An injunction barring automobile brokers from using any domain name that included the mark LEXUS was overbroad because it prohibited domain names that, on their face, dispelled any confusion as to sponsorship or endorsement, the U.S. Court of Appeals in San Francisco has decided. The exclusive distributor of Lexus vehicles in the United States (Toyota Motor Sales, U.S.A., Inc.) had brought a trademark infringement suit in the federal district court in Los Angeles against the brokers for using the domain names buy-a-lexus.com and buyorleaselexus.com. The district court ruled in Toyota's favor, finding that the domain names created a likelihood of confusion.

The brokers were entitled to use the LEXUS mark in contexts that qualified as nominative fair uses, the appellate court said. Prohibition of truthful and non-misleading speech would not advance the Lanham Act's purposes of protecting consumers and preventing unfair competition. The injunction, in fact, undermined those purposes by frustrating honest communication between the brokers and their customers, according to the court.

The brokers used the LEXUS mark to refer to Lexus vehicles. Thus, the brokers raised the issue of nominative fair use, and the burden shifted to Toyota to show a likelihood of confusion.

Under the nominative fair use doctrine, the brokers could use the LEXUS mark in a truthful manner, even if they failed to expressly disavow association with Toyota, as long as the use was unlikely to cause confusion. The test for likelihood of confusion in a nominative fair use case was whether (1) the product was "readily identifiable" without use of the mark; (2) the defendant used more of the mark than necessary; and (3) the defendant falsely suggested it was sponsored or endorsed by the trademark owner. This test replaced the usual Sleekcraft factors as the proper test for likelihood of confusion in such cases, the court said.

It was error for the district court to treat nominative fair use as an affirmative defense to be proven by the brokers only after Toyota established likelihood of confusion under Sleekcraft. The injunction was vacated and remanded for reconsideration. On remand, Toyota would bear the burden of establishing that the brokers' use of the LEXUS mark in their domain names was not nominative fair use.

Toyota Motor Sales, U.S.A., Inc., 9th Cir., ¶61,651.