The Federal Trademark Dilution Act - Much Hobbled One Year After Victoria's Secret

Sunday, February 1, 2004 - 01:00

The purpose of the Federal Trademark Dilution Act (FTDA)1 is to protect famous trademarks from third party uses which, while not likely to confuse, nonetheless diminish the capacity of the mark to distinguish goods or services, or cause tarnishment to the mark. The enactment of the FTDA was considered by many trademark owners to be long overdue. However, with a few particular exceptions, the FTDA has failed to live up to its potential, and has failed to provide owners of famous marks the protection that they rightly or wrongly anticipated. Much of the blame for this has been directed at the language of the statute that requires a plaintiff to show that the third party use at issue "causes dilution." This is in contrast to more traditional trademark infringement law, which focuses on marketplace protection for consumers and only requires a showing of a likelihood of confusion.

In March of 2003, the Supreme Court decided the Victoria's Secret2 case. In Victoria's Secret, the Court was called on 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 held that it was, and decided that the FTDA "unambiguously" requires a showing of actual dilution, rather than a likelihood of dilution.

Looking back at the case law over the past year, it appears that while the Supreme Court did address this specific issue, it left in place a statute still riddled with ambiguity and subject to varying interpretation by the courts. It also left in place a statute that, in requiring proof of actual dilution, does not provide the broad scope of protection that was initially envisioned and leaves the state dilution statutes as powerful tools.

The Origins Of The Act

Dilution laws first began to appear on the books in the various states in the mid-1900s. Twenty-six states now have laws proscribing dilution of distinctive trademarks on their books. Many of these laws are modeled after the Model State Trademark Bill (MSTB), which reads:

Likelihood of injury to business reputation or of dilution of the distinctiveness quality of a mark registered under this Act, or a mark valid at common law, or a trade name valid at common law, shall be ground for injunctive relief notwithstanding the absence of competition between the parties or absence of confusion as to the source of goods or services.3

Because the legislative history surrounding the adoption of the various state statutes does not provide much guidance, the interpretation of these laws has varied widely, and has even conflicted in certain critical areas.4

Given the variance in interpretation of the state laws, Congress looked to the FTDA to establish a uniform federal standard of protection for famous marks. The goals were two-fold: to discourage forum shopping in order to take advantage of the inconsistent application of the state trademark laws, and to authorize federal courts to issue nationwide injunctions as a remedy for trademark dilution.5

Though some of the terminology in the FTDA is consistent with the language in the state statutes, the FTDA does not simply adopt or federalize existing state dilution laws. For example, the FTDA creates a new eligibility standard for protection that requires a mark be "famous". 15 U.S.C.A. §1125(c)(1). Also, and in contrast to the State laws, the FTDA requires that a claimant prove that the use "causes dilution" of its trademark.6

It is this second requirement for relief that has given trademark holders and the courts the greatest trouble. As phrased, the requirement "causes dilution" is in sharp contrast to traditional trademark infringement, which requires proof of a likelihood of confusion, not confusion per se. One impact of this difference is that the FTDA sets out a considerably more stringent test than the corresponding state statutes, thus promoting forum shopping, and allowing for some interesting procedural maneuvering. A second consequence of the actual dilution standard is that, in contrast to state statutes, it severely limits the ability to secure injunctive relief before the injury has begun. Finally, as recognized by many courts prior to Victoria's Secret, the requirement of "causes dilution" presented challenges in defining the evidence need to show that a third party use "causes dilution." A review of the cases shows that courts were obviously a lot more comfortable with the analytical framework of likely confusion, in which "actual confusion" was merely one of a number of factors, and relief could be, and often was, granted even in its absence, than they are with "actual dilution."

VICTORIA'S SECRET Mark

In 1998, the Moseley's (Victor and Cathy) announced that there were opening an intimate lingerie store in a small town in Kentucky under the name "Victor's Secret." In publicizing the store, the Moseley's also advertised that the store was going to carry other items, such as "adult novelties [and] gifts." In response to a cease and desist letter from the owners of the VICTORIA'S SECRET trademark, the Moseley's changed the name of their store to "Victor's Little Secret." Not satisfied, the owners of VICTORIA'S SECRET filed suit, claiming federal trademark infringement, dilution and unfair competition, as well as trademark infringement and unfair competition in violation of the common law of Kentucky. Victoria's Secret argued that the use of Victor's Little Secret in connection with the sale of "adult novelties and gifts" was "likely to blur and erode the distinctiveness" and "tarnish the reputation" of their mark. The District Court, affirmed by the Court of Appeals, held that the VICTORIA'S SECRET mark was famous under the FTDA, and that the Moseley's use constituted dilution under the FTDA. There was no finding of likely confusion.

Reversing, the Supreme Court held that in order to maintain an action for dilution under the FTDA, the owner of a famous mark must establish by appropriate evidence that the use by the junior user has the effect of lessening the capacity of the senior user's mark to identify and distinguish the goods or services sold by the senior user.

The Court noted that the senior user's burden of proof does not require that the senior user show actual loss of sales or profits. On the other hand, the Court noted that it is insufficient to merely prove, where the marks at issue are not identical, that customers "mentally associate the junior user's mark with a famous mark. Acknowledging the evidentiary challenge in establishing actual dilution, the Court stated that:

Noting that consumer surveys and other means of demonstrating actual dilution are expensive and often unreliable, respondents and their amici argue that evidence of an actual "lessening of the capacity of a famous mark to identify and distinguish goods or services," §1127, may be difficult to obtain. It may well be, however, that direct evidence of dilution such as consumer surveys will not be necessary if actual dilution can reliably be proven through circumstantial evidenceÑthe obvious case is one where the junior and senior marks are identical. Whatever difficulties of proof may be entailed, they are not an acceptable reason for dispensing with proof of an essential element of a statutory violation.

The Supreme Court thus answered one question, but left many in its place. Most significantly, how does one prove actual dilution, what type of evidence is necessary, and when will circumstantial rather than direct evidence suffice. It is these questions that the Courts have dealt with over the past year.

Where We Are Today

The Supreme Court's construction of the FTDA has in many ways left the FTDA without teeth. Over the past year, courts that have been faced with substantive dilution issues have, almost without exception, made short work of them. For example, in Deere & Company v. MTD Holdings, Inc., 2003 U.S. Dist. LEXIS 19161 (S.D.N.Y. 2003) the district court rejected an attempt by Deere to amend its complaint to alter the nature of its dilution claim. In an earlier opinion in this case, Deere & Company v. MTD Products, Inc., 2002 U.S. Dist. LEXIS 14799 (S.D.N.Y. 2002), the district court dismissed Deere's dilution claim, holding that Deere was seeking dilution protection for the colors yellow and green - a "mark" that could never be inherently distinctive, and thus considered by the court to be ineligible for the protections of the FTDA. In the proposed amendment, Deere sought to narrow the claim to specific shades and manner of use on certain products. The district court concluded that this was still an attempt to protect a "mark" that could not be inherently distinctive, and thus the proposed amendment would be futile.

In Savin Corporation v. The Savin Group, 2003 U.S. Dist LEXIS 19220 (S.D.N.Y. 2003) plaintiff's dilution claim did not survive summary judgment. Dealing head-on with the actual harm standard of Victoria's Secret, the court rejected plaintiff's argument that there was no need for evidence of actual dilution when dealing with identical marks. Rather, the court chose to focus on the concept of direct versus circumstantial evidence. Thus, the court held that where marks at issue are identical, circumstantial, rather than direct evidence of actual dilution may suffice to discharge the trademark owners burden. In contrast, where the marks are not identical, the court would require direct evidence of actual dilution. The court gave little guidance on the nature of the evidence that would fall into these categories.

Courts in other Circuits have provided a little more guidance on this emergent direct/circumstantial evidence test. For example, in Scott Fetzer Co. v. Gehring, 2003 WL 22429698 (E.D. Pa. 2003), the court used the same standard as the Savin court, and held that where identical marks were at issue, circumstantial evidence of actual dilution may be sufficient to carry plaintiff's burden. Here, the court found that the parties were in direct competition, the marks were identical, and defendant was falsely advertising a long warranty period. These factors, the court concluded, supported a finding of actual dilution.

On the other hand, the challenges now facing plaintiffs under the FTDA have breathed new life into the state dilution acts. For example, in a highly publicized case late last year, Fox News Network, LLC ("Fox News") filed suit against Penguin Group and Al Franken to enjoin distribution of Franken's book Lies and the Lying Liars Who Tell Them: A Fair and Balanced Look at the Right. Fox v. Penguin et al., Index No. 602514/2003. In this case, Fox News relied, albeit unsuccessfully, on the New York State dilution statute, arguing that it required that its mark be distinctive, and that dilution merely be likely, in contrast to the more stringent federal test of fame and actual dilution.

In another, potentially more successful example, Advantage Rent-A-Car, Inc. v. Enterprise Rent-A-Car, Co., the Fifth Circuit held that Enterprise's slogan "We'll Pick You Up" did not meet the threshold "fame" required under the FTDA. 238 F.3d 378 (5th Cir. 2001). Nevertheless, the court recognized that both Texas and Louisiana retain anti-dilution statutes, which require only distinctiveness of a mark, rather than fame. This case was remanded to the district court to consider whether or not plaintiff would be entitled to relief under the state claims, even were the Federal claims failed. Were the plaintiff in this case able to secure an injunction in any state against a national advertising campaign, the net effect would be the same as relief under the Federal act, thus once again demonstrating that state causes of action may provide protection where federal causes of action may not.

What's A Mark Holder To Do?

When considering an action under the dilution laws, one needs to look at how the jurisdiction has interpreted Victoria's Secret. Some courts are continuing to require that a plaintiff meet a high evidentiary burden in establishing dilution, notwithstanding a failure of any court to clearly articulate the nature and type of evidence that would meet that burden. On the other hand, other courts have crafted ways to work around the actual dilution standard, and in cases of identical marks, have been willing to accept circumstantial evidence of dilution in place of direct evidence. Lastly, it is absolutely essential to consider the viability of state claims in bringing a dilution case, so as to gain the advantage of the lower burdens. 1 Pub. L. No. 104-98, 109 Stat. 985 (1996) (codified at 15 U.S.C. §§ 1125(c), 1127).
2 Moseley v. V. Secret Catalog, Inc. 537 U.S. ___ (2003).
3 Model State Trademark Bill § 12 (USTA 1965).
4 Compare, e.g., Cue Publ'g Co v. Colgate-Palmolive Co., 45 Misc. 2d 161, 168, 256 N.Y.S.2d 239, 245-46 (N.Y. Sup. Ct.), aff'd, 23 A.D.2d 829, 259 N.Y.S.2d 377 (N.Y. App. Div. 1965)(harm from dilution can only be shown through actual customer confusion); with Ringling Bros.-Barnum & Bailey Combine Shows, Inc. v. Celozzi-Ettelson Chevrolet, Inc., 855 F.2d 480, 484 (7th Cir. 1988); and Freedom Sav. & Loan Assoc. v. Way, 757 F.2d 1176, 1186 (11th Cir 1985)(presuming likelihood of harm from mere use of very similar mark).
5 The legislative history of the FTDA makes clear that the Act was not meant to pre-empt state dilution statutes. H.R. Rep. No. 374, 104th Cong., 1st Sess. 2 (1995), reprinted in 1995 U.S.C.C.A.N. 1029, 1031.
6 15 U.S.C.A. § 1125(c)(1) (West Supp. 1996).

Ira Jay Levy is a Partner in the litigation department of Goodwin Procter LLP.