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Dilution redux: The new FTDRA

January 21, 2009

Newsletters

Dilution redux: The new FTDRA

January 21, 2009

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Trademark Thoughts April 2007

Trademark dilution has had a bumpy ride. While federal laws prohibiting trademark infringement have been on the books since the nineteenth century, dilution statutes did not begin to appear until the mid-twentieth century. Even then, such statutes were exclusively at the state level until January 16, 1996, when the Federal Trademark Dilution Act (FTDA) was enacted.1 Judicial disabling of the Act was effectively completed by the Supreme Court’s March 4, 2003, decision in Moseley v. V. Secret Catalogue, Inc.2 Now Congress has attempted to patch the holes by enacting the Federal Trademark Dilution Revision Act on October 6, 2006.3

Dilution as a state law tort
State dilution laws typically barred junior users from adopting marks that would cause injury to the business reputation and/or dilute the distinctive quality of an existing mark, even in the absence of any likelihood of confusion. However, these statutes proved inadequate to the task as the U.S. economy grew and became more national in character. Some states never enacted dilution statutes, leaving trademark owners without any recourse in numerous states.4 Among states that did pass dilution laws, some required the plaintiff to demonstrate actual dilution of its mark in order to obtain relief, while likelihood of dilution was sufficient in others. Adding to the cacophony was the fact that most state law dilution cases were being decided in federal courts as part of decisions involving allegations of trademark infringement.

The distinction between “actual dilution” and “likelihood of dilution” would eventually prove to be significant. In the early years of trademark dilution jurisprudence, however, it was largely irrelevant because courts tasked with interpreting the state dilution statutes were reluctant to enforce them, regardless of the legal standards set forth in the statutory language. Many courts continued to require a showing of likely confusion, even when the statutes expressly provided that consumer confusion was not a factor in the dilution analysis.5

This judicial hostility may have been due to the nature of the right sought to be protected. The rationale supporting trademark infringement law is protection of consumers from confusion, mistake, and deception-goals that few courts hesitate to embrace. The idea is that when consumers encounter Minute Maid® brand orange juice at the grocery store, they can rely on that mark as an indicator of the source and quality of the product. However, that trust could be destroyed if newcomers are allowed to adopt identical or very similar marks for use on orange juice (or even orange drink or frozen confections). At a minimum, the hypothetical shopper would be required to spend an inordinate amount of time examining product labels and packaging in an effort to ensure that he was purchasing his preferred brand. This results in market inefficiencies antithetical to a free market economy and creates a potential for deception that a lot of courts just don’t like. Of course, the Coca-Cola Company is also harmed (Coca-Cola owns the Minute Maid® brand), but when it pleads to a court for relief, it is as the vicarious avenger of the consumers who are being deceived by the trademark infringers.

The concept of trademark dilution is a lot less sympathetic. Rather than promoting consumer protection or efficient markets, dilution is most easily seen as protection of the mark owner’s investment in and exclusive right to a particular mark. Under this rationale, it is irrelevant whether a junior user’s adoption of the mark is likely to confuse the public. Unmoored from a likelihood of confusion requirement, dilution loses its consumer protection justification and becomes something akin to a right in gross, a concept at odds with the fundamental tenets of trademark law. Indeed, to make the strongest possible case that dilution is something more than protection for the rich and powerful, it is probably necessary to argue that on some subconscious level the diluting mark is confusing and misleading, which of course raises the question: why is dilution law needed in the first place? (This is not true of the “tarnishment” branch of dilution, which is more akin to defamation and, thus, more sympathetic. Few dilution cases, however, rely on tarnishment.)

This may explain why judicial resistance to the concept of dilution law was so widespread. Even when plaintiffs managed to win a dilution case, courts would often decline to grant injunctive relief beyond state boundaries.6 One commentator observes that between 1977 and 1994, federal appellate courts considered dilution claims in 159 cases, only ten of which resulted in a preliminary injunction with dilution as at least a partial ground for relief, and only four of which relied solely on dilution in granting injunctive relief.7 For obvious reasons, trademark owners were dissatisfied with the situation and lobbied for federal dilution protection. They hoped that a federal dilution statute would introduce stability and uniformity into the law and replace the existing crazy quilt of state statutes and precedents with a system that could provide mark owners with nationwide protection.

FTDA
The FTDA took effect in 1996. The new law replicated many state dilution statutes in that it prohibited use of a mark that caused “dilution of the distinctive quality” of a pre-existing mark, a concept commonly known as “dilution by blurring.” However, the statute did not expressly address injury to the business reputation of a mark, also known as “dilution by tarnishment.” In addition, the federal statute added a fame requirement that had been implicit in most state dilution statutes. The dilution remedy was considered an “extraordinary” one and thus “required a significant showing of fame.”8

The key language of the FTDA was as follows: “The owner of a famous mark shall be entitled…to an injunction against another person’s commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the famous mark.”9 The statute also listed eight non-exhaustive factors to be used in determining whether the plaintiff’s mark was “distinctive and famous.”10

FTDA in the courts
Trademark owners were optimistic that the FTDA would add a powerful weapon to their arsenal of trademark rights, and some early decisions appeared to justify that optimism.11 Others did not. A prime example is Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Division of Travel Development,12 in which the Fourth Circuit agreed that the plaintiff’s “The Greatest Show on Earth” circus slogan was not diluted by the defendant’s use of “The Greatest Snow on Earth” to promote travel to the state of Utah. While dilution probably requires more similarity of marks than does the likelihood of confusion test, it has never been suggested that identity is required.

The court also determined that the FTDA required the plaintiff to show actual dilution rather than just a likelihood of dilution, pointing out that the plain language of the statute provides for injunctive relief against another person’s use of a mark that “causes” dilution, not “‘will’ or ‘may’ cause dilution.”13 It also held that in order to establish actual dilution, the plaintiff must have direct proof that defendant’s use of the mark has caused “actual economic harm to the famous mark’s economic value by lessening its former selling power as an advertising agent for its goods or services.”14 The court acknowledged that it would be very difficult for dilution plaintiffs to make such a showing.15

Several months later, in Nabisco, Inc. v. PF Brands, Inc.,16 the Second Circuit declined to follow Ringling Bros., holding that a trademark dilution plaintiff need not prove actual dilution and injury to the famous mark, opining that requiring proof of actual economic harm “depends on excessive literalism to defeat the intent of the statute.”17 The court ruled that a dilution plaintiff could preliminarily enjoin threatened injury to the strength of the famous mark.

But Nabiscoalso held that only inherently distinctive marks could qualify as “famous” under the FTDA,18 even though the statute directed that “[i]n determining whether a mark is distinctive and famous, a court may consider factors such as, but not limited to-(A) the degree of inherent or acquired distinctiveness of the mark.”19

Meanwhile, another line of cases was opening the floodgates as to which marks could be considered “famous.” These cases held that marks could be famous within a certain geographic area20 or in a particular product or services niche.21 Under this concept-called “niche fame”-virtually any mark owner could make a plausible argument that its mark was famous, if the geographic area or market niche was sufficiently circumscribed. Everyone is presumably “famous” at his or her breakfast table.

Recognizing the split in the circuits with respect to whether the FTDA required actual dilution, the Supreme Court granted certiorari to decide that issue in Moseley v. V Secret Catalogue, Inc.2223 held that the FTDA “unambiguously requires a showing of actual dilution, rather than a likelihood of dilution.”24 The Court found “a complete absence of evidence of any lessening of the capacity of the VICTORIA’S SECRET mark to identify and distinguish goods or services sold in Victoria’s Secret stores or advertised in its catalogs.”25 Although the Court agreed with Ringling Bros. that the statute required actual dilution, it disagreed that the plaintiff must prove “an actual loss of sales or profits.” Dilution, it suggested, could be proven by survey evidence or other expert testimony, or by circumstantial evidence if the marks are identical. Legal scholars and commentators have tried-and failed-to come up with a convincing explanation of what the Court ruled.

In dicta, the Court also noted that the trial court’s decision rested on the conclusion that the defendant’s store had “‘tarnished’ the reputation” of the VICTORIA’S SECRET mark, and pointed out that dilution by tarnishment was omitted from the FTDA.26

Back to Congress: FTDRA 2006
The niche fame cases, combined with Moseley resulted in a state of law wherein almost any mark arguably could be famous, but nobody knew how to prove actual dilution.

It is fair to say that the FTDA contained some of the seeds of its demise. Clearer language could have avoided the “actual dilution” trap, although courts so inclined had no trouble reading around it. Leaving dilution by tarnishment out of the Act (but saying in legislative history that the Act was intended to encompass it) produced a predictable, if unintended, result. Protecting only inherently distinctive famous marks against dilution could not have been foreseen, and the “niche fame” frolic seems unforeseeable (and unsupportable).

Trademark owners and their lawyers complained that Moseley had gutted the FTDA, and called for Congressional intervention. Congress obliged, enacting the Federal Trademark Dilution Revision Act of 2006 (“FTDRA”). The key language of revised Section 43 of the Trademark Act is as follows:

c) Dilution by Blurring; Dilution by Tarnishment (1) Subject to the principles of equity, the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness, shall be entitled to an injunction against another person who, at any time after the owner’s mark has become famous, 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 or likely confusion, of competition, or of actual economic injury.

(2) DEFINITIONS-(A) For purposes of paragraph (1), a mark is famous if it is widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark’s owner.27

Essentially, the statute made four significant substantive changes (or clarifications) to the prior law:

– plaintiffs can now obtain injunctive relief based on a showing of likelihood of dilution rather than actual dilution, regardless of the presence or absence of actual economic injury;

– so-called niche fame is not sufficient to establish that the plaintiff’s mark is famous;

– dilution by tarnishment is now a viable statutory claim; and

– any distinctive mark can be famous, regardless of whether such distinctiveness is inherent or acquired.

For all the time Congress had to draft the original FTDA, the omission of the words “likely” and “likelihood” was nearly inexcusable. The Fourth Circuit in Ringling Bros was correct that the plain language of the statute unambiguously required actual dilution, and the Second Circuit in Nabisco was correct that application of the plain language defeated the intent of the statute. The problem with an actual dilution standard is that the plaintiff’s cause of action does not arise until its mark is suffering irreparable erosion. Once significant dilution occurs, undoing the harm is like trying to put toothpaste back into the tube.

The Supreme Court could have let Congress off the hook by interpreting the FTDA in accordance with the legislative intent. Instead, the Court interpreted the statute by its plain language and placed the onus on Congress to solve the problem, which is exactly what Congress has attempted to do. In addition, the statute now expressly provides that a plaintiff can demonstrate a likelihood of dilution even in the absence of actual economic injury.


  1. Likelihood of Dilution
    It remains unclear exactly how the plaintiff should go about proving likely dilution but, as noted above, the Supreme Court dropped some oblique hints in Moseley, and lessening of distinctiveness in the marketplace will not often be hard to establish. If there is only one KODAK brand, a second will dilute. What more need be shown? At least the statute makes clear that the plaintiff is not required to prove lost sales or profits.


  2. No More “Niche Fame”
    Under the original FTDA, factors for determining whether a mark was famous included “the geographical extent of the trading area in which the mark is used”28 and “the degree of recognition of the mark in the trading areas and channels of trade of the mark’s owner and the person against whom the injunction is sought.”29 These factors arguably support the concept of “niche fame,” both as to geographic niches and product or service niches. But, within a niche, the traditional trademark infringement concept of likelihood of confusion should be a sufficient ground for relief. In such cases, dilution law is an “unwieldy, inappropriate tool” akin to “driving in the nail with a heavy, long-handled sledgehammer.”

    The revised statute sets forth four non-exhaustive factors for evaluating whether a mark is sufficiently famous, two of which refer to the “geographic reach of advertising and publicity of the mark”31 and the “geographic extent of sales of goods or services offered under the mark.”32 Nevertheless, the statute makes clear that regional “fame” is irrelevant because the plaintiff must show that its mark is “widely recognized by the general consuming public of the United States.”33

    The statute also makes clear that product or service niches are insufficient because the mark must be “widely recognized by the general consuming public.”34 This language takes dilution out of play for most companies that provide goods or services to businesses rather than to the general public. In the years after passage of the original FTDA and before Moseley, these so-called B2B companies routinely added dilution causes of action to trademark infringement complaints against business competitors.


  3. Dilution by Tarnishment Is a Viable Theory
    As with the omission of “likely” or “likelihood,” Congress must also bear the blame for failing to include any reference to tarnishment in the original FTDA. As the Supreme Court pointed out in Moseley, such language was present in many of the state dilution laws. Dilution by tarnishment is now defined as “association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark.”35

    The issue of tarnishment regularly arises in trademark dilution cases. Often, the defendant is accused of associating the plaintiff’s mark with pornography or illicit drug use.36 The statute now expressly provides a federal cause of action for injury to a famous mark owner’s reputation caused by such use of the plaintiff’s mark. There can be little doubt that some tarnishment claims under the revised Act will raise interesting free speech/parody issues.


  4. Any Distinctive Mark Can Be Famous
    Finally, the revised statute provides that “the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness,” can state a claim for dilution.37 This language essentially supersedes the Second Circuit holding in Nabisco that in order for a mark to be famous, it must be inherently distinctive. This is certainly appropriate. McDONALD’S, one of the most famous marks in the world, is not inherently distinctive (it is the possessive form of a surname), yet it seems as worthy of protection from dilution as does any other famous mark. Nobody should be forever barred from obtaining relief from dilution because the distinctiveness of its mark was earned through advertising, promotion, and use, rather than by birthright.

Conclusion
The FTDRA was intended to “fix” what went wrong under the FTDA. Congress appears to have done an adequate job mending the FTDA. However, the same underlying judicial hostility to the FTDA may remain. While trademark infringement law is often seen as the melding of the pursuit of private gain with the interest of preventing public confusion, mistake, and deception, dilution is simply the pursuit of private gain to preserve or enhance private wealth – a fair, but considerably less laudable, activity. Will that lead to a partial or complete repeat of the emasculation of the FTDA? Time will tell.

Endnotes

1 The Dilution Act became Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c).

2 537 U.S. 418 (2003).

3 Pub. L. 109-312.

4 A notable exception was Ohio, where enterprising counsel persuaded a United States Court of Appeals that the state’s common law of unfair competition incorporated the principles of dilution. See Ameritech Inc. v. Ameritech Info. Techs. Corp., 811 F.2d 690 (6th Cir. 1987).

5Esquire, Inc. v. Esquire Slipper Mfg. Co., 139 F. Supp. 228, 232-33 (D. Mass. 1956), aff’d, 243 F.2d 540 (1st Cir. 1957).

6 See, e.g., Deere & Co. v. MTD Prods., Inc., 34 u.s.p.q.2d 1706, 1710-11 (S.D.N.Y. 1995).

7 Kenneth L. Port, The “Unnatural” Expansion of Trademark Rights: Is a Federal Dilution Statute Necessary?, 18 SETON HALL LEGIS. J. 433, 441 (1994).

8 J. Thomas McCarthy, 4 McCarthy on Trademarks § 24:92, at 24-191 (citing Report of the T.R.C., 77 Trademark Rep. 375, 461 (1987)).

9 15 U.S.C. § 1125(c)(1), Lanham Act § 43(c)(1) (1996) (superseded by the Federal Trademark Dilution Revision Act of 2006 (“FTDRA”)).

10 15 U.S.C. § 1125(c)(1)(A)-(H), Lanham Act § 43(c)(1)(A)-(H) (1996) (superseded by the FTDRA).

11 See, e.g., Anheuser-Busch, Inc. v. Andy’s Sportswear, Inc. 40 U.S.P.Q.2d 1542 (N.D. Cal. 1996) (granting temporary restraining order against defendant’s use of BUTTWEISER mark on t-shirts on the ground that such use tarnished the “unquestionably famous” BUDWEISER mark); Hasbro, Inc. v. Internet Entm’t Group, Ltd. 40 U.S.P.Q.2d 1479 (W.D. Wash. 1996) (finding dilution by tarnishment based on the defendant’s use of the candyland.com domain name for a website featuring sexually explicit photographs).

12 170 F.3d 449 (4th Cir. 1999).

13 170 F.3d at 460-61.

14 Id. at 461.

15 Id. at 460 (noting that requiring plaintiffs to prove actual economic harm “may tax the skills of advocacy”).

16 191 F.3d 208 (2d Cir. 1999).

17 Id. at 224.

18 Id. at 216-17.

19 15 U.S.C. § 1125(c)(1)(A), Lanham Act § 43(c)(1)(A) (1996) (superseded by the FTDRA) (emphasis added).

20 See, e.g., Wawa, Inc. v. Haha 24 Hr. Market 1996 U.S. Dist. LEXIS 11494 (E.D. Pa. 1996).

21 See, e.g., Times Mirror Magazines, Inc. v. Las Vegas Sporting News, L.L.C., 212 F.3d 157 (3d Cir. 2000) (market niche for sports periodicals); Advantage Rent-A-Car, Inc. v. Enterprise Rent-A-Car 2001 U.S. App. LEXIS 802 (5th Cir. 2001) (market niche for car rental services).

22 537 U.S. 418 (2003).

23 Actually, the decision was almost unanimous. Justice Scalia declined to join Part III of the opinion, which discussed the legislative history of the FTDA. Justice Kennedy wrote a concurring opinion.

24 537 U.S. at 433.

25 Id. at 434.

26 Id. at 431 (noting that state dilution statutes expressly refer to both “injury to business reputation” and “dilution of the distinctive quality of a trade name or mark,” while the federal statute refers only to the latter).

27 15 U.S.C. § 1125(c)(1)-(2)(A), Lanham Act § 43(c)(1)-(2)(A) (2006) (emphasis added).

28 15 U.S.C. § 1125(c)(1)(D), Lanham Act § 43(c)(1)(D) (1996) (superseded by the FTDRA).

29 15 U.S.C. § 1125(c)(1)(F), Lanham Act § 43(c)(1)(F) (1996) (superseded by the FTDRA).

30 J. Thomas McCarthy, 4 McCarthy on Trademarks § 24:112.1, at 24-277.

31 15 U.S.C. § 1125(c)(2)(A)(1)(i), Lanham Act § 43(c)(2)(A)(1)(i) (2006).

32 15 U.S.C. § 1125(c)(2)(A)(1)(ii), Lanham Act § 43(c)(2)(A)(1)(ii) (2006).

33 15 U.S.C. § 1125(c)(2)(A)(1), Lanham Act § 43(c)(2)(A)(1) (2006) (emphasis added).

34 Id. (emphasis added).

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