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.
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.
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 provable in some cases, Victoria’s Secret failed to make such a showing. The court therefore denied relief to Victoria’s Secret.
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.
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.