Trademark owners face fresh battles in the US

Keyword advertising

Two cases in the US Court of Appeals for the Ninth Circuit clarified some of the relevant factors to be considered in cases involving the purchase of competitor trademarks as keywords, but provided conflicting results.

In March 2011, the Ninth Circuit overturned a preliminary injunction prohibiting the purchase of a competitor’s trademark as a keyword. The injunction was issued by the US District Court for the Central District of California in Network Automation, Inc v Advanced Systems Concepts, Inc.

The Ninth Circuit criticised the lower court’s emphasis on the ‘Internet trinity’ of likelihood of confusion factors—(i) the similarity of the marks, (ii) the relatedness of the goods or services, and (iii) the simultaneous use of the web as a marketing channel—as being too rigid in the context of keyword advertising.

Instead, the Ninth Circuit emphasised a more flexible approach, analysing a broader range of factors, such as: (i) the strength of the mark; (ii) the evidence of actual confusion; (iii) the type of goods and degree of care likely to be exercised by the purchaser; and (iv) the labelling and appearance of the advertisements and the surrounding context on the screen displaying the results page.

In January, after the district court had issued the preliminary injunction in Network Automation, but before the Ninth Circuit’s decision on appeal, the same California district court issued an injunction against a competitor’s purchase of the plaintiff’s trademark as a keyword in Binder v Disability Group, Inc. Unlike the preliminary injunction inNetwork Automation, the injunction in Binder was issued following a trial on the issues, allowing the evidence to develop fully.

The Binder court also found strong evidence of likelihood of confusion and did not address the claims under the “initial interest confusion” theory that was relied on in Network Automation, which is not recognised in all US jurisdictions. The Binder court again focused on the ‘Internet trinity’ of factors, but also emphasised the evidence of actual confusion presented at trial, which is a factor in the Ninth Circuit’s more flexible approach.

The court found likelihood of confusion on the basis of the evidence of actual confusion and its findings that the plaintiff’s mark is strong, the parties’ services are competing, the defendant intentionally chose the plaintiff’s mark based on its strength and market appeal, and both parties market their services through the Internet.

These cases make it apparent that the law remains unsettled in this area, but the relevant factors that were provided by the Ninth Circuit can help guide parties on both sides.

Dilution

The issue of dilution appeared in the context of the ongoing statutory interpretation by the courts of the Trademark Dilution Revision Act (TDRA) and its extensive rewrites of the repealed Federal Trademark Dilution Act (FTDA). One primary issue of statutory interpretation arising under the TDRA has been the degree of similarity between marks that is required for a finding of dilution.

The US Court of Appeals for the Ninth and Second Circuits found agreement on this issue in 2011. In February, the Ninth Circuit’s decision in Levi Strauss & Co. v Abercrombie & Fitch Trading Co. brought it in line with the Second Circuit’s 2009 decision in Starbucks Corp. v Wolfe’s Borough Coffee, Inc.

In Levi Strauss, the Ninth Circuit confronted the issue of whether the “identical or nearly identical” requirement that was established by case law under the FTDA survived under the TDRA. An element of the dilution claim that the district court said Levi Strauss had to prove was “that [Abercrombie] is making or has made use in commerce of an identical or nearly identical trademark”, and it relied on the trial jury’s finding against Levi Strauss on this question.

On appeal, the Ninth Circuit found that its prior post-TDRA dilution cases did not address this particular issue. Based on the statutory language, the Levi Strauss court held that similarity is one important factor to be weighed, but that no particular degree of similarity is a required element of a claim of dilution.

The Second Circuit’s Starbucks decision similarly relied on the plain language of the statute in finding that a court should not require “substantial” similarity between the marks or place undue significance on the similarity factor.

As intended by its enactment, the case law interpreting the language of TDRA appears to be increasing the utility of the dilution claim for famous mark owners beyond the limited relief that was provided by the FTDA.

"one PRImaRy ISSUe of StatUtoRy InteRPRetatIon aRISInG UnDeR tHe tDRa HaS Been tHe DeGRee of SImIlaRIty BetWeen maRkS tHat IS ReqUIReD foR a fInDInG of DIlUtIon."

However, following the US District Court for the Southern District of New York’s June decision in The Gap, Inc v G.A.P., Adventures, Inc, “dilution by blurring” cases are now likely to be focused on a balancing of the TDRA factors to determine whether the junior mark is likely to impair the distinctiveness of the famous mark. Obstacles to the dilution claim gaining favour remain as this balancing analysis is far less established than that of the “likelihood of confusion” analysis and will require further discussion among the courts.

Aesthetic functionality

The aesthetic functionality doctrine reappeared in the Ninth Circuit’s initial February decision in Fleischer Studios, Inc v AVELA, Inc, which had the potential to limit severely a brand owner’s ability to protect itsmarks against third-party merchandising and assert trademark rights when related copyrights had fallen into the public domain.

Fleischer Studios claimed trademark rights in the Betty Boop cartoon character name and image, and claimed infringement by AVELA, which licensed Betty Boop merchandise. The Ninth Circuit affirmed the dismissal of the trademark claims by relying on the doctrine of aesthetic functionality, which had not been raised by the district court.

Relying on its 1991 decision in International Order of Job’s Daughters v Lindeburg & Co, the court held that trademark law does not prevent third party use of the “functional” features of a product, which constitute the benefit that is sought by the consumer as distinguished from the source-identifying feature of the product. In other words, if the trademarked element was deemed to be a functional aesthetic component of a product because it is aesthetically pleasing, like the Betty Boop image, then use of the trademarked element does not constitute infringement.

The court went further, stating that even if Fleischer did hold trademarks in the Betty Boop name or image, they could not be asserted because to do so would prevent the character from ever entering the public domain, in contradiction with the US Supreme Court’s decision in Dastar Corp v Twentieth Century Fox Film Corp. The Ninth Circuit’s opinion precluded the protections of trademark law when related copyright material has fallen into the public domain.

As a result, the opinion had the potential to limit markedly brand owner rights. The concern was that, as expressed in the International Trademark Association’s (INTA’s) amicus brief, the ruling would allow third parties to use any mark that has “aesthetic” value to customers, which would upend trademark law, and it was inconsistent with established precedent recognising independent copyright and trademark rights in the same product.

Without rehearing, the Ninth Circuit withdrew its February 2011 decision and issued a new decision in August, which makes no reference to aesthetic functionality or Dastar, thereby leaving the extremely limited application of the doctrine undisturbed and the relationship between trademark and copyright in a product unchanged.

A second closely watched case that dealt with aesthetics and functionality in the fashion industry was Christian Louboutin SA v Yves Saint Laurent Am, Inc in the US District Court for the Southern District of New York, which was also decided in August 2011. Louboutin brought claims of trademark infringement based on its federally registered trademarks for the red sole of its shoes.

"The court asserted that, in fashion, ‘color serves ornamental and aesthetic functions’, and no amount of acquired distinctiveness can overcome functionality."

It is well established that a colour must have acquired secondary meaning in order to be protected under federal trademark laws. However, the court denied Louboutin’s motion for a preliminary injunction and suggested that its registered marks may not be protectable despite having established acquired distinctiveness. The court asserted that, in fashion, “color serves ornamental and aesthetic functions”, and no amount of acquired distinctiveness can overcome functionality.

Louboutin has appealed against the decision to the Second Circuit and amicus briefs have been filed by Tiffany and INTA arguing against the court’s application of the aesthetic functionality doctrine. The outcome of the case may have far-reaching consequences for brand owners in the fashion industry.

SOPA story

There is pending US legislation that trademark owners should be aware of, namely, the Stop Online Piracy Act (SOPA). The SOPA bill was introduced in the US House of Representatives on October 26, 2011. The bill aims to provide additional mechanisms for copyright and trademark owners to combat online piracy of copyrighted works and counterfeit goods, particularly against foreign-owned and -operated websites beyond the reach of enforcement under current laws.

The bill provides mechanisms for barring US-based advertisement networks and payment facilities from conducting business with infringing sites, barring search engines from linking to infringing sites and requiring Internet service providers to block access to such sites.

Many support the underlying goals of the legislation. However, the language of the bill has drawn calls for both revisions and a complete rewrite.

The bill’s supporters seek stronger enforcement tools to protect intellectual property (IP) rights and the corresponding industries, jobs and revenue, and argue that the bill specifically targets websites that are dedicated to illegal and infringing activity.

However, the bill also has several opponents. They have raised concerns that the legislation threatens free speech and innovation and allows broad censorship. They have also said that the bill may bypass the safe harbour provisions of the Digital Millennium Copyright Act due to broad or vague language. Another area of concern is the bill’s effects on Internet security resulting from the process by which access to an infringing site is blocked by an Internet service provider under the domain name provision.

Hearings on the bill were expected to continue into January 2012. However, in the wake of online protests and waning congressional and White House support, consideration of the legislation has been postponed by the House Judiciary Committee until wider agreement is reached.

The enforcement mechanisms, targets and reach of the SOPA bill or alternative legislation remain uncertain, but any legislation that is successfully enacted as a result of these efforts to combat online infringement is likely to affect trademark owners significantly.