Third Circuit deciphers proper standard for evidence of actionable confusion

In Arrowpoint Capital Corp v Arrowpoint Asset Mgmt LLC (Case No 14-3063, July 16 2015, Jordan J), addressing the standard for actionable confusion, the US Court of Appeals for the Third Circuit has reversed the district court’s denial of a motion for a preliminary injunction for limiting what constitutes actionable confusion to “actual customer confusion”.

Arrowpoint Capital provides insurance and investment-related financial services throughout the United States and has been doing business under the Arrowpoint Capital name since 2007. Capital owns six registered trademarks, all of which feature the words 'Arrowpoint Capital' or its logo. Arrowpoint Asset Management and its related entities (collectively, AAM) also provide investment-related financial services. AAM first began using the mark ARROWPOINT in December 2007.

Capital filed a complaint against AAM in February 2010, asserting trademark infringement. That same day, Capital filed a motion for a preliminary and permanent injunction to prevent AAM from using the AAM logo or Arrowpoint name in any form. More than four years later, the district court denied Capital’s motion without an evidentiary hearing. On appeal, Capital argued, among other things, that the district court erred in denying its preliminary injunction motion.

The controversy in this case hinges on the evidence of actual confusion. Capital submitted evidence of 11 incidents of actual confusion in its preliminary injunction briefing. The district court discounted that evidence because the confusion was among brokers and dealers, rather than “actual customer confusion”. Capital contends the district court’s view of what constitutes actionable confusion is too narrow.

The Lanham Act defines trademark infringement as use of a mark so similar to that of a prior user as to be “likely to cause confusion, or to cause mistake, or to deceive”. The likelihood of confusion is not limited to confusion of products among purchasers. A number of decisions, both within the Third Circuit and beyond, have highlighted the Lanham Act’s extension to “the use of trademarks which are likely to cause confusion, mistake, or deception of any kind, not merely of purchasers nor simply as to source of origin”.

In this case, although the district court cited the correct standard, the Third Circuit found it did not apply that standard correctly. By emphasising the lack of customer confusion, the district court did not recognise the special importance of identity and reputation in the financial industry, discounting such concerns due to the “greater care” taken by customers in the financial industry, and finding that “prospective purchasers are unlikely to perceive the marks before becoming familiar with the parties’ businesses”. The Third Circuit found the district court’s interpretation of what constitutes confusion under the Lanham Act overly narrow and contrary to the court’s deeply rooted precedent. The court reiterated the correct standard, emphasising that the Lanham Act certainly covers confusion created “in the minds of person in a position to influence [a] purchasing decision or persons whose confusion presents a significant risk to the sales, goodwill, or reputation of the trademark owner”.

The Third Circuit also found that the district court erred by declining to hold an evidentiary hearing prior to ruling on the preliminary injunction motion, notwithstanding that consideration of the injunction motion was influenced significantly by credibility issues and factual disputes. The court thus vacated the denial of the preliminary injunction.

Rebecca Harker Duttry, McDermott Will & Emery LLP, Washington DC