April 05, 2009

Trademark Dilution Inches Backwards

Louisville Bar Association Bar Briefs, April 5, 2009

by Stites & Harbison, PLLC

Famous trademark owners are finding it difficult to obtain relief against parodying uses even under the expanded federal trademark dilution law.

On November 13, 2007, the Fourth Circuit Court of Appeals decided a case in which commercial trademark use disguised as humorous parody was pitted against one of the most famous trademarks on the planet, LOUIS VUITTON. Louis Vuitton Malletier S.A. v. Haute Diggity Dog LLC, 507 F.3d 252, 84 USPQ2d 1969 (4th Cir. 2007).

Louis Vuitton Malletier, the maker of carryables of status, including upscale pet accessories costing upwards of $1,600.00, sued the pet boutique Haute Diggity Dog for selling dog toys and beds bearing the words "CHEWY VUITTON." Haute Diggity Dog also offered pet accessories bearing the marks DOG PERIGNON and SNIFFANY & CO.

At the time Louis Vuitton sued, the old "new" trademark dilution law was still in force. Under the 1996 Federal Trademark Dilution Act ("FTDA"), a famous trademark owner could prevail only upon showing that a junior mark "caused dilution" of the distinctive quality of a famous mark. Federal Trademark Dilution Act, 15 U.S.C. § 1125(c) (1996). Plaintiffs and trademark lawyers consistently struggled to show how a relatively small third-party use could "cause" the lessening of the distinctive quality of famous marks, such as THE GREATEST SHOW ON EARTH, worth millions, or even billions, of dollars.

Prior to the passage of the FTDA, about half of the states afforded legal protection to marks under theories of dilution that prevented non-competing, non-confusing use of trademarks under certain conditions. The FTDA, which became effective on January 16, 1996, sought not only to harmonize existing state laws, but also to set a new national standard of legal protection based on evolving realities of trademark function. The FTDA also aspired to fulfill the promises of international treaties, including TRIPS ("Trade Related Aspects of Intellectual Property Rights"), that assure member nations protection of well-known marks abroad, and to provide the U.S. additional bargaining strength in international intellectual property negotiations.

Historical Backdrop of Infringement Law

Trademark infringement law historically protected the senior user of a mark against use by another of a similar mark only to the extent required to prevent deception of consumers. A second stated concern of trademark infringement law has been to preserve fair competition by allowing market newcomers access to the vocabulary necessary to sell goods on a level playing field with more established competitors who may attempt to "monopolize" valuable commercial words. These concerns — consumer protection and preservation of competition — are repeatedly cited as two ends of a legal spectrum adjusted to receive a desirable and economic equilibrium.

Dilution Law Theory

Dilution theory prevents vendors from borrowing valuable words or symbols to sell goods — but not necessarily to prevent misleading consumers. Once a trademark has been diluted, its ability to clearly distinguish a single source is weakened, even when used in connection with unrelated products, so that a consumer confronted with the senior mark at a later time may no longer think uniquely of the product it identifies. As a result, the trademark owner is ultimately damaged in his ability to sell goods in his own market.

In 2003, the Supreme Court resolved a Federal Circuit Court split in Moseley v. V. Secret Catalogue, Inc. over the standard for proving whether a junior user diluted a famous mark. Moseley v. Secret Catalog, Inc., 537 U.S. 418 (2003). The Supreme Court found that there was no evidence of any actual lessening of the capacity of the VICTORIA'S SECRET mark's capacity to identify and distinguish the goods or services sold in the Victoria's Secret stores or advertised in its catalogs as a result of a small Kentucky retailer's use of the name "Victor's Little Secret" to sell racy lingerie and adult novelties.

What followed was a Herculean effort toward statutory reform lead by trademark organizations, including the International Trademark Association ("INTA"), to amend the FTDA to incorporate an express "likelihood of dilution" standard, which would allow plaintiffs to offer circumstantial evidence of dilution akin to the type of evidence sufficient to prove liability in traditional infringement cases. Most practitioners viewed this "relaxed" standard as the only workable legal test for famous trademark protection. However, what some trademark owners hoped would be a semantic correction to sloppily written statutory language became a hard-fought legislative battle.

Opposed to trademark dilution reform were First Amendment advocates and other free-speechers, including ISPs who feared that a lower legal standard for proving dilution would make fair use in the form of "key word" search functions and pop-up ads more difficult. Of particular concern to some was the proper level of protection for parodying uses. In the end, the two groups were able to reach a compromise on exclusions to liability for uses "other than as a designation of source for the person's own goods or services, including use in connection with . . . parodying . . . the famous mark owner or the goods or services of the famous mark owner." Congress ultimately accepted this compromise in approving the Trademark Dilution Revision Act in 2006 ("TDRA").

The following key provisions are generally cited as those central to the TDRA's reforms:

  • Adoption of "likelihood of dilution" standard
  • Establishment of factors for proving a likelihood of dilution
  • Establishment that protected marks may have acquired distinctiveness
  • Providing expressly for dilution by blurring and tarnishment
  • Defining "fame" to exclude niche fam

Trademark Dilution Revision Act of 2006, Pub.L.No. 109-312, 120 Stat. 1730 (amending 15 U.S.C. § 1125(c) 1946)).

It was against the backdrop of the newly enacted TDRA that the plaintiff in Haute Diggity Dog found itself when the parties submitted cross-motions for summary judgment to the trial court in which Haute Diggity Dog argued that its use of CHEWY VUITTON was a protected parody under the new dilution law.

In a twenty-six page opinion, U.S. District Judge James C. Cacheris granted Haute Diggity Dog's motion for summary judgment. Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 464 F.Supp.2d 495, 81 USPQ 1064 (ED Va. 2006) (Plaintiff also brought claims for infringement, copyright violations, and counterfeiting). Noting that the Fourth Circuit had not yet had the opportunity to consider the amended statute, the court turned to the Second Circuit's application of not only the likelihood of dilution standard found in New York state law, but also to the New York state courts' findings with respect to potentially dilutive uses that qualified as parodies.

In granting Haute Diggity Dog judgment on the dilution claims as a matter of law, the Court wrote, "dilution occurs when consumers mistakenly associate a famous mark with goods and services of a junior mark . . ." suggesting to some readers a continued misunderstanding of dilution law's protections which extend to famous marks regardless of the presence or absence of a likelihood of confusion, mistake, or deception. Louis Vuitton Malletier S.A, 81 USPQ2d 1064, 1070. The district court did not apply the dilution factors set out in the TDRA.

A comment of particular interest to dilution watchers was the trial judge's quip that famous marks are not likely to be blurred by parody. Louis Vuitton Malletier, 81 USPQ2d 1064, 1071. The TDRA makes clear that parody is only a defense where the use is "other than as a designation of source" or is non-commercial. TDRA, 15 U.S.C. §1125(c)(3). Dilution law watchers believed the error offered a potential basis of reversal on appeal. However, the Fourth Circuit agreed with the trial court's decision in favor of Haute Diggity Dog. The Fourth Circuit's opinion closed the loophole in the lower court's reasoning by clarifying that Haute Diggity Dog's successful parody was not likely to blur the distinctiveness of the famous mark as a unique identifier of source because the defendant had not actually used the famous marks themselves, but rather, had merely "mimicked" them in its use of CHEWY VUITTON. Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 84 USPQ2d 1969, 1979 (4th Cir. 2007). This, the court held, was not a use likely to cause dilution of the distinctive quality of the famous LOUIS VUITTON mark.

In Starbucks Corp. v. Wolfe's Borough Coffee, Inc., STARBUCKS coffee challenged a small New England coffee roaster's use of the mark CHARBUCKS for a darkly roasted coffee bean. Although the lawsuit was filed in 2001, the most recent decision in the case's long and tortured history was handed down in June 2008.

Starbucks Corp. lost twice at the trial level after the trial court found once following trial and again on remand that the CHARBUCKS mark, as used in commerce, was not similar enough to the STARBUCKS mark that the junior user's "playful" use would be likely to dilute the famous STARBUCKS mark as a unique identifier of Starbuck Corp.'s goods and services. Starbucks Corp. v. Wolfe's Borough Coffee, Inc., 559 F.Supp.2d 472, 88 USPQ2d 1268, 1973 (SDNY 2008). This holding is particularly difficult to understand given the trial court's acknowledgement that the Defendant, Wolfe's Borough, admitted adopting the CHARBUCKS mark in an effort to call to mind and derogate the famous mega-coffeehouse, and because the trial court seemed to disregard Starbuck Corp.'s expert survey offered to prove that CHARBUCKS would be likely to tarnish the STARBUCKS mark among consumers.

Starbucks Corp. has appealed the decision to the Second Circuit Court of Appeals. Arguments will be heard this Spring

As published in the Louisville Bar Association's April 2009 issue of Bar Briefs.