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Every day you may come across an advertisement or marketing campaign where one company compares its’ products or services to that of another. The legal consequences of doing so may seem intuitive on either side of the argument. For example, on the one hand, it should be fair use to be able to refer to another businesses’ trademark in comparing or advertising your product or services. On the other hand, should using another businesses’ trademark in connection with certain claims or statements be considered as an unfair business practice or even defamation?

As it turns out, the answer to these questions can depend upon certain factors and, most importantly, the answers to these types of questions may need to be determined in the context in which such reference is being made. The line between the First Amendment’s right to the freedom of speech, commercial speech, defamation and unfair business practices can often be blurred in these types of situations. As such, whether or not it is wise to use the name of a competitor’s business, product or service requires a legal analysis which takes into consideration how you intend to use a competitor’s trademark in connection with the marketing or advertising of your products or services.

Trade Libel

In instances where a company uses the name of another company’s product or service in a negative manner, such use may be considered to be product, service or commercial disparagement.[1] In many states “commercial disparagement” is referred to as “trade libel” and is treated in much the same way that regular libel is.[2] The cause of action hinges upon the statement being false[3] and, in the case of trade libel, requires there to have been actual malice in publishing the statement (that you knew that the statement was untrue or that you acted with a reckless disregard of the truth or falsity of the statement)[4] and there needs to be a showing that the plaintiff’s business suffered direct financial harm because someone else acted in reliance on your statement.[5]

The First Amendment & Commercial Speech

The First Amendment’s right to the Freedom of Speech[6] also applies to commercial speech, which is a type of speech which promotes at least some type of commerce.[7] Additionally, the types of defenses which may available in connection with defending against a trade libel action are similar to those which may be available when defending against any type of defamatory action.

Commentary/Opinion

An essential element to a trade libel cause of action is that the statement be false. Courts have held that “[u]nder the First Amendment there is no such thing as a false idea.”[8] Therefore, the commentary or opinion privilege may often apply in cases where the allegedly libelous statement comprises merely of a person’s opinion or commentary. In fact, courts have long held that criticisms of a competitor’s product, particularly those which are aimed at the personal taste or preference of buyers, are privileged statements.[9]

Anti-SLAPP

In light of the First Amendment’s Freedom of Speech[10] being applicable to commercial speech,[11] some states, such as California, have implemented “Anti-SLAPP” statutes (which are also applicable in the case of commercial speech).[12] However, in order for an Anti-SLAPP defense to be applicable in the context of commercial speech or trade libel, there are certain criteria which need to be met.[13] For instance, in California, the Anti-SLAPP defense is not available in the context of trade libel if the statement consists of representations of fact about a competitor’s business that is made in connection with commercial speech where the intended audience is an actual or potential customer.[14]

Trademark Infringement

Another theory of liability which a business may pursue after a competitor has used the name of its company, products or services is trademark infringement. Trademark infringement occurs through the unauthorized use of a party’s trademark in a manner that is likely to cause confusion, deception, or mistake about the source of the goods and/or services.[15] By this definition of trademark infringement, it is reasonable to foresee how a party would seek to pursue this cause of action against a competitor who has used their trademark in connection with another party’s products or services. However, concepts such as the doctrine of “fair use” have been recognized by the courts as providing a defense to those who have used another’s trademark for purposes of merely referring to another’s trademark, rather than using the trademark in an attempt to confuse or deceive the source of the referred to products and/or services.[16]

Nominative Fair Use

Although different types of fair use are recognized by the courts in connection with trademark law, in the context of using another’s trademark for comparative purposes in advertising, it is was is referred to as “nominative fair use” which offers a defense against trademark infringement. One of the cornerstone cases which laid the foundation for the criteria behind the nominative fair use defense was Playboy Enterprises, Inc. v. Welles where former Playboy Playmate of the Year, Terri Welles, had displayed Playboy Enterprises’ registered trademarks on her website which identified her as being a former Playboy Playmate of the Year.[17] In this case, the court held that merely discussing or referring to another’s trademark constitutes nominative fair use under circumstances where; the product or services cannot readily be identified without using the trademark, only so much of the trademark is used as is necessary to identify the product or service and the user does not suggest any type of sponsorship or endorsement of such products or services by the rightful trademark holder.[18] As a result of courts having adopted the doctrine of nominative fair use, businesses are in turn able to use the trademarks of a competitor’s goods and/or services without being subject to liability for trademark infringement.

References:

[1] See, Hartford Casualty Ins. Co. v. Swift Distribution, Inc., 59 Cal. 4th 277, 289 (2014). [2] See, Polygram Records, Inc. v. Superior Court, 170 Cal. App. 3d 543, 548 (1985). [3] See, City of Costa Mesa v. D’Alessio Investments, LLC, 214 Cal. App. 4th 358, 376 (2013). [4] See, J-M Manufacturing Co., Inc. v. Phillips & Cohen LLP 247Cal. App. 4th 87, 97 (2016). [5] Id. [6] U.S. Const. amend I. [7] See, Central Hudson Gas and Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980). [8] See, Hofmann Co. v. E.I. du Pont de Nemours & Co., 202 Cal. App. 3d 390 (1988). [9] See, Rosenberg v J.C. Penney Co., 30 Cal. 2d 609 (1939). [10] U.S. Const. amend I. [11] See, Central Hudson Gas and Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980). [12] California Code of Civil Procedure § 425.17(c). [13] Id. [14] Id. [15] McCarthy on Trademarks & Unfair Competition (4th ed. 2014). [16] See, Dallas Cowboy Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200 (2d. Cir 1979). [17] See, Playboy Enterprises, Inc. v. Welles, 279 F.3d 796 (9th Cir. 2002). [18] Id.