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A new statute signed into law by President Bush on October 6, 2006 has
significantly strengthened the rights of companies to protect well-known
brands against dilution. Trademark owners whose products are household
names now have a very practical remedy when others use the same or
similar mark, even if the alternative use is for a product or service
that is completely unrelated to the well-known brand. This law will
also affect businesses that are still developing their brands: when
conducting their trademark searches, newcomers will have to consider the
possibility that their proposed mark will dilute the distinctiveness of
someone else’s famous brand.
Traditional Trademark Law and the Federal Anti-Dilution Statute
Trademark law has traditionally sought to prevent consumers from being
misled about the source of a product or service; the courts often refer
to this goal as preventing “confusion.” For example, consider the
popular vegetable juice called “V-8,” which is marketed as having
beneficial effects on health. Back in the 1940s, an unrelated company
began selling vitamins under the V-8 name. The federal courts held that
the vitamin name was likely to confuse consumers as to the origin or
affiliation of the product, in that consumers might believe that the
vitamins were produced by the juice company. The vitamin company was
therefore ordered to stop using the V-8 name.
By definition, this branch of trademark law is limited to cases in which
consumers would be confused as to the origin or nature of the product.
But what happens when the competing name is used in a context such that
consumers clearly understand that the products are produced by different
companies? Judges have often used the fictional examples of Buick
Aspirin and Kodak Pianos; more up-to-date examples might be Sprint
Tennis Shoes or Dell Janitorial Services. (A real-life example is the
Delta name, which is used by both an airline and a faucet
manufacturer.) In these instances, most consumers would probably
understand that the goods or services are offered by different companies
using the same name.
For many years, federal law did not recognize this practice as harmful.
In 1947, Massachusetts was the first American jurisdiction to prohibit
such practices when it adopted an “anti-dilution” statute. The purpose
of anti-dilution law is to protect a brand’s ability to identify and
distinguish goods and services, regardless of whether consumers know
that the brands are separate and distinct. Some examples of diluted
brand names are “Blue Ribbon,” “Star,” and “Anchor.” Whoever first used
such names in the nineteenth century (or earlier) may have created
instantly recognizable brands. However, the names no longer mean
anything specific; they are said to be “diluted,” in that they no longer
instantly conjure up one particular product or service. Imagine if
someone started marketing Sprint Tennis Shoes, and then Sprint Energy
Drink, and so on. At some point, the name “Sprint” might become so
widespread that it would lose the power to instantly identify the
telecommunications company. Depending on one’s point of view,
anti-dilution law therefore allows established companies to protect the
capital they have built up in their brand names, or unduly restricts the
names that are available to obviously unrelated products and services.
In the fifty years following the enactment of the Massachusetts statute,
other states followed suit. Interest groups finally lobbied Congress to
enact a nationwide law, which was passed in 1995. Owners of well-known
brands then began to seek protection under the federal statute, and the
courts spent the next decade figuring out the nuances of the new law.
Because of a particular clause, courts had to answer the question, “How
high is the hurdle to bring suit?” Some courts allowed companies to get
injunctions (or court orders) against trademark dilution with relative
ease. Other courts required companies to demonstrate exactly the amount
of financial harm they suffered as a result of a competitor’s actions;
it was therefore much harder to convince those courts to stop trademark
dilution. The Supreme Court finally settled the matter in a case
involving the Victoria’s Secret company, in which the court made it very
hard to use the anti-dilution statute as a weapon against competitors.
The Supreme Court Says “Shh!” to Victoria’s Secret
In 1998, a U.S. Army colonel saw an advertisement for “Victor’s Little
Secret,” a store that sold adult novelty toys. The colonel was offended
because he thought that the advertisement was promoting the sale of
“unwholesome, tawdry merchandise” by attempting to associate the store
with the reputable chain of Victoria’s Secret, which sold “moderately
priced, high quality, attractively designed lingerie” (and which was
also where his wife and daughter shopped). The colonel therefore mailed
a copy of the ad to Victoria’s Secret.
Victoria’s Secret sued Victor’s for trademark dilution. The Supreme
Court analyzed the arguments by first observing that consumer confusion
was not at issue: no reasonable consumer was likely to be misled into
thinking that Victor’s Little Secret was actually affiliated with
Victoria’s Secret. The court therefore proceeded to discuss dilution.
Dilution has at least two sub-categories: (1) blurring and (2)
tarnishment. As noted above, one fictional example of dilution by
blurring might be “Sprint Tennis Shoes.” Few consumers would understand
such tennis shoes to be produced by the telecommunications company, but
if Sprint did not guard against such uses, its brand name could one day
become as undistinguished as “Star” or “Anchor.” In this case,
Victoria’s Secret did not argue that its mark had been blurred, perhaps
because the name of the competing company was not exactly identical.
Instead, Victoria’s Secret claimed that its image was “tarnished” by
Victor’s Little Secret. Tarnishment occurs when a trademark is
portrayed in an unwholesome or unsavory context, with the result that
the public will associate the lack of quality or prestige in the third
party’s goods with the injured company’s unrelated goods. A famous
example involved a dispute between the Toys “R” Us chain and a store
called Adults “R” Us. Although few people would assume that the two
stores were affiliated, the unwholesome name could nevertheless reduce
the value of the Toys “R” Us brand. Over time, consumers might begin to
associate the two names, thereby reducing the effectiveness of the Toys
“R” Us brand to evoke the image of wholesome children’s toy store.
In its lawsuit, Victoria’s Secret made a similar argument—specifically,
that consumers might associate its brand with the kinds of adult
novelties sold by Victor’s Little Secret. The issue was whether
Victoria’s Secret had to prove that it had already suffered economic
harm due to Victor’s use of a similar name. The lower court had held
that Victoria’s Secret did not have to make such proof. Victor’s
appealed this decision, contending that a party seeking an injunction
must prove it was (1) actually injured (2) by a competitor’s infringing
use. The Supreme Court agreed with Victor’s Little Secret and allowed
the adult novelty store to continue using the name, because Victoria’s
Secret had not proven any harm at trial.
This rule created a high hurdle for companies seeking protection in the
courts. A company might be able to show, for example, that consumers
had begun to associate its brand with the infringing brand, and that
sales revenues had dropped, but it is far more difficult to show that
the events are related. (Perhaps consumers simply didn’t like this
year’s styles.) Although economic harm might be proveable in some
cases, Victoria’s Secret failed to make such a showing. The court
therefore denied relief to Victoria’s Secret.
Congress Strikes Back
Two years after the decision, a bill was introduced in Congress to amend
the underlying law. Specifically, the bill stated that “the owner of a
famous mark shall be entitled to an injunction against another person
who commences use of a mark or trade name in commerce that is likely to
cause dilution by blurring or dilution by tarnishment of the famous
mark, regardless of the presence or absence of actual economic injury.”
The bill was signed by President Bush and became law on October 6, 2006.
This act has been both praised and criticized. Those in favor of the
act argue that it will allow businesses to protect the intellectual
capital that they have built up in their brands and will help stop the
sort of infringing activities that went on in the Adults “R” Us and
Victoria’s Secret cases. Opponents argue that the law will stifle
competition, in that small businesses will be more subject to lawsuits
from large companies that have the resources to challenge the use of
brand names.
A Weapon for Celebrity Brands, and Advice for Growing Businesses
Regardless of whether one agrees with the supporters or opponents of
this legislation, it is indisputable that the new law makes it easier
for the owners of celebrity brands to succeed on claims of dilution.
Recall that anyone—from Wal-Mart on down to the corner hardware
store—can bring suit on the basis of consumer confusion. However, only
owners of “famous” brands can bring a dilution lawsuit. In that
respect, the new law unquestionably benefits large, existing brands.
Given the great importance of brand reputation in today’s economy (and
the speed with which it can be lost), it is vitally important for owners
to vigorously guard their intellectual property rights in such
trademarks.
The other result of the new legislation is that it is more important for
businesses developing new products or services to conduct thorough
searches before accepting new trademarks or service marks, and to
consider whether the new mark would dilute a pre-existing famous brand.
It is therefore increasingly necessary to consult with counsel regarding
the propriety of individual marks. Failure to do so can result in
actions for damages, or an injunction by a court against the use of your
brand name. It is also becoming more advisable to register trademarks,
in order to protect your business against the possibility of
infringement by future competitors. Taking preventative action can
often spare your business the headache of having to fend off those who
try to ride on the coattails of your success.
If you have any questions regarding this alert or other Trademark
issues, please contact
John
O’Hale at
johale@poynerspruill.com
or 919.783.2802 or
David
Dreifus at
ddreifus@poynerspruill.com or 919.783.2817. |
