Federal Trademark and Local Zoning Laws Collide

by Richard L. Kirkpatrick, Partner (San Francisco Office Trademark Group)

L. Gail Gordon, Partner (Los Angeles Office Real Estate Group)

Blaine I. Green, Associate (Los Angeles Office)

Pillsbury Madison & Sutro LLP

On April 15, the Ninth Circuit Court of Appeals, in a case of first impression, handed down an important decision at the intersection of federal trademark law and the municipal zoning power. Blockbuster Videos, Inc.; Video Update, Inc. v. City of Tempe (Arizona), 1998 WL 172777 (9th Cir.). At issue in Blockbuster was whether the Lanham Act--the federal statute governing trademark law--preempts a municipality from regulating the display of signs which include or consist of federally registered marks.

In a majority opinion, the court held that a municipality may not require the alteration of a registered mark. However, the court ruled that a community may simply prohibit the display of registered marks, if such display is in conflict with an aesthetic zoning provision. At once, the Blockbuster decision may prove to be a potent tool for land use planners and a serious headache for national corporations.

Federal Trademark Law. As demonstrated by the registration provisions of federal trademark law, one of the basic purposes of a trademark is to serve as a symbol of the uniformity of a company's product or service nationwide. In order to be universally recognizable as such, the mark, with its design and color, is displayed in the same manner everywhere. To ensure uniformity in the display of trademarks, federal law provides: "No state . . . or any political subdivision or agency thereof may require alteration of a registered mark . . . ." 15 U.S.C. §1121(b).

Local Zoning Regulation. Potentially at odds with the federal interest in national trademark uniformity is the local interest in zoning for aesthetic purposes. Local governments, in reliance on the police power, regulate private activities to protect the peace, health, safety and general welfare of their citizens. Aesthetic zoning is within the purview of "general welfare," which, standing alone, is a sufficient basis for an exercise of the police power. Hawkins v. County of Marin, 54 Cal.App.3d 593. One way in which municipalities exercise aesthetic zoning authority is by promulgating regulations which dictate the size, shape and color of storefront signs.

The Marks At Issue. Blockbuster and Video Update each own federally registered service marks. Blockbuster's mark consists of the three-dimensional trade dress shape of an outdoor awning, colored blue, with the words BLOCKBUSTER VIDEO in yellow block letters. The registered shape (with horizontal lines indicating blue) is this:

Video Update's mark consists of the words "Video Update" in stylized red lettering, wider at the bottom and narrower at the top. The registered shape (with vertical lines indicating red) is this:

Trademark Practice Tip

The Tempe Zoning Ordinance. Blockbuster and Video Update leased space in shopping centers in Tempe, Arizona. The centers imposed exterior signage requirements, subject to review and approval by the Tempe Design Review Board, the local municipal zoning authority. The Review Board required Video Update to display its mark using white letters on a turquoise background, contrary to the color scheme of the actual Video Update mark. The Review Board altogether denied Blockbuster's application to install its trademark blue awning, since regulations required "flat" signage.

The two video store companies sued the City of Tempe, and the district court granted injunctions requiring Tempe to allow Blockbuster and Video Update to use their registered service marks as requested. Tempe appealed.

The Majority Opinion. The Ninth Circuit panel granted the City a partial victory, reversing as to Blockbuster but affirming as to Video Update. In affirming the injunction in favor of Video Update, the court followed the "plain language" of 15 U.S.C. §1121(b), holding that a zoning ordinance may not "require alteration" of a federally registered mark. Thus Video Update could not be required to render its federally registered red logo into the white-letters-on-turquoise-background mandated by the shopping center. The court explained that, if alteration of the logo were required, "then there would be no uniform mark for customers to identify," and a customer might wrongly conclude that the store did not belong to the national chain.

With respect to Blockbuster's application to display its trademark awning, the court reached a different result. Because Tempe did not require Blockbuster to alter the awning--the City denied permission to construct the awning altogether--the City's actions were held not inconsistent with federal trademark law. In the words of the court, "Precluding display of a mark for zoning purposes is permissible; requiring alteration of a mark is not."

The Concurrence/Dissent. Judge Browning concurred in the judgment as to Blockbuster, agreeing that a municipality may altogether prohibit the display of a mark pursuant to an aesthetic zoning ordinance. However, Judge Browning dissented with regard to the court's affirmance of the injunction in favor of Video Update. Judge Browning would have permitted the City to require that Video Update alter its mark so as to conform with the City's aesthetic zoning ordinance.

Judge Browning disagreed with the majority's interpretation of 15 U.S.C. §1121(b). For Browning, the Section 1121(b) ban on "requiring alteration" refers to state-mandated changes to the marks themselves, which changes would be reflected in each subsequent use of the mark within the state. The ban "does not encompass local ordinances limiting the permissible, size, color [or] construction" of exterior signage. In support of his interpretation, Judge Browning relied on legislative history.

The dissent's conclusion that aesthetic zoning does not constitute "alteration" of a registered mark within the meaning of section 1121(b) was embraced in the only prior case in which the issue was previously considered. Payless Shoe Source, Inc. v. Town of Pennfield, 934 F.Supp. 540, 546 (W.D.N.Y. 1996).

A Potent Tool For Land Use Control. The opinion of the Blockbuster majority raises an obvious question: If a local government had any objections to the use of a mark on a sign, why would the local government do anything but prohibit the use of the mark altogether? Imagine the delight of some local community groups--those who object to nationally franchised businesses identified by removable marks--when they discover this tool for furthering aesthetic zoning.

And if the concurrence/dissent is correct, the federal interest in trademark uniformity is seriously compromised: though Section 1121(b) would still bar an alteration required statewide, localities within each state and throughout the country would be empowered to modify trademarks to conform to the peculiar aesthetics of their communities. Indeed, such a result could lead to even more consumer confusion than if only a statewide alteration was allowed.

Further, the court's holding that municipalities may simply prohibit the display of a mark on a sign raises important First Amendment concerns. Although aesthetic interests have been found to support a city's prohibition on the posting of signs, Los Angles v. Taxpayers for Vincent, 466 U.S. 789, 805-07 (1984), any regulation must still be narrowly tailored to serve that interest. Accordingly, from a First Amendment perspective, an outright prohibition would be less constitutionally justified than a required alteration.

Right or wrong, Blockbuster is an important case that should be monitored closely by municipal law specialists, civil rights advocates and the business community.