

On proximity of the services, the Ninth Circuit favors flexibility.  In the light most favorable to appellants, there was evidence that the parties “(1) offered arguably similar technology platforms to their respective customers (i.e., Appellants have offered an online means, as part of their incubation business, for clients to arrange business, travel, and other services through TriNet while, on the other hand, Rearden Commerce has provided businesses with an online marketplace for businesses to purchase and manage similar services from a variety of third parties); (2) attended the same trade shows; (3) appeared in the same publications; and (4) relied on private investment funding from the same sources.”  A reasonable jury could go the other way too, finding that an incubator doesn’t really compare to an online business concierge marketplace.

It was on evidence of actual confusion that the court of appeals made the most law.  While the court rejected appellants’ theory of confusion among “non-purchasing consumers,” it ruled that confusion among non-consumers could create an inference of consumer confusion.

Appellants began with the proposition that incubation services, by definition, are not directed towards the general public.  They typically deal with investors, other businesses seeking strategic partnerships, marketers, business strategists, vendors, suppliers, and media outlets.  “Various outlets, like trade shows and trade publications, are therefore critical to a successful incubation process as well as to a successful incubation business.”  Thus, they concluded, an incubator sells the start-up itself to investors and the like. 

The court found this theory “open-ended and unsupported.”  “It is difficult to see who exactly could not be included as a ‘non-purchasing consumer’ under their interpretation of this concept, which apparently includes those who sell to, as well as buy from, the entity.”  The relevant consumer for purposes of incubation is the hiring start-up.  Trademark law prevents only against mistaken purchasing decisions, not against confusion generally.

However, non-consumer confusion may be relevant to likely confusion “where there is confusion on the part of: (1) potential consumers; (2) non-consumers whose confusion could create an inference that consumers are likely to be confused; and (3) non-consumers whose confusion could influence consumers.”  In those cases, non-consumer confusion “bears a relationship” to consumer confusion.  In a footnote, the court said it wasn’t deciding whether other circumstances also justified taking non-consumer confusion into account.  Its rationale for leaving the class open was pure dilution, despite the confusion language: “we do not decide whether confusion on the part of such nonconsumers as vendors and suppliers, potential employees, and investors should be considered merely because such confusion could affect the trademark holder's business, goodwill, or reputation.”

In the TrafficSchool.com case, the court already recognized non-consumer confusion as a relevant proxy—there, it was law enforcement officials and state DMV employees confused about the official status of DMV.org.  “[I]f even these parties, who presumably have much more familiarity with governmental DMVs, are confused about the defendants' website, then it is probable that consumers, who have less familiarity, would also experience confusion.”  If sophisticated non-consumers are confused, that might be evidence that less sophisticated consumers would be confused, whereas confusion by non-sophisticated non-consumer “may shed little or no light on whether a sophisticated consumer would likewise be confused.”  Also, the court has recognized relevance where non-consumer confusion can contribute to consumer confusion, such as post-sale confusion.

There were two record incidents of actual consumer confusion: a customer of Rearden Commerce, QubicaAMF, expressed confusion as to which “Rearden” it was conducting business with after receiving a subpoena in the instant lawsuit. Also, appellants received dozens of misdirected e-mails actually intended for Rearden Commerce, some sent by Rearden Commerce's own customers.

As for non-consumer evidence, trade and other publications, as well as trade show organizers and attendees, have confused the parties or believed that Rearden Commerce was founded by Perlman or somehow is associated with him and the various Rearden companies.  The Ninth Circuit lumped together examples of uncertainty, which some courts treat as the opposite of confusion, with confusion: “For example, the author of a March 23, 2005 CNET News.com article observed that ‘the main question in the conference hallways [at the PC Forum trade show] was whether the company [Rearden Commerce] had any relationship to Rearden Steel, the set-top box outfit started years ago by WebTV founder Steve Perlman’ and that, ‘[i]t doesn't, but the association made many wiggly.’”  Another 2008 article, discussing $100 million in funding for Rearden Commerce, clearly believed that this company was created by the “legendary inventor,” Perlman, and the “technology incubator” he founded; the article also featured an excerpt from a recent interview with Perlman and included his picture. A Rearden Commerce employee testified that he was asked about “a dozen times” on the first day of the April 2008 Web 2.0 show whether the companies were somehow affiliated or related.

This type of confusion could fall into any of the three relevant categories the court of appeals identified.  “In particular, it appears that the confusion of presumably knowledgeable and experienced trade journalists and trade show organizers could very well influence the purchasing decisions of consumers.”

There was also evidence of confusion by other non-consumers, “evidently either in a position in which to influence consumers or to serve as their proxy”: (1) appellants' prospective employees; (2) a vendor; (3) an investor (Mac-Quarie Group, which entered into an agreement with Rearden Commerce and then negotiated with appellants over a $1 billion lease); (4) appellants' auditors; and (5) their patent attorneys. “Tellingly, Rearden Commerce and Grady were cautioned about using the ‘Rearden’ name before the company's name was ultimately changed in 2005. For example, Rearden Commerce's public relations consultant stated in a December 8, 2004 email that: ‘Also, there is a guy who has a small thing called Rearden Steel, the one who started Web TV. That might confuse folks in the beginning.’”

A reasonable finder of fact could still find in Rearden Commerce’s favor, given that this evidence might have no bearing on actual consumer confusion. “For instance, a reasonable jury could find that presumably sophisticated start-ups looking for critical incubation services could not really be misled by some mistakes in a trade publication.”  Other reasons to discount the evidence included that the confusion evidence related only to names/email addresses, not to the full marks.  Indeed, Rearden Commerce suggested that appellants attempted to generate confusion evidence by doing things like removing email filters and moving their booth at the Web 2.0 show.  But these accusations of good faith only highlighted the existence of genuine factual issues.

There were also genuine issues of material fact on marketing channels used (the parties appeared in the same trade publications and participated in the same trade shows) and likelihood of expansion of product lines (Perlman testified that Rearden had been developing wireless technology since 1999).  Meanwhile, Rearden Commerce had, among other things, developed its own “mobile wireless product,” registered mobilerearden.com and reardenmobile.com, and had an interest in further expansion.  (Isn’t having an interest in mobile apps a bit like having an internet presence these days?)

Similar factual issues preserved the ACPA claim.  A reasonable jury could weigh more heavily than the district court did that Rearden Commerce has never used Rearden LLC to describe itself, given that it’s one of appellants’ legal names.  Also, the timing suggests that Rearden Commerce might have been trying to use the domain names as leverage in negotiations, which the ACPA doesn’t let you do absent some other interest.  (Compare filing an ITU for "Rearden Commerce," which is apparently fair game for exerting leverage.)  Rearden Commerce’s general counsel testified, “So, yes, at that point in time, there was I find out that there's a party opposing my trademark application that I feel has no right to oppose my trademark application, and I need to protect my mark, and I need to—and those were two marks that I hadn't obtained in the past.”  A reasonable jury could find that Rearden Commerce simply purchased domain names it initially overlooked, but it could also find bad faith, especially given the apparent absence of any formal policy or method for Rearden Commerce’s registrations.

There were also genuine issues of material fact on Rearden Commerce’s good or bad faith after appellants first accused it of cybersquatting.  Though Rearden Commerce did deactivate the LLC.com domain names when confronted and then unconditionally offered to transfer them to appellants, that was just one fact for the jury to evaluate.  Earlier, it offered to maintain them as non-directing only on the condition that appellants abandon some trademark applications.