A dilution primer
The FTDA
Heightened scrutiny
Is fame enough?
Actual dilution or likely dilution
Dilution in the Patent and Trademark Office
Legislative proposal

Since the US Federal Trademark Dilution Act (FTDA) was implemented in 1996, trademark dilution law in the United States has undergone a sea change. Last year's Supreme Court decision in Moseley v V Secret Catalogue Inc was one of several developments that have focused attention on this important and unsettled area of the law.

A dilution primer

A trademark is infringed when the mark or a similar mark is used in a way that is likely to confuse the public into believing that the trademark owner is the source or sponsor of products that it does not actually make or endorse. Trademark anti-dilution laws are intended to enable trademark owners to prevent the gradual weakening or whittling away of the strength of their marks, through blurring or tarnishment, even if the public is not likely to be confused.

Dilution by blurring can occur when a trademark is used by someone other than the trademark owner on products that are very different from those normally produced by the trademark owner (eg, KODAK for pianos). A trademark can be tarnished when it is used in a way that degrades the mark or presents it in an unsavoury context. For example, the owner of the PEPSI trademark stopped a company from modifying Pepsi soda cans to add a hidden compartment in which illegal drugs could be concealed.

From 1947, when Massachusetts enacted the first state anti-dilution statute, until the FTDA legislation was proposed, more than 25 states passed such laws. This patchwork of state laws lacked uniformity and raised questions, such as whether it was appropriate for courts to issue nationwide injunctions in dilution cases brought solely under the law of one state when nearly half the states granted no such protection.

The FTDA

To address these and other problems, Congress enacted the FTDA. This legislation amended the Lanham Act, the federal statute governing trademark rights, to provide a new federal cause of action for dilution.

Under the FTDA, a mark need not be registered to be the subject of an action. A trademark owner must show that:

  • its mark is famous within the meaning of the statute;


  • after the mark became famous, another party began to make use of it in commerce; and


  • the unauthorized use causes dilution of the distinctive quality of the trademark owner's famous mark.

Dilution, in turn, is defined as the lessening of a famous mark's capacity to identify and distinguish goods or services, whether or not the trademark owner and another party are in competition or there is a likelihood of confusion. Fair use in comparative advertising and non-commercial uses of a mark, such as news reporting, are not dilution.

No sooner did the FTDA become law than it began to change the legal landscape, focusing attention on dilution and raising a number of questions, which it is fair to say advocates of a national dilution law had not anticipated.

Heightened scrutiny

Although state anti-dilution laws typically provided that dilution could occur in the absence of likely confusion, very few court decisions granted relief on dilution grounds without also finding that the defendant's activity was likely to cause at least confusion as to sponsorship. For example, in one dilution case a court held that the public would be likely to believe that The Coca-Cola Company sponsored red and white posters that displayed "Drink Cocaine" in the curved script of the COCA-COLA trademark.

In this legal climate, parties rarely, if ever, brought dilution claims without also bringing claims for trademark infringement and unfair competition, which require proof of likely confusion. Moreover, state dilution claims were typically pleaded almost as an afterthought in complaints that alleged that the facts underlying the plaintiff's trademark infringement and unfair competition claims also stated a dilution claim.

The FTDA changed that. Some parties began to bring only claims for dilution under federal law, believing perhaps that they could not prove a likelihood of confusion. Moreover, it has become apparent that (i) the elements of a typical trademark infringement or state dilution claim are not the same as a dilution claim under federal law, and (ii) a federal dilution claim may in fact be harder to prove.

Is fame enough?

Although the Lanham Act provides that the owner of a famous mark is entitled to bring a dilution claim, it goes on to say that in determining whether a mark is "distinctive and famous", a court should consider a number of factors including the "degree of inherent or acquired distinctiveness of the mark".

An inherently distinctive mark is a mark, such as KODAK for cameras, that does not describe a feature of the product. It is entitled to trademark protection as soon as it is used. A term that describes a feature of a product, such as 'Raisin-Bran' for cereal, is not entitled to protection as soon as it is used. However, if it becomes associated with one person's product, it can acquire distinctiveness and become a trademark.

The references in the statute to distinctiveness have led to confusion. Some courts have held that distinctiveness is not a separate element of a federal dilution claim proving that fame is enough.(1) Others have ruled that a party must prove that its mark is both distinctive and famous and, going further, have indicated that only inherently distinctive marks are entitled to federal dilution protection. (2)

The latter view reflects the courts' belief that commonly used marks such as AMERICAN (for AMERICAN AIRLINES) or UNITED (for UNITED AIRLINES) should not be accorded dilution protection even if the marks are so well known that they can be said to be famous (as that term is ordinarily understood). However, this interpretation is hard to square with the statute, which provides that both inherent and acquired distinctiveness should be considered in deciding whether a mark is famous (within the meaning of the statute). Moreover, the statute appears to address the courts' concern when it says that the use by others of the mark should be considered in determining whether a mark is a famous mark entitled to dilution protection.

Actual dilution or likely dilution

Until March 2003, there was a split among circuit courts as to whether the FTDA requires a plaintiff to show actual dilution(3) or simply the likelihood of dilution(4). Of all the issues raised by the FTDA, this may have been the most important because it raised the possibility that a trademark owner could not take effective action to prevent dilution from occurring until damage caused by dilution had already taken its toll on the mark.

Last year, the Supreme Court held in Moseley that actual dilution, not just a likelihood of dilution, is required to establish a violation of the FTDA. The Supreme Court did not, however, require (as the Fourth Circuit had in Ringling Bros) a showing of the actual consequences of the dilution such as lost sales.

It is unclear from the Supreme Court's opinion how actual dilution can be proved. The court drew a distinction between cases in which the defendant's mark is the same as the plaintiff's mark and cases in which it is not, without clearly spelling out how the difference in proof may vary in those two types of cases.

The court said that at least in cases where the marks are not identical, the plaintiff will have to prove more than the fact that consumers mentally associate the defendant's mark with the plaintiff's mark. Rather, there must be some evidence - not specified by the court - that the defendant's mark has reduced the capacity of the plaintiff's mark to identify the goods of the owner. On the other hand, the court did not clearly state that mere association will prove dilution where the marks are identical or say how such an association can be proved.

The court also found that circumstantial evidence, rather than direct evidence of dilution such as a survey, may suffice in some cases, but did not identify the types of cases. It may well be that circumstantial evidence will suffice where the parties' marks are identical. However, even if that is so, it is not clear what type of circumstantial evidence should be submitted (see Federal Trademark Dilution Act requires proof of actual harm).

Construing Moseley, the court in Kellogg Company v Toucan Golf Inc dismissed the plaintiff's dilution claim because the plaintiff did not present evidence that fewer members of the public recognized its trademark as an identifier of its product after the defendant began to use its own mark than before use began (see Kellogg fails to kill TOUCAN GOLD with two opposition claims). Such a standard can pose difficult problems of proof for a plaintiff. Unless the plaintiff has (or can somehow replicate) a pre-distribution benchmark of public recognition, it will be hard pressed to show that the level of recognition declined as a result of the defendant's activity.

Similarly, in Gateway Inc v Companion Products Inc, the court found that the defendant's computer screen covers containing black and white cow spots were likely to cause confusion with Gateway's famous cow spot trademark. However, Gateway did not show that the defendant's product "in actuality, lessens the strength of Gateway's trademark". Thus, Gateway could not prevail on its FTDA claim. It did, however, prevail on its claims for trademark infringement and unfair competition. Gateway submitted a consumer survey that the court found demonstrated that a significant portion of the public associates the defendant's product with Gateway. The court concluded, however, that this evidence did not demonstrate actual confusion.

Moseley also questioned whether the FTDA addresses only dilution by blurring because, unlike state statutes, the FTDA refers only to dilution of the distinctiveness of a mark. On the other hand, as the Supreme Court pointed out, the legislative history of the FTDA indicates that the act was intended to reach tarnishment as well as blurring.

Dilution in the Patent and Trademark Office

Although the FTDA became effective in 1996, it was not until 1999 that dilution became a basis on which an application or registration of a mark could be challenged in a Patent and Trademark Office opposition or cancellation proceeding. It still is not a basis on which an examiner can reject an application during an ex parte examination.

In Toro Co v ToroHead Inc, the Trademark Trial and Appeal Board (TTAB) decided its first major dilution case. Among other things, the TTAB:

  • set a generally high standard of proof for the fame requirement;

  • appeared to agree with the Second Circuit that inherent distinctiveness is an element of an action brought under the FTDA;

  • said that doubts would be resolved in favour of the applicant or registrant, rather than the prior owner (which reverses the rule that applies in disputes involving a likelihood of confusion); and

  • held that dilution may be pleaded in an opposition to an intent-to-use application.

Moseley's actual dilution requirement briefly raised doubts about the last point because it would be difficult if not impossible to prove that a mark has actually caused dilution if the mark has not yet been used. However, the TTAB held in NASDAQ Stock Market Inc v Antartica Srl that a party could prevail in an opposition or cancellation by showing a likelihood of dilution, not actual dilution (see Likelihood of dilution sufficient in administrative proceedings).

Legislative proposal

Because of the problems with the FTDA, highlighted by the Moseley decision, proposals have been made to amend the statute (see Hearings held to amend Federal Trademark Dilution Act). Congress is currently considering an amendment that would limit dilution protection to famous marks that are inherently distinctive. Marks that have acquired distinctiveness or have achieved niche fame would not be entitled to protection from dilution.

The suggested changes would also clarify that likelihood of dilution, rather than actual dilution, is the proper standard for relief. The bill would also extend dilution protection against tarnishment. Non-commercial uses are specifically exempted, and the proposal clarifies that use of a trademark in a way that does not designate source is not actionable.

If enacted, this proposal would remove much of the uncertainty currently surrounding the FTDA. Because the current bill is in the early stages of the legislative process, however, it remains to be seen whether any amendment will be enacted and whether the bill will survive in its current form.

Susan Progoff, Fish & Neave, New York

Endnotes

(1) See for instance Times Magazines Inc v Las Vegas Sports News LLC.

(2) See for instance Holding Co Inc v Haar Communications Inc and Nabisco Inc v PF Brands Inc.

(3) See for instance Ringling Bros-Barnum & Bailey Combined Shows Inc v Utah Division of Travel Development.

(4) See for instance Nabisco Inc v PF Brands Inc.

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