Perfumebay.Com Inc. v. Ebay, Inc.

• Decision Date: 05 November 2007
• Docket Number: No. 05-56902.,No. 05-56794.,05-56794.,05-56902.
• Citation: 506 F.3d 1165
• Parties: PERFUMEBAY.COM INC., a California Corporation, Plaintiff-counter-defendant-Appellant, v. EBAY INC., a Delaware corporation, Defendant-counter-claimant-Appellee. Perfumebay.com Inc., a California corporation, Plaintiff-counter-defendant-Appellee, v. Ebay Inc., a Delaware corporation, Defendant-counter-claimant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

506 F.3d 1165

PERFUMEBAY.COM INC., a California Corporation, Plaintiff-counter-defendant-Appellant, v. EBAY INC., a Delaware corporation, Defendant-counter-claimant-Appellee.

Perfumebay.com Inc., a California corporation, Plaintiff-counter-defendant-Appellee, v. Ebay Inc., a Delaware corporation, Defendant-counter-claimant-Appellant.

No. 05-56794.

No. 05-56902.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 4, 2007.

Filed November 5, 2007.

Ronald M. St. Marie (argued) and Thomas T. Chan, Chan Law Group LLP, Los Angeles, CA, for appellant/cross-appellee Perfumebay.com.

John W. Crittenden (argued), Brian E. Mitchell, Franklin B. Goldberg, Alex C. Sears, Lori R.E. Ploeger, and Michael Traynor, Cooley Godward Kronish LLP, San Francisco, CA, for appellee/cross-appellant eBay Inc.

Appeal from the United States District Court for the Central District of California; William D. Keller, District Judge, Presiding. D.C. No. CV-04-01358-WDK.

Before: STEPHEN S. TROTT, JANE R. ROTH,^* and JOHNNIE B. RAWLINSON, Circuit Judges.

RAWLINSON, Circuit Judge:

In this trademark infringement case, we must decide whether various forms of the mark "Perfumebay" infringe upon the trademark "eBay." Appellant Perfumebay.com, Inc. (Perfumebay) appeals from the district court's decision that Perfumebay infringed eBay's trademark. Perfumebay challenges the district court's finding that the conjoined terms "perfumebay" and "PerfumeBay" created a likelihood of consumer confusion under the Lanham Act with respect to the mark "eBay." Perfumebay contends that the district court erred in finding initial interest confusion; in granting injunctive relief despite eBay's unclean hands; and in fashioning the permanent injunction to prohibit Perfumebay's use of the names "perfumebay" and "perfume-bay." Perfumebay also contests the district court's denial of attorneys' fees.

eBay cross-appeals the district court's denial of its breach-of-contract claim based on the settlement negotiations of the parties. eBay also contends that the district court erred in rejecting its claim for likelihood of dilution, and for not permanently enjoining Perfumebay from using non-conjoined versions of its names that include a space between "Perfume" and "Bay," such as "Perfume Bay." We have jurisdiction pursuant to 28 U.S.C. § 1291 and we affirm in part and reverse in part.

I. BACKGROUND

Between 1998 and 1999, Jacquelyn Tran (Tran), the president and owner of Perfumebay, decided to sell perfume on the internet. Tran developed several web sites, including perfumebay.com. For her business, Tran utilized both conjoined and non-conjoined forms of "perfumebay," including PerfumeBay and Perfume Bay.

When Perfumebay applied for a trademark for its Perfume Bay mark, eBay filed an opposition with the United States Patent and Trademark Office. Perfumebay and eBay then entered into negotiations concerning a potential name change by Perfumebay. eBay and Perfumebay stipulated to a suspension of the trademark opposition proceedings pending the result of the settlement negotiations.

When the parties failed to reach a settlement, Perfumebay filed a complaint in federal district court seeking a declaratory judgment that its various marks did not infringe on eBay's mark or otherwise violate the Lanham Act. A bench trial was held on the parties' various claims.

During the bench trial, Gary Briggs (Briggs), an employee of PayPal, an eBay subsidiary, testified on eBay's behalf. Briggs described eBay's operations as "a marketplace." eBay does not have warehouses or any inventory. Instead, it "bring[s] together sellers and buyers." According to Briggs, "buyers come to the web site to then bid and/or buy." There are two methods for "buying and selling on the eBay online marketplace," including an "auction, in which the price changes over a time period," and "fixed price" which eBay calls "Buy It Now." Approximately one-third of eBay's sales are made through the fixed price method.

Between January, 2002, and September 1, 2004, eBay's "total gross merchandise value of transactions in [its] fragrance section" was approximately $6 million. According to Briggs, this indicates "that fragrance is an important category of items traded on the eBay web site."

Briggs estimated that "about half of the people who come to the eBay web site will type in [the domain name] `eBay.com' or `www.ebay.com.' And the other half will come in through pages on the internet." "The largest sites that they come from are Google and Yahoo in the United States."¹

Briggs explained that "text, as opposed to logos, is more important for internet marketing than with regard to non-internet marketing," because consumers utilize text-based search engines like Google and Yahoo, as opposed to services driven by company logos. According to Briggs, eBay's dominant method of advertising "is in paid search advertising, which are sponsored links, sponsored lines of text that are on a Google or a Yahoo."

Briggs testified that eBay purchases keywords through two methods. eBay "contract[s] directly with companies like Yahoo and Google either through both short-term and long-term contracts. And then [it] also use[s] what's called `affiliates,' which are third parties that make a living by—they buy keywords and market on [eBay's] behalf."²

Briggs conducted a search of "perfume eBay" on the Google, Yahoo, and Ask Jeeves search engines. For the Google search, the natural search results produced links to eBay's store, as well as "sponsored links for every-day perfume specials . .." The sponsored link was to Perfumebay's web site, specifically its "fragrance museum," which is "an area for hard-to-find fragrances on PerfumeBay." According to Briggs, eBay also offered such "hard-to-find products." Briggs testified that such results are a concern to eBay because "the fact that you have a search result, a paid search result, that's `perfume' and `eBay,' and then you go to hard-to-find fragrances which indicate that you are not just buying the word `perfume,' you're buying `eBay' because eBay is known for hard-to-find products."

For the Ask Jeeves search, Briggs testified that the search for "perfume eBay" produced results for eBay.com and for PerfumeBay.

According to Briggs, the similarity in the names eBay and PerfumeBay concerns eBay because of potential consumer confusion. Briggs testified that he was "concerned that affiliates are showing results that capitalize the B in PerfumeBay." According to Briggs, "you have nine million unique users coming to eBay every day. And it doesn't take, you know, much confusion at all to have someone, you know, think that something is eBay when it isn't." Briggs maintained that the problem would not be solved by placing a space between "Perfume" and "Bay" because of "the importance of `bay' in eBay," and the methods utilized by affiliates. According to Briggs, a space also would not be available, as the internet only utilizes "a connected string of text."

During cross-examination, Briggs was presented with a search for the terms "perfume" and "bay" as two words. The demonstration produced a paid advertisement for PerfumeBay with a link to eBay. Briggs explained that eBay "commonly would buy the word `perfume.'" Briggs acknowledged that eBay does not sell PerfumeBay products on its web site. According to Briggs, a reasonable explanation for the advertisement was that affiliates would often purchase misspellings of a term. Briggs testified that its "affiliates are buying those links and not eBay." Briggs also explained that the affiliates follow Google's policy for the advertisements. Briggs acknowledged that eBay does permit "the use of someone else's brand name in an advertisement on Google when it has no relationship with that brand name."

Briggs also demonstrated searches that he conducted involving the terms "sf bay, Los Angeles freeway, Hollywood sign, [and] Gold Line ..." The Google search for "Los Angeles freeway" resulted in an ad for "great deals on Los Angeles freeway. Shop eBay and save." Because it is not possible to purchase the Los Angeles freeway on eBay, Briggs opined that the advertisement was purchased by an eBay affiliate. Briggs presented similar Google search results for the Hollywood sign; "sf bay"; and "Gold Line."

Jay Monahan (Monahan), eBay's Vice President of Litigation, Intellectual Property, testified that he was "concerned about any use of bay which is likely to lead consumers into thinking that that web site is sponsored, affiliated, endorsed by us, or one where they're basically frontally assaulting the brand by treating bay as a generic reference to online commerce." He was also concerned that the use of a generic word plus "bay" would lessen the distinctiveness of eBay's trademark.

According to Monahan, eBay became aware of the PerfumeBay web site in July, 2002. He was not aware of "any specific instances of confusion involving Perfumebay."

Tran testified that she developed the idea in "late 1998 or early 1999 . . . to sell perfume from [her] parents' company on the internet ..." Tran first sold perfume on eBay's web site. She used "five or six different user names in order to trade on eBay," two of which, Beautiful Perfumes and Classy Perfumes, were web sites owned by Tran for the sale of perfume. She continued to sell perfume on eBay until October, 2004, when Tran decided that she no longer wanted to use eBay, because of eBay's auction approach.

The "target customer for Perfumebay is anyone who has access to the internet and purchases fragrances and cosmetics ..." Tran chose the name for the web site while she was still selling perfume on eBay. According to Tran, she "did not have any intention of copying eBay or trying to confuse customers to come to Perfumebay's web site because of eBay."

Tran selected the first part of the name, "perfume," as a description of her products. She added the term "bay" because she "envisioned a...