Chase Freedom Credit Card Does Not Infringe Freedom Card Trademark

Case: Freedom Card, Inc. v. JPMorgan Chase & Co., No. 04-3874 (3rd Cir. 12/22/05)

The One Sentence Summary: The court affirmed summary judgment in favor of Chase, which sought a declaratory judgment that its "Chase Freedom" credit card had not infringed the "Freedom Card" trademark.

What They Were Fighting About: Defendants owned and licensed a trademark for "Freedom Card" credit card, which was offered to the "sub-prime" credit market. The majority of "Freedom Card" customers had credit lines of $300 and were charged fees and interest amounting to 140% over the principal. The "Freedom Card" peaked at 28,913 accounts. Marketing and issuance of the "Freedom Card" ended in December 2001.

In January 2003, Chase issued a "Chase Freedom" credit card to replace a card Chase had co-branded with Shell Oil Company. Approximately 1.5 million accounts were converted and fewer than 10,000 accounts were subsequently acquired. Chase claimed that the majority of "Chase Freedom" cardholders had credit lines of $5,000-10,000 with no annual fee and interest rates between 12.4 and 14.4%.

Chase ran one advertisement for the "Chase Freedom" card, that was seen by Defendant's CEO. After he objected, Chase immediately halted its advertising and marketing efforts for "Chase Freedom" and refrained from acquiring new customers.

Third Circuit Holdings:

• There are two types of "likelihood of confusion" claims - "direct confusion" and "reverse confusion." Although they have developed as two separate doctrines, they are related analytically. Furthermore, instances of direct confusion may occur in a reverse confusion case and vice-versa.
• Direct confusion occurs when a junior user of a mark free-rides on the reputation and goodwill of the senior user by adopting a similar mark.
• Reverse confusion occurs when a more powerful company uses the trademark of a less powerful senior owner and thereby causes confusion as to the source of the smaller senior user's goods or services.
• The powerful Chase did not overwhelm Defendants' trademark because the "Freedom Card" was out of the market for more than a year before the "Chase Freedom" card was launched.
• The inquiry into similarity of the marks is the same in case of direct and reverse confusion. In this case, Defendants' attempt to establish likelihood of confusion was undermined by submissions made to the Trademark Office. In seeking the "Freedom Card" trademark, the trademark owner had argued that there was no likelihood of confusion between the trademark it sought and the prior registration for the mark "Fuel Freedom Card" and had submitted numerous other "freedom" marks.
• Whereas a strong mark supports a direct confusion claim, in theory, the weakness of a senior user's mark can advance a claim of reverse confusion. Nonetheless, the strength of the senior user's mark is relevant and Defendants could not justify the failure to produce any evidence of the commercial strength of the "Freedom Card" mark.
• Defendants waived the argument that the standard of consumer care to be considered should be based on the least sophisticated consumer involved by not raising it with the district court.
• District court correctly concluded that testimony by a witness that one employee of Defendant was confused was de minimis evidence of actual confusion.
• Intent is relevant to both reverse and direct confusion claims. However, in direct confusion, the question is whether the junior user intended to palm off or exploit the senior user's mark. In reverse confusion, the question is whether the junior user intended to push the senior user out of the market. As Defendants left the market prior to Chase's issuance of its "Chase Freedom" card, a reasonable fact finder could not find that Chase intended to push the "Freedom Card" out of the market.