Starting this Jan. 1, California lenders will have a stronger platform from which to defend their intellectual property rights and customer relationships. While Senate Bill 1150 purports not to alter the state's trade name and trademark laws, the new law will lower the bar for lenders who seek to challenge the business practices of competitors and third parties.

SB 1150, unanimously passed by the Legislature earlier this year, adds sections 14700 through 14704 to the Business and Professions Code.

According to its author, Sen. John Burton, the bill aims to address the deceptive use of publicly-available mortgage data. Many mail solicitations to homeowners identify their existing lenders by name and sometimes also state the principal amounts and account numbers of the loans. This information, Burton noted, leads consumers to believe that the solicitations are from their lenders or that their lenders have sold their personal financial information to the solicitor.

Burton also observed that, whether from a lack of resources or due to other pressing priorities, the state's Department of Real Estate “has consistently been unable to respond to complaints about these types of practices, assuming the solicitor is even based in California or holds a California license.”

SB 1150 contains substantive and procedural provisions that may impact anyone who either refers to lenders or references mortgage data when marketing to consumers. (The term “lender,” in SB 1150, encompasses any financial institution licensed to make loans in California , including their subsidiaries and affiliates. Section 14700(a).)

Under the new law, no person can use the name of a lender, or a similar name, in solicitations for financial services if that use “could cause” a reasonable consumer to be confused, mistaken or deceived, initially or otherwise, as to either (1) the lender's sponsorship, affiliation, connection or association with the solicitor, or (2) the lender's approval or endorsement of the solicitor or its services. Section 14701(b).

In an action for an injunction, affidavits or declarations showing that consumers in fact were confused, mistaken or deceived are “prima facie evidence of damage and injury to the plaintiff.” Section 14704(a).

These provisions stretch the traditional boundaries of trademark law.

For one, SB 1150 seems to protect lender names regardless of whether they are inherently distinctive or have acquired a secondary meaning. Such a quality is a necessary attribute of a registered or common law trademark. To illustrate, a new market entrant called “The Bank” might assert rights under SB 1150 even though its mark would otherwise be too generic to deserve trademark protection.

Moreover, the “could cause” standard is less stringent than existing law. A plaintiff in a federal trademark case must prove a “likelihood” of consumer confusion, mistake or deception. 15 U.S.C. Sections 1114, 1125. The “likelihood” standard also is the touchstone under California trademark and unfair competition laws. Business and Professions Code Sections 14320, 17200.

SB 1150 breaks new ground by allowing plaintiffs to prevail if they can show a reasonable possibility of confusion, mistake or deception, rather than the probability of such a result. Anecdotal evidence would appear to suffice. Indeed, according to an Assembly committee report, the sponsor of SB 1150 explained that the bill was designed to allow lenders to prove the requisite consumer confusion without undertaking consumer surveys.

Defendants might argue that SB 1150 runs afoul of the First Amendment's protection of commercial speech. Since the Constitution does not shield deceptive commercial speech, the likelihood of deception standard has been validated as not unduly burdening speech rights. Relaxing the quantum of proof creates new constitutional uncertainty.

In addition to prohibiting references to lenders that “could cause” confusion, SB 1150 requires affirmative disclosures in two specific contexts.

If a person sends a written solicitation for financial services to a consumer, and includes the “name, trade name, logo or tagline” of a lender who has provided a loan to the consumer, without the lender's consent, then the solicitation clearly and conspicuously must state that the person is not sponsored by or affiliated with the lender. Section 14701(a).

This disclaimer is unnecessary if the reference to the lender “is exclusively part of a comparison of like services or products in which the person clearly and conspicuously identifies itself or that otherwise constitutes nominative fair use.” Section 14703. Hence, for example, SB 1150 does not affect a print advertisement that compares the advertiser's account offerings with those of named competitors.

SB 1150 also mandates a disclosure when a person uses a consumer's loan number or loan amount in a solicitation for any product or service without the consumer's consent. Such a solicitation must clearly and conspicuously state, when applicable, (1) that the person is not sponsored by or affiliated with the lender, (2) that the solicitation is not authorized by the lender, and (3) that the consumer's loan information was not provided to that person by the lender. Section 14702.

In an action to enjoin a solicitor who has failed to provide the required disclosure, the plaintiff need not allege or prove actual damage, and “irreparable harm and interim harm to the plaintiff shall be presumed.” Section 14704(a). Thus, SB 1150 streamlines the showing needed to obtain preliminary and permanent injunctive relief. It appears that a plaintiff must only establish that the defendant disseminated a covered solicitation without including the specified disclosure.

Indeed, while SB 1150 also allows plaintiffs to obtain their actual damages, the statute is crafted to facilitate the injunctive remedy. Rather than attempting to prove damages, lenders might seek preliminary injunctions, and then, if the case remains unresolved, move for summary judgment. A request for damages could lengthen the path to the finish line without conferring a true benefit.

SB 1150 will be an attractive litigation tool for lenders because it authorizes the court to award costs and reasonable attorney fees to the prevailing party, in the court's discretion. Section 14704(b).

In contrast, exceptional circumstances are required for fee awards in trademark infringement actions, and plaintiffs who seek fees in actions under the unfair competition law (Business and Professions Code Section 17200) must establish that their suits served the public interest within the meaning of Code of Civil Procedure Section 1021.5.

Finally, while lenders were the proponents of SB 1150, the statute does not expressly limit enforcement to any category of plaintiff. Hence, without relying on the unfair competition law, consumers may be entitled to enforce SB 1150 and to obtain attorney's fees. This substantially increases the litigation risk for any marketer who triggers the application of the statute.