Perfumebay. Com Inc. v. eBay, Inc.

Citations: 506 F.3d 1165; 84 U.S.P.Q. 2d (BNA) 1865; 2007 U.S. App. LEXIS 25726; 2007 WL 3243998Docket: 05-56794, 05-56902

Court: Court of Appeals for the Ninth Circuit; November 5, 2007; Federal Appellate Court

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In the trademark infringement case 506 F.3d 1165 (2007), Perfumebay.com Inc. (Perfumebay), a California corporation, appeals a district court decision that found it infringed upon the eBay trademark. The court assessed whether the use of the terms 'perfumebay' and 'PerfumeBay' created a likelihood of consumer confusion with the eBay mark under the Lanham Act. Perfumebay argues that the district court erred in its finding of initial interest confusion, in granting injunctive relief despite eBay's alleged unclean hands, and in the scope of the permanent injunction that prohibits the use of 'perfumebay' and 'perfume-bay.' Additionally, Perfumebay contests the denial of attorneys' fees. eBay cross-appeals, challenging the district court's denial of its breach-of-contract claim related to settlement negotiations and its rejection of claims for likelihood of dilution and failure to permanently enjoin non-conjoined uses of its name, such as 'Perfume Bay.' The court has jurisdiction under 28 U.S.C. § 1291 and ultimately affirms in part and reverses in part. The case background indicates that Jacquelyn Tran, owner of Perfumebay, developed several websites for selling perfume and sought a trademark for 'Perfume Bay,' prompting eBay to oppose this application. Settlement negotiations between the parties were unsuccessful, leading to Perfumebay filing for a declaratory judgment regarding non-infringement. During trial, eBay's operations as a marketplace were described, highlighting significant revenue from fragrance transactions, which underscores the importance of this category to eBay's business.

Briggs estimated that approximately half of eBay's website visitors directly enter the domain name eBay.com, while the other half arrive via other internet pages, primarily from search engines like Google and Yahoo. He emphasized that text is crucial for online marketing, as consumers rely on text-based search engines rather than logos. eBay's primary advertising strategy involves paid search advertising, which includes sponsored links on Google and Yahoo. eBay acquires keywords through direct contracts with these companies and also through third-party affiliates who purchase keywords on eBay's behalf.

Briggs conducted a search for "perfume eBay" on various search engines, noting that Google results included links to eBay’s store and sponsored links for PerfumeBay, which features rare fragrances. He expressed concern that the paid search results could lead consumers to believe that they are purchasing from eBay when they are not, particularly since "PerfumeBay" is similar in name to eBay. Briggs highlighted that confusion could arise due to the high volume of unique users visiting eBay daily and the close resemblance of the names, especially when "Bay" is capitalized in "PerfumeBay."

Briggs maintained that simply adding a space between "Perfume" and "Bay" would not mitigate the confusion, as internet searches typically utilize continuous text strings. During cross-examination, he acknowledged that eBay does not sell PerfumeBay products and suggested that affiliates might purchase ads for misspellings. He confirmed that eBay allows the use of other brand names in ads when there is no direct relationship. Additionally, he presented examples of other unrelated advertisements generated by eBay affiliates for searches like "Los Angeles freeway," illustrating how affiliates operate independently of eBay's offerings.

Jay Monahan, eBay's Vice President of Litigation, expressed concerns about the potential consumer confusion and brand dilution arising from the use of "bay" in names like PerfumeBay, fearing it could imply eBay's endorsement. He noted that eBay became aware of PerfumeBay in July 2002 but had no reports of actual confusion. Tran, the founder of PerfumeBay, initiated her business idea in late 1998 and began selling perfumes on eBay before creating her own site, which she named to reflect her product focus and a conceptual image of a bay without any visual representation on her website. Tran insisted her intention was not to imitate eBay or mislead customers. The name "PerfumeBay" was sometimes stylized as "Perfume[B]ay" in various contexts, though Tran later ceased using that format during litigation. Her site featured a logo with a starfish, symbolizing her imagined bay for perfumes. Tran operated multiple websites, including Beautiful Perfumes.com and Scentguru.com, all offering similar products and sharing product descriptions. In 2004, sales for PerfumeBay.com reached $6.6 million, contributing to approximately $9 million in total sales across her websites, alongside significant keyword advertising primarily for PerfumeBay.

Tran instructed her customer service team to clarify to callers that Perfumebay was not affiliated with eBay after receiving inquiries about the association. Philip Johnson, a CEO and expert witness for eBay, conducted a consumer survey revealing that approximately 70% of respondents associated the term "bay" with eBay during online shopping. Johnson concluded that using "bay" in a website name could lead to confusion and dilution, although he acknowledged his survey did not measure actual confusion or dilution and only examined the term "bay," not "PerfumeBay." Eli Seggev, testifying for Perfumebay, criticized Johnson's methodology, arguing that the survey's sample sizes were incompatible, lacked a control group, did not properly validate interviews, and relied solely on telephone interviews despite the visual nature of consumer interactions. The district court determined that the combined form "perfumebay" likely caused confusion and permanently enjoined its use as a single word, while finding non-combined forms did not create confusion and that Perfumebay's marks did not likely cause dilution. The court also restricted eBay from advertising "Perfume Bay," except in truthful comparative contexts due to an unclean hands defense raised by Perfumebay. Both parties filed timely appeals. The standards of review established that likelihood of confusion findings from the district court are subject to clear error review, state law interpretations are reviewed de novo, and injunctive relief is assessed for abuse of discretion. A permanent injunction can only be reversed if based on erroneous legal standards or clearly erroneous factual findings.

The review of the district court's denial of attorney's fees under 15 U.S.C. § 1117 is evaluated for abuse of discretion, with the legal analysis and interpretation of the Lanham Act assessed de novo. Perfumebay argues that the district court incorrectly found a likelihood of confusion concerning its mark relative to eBay's. Despite Perfumebay's claims of dissimilarity, the court did not err in its likelihood of confusion determination, which hinges on whether consumers might be confused about the source of the products. 

The likelihood of confusion is assessed using the eight Sleekcraft factors: 1) strength of the mark, 2) proximity or relatedness of the goods, 3) similarity of the marks, 4) evidence of actual confusion, 5) marketing channels, 6) customer care in purchasing, 7) defendant's intent in mark selection, and 8) likelihood of market expansion. Notably, not all factors need to be satisfied; strong evidence in some can suffice. 

In the internet context, the three pivotal factors are the similarity of the marks, relatedness of goods and services, and simultaneous use of the web for marketing. If these suggest confusion, the other factors must strongly counter that finding. The similarity of the marks remains crucial, with greater similarity increasing the likelihood of confusion. The court considers marks in context, assessing how they are perceived in the marketplace. The evidence indicates that 'Perfumebay' incorporates the eBay trademark fully, particularly in its variations 'perfumebay.com' and 'PerfumeBay,' which reinforces the court's finding of sufficient similarity.

Perfumebay's use of its logo, which separates 'Perfume' and 'Bay' with a starfish, does not mitigate the incorporation of eBay’s mark in its domain name, 'perfumebay.com.' The similarity is further highlighted by search engine results showing links to both 'eBay' and 'perfumebay.' Although there are differences between the two marks, eBay's mark is strong, which weighs against Perfumebay. Both companies sell similar products—perfume—despite eBay's auction feature, indicating that even slightly different services can cause public confusion. The Internet as a marketing tool increases the likelihood of confusion, as competing marks can be seen simultaneously. The three primary factors for internet trademark analysis weigh against Perfumebay, necessitating that remaining Sleekcraft factors must demonstrate a strong showing against confusion to avoid infringement findings. However, Perfumebay has not provided such evidence. The case contrasts with M2 Software, where distinguishing factors were present, while Perfumebay lacks similar differentiators in its marks. The analysis emphasizes the importance of how marks are used online rather than merely their pronunciation or appearance, as internet users primarily interact with domain names and search results rather than through verbal communication, thus increasing the likelihood of confusion.

The district court's assessment of the likelihood of confusion regarding the term 'Bay' was deemed appropriate, despite its varying interpretations as either a geographical reference or a commercial term. The court's findings, which only need to be plausible, were upheld as they were consistent with the overall record, even if evidence was weighed differently. Perfumebay's argument about the absence of actual confusion was rejected, as proving actual confusion is challenging and its lack does not negate a trademark claim. The district court's examination of search engine results was supported by testimony indicating that many consumers access eBay through search engines, reinforcing the likelihood of confusion due to the similarity of the marks.

Perfumebay's appeal regarding the district court's ruling on initial interest confusion was dismissed, as it could not demonstrate standing to appeal a favorable decision. The court determined that initial interest confusion, particularly online, depends on the relatedness of goods and consumer care, alongside the Sleekcraft factors. The evidence suggested that consumers might confuse Perfumebay with eBay based on search results. 

Finally, the court did not abuse its discretion in issuing a permanent injunction against the use of the domain names perfumebay.com and perfume-bay.com, as it acted within its equity powers under 15 U.S.C. § 1116(a) to protect the trademark owner's rights.

A broad injunction is deemed appropriate when the infringing use involves similar services, as established in GoTo.com, 202 F.3d at 1211. The district court did not err in determining that the combined use of 'perfumebay' likely caused consumer confusion due to the similarities between eBay and Perfumebay's perfume sales and their reliance on search engines for customer attraction. Evidence showed that the hyphenated 'perfume-bay' added to confusion, as consumers associated 'e-bay' with 'ebay.' Perfumebay failed to prove an abuse of discretion regarding the district court's balance of harm, as it has alternative websites offering similar products and acknowledged the possibility of reallocating advertising efforts to them. Despite perfumebay.com being the most profitable, this did not imply a failure to consider Perfumebay's harm, as per Idaho Watersheds Project v. Hahn.

Regarding the 'unclean hands' defense to the Lanham Act infringement, it requires proof that the plaintiff engaged in deceptive practices. Perfumebay was permitted to amend its complaint to include this defense. Testimony from eBay's witness indicated that affiliate advertising practices could lead to confusion but did not demonstrate that eBay itself intended to deceive consumers. Evidence regarding eBay's control over its affiliates was insufficient to establish 'bad intent' necessary for an unclean hands finding, leading to a conclusion that the injunction against eBay's affiliate advertising was not supported.

Finally, under 15 U.S.C. § 1117(a), attorneys' fees may be awarded in exceptional circumstances, including cases marked by fraudulent, deliberate, or willful acts, as noted in Horphag Research Ltd. v. Garcia.

Awards under sections 1117(a) and 1117(b) are discretionary and subject to equitable considerations, as established in Rolex Watch, 179 F.3d at 711. The district court did not err in denying attorneys' fees to Perfumebay, as it was not a prevailing party due to a permanent injunction against using its conjoined mark. Additionally, Perfumebay could not prove that this case was 'exceptional' due to the absence of fraudulent, deliberate, or willful conduct as per Horphag Research, 475 F.3d at 1039.

In its cross-appeal, eBay argued that the district court made errors, particularly in denying its breach of contract claim regarding Perfumebay's promise to change its name. eBay also contested the court's findings related to the likelihood of dilution and consumer confusion with non-conjoined forms of 'Perfume Bay.' The court acknowledged an error in determining the likelihood of dilution.

Regarding the alleged contract, contract formation principles apply equally to settlement discussions. For a contract to be valid, the proposal must be definite enough to create an obligation. If essential terms remain unresolved for future agreement, the promise is generally unenforceable. The communications between Perfumebay and eBay revealed only negotiations without a finalized agreement. Perfumebay indicated a willingness to negotiate in exchange for eBay suspending its trademark opposition. A Request for Suspension was filed to allow discussions, but the negotiations faltered on key terms like the duration of mark usage and acceptable naming. Ultimately, Perfumebay rejected eBay's counter-proposals, indicating that essential terms were still under negotiation, reflecting only preliminary discussions on settlement goals.

Settlements often require initial agreement on goals, but such agreement alone does not yield a judicially enforceable contract if the means to achieve those goals are not agreed upon. In the case at hand, the lack of consensus on material aspects indicates that the parties did not establish an enforceable settlement.

Regarding eBay's State Trademark Dilution Counterclaim, dilution applies to a select group of marks with strong consumer associations, where even non-competing uses can diminish their value. To obtain injunctive relief under the Federal Trademark Dilution Act, a plaintiff must establish four criteria: the mark's fame, the defendant's commercial use of the mark in commerce, that the defendant's use started after the mark's fame, and that the use likely dilutes the mark's distinctiveness. California's dilution law parallels this, allowing relief if the plaintiff shows potential harm to business reputation or dilution of mark quality, regardless of competition or confusion.

For a dilution claim, the allegedly diluting mark must be identical or nearly identical to the protected mark, with similarity perceived by a significant portion of the target consumers. eBay challenges the district court's reliance on the Eli Lilly case instead of the factors from Nabisco, which outlined several criteria for assessing dilution, such as distinctiveness, mark similarity, product proximity, and consumer confusion. The district court favored the more limited Eli Lilly standard, focusing on mark similarity and the plaintiff's mark renown. The Thane case acknowledged Nabisco's approach but did not formally adopt all its factors, instead concentrating on the near-identity of the marks.

The district court failed to adequately assess the strength of eBay's trademark when determining the likelihood of dilution. A mark's strength correlates with its distinctiveness and public recognition, which affords it greater protection under trademark law. In comparing eBay's mark with the "Perfumebay" mark, evidence indicated that eBay's mark is famous and has significant recognition tied to its services. The use of "Bay" in Perfumebay's marks risks diluting the association consumers have with eBay's unique offerings, particularly in the context of online sales. The court referenced the Eli Lilly case, highlighting that similar marks can lead to a likelihood of dilution due to their similarities and the renown of the original mark.

Regarding the district court's ruling on non-conjoined variants of Perfumebay, it was determined that the court did not err in choosing not to enjoin these forms. The court has discretion in remedying infringement and opted for an injunction that mitigated consumer confusion without completely prohibiting the use of the marks. The non-conjoined forms do not fully incorporate eBay’s trademark, thus minimizing the likelihood of consumer confusion compared to the conjoined forms, which do present a greater risk of confusion. The district court's decision to balance the interests of both parties was deemed appropriate in light of the circumstances.

The district court's findings were upheld regarding the likelihood of consumer confusion caused by conjoined forms of "perfumebay," leading to a proper injunction against Perfumebay's use of such marks. However, the court did not err in determining that non-conjoined forms like "Perfume Bay" did not create confusion. The court did err by concluding that Perfumebay's marks did not cause a likelihood of dilution, as they are nearly identical to eBay's mark. Additionally, the finding that eBay acted with unclean hands in its advertising was incorrect, as there was insufficient evidence of deceptive intent. The decision to deny attorneys' fees to Perfumebay was not an abuse of discretion, and eBay's breach of contract claim was rightly dismissed. The ruling was affirmed in part and reversed in part, with each party responsible for their own costs on appeal.

A district court in Allergan imposed a thirty-day reporting requirement following a default judgment for trademark infringement, which was similarly established in Car-Smarts after a trademark infringement finding. The court determined that eBay's mark was famous and that Perfumebay utilized it in commerce, findings that were not contested on appeal. eBay's state law dilution claim, pursuant to Cal. Bus. Prof. Code § 14330, mirrors its federal claim in analysis. The significance of mark similarity and senior mark strength is reinforced by the Trademark Dilution Revision Act of 2006 (TDRA), which introduced a likelihood of dilution cause of action and outlined factors for assessing potential dilution: similarity degree, distinctiveness, exclusive use, recognition, intent to associate, and actual association. The district court ruled that the marks did not sufficiently meet the similarity threshold under the Eli Lilly test to demonstrate a likelihood of dilution. While the court found no error in its conclusion that the non-conjoined forms didn't lead to confusion, it acknowledged that non-conjoined forms could still dilute a mark's distinctiveness. Importantly, dilution law protects a mark's distinctiveness irrespective of product competition or consumer confusion, making it inappropriate to apply the likelihood of confusion similarity test to dilution cases.