In a surprising decision with important ramifications for owners of famous trademarks, the Supreme Court ruled unanimously on March 4, 2003 that the Federal Trademark Dilution Act ("FTDA") requires proof of actual dilution. Mosely v. V Secret Catalogue, Inc., No. 01-1015. Justice Stevens, writing for the Court, concluded that the FTDA "unambiguously requires a showing of actual dilution, rather than a likelihood of dilution."
The Court's decision resolves a longstanding split between the United States Circuit Courts as to the level of proof necessary to succeed on a claim under the FTDA. In Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div. Of Travel Development, 170 F.3d 449 (4th Cir. 1999), the Fourth Circuit held that the FTDA required "actual dilution" rather than merely a "likelihood of dilution." The Fourth Circuit defined actual dilution as "actual economic harm to the famous mark's economic value." Id. at 461. Shortly thereafter, however, the Second Circuit ruled in Nabisco, Inc. v. P.F. Brands, Inc., 191 F.3d 208 (2d Cir. 1999), that the FTDA merely required a plaintiff to establish a "likelihood of dilution." Since then, the courts have remained split, with a majority of Circuits siding with the Second Circuit's "likelihood of dilution" standard rather than the "actual harm" approach of the Fourth Circuit.
The Mosely case arose out of a trademark dispute between lingerie giant Victoria's Secret and an Elizabethtown, Kentucky "adult novelty" store that was originally named Victor's Secret. Upon learning of the store's opening in 1998, Victoria's Secret wrote to the owners of Victor's Secret, alleging that this store name was likely to cause confusion with the VICTORIA'S SECRET trademarks and requesting that the owners immediately change the name of the store. In response, the owners changed the name of the store to Victor's Little Secret. This minor change failed to satisfy Victoria's Secret, which brought trademark infringement and dilution claims in the U.S. District Court for the Western District of Kentucky.
The district court granted summary judgment for Victor's Little Secret on the infringement claims, finding no likelihood of confusion among consumers as to source or sponsorship of the two businesses. However, the court held for Victoria's Secret on its dilution claim, finding that the mark was famous and that the mark was likely to cause dilution via tarnishment, by damaging the positive associations and goodwill attached to the VICTORIA'S SECRET trademark.
On appeal, the Sixth Circuit affirmed the district court's grant in favor of Victoria's Secret on the dilution claim. The Sixth Circuit, which had previously adopted the Nabisco "likelihood of dilution" standard, ruled that Victoria's Secret had adequately shown that use of the Victor's Little Secret name would dilute its trademark. The court rejected the store's contention that the evidence introduced by Victoria's Secret was insufficient to prove a likelihood of dilution. That evidence had consisted merely of the testimony of a single witness, a retired army colonel who was offended by the Victor's Little Secret store and associated the name with Victoria's Secret. According to the Sixth Circuit, "[C]onsumers who hear the name 'Victor's Little Secret' are likely automatically to think of the more famous store and link it to the Moseley's adult-toy, gag gift, and lingerie shop." According to the Sixth Circuit, this was sufficient to establish a likelihood of dilution by both blurring the distinctive quality of the VICTORIA'S SECRET mark and tarnishing the reputation and goodwill associated with the mark.
The Supreme Court granted certiorari in May, 2002 to decide "whether objective proof of actual injury to the economic value of a famous mark (as opposed to a presumption of harm arising from a subjective 'likelihood of dilution' standard) is a requisite for relief under the FTDA." The Court heard oral arguments last November, and many Court watchers expected the Court to side with Victoria's Secret in part because of the unusually tough questioning of the petitioners' counsel. Chief Justice Rehnquist went so far as to tell Mosely's attorney that "your client doesn't come off too well in this case."
However, on March 4, 2003, the Court issued a unanimous decision reversing the Sixth Circuit and remanding to the district court for further proceedings. Writing for the Court, Justice Stevens briefly examined the history of the dilution concept before focusing on the actual text of the FTDA itself. The FTDA states that the owner of a famous mark is entitled to relief if another's use of a mark "causes dilution of the distinctive quality" of the famous mark. According to the Court, the wording "causes dilution" unambiguously requires a showing of actual dilution and can not be interpreted as requiring merely a showing of likelihood of dilution.
The Supreme Court did not go so far as to require proof of actual economic harm to the trademark holder. Justice Stevens expressly noted that a dilution plaintiff would not have to prove the "consequences" of dilution, such as lost sales or profits, and repudiated the Fourth Circuit's opinion in Ringling Bros. to the extent it stated otherwise. The Court stated that "circumstantial evidence" could be used to establish dilution and that consumer surveys were not necessarily required. Unfortunately, the Court did not provide any further guidance on how to meet the required burden.
Another notable aspect of the Court's opinion is that Justice Stevens suggested, albeit in dicta, that the FTDA was perhaps only meant to reach the more common "blurring" variety of dilution and not the idea of "tarnishment." Justice Stevens pointed out that although the petitioners had not disputed the relevance of tarnishment, the FTDA did not include the wording "likelihood of injury to business reputation," which is included in most state anti-dilution statutes. The fact that the FTDA does not include this language, according to Justice Stevens, "arguably supports a narrower reading of the FTDA" to exclude tarnishment.
The Supreme Court's decision came as a surprise to many trademark veterans, who had expected the Court to side with the Second Circuit's decision in Nabisco and hold that the FTDA merely requires a likelihood of dilution. The majority of U.S. Circuit Courts have followed the Second Circuit's reasoning in Nabisco, while only the Fifth Circuit had sided with the Fourth Circuit's "actual harm" standard. Moreover, the "likelihood of dilution" standard has also been endorsed by the majority of academics and commentators, such as Professor J. Thomas McCarthy.
Like any Supreme Court decision, the reasoning behind the Mosely opinion is subject to criticism. For one thing, although Justice Stevens' reliance on the text of the statute was appropriate, he may have missed the significance of the FTDA's definition of the term "dilution." The FTDA defines dilution as the "lessening of the capacity of a famous mark to identify and distinguish goods or services." Justice Stevens noted this language, but only to contrast it with a later reference to "likelihood of confusion, mistake, or deception." An argument could certainly be made that the wording "lessening of the capacity" refers to potential harm rather than actual harm.
Justice Kennedy, in a concurring opinion, recognized the significance of the word "capacity" in the statutory definition of dilution. Apparently, Justice Kennedy was concerned that the Court's opinion might be read as requiring that some type of actual harm be done to a mark before the mark's owner could obtain relief under the FTDA. His opinion clarified that the trademark owner would be entitled to immediate injunctive relief and "should not be forced to wait until the damage is done and the distinctiveness of the mark has been eroded." Justice Kennedy further stated that "diminishment of the famous mark's capacity can be shown by the probable consequences flowing from use or adoption of the competing mark."
The Mosely decision may not sound the death knell for federal dilution claims, as some commentators have predicted. The Supreme Court's position is actually a moderate position between the Nabisco and Ringling Bros. standards: dilution requires more than a mere mental association, but does not require a showing of actual economic harm. In fact, Justice Stevens went out of his way to point out that while Victoria's Secret's expert had presented ample testimony as to the fame of the VICTORIA'S SECRET trademark, the expert had not even addressed the question of whether the Victor's Little Secret name had any effect on the strength of the VICTORIA'S SECRET mark. It is quite possible that if the expert had presented credible testimony that the "Victor's Little Secret" store had damaged the VICTORIA'S SECRET mark, the Supreme Court would have affirmed the Sixth Circuit's result, if not its reasoning. Justice Kennedy's concurrence even hints that a trademark owner need not really show "actual harm" so long as it can show that future harm to the trademark is certain, rather than merely likely.
Furthermore, the Court hinted that a plaintiff would have a much easier time establishing dilution where the marks at issue were identical rather than merely similar. This portion of the opinion would seem to lend support to recent cases out of the Ninth Circuit, which have held that in order to cause a likelihood of dilution, the mark at issue must be "identical or nearly identical" to the plaintiff's mark. E.g., Thane Int'l, Inc. v. Trek Bicycle Corp., 305 F.3d 894 (9th Cir. 2002). Justice Stevens' opinion even seemed to suggest that where the marks are identical, this in itself could be enough "circumstantial evidence" to support a finding of actual dilution.
However, on balance the Court's decision may certainly make it more difficult for companies to protect their famous marks. Therefore, the decision will likely lead to renewed calls to amend the FTDA to clarify that the statute requires only a likelihood of dilution, rather than actual dilution. Such a modification of the statute would bring the FTDA into accord with the majority of state law dilution statutes, as well as the likely legislative intent surrounding the federal statute.
Until the FTDA is amended, the battles in dilution cases will focus on the type and level of proof necessary to prove "actual dilution." It will be important for counsel for dilution plaintiffs to be creative in finding new ways to attempt to show actual dilution, particularly in cases where the marks are not identical.
The Mosely decision may also spur renewed reliance on state dilution statutes. Prior to the passage of the FTDA in 1995, trademark owners were forced to rely on state dilution statutes, which have been adopted in approximately 30 states. Most of these state statutes followed a 1964 Model Trademark Act produced by the United States Trademark Association (now the International Trademark Association), which referred to a "likelihood" of dilution. Therefore, the standard in almost all states is still "likelihood of dilution," rather than the new "actual dilution" federal standard enunciated by the Supreme Court. Furthermore, because Congress was so late in adopting a federal dilution statute, there is a large body of case law interpreting the state anti-dilution laws, particularly the New York statute. Trademark owners may thus choose to rely on the lower "likelihood of dilution" threshold of the state laws rather than having to worry about whether they have enough proof of "actual dilution" under the FTDA.
Finally, it is worth noting that the Court's decision in Mosely is its third decision in four years which has restricted the rights of trademark and trade dress owners. The Mosely decision comes on the heels of Wal-Mart Stores, Inc. v. Samara Bros., 529 U.S. 205 (2000), which held that unregistered product design trade dress could only be protected upon a showing of secondary meaning, and TrafFix Devices, Inc. v. Mktg Displays, Inc., 532 U.S. 23 (2001), which expanded the applicability of the utilitarian functionality defense in trade dress cases. These cases suggest that the Court is uncomfortable with recent trends in Congress and the lower courts towards extending the rights of trademark owners, at least with regard to non-traditional claims such as dilution and trade dress infringement.
* Bassam N. Ibrahim is a Partner with Burns Doane, Swecker and Mathis, and is the Practice Group Leader of the firm's Trademark and Copyright practice. Bryce J. Maynard is an associate of the firm. Burns, Doane, Swecker and Mathis is one of the largest intellectual property firms in the United States. The views expressed in the article are not the views of Burns, Doane, Swecker and Mathis or any of the firm's clients. Copyright, 2003. No portion of this article may be used or reprinted, in whole or part, without the express permission of the authors. Mr. Ibrahim can be reached at (703-838-6574). The firm website is www.burnsdoane.com.