TMI Inc v. Maxwell ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS April 21, 2004
FOR THE FIFTH CIRCUIT
_______________________ Charles R. Fulbruge III
No. 03-20243 Clerk
No. 03-20291
_______________________
TMI INC,
Plaintiff-Appellee
v.
JOSEPH M. MAXWELL,
Defendant-Appellant
--------------------
Appeals from the United States District Court
for the Southern District of Texas
--------------------
Before DAVIS, BARKSDALE and PRADO, Circuit Judges.
EDWARD C. PRADO, Circuit Judge:
Following a bench trial, the district court determined that
Appellant Joseph Maxwell’s website that complained about Appellee
TMI, Inc. violated the anti-dilution provision of the Lanham Act,
15 U.S.C. § 1125(c); the Anti-Cybersquatting Consumer Protection
Act (“ACPA”), 15 U.S.C. § 1125(d); and the Texas Anti-Dilution
Statute, TEX. BUS. & COM. CODE § 16.29. Concluding that Maxwell’s
site, as a non-commercial gripe site, violates none of these
statutes, we reverse and render judgment in favor of Maxwell.
Appellant Joseph Maxwell intended to buy a house from
Appellee TMI, Inc., a company that builds houses under the name
TrendMaker Homes. Unhappy with what he viewed as the
1
salesperson’s misrepresentations about the availability of a
certain model, Maxwell decided to create a website to tell his
story. To this end, Maxwell registered an internet domain name –
www.trendmakerhome.com – that resembled TMI’s TrendMaker Homes
mark. (TMI had already been using the domain name
www.trendmakerhomes.com.) Maxwell registered his domain name for
a year; after the year passed, Maxwell removed the site and let
the registration expire.
During its existence, the site contained Maxwell’s story of
his dispute with TMI, along with a disclaimer at the top of the
home page indicating that it was not TMI’s site. It also
contained what Maxwell called the Treasure Chest. Maxwell
envisioned the Treasure Chest as a place for readers to share and
obtain information about contractors and tradespeople who had
done good work. During the year of the site’s existence, the
Treasure Chest only contained one name, that of a man who had
performed some work for Maxwell. The site did not contain any
paid advertisements.
The parties agree that some e-mail intended for TMI was sent
to Maxwell’s site. They also agree that Maxwell forwarded each
of these messages to TMI.
Shortly after Maxwell’s registration expired, TMI sent
Maxwell a letter demanding that he take down the site and
relinquish the www.trendmakerhome.com domain name. In response,
Maxwell attempted to re-register the domain name. His attempt
2
was unsuccessful, however, because TMI had acquired the domain
name once Maxwell’s registration expired. Instead, Maxwell
registered the domain name www.trendmakerhome.info. This lawsuit
followed. Because of the suit, Maxwell has never posted any
content on the trendmakerhome.info site.
Almost immediately, the parties entered into settlement
negotiations. Maxwell retained a lawyer, but knew he would not
be able to afford to pay the legal fees that would be required to
defend the entire lawsuit. TMI and Maxwell’s lawyer negotiated a
settlement, while Maxwell researched his case. Following this
research, Maxwell backed out of the settlement agreement and
proceeded pro se. He continued to represent himself through the
bench trial on January 17, 2003.
After the trial, the district court issued a Memorandum and
Order. In it, the district court found that Maxwell violated the
ACPA as well as the federal and Texas anti-dilution statutes.
The district court also issued an injunction forbidding Maxwell
“from using names, marks, and domain names similar to” ten of
TMI’s marks, including Trend Maker, and ordering Maxwell to
transfer trendmakerhome.info to TMI. The district court also
required TMI to submit a proposed judgment and gave Maxwell ten
days to respond to that proposal. Maxwell immediately filed a
notice of appeal.
Without allowing Maxwell ten days to respond, the district
court signed TMI’s proposed judgment. In many ways, this
3
judgment expanded the Memorandum and Order’s conclusions. For
example, the Memorandum and Order contained no findings about
either common law or statutory unfair competition. Yet the
judgment stated that Maxwell’s actions constituted unfair
competition under both common law and the Lanham Act. The
judgment provided a broader injunction than the one contained in
the district court’s original order by adding three marks to the
injunction. The judgment also awarded statutory damages of
$40,000 and, without elaboration, found the case to be an
“exceptional case,” justifying an award of $40,000 in attorney’s
fees. Additionally, the judgment addressed how Maxwell was to
pay the judgment: “[w]ithin twenty (20) days after entry of this
Order, defendant shall hand-deliver to plaintiff’s lawyer a
cashier’s check in the amount of $80,000, made payable to TMI,
Inc.” Maxwell then filed his second notice of appeal.
TMI made several related claims in this lawsuit. In the
first, TMI alleged that Maxwell violated ACPA. Additionally, TMI
alleged that Maxwell’s actions diluted its mark and thus violated
the Texas Anti-Dilution Statute, as well as the anti-dilution
provision of the Lanham Act.1
Commercial Use Requirement
1
TMI also alleged unfair competition under the Lanham Act
and under the common law. The district court made no findings on
unfair competition, until those claims were added to the
judgment, and TMI makes no arguments in support of its judgment
on those claims on appeal.
4
We first address whether the two relevant sections of the
Lanham Act – the anti-dilution provision and ACPA – require
commercial use for liability.2 The district court concluded that
ACPA requires commercial use, but did not address commercial use
in the context of the anti-dilution provision. TMI argues that
the anti-dilution provision applies even in the absence of
commercial use.
In making this argument, TMI does not address the anti-
dilution provision’s language, which conditions liability on
commercial use:
The owner of a famous mark shall be entitled, subject to
the principles of equity and upon such terms as the court
deems reasonable, to an injunction against another
person's commercial use in commerce of a mark or trade
name, if such use begins after the mark has become famous
and causes dilution of the distinctive quality of the
mark, and to obtain such other relief as is provided in
this subsection.
15 U.S.C. § 1125(c)(1)(emphasis added).
Citing this language, courts have observed that the anti-
dilution provision requires the diluter to have made commercial
use of the mark.3 See, e.g, Bird v. Parsons, 289 F.3d 865, 879
2
This Court has previously determined that § 43(a) of the
Lanham Act, 15 U.S.C. § 1125(a)(1), which addresses false and
misleading descriptions, only applies to commercial speech. See
Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 547 (5th Cir.
2001).
3
TMI refers to United We Stand America, Inc. v. United We
Stand, America New York, Inc., 128 F.3d 86, 89-90 (2d Cir. 1997),
for the principle that the Lanham Act does not require commercial
use. United We Stand America does not involve either the anti-
dilution provision or ACPA and is, thus, irrelevant to the
determination of whether these two sections require commercial
5
(6th Cir. 2002); Panavision Int’l, L.P. v. Toeppen, 141 F.3d
1316, 1324 (9th Cir. 1998). One of the exceptions to the anti-
dilution provision further indicates that the provision only
applies to commercial use: “(4) The following shall not be
actionable under this section . . . (B) Noncommercial use of a
mark.” 15 U.S.C. § 1125(c)(4). We conclude that, under the
statute’s language, Maxwell’s use must be commercial to fall
under the anti-dilution provision.
On the other hand, ACPA’s language does not contain such a
specific commercial-use requirement. Under ACPA, the owner of a
mark can recover against a person who, acting with “a bad faith
intent to profit from that mark . . . registers, traffics in, or
uses a domain name that . . . is identical or confusingly similar
to that mark.” 15 U.S.C. § 1125(d). ACPA thus bases liability on
a bad faith intent to profit. ACPA lists nine non-exclusive
factors for courts to consider when determining whether a
defendant had a bad faith intent to profit. One of those factors
is “the person's bona fide noncommercial or fair use of the mark
in a site accessible under the domain name.” 15 U.S.C. §
1125(d)(IV).
This Court has addressed ACPA and commercial use in E. & J.
Gallo Winery v. Spider Webs Ltd., 286 F.3d 270, 276 n.3 (5th Cir.
2002). In Gallo, the defendant Spider Webs registered domain
use.
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names that “could be associated with existing businesses,
including ‘ernestandjuliogallo.com,’ ‘firestonetires.com,’
‘bridgestonetires.com,’ ‘bluecross-blueshield.com,’
‘oreocookies.com,’ ‘avoncosmetics.com,’ and others.” 286 F.3d at
272. Spider Webs then auctioned those domain names, refusing all
bids of less than $10,000. Id. One of Spider Webs’ owners
testified during deposition that, after registering the domain
name ernestandjuliogallo.com, Spider Webs hoped that Gallo would
contact it so that Spider Webs could “assist” the company. Id.
With this evidence, the Court determined that the defendant’s use
was commercial; the company registered domain names and then sold
those names to trademark holders. Id. at 275. Because Spider
Web’s use was so clearly commercial, the Court noted that it did
not need to decide whether ACPA also requires use in commerce.
Id. at 276 n.3. The Sixth Circuit, too, recently determined that
it did not need to consider arguments about whether ACPA covers
non-commercial use, “as the statute directs a reviewing court to
consider only a defendant’s ‘bad faith intent to profit’ from the
use of a mark held by another party. Lucas Nursery &
Landscaping, Inc. v. Grosse, 359 F.3d 806, 809 (6th Cir. 2004).
Like the Lucas Nursery court, we, too, do not need to decide this
question in this case.
Was Maxwell’s site commercial use?
TMI argues that Maxwell’s site was “mixed-use” and therefore
7
not protected from the Lanham Act’s coverage. According to TMI,
Maxwell put the site to commercial use by including the Treasure
Chest and in so doing removed any protections his speech might
otherwise have had.
The Lanham Act defines “use in commerce” as “the bona fide
use of a mark in the ordinary course of trade.” 15 U.S.C. § 1127.
When defining commercial use, courts have examined several
different aspects of the defendant’s use. The Ninth Circuit has
emphasized that commercial use in commerce “refers to a use of a
famous and distinctive mark to sell goods other than those
produced or authorized by the mark’s owner.” Mattel, Inc. v. MCA
Records, Inc., 296 F.3d 894, 903 (9th Cir. 2002) and that the
phrase “requires the defendant to be using the trademark as a
trademark, capitalizing on its trademark status.” Avery Dennison
Corp. v. Sumpton, 189 F.3d 868, 880 (9th Cir. 1999). Put another
way, the Ninth Circuit in Avery Dennison also referred to “a
classic ‘cybersquatter’ case” in which a court referred to the
“‘intention to arbitrage’ the registration which included the
plaintiff’s trademark.” Id. (quoting Intermatic, Inc. v.
Toeppen, 947 F. Supp. 1227, 1239 (N.D. Ill. 1996). This Court
has provided a similar definition, determining in Gallo that the
defendant’s business of selling domain names containing marks
satisfied the commercial use requirement. Gallo, 286 F.3d at
275. See also Panavision Int’l, L.P. v. Toeppen, 141 F.3d 1316,
1325 (9th Cir. 1998) (“[defendant’s] ‘business’ is to register
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trademarks as domain names and then sell them to the rightful
trademark owners”). Other courts have emphasized the content of
the website. For example, while analyzing another section of the
Lanham Act, the Sixth Circuit concluded that so long as the
defendant’s fan website contained no links to commercial sites,
and contained no advertising or other specifically commercial
content, his site was not commercial. Taubman Co. v. Webfeats,
319 F.3d 770, 775 (6th Cir. 2003).
TMI agrees that the section of the site addressing Maxwell’s
complaints about TMI was noncommercial. TMI argues, however,
that the Treasure Chest section was commercial, and thus the site
“intermingle[d] gripes with commercial activities.”
Admittedly, Maxwell added the Treasure Chest to draw more
people to his site so that they would see his story. This intent
does not make his site commercial, however. Maxwell never
accepted payment for a listing on the Treasure Chest, and he
charged no money for viewing it.4 Further, TMI presented no
evidence that Maxwell had any intent to ever charge money for
using the site. Additionally, Maxwell’s site contained neither
advertising nor links to other sites. And unlike the defendants
in Gallo, Maxwell was not engaged in the business of selling
domain names. Gallo, 286 F.3d at 275; see also Panavision Int’l,
4
In fact, the Treasure Chest only ever contained one
listing, for a contractor who had done some work for Maxwell.
This listing was not made at the contractor’s request.
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L.P. v. Toeppen, 141 F.3d 1316 (9th Cir. 1998) (“Toeppen’s
commercial use was his attempt to sell the trademarks
themselves”). Nor did TMI present evidence that Maxwell’s use
was “in the ordinary course of trade,” or that it had any
business purpose at all. Thus, no evidence suggests that
Maxwell’s use was commercial, and the district court’s findings
to the contrary were clear error.5
Bad faith intent to profit
ACPA lists nine non-exclusive factors for courts to consider
when determining whether a defendant had a bad faith intent to
profit from use of the mark.6 These factors are:
(I) the trademark or other intellectual property rights
of the person, if any, in the domain name;
(II) the extent to which the domain name consists of the
legal name of the person or a name that is otherwise
commonly used to identify that person;
(III) the person's prior use, if any, of the domain name
in connection with the bona fide offering of any goods or
services;
(IV) the person's bona fide noncommercial or fair use of
the mark in a site accessible under the domain name;
(V) the person's intent to divert consumers from the mark
5
The district court’s discussion of commercial use (under
ACPA) was: “[b]ased on the undisputed evidence, the Court holds
that the defendant’s actions have been intentional, flagrant, and
in bad faith. Moreover, he has shown no remorse for his actions,
even in trial. Thus, the defendant’s use of “trendmakerhome.com”
was the kind of commercial use prohibited by the ACPA.”
6
ACPA’s safe harbor provision also provides that “[b]ad
faith intent described under subparagraph (A) shall not be found
in any case in which the court determines that the person
believed and had reasonable grounds to believe that the use of
the domain name was a fair use or otherwise lawful.” 15 U.S.C. §
1125(d)(1)(B)(ii).
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owner's online location to a site accessible under the
domain name that could harm the goodwill represented by
the mark, either for commercial gain or with the intent
to tarnish or disparage the mark, by creating a
likelihood of confusion as to the source, sponsorship,
affiliation, or endorsement of the site;
(VI) the person's offer to transfer, sell, or otherwise
assign the domain name to the mark owner or any third
party for financial gain without having used, or having
an intent to use, the domain name in the bona fide
offering of any goods or services, or the person's prior
conduct indicating a pattern of such conduct;
(VII) the person's provision of material and misleading
false contact information when applying for the
registration of the domain name, the person's intentional
failure to maintain accurate contact information, or the
person's prior conduct indicating a pattern of such
conduct;
(VIII) the person's registration or acquisition of
multiple domain names which the person knows are
identical or confusingly similar to marks of others that
are distinctive at the time of registration of such
domain names, or dilutive of famous marks of others that
are famous at the time of registration of such domain
names, without regard to the goods or services of the
parties; and
(IX) the extent to which the mark incorporated in the
person's domain name registration is or is not
distinctive and famous . . .
15 U.S.C. § 1125(d)(1)(B)(i).
Much of the district court’s analysis of bad faith intent to
profit focuses on Maxwell’s behavior during the settlement
negotiations and, particularly, his backing out of the
settlement. Although the district court listed the nine relevant
factors, in the Memorandum and Order it did not explain how those
factors apply to this case.
Maxwell’s behavior differs from other registrations made
with bad faith intent to profit. For example, in Gallo, and
other cases, the defendant essentially held hostage a domain name
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that resembled a mark with the intention of selling it back to
the mark’s owner. So, too, is Maxwell’s use different from that
of the defendant in Virtual Works, Inc. v. Volkswagen of America,
Inc., 238 F.3d 264 (4th Cir. 2001), where Virtual Works
registered the domain name “VW.net” for its own website, but also
hoping to sell the name to Volkswagen, whose VW mark the domain
name resembled.7
In contrast to these instances of bad faith intent to
profit, the Sixth Circuit recently affirmed a trial court’s
finding that a disgruntled customer who posted a website similar
to Maxwell’s did not have a bad faith intent to profit. Lucas
Nursery & Landscaping, Inc. v. Grosse, 359 F.3d at 811. In Lucas
Nursery, a former customer of Lucas Nursery registered the domain
name “lucasnursery.com” and used the site to post her complaints
about the nursery’s work. Id. at 808. The nursery sued her
under ACPA. Id. After addressing the purposes behind ACPA,8 the
7
In fact, at one point, Virtual Works threatened to auction
the domain name to the highest bidder unless Volkswagen paid them
for it. Id. at 267.
8
The Lucas Nursery court concisely summarized the Senate
Report’s description of cybersquatters, namely those who:
(1) “register well-known brand names as Internet domain
names in order to extract payment from the rightful
owners of the marks;" (2) "register well-known marks as
domain names and warehouse those marks with the hope of
selling them to the highest bidder;" (3) "register
well-known marks to prey on consumer confusion by
misusing the domain name to divert customers from the
mark owner's site to the cybersquatter's own site;" (4)
"target distinctive marks to defraud consumers,
including to engage in counterfeiting activities."
12
Lucas Nursery court concluded that the former customer did not
have the kind of intent to profit that the act was designed to
prohibit. Id. at 808-11.
As in Lucas Nursery, here “[t]he paradigmatic harm that the
ACPA was enacted to eradicate - the practice of cybersquatters
registering several hundred domain names in an effort to sell
them to the legitimate owners of the mark – is simply not
present.” Id. at 810. Also here, as in Lucas Nursery, the
site’s purpose as a method to inform potential customers about a
negative experience with the company is key. As the Sixth
Circuit noted:
Perhaps most important to our conclusion are,
[defendant’s] actions, which seem to have been undertaken
in the spirit of informing fellow consumers about the
practices of a landscaping company that she believed had
performed inferior work on her yard. One of the ACPA's
main objectives is the protection of consumers from slick
internet peddlers who trade on the names and reputations
of established brands. The practice of informing fellow
consumers of one's experience with a particular service
provider is surely not inconsistent with this ideal.
Id. at 811.
In short, after analyzing the statutory factors and ACPA’s
purpose, we are convinced that TMI failed to establish that
Maxwell had a bad faith intent to profit from TMI’s mark and that
the district court’s conclusion to the contrary was clearly
erroneous. Although factors I, II, III and IX seem to fall in
favor of TMI because Maxwell had no pre-existing use of the
Lucas Nursery, 359 F.3d at 809 (quoting S.Rep. No. 106-140
at 5-6).
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TrendMaker name and Maxwell did not dispute that the mark was
distinctive and famous, importantly, factors IV, V, VI, VII, and
VIII favor Maxwell. Under factor IV, Maxwell made bona fide
noncommercial use of the mark in his site, and for purposes of
factor V, TMI made no showing that Maxwell intended to divert
customers from its own site. Turning to factor VI, Maxwell never
offered to sell the domain name, and certainly never had a
pattern of selling domain names to mark owners. Maxwell did not
behave improperly when providing contact information, as
addressed in factor VII. Factor VIII concerns the registration
of multiple domain names; Maxwell’s registration of his second
site related to TrendMaker Homes does not argue in favor of
finding bad faith intent to profit. Maxwell registered the
second domain name for the same purposes as the first one and
only after his registration of the first name expired. Finally,
like the Lucas Nursery court, we particularly note that Maxwell’s
conduct is not the kind of harm that ACPA was designed to
prevent.
Texas Anti-Dilution Statute
The district court also found that Maxwell violated the
Texas Anti-Dilution Statute.
That statute reads:
A person may bring an action to enjoin an act likely to
injure a business reputation or to dilute the distinctive
quality of a mark registered under this chapter or Title
15, U.S.C., or a mark or trade name valid at common law,
regardless of whether there is competition between the
14
parties or confusion as to the source of goods or
services.
TEX. BUS. & COM. CODE § 16.29.
This statute “is not intended to address non-trademark uses
of a name to comment on, criticize, ridicule, parody, or
disparage the goods or business of the name’s owner.” Express One
Int’l, Inc. v. Steinbeck, 53 S.W.3d 895, 899 (Tex. App. – Dallas
2001, no pet.)(citing McCarthy). Because this exception describes
Maxwell’s use, Maxwell’s domain name is not actionable under the
Texas Anti-Dilution Statute.
Conclusion
For these reasons, we reverse the judgment of the district
court and render judgment in favor of Maxwell.
REVERSED AND RENDERED.
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