state courts do nominative fair use too

Instant Infosystems, Inc. v. Open Text, Inc., 2017 WL 3634547, No. B276691 (Cal. Ct. App. Aug. 24, 2017)

Another illustration of the principle that courts don’t like to do two dilution analyses—this state court only talks about federal dilution, assuming that the analysis is the same for both.  Open Text owns RightFax, software that allows users to fax documents via computer, without a fax machine.  Instant and Open Text had a contractual relationship; after that ended, Open Text allegedly told customers that Instant wasn’t permitted to service RightFax. Instant disagreed and sued for tortious interference and violation of the UCL.  Open Text counterclaimed for trademark infringement, dilution, and false advertising under state and federal law, as well as breach of contract, and sought a preliminary injunction, which the trial court denied. The false advertising claim was based on emails from Instant stating that certain RightFax products would be reaching its “support end of life” or “end of life.” The court of appeals affirmed the denial of the preliminary injunction.

The court reviewed the denial of the preliminary injunction for abuse of discretion; the factors are (1) likelihood of success on the merits and (2) interim harm to the plaintiff absent an injunction compared to harm to the defendant with an injunction.

The court of appeals used the Ninth Circuit nominative fair use “defense,” holding that all three prongs are factual questions.  Though the trial court issued only a one-line order, California courts of appeal presume the trial court made all findings necessary to support the order, and thus affirm if substantial evidence exists to support such findings.  Factor one: there was evidence that the service Instant provides for support of RightFax is not readily identifiable without specifically naming RightFax.  Factor two: Instant submitted evidence that it used only so much of the mark as was reasonably necessary to identify its own service. On Instant’s RightFax webpage, Instant states: “Instant InfoSystems has been providing world-class technical support for RightFax for nearly 20 years. Our vast experience and depth of technical expertise with RightFax has helped large and small companies implement reliable, secure, and cost-effective solutions for sending and receiving documents ....”  Factor three: There was evidence that Instant’s homepage, which displays a list of Instant InfoSystems’s partners, doesn’t list Open Text as a partner. It also had a Web page dedicated to explaining the company’s history, the previous partnership with Open Text, and that the partnership had come to an end. Though Instant at one point referred to itself as “the Right Fax Experts,” this was replaced with “the Fax Experts,” and Instant removed all references to partnership awards from Open Text from its website.  (Query whether these last steps were necessary; certainly it would seem fair and truthful to put the awards on the history page.)  Based on all this, substantial evidence supported the trial court’s implied finding of nominative fair use.

Nominative fair use also precludes a finding of trademark dilution because, by definition, it doesn’t “create an improper association in consumers’ minds between a new product and the trademark holder’s mark.”

False advertising: the parties submitted conflicting evidence pertaining to whether a consumer would be deceived regarding the term “end of life.” Open Text’s declaration from its RightFax product manager stated that he had to make on-site visits to customers to convince them RightFax would continue to be supported after the emails, and that Instant had informed several customers RightFax was dead, which required him to respond. But Instant’s declaration from a former employee at RightFax’s previous owner stated that “end of life” was used properly by Instant as it was understood in the industry, and was even used in such a way by Open Text’s current partners when referring to RightFax.  Presuming that the trial court resolved the conflicting evidence in favor of Instant, the court of appeals affirmed the finding of no likely success on the merits.

Finally, substantial evidence supported the implied finding that the balance of harms didn’t tip in favor of Open Text. Instant’s harm if the preliminary injunction was granted was the loss of business involving RightFax services, which it had been performing for 15 years.  The status quo was seven months of Instant using the RightFax trademark on its Web site and in other communications, which an injunction would immediately change. Further, Open Text waited more than seven months after terminating the parties’ agreement to object to the continued use of the RightFax mark, supporting the trial court’s finding on the balance of harms.