CHARBUCKS gets roasted on appeal

In Starbucks Corporation v Wolfe's Borough Coffee Inc, the US Court of Appeals for the Second Circuit has vacated the trial court's decision in which it found no infringement or dilution of the famous STARBUCKS mark by the use of the mark CHARBUCKS for coffee.

After a bench trial, the district court held that Wolfe's Borough Coffee Inc's use of the marks CHARBUCKS BLEND and MR CHARBUCKS for coffee sold at retail neither infringed nor diluted Starbucks Corporation's famous STARBUCKS mark for coffee. In analyzing the infringement claim, the trial judge found that the only factor weighing in Starbucks's favour was the similarity of the marks. That factor was considered to weigh only slightly in Starbucks's favour, however, when assessed in the context of the manner in which the marks were used. In particular, the logos used on the respective products differed, and Wolfe's Borough prominently displayed its BLACK BEAR house mark on its products. The district court also determined that use of CHARBUCKS was not in bad faith, even if the mark was chosen to take advantage of the similarity of the word to the STARBUCKS mark.

As for the dilution issue, the district court considered claims under both the Federal Trademark Dilution Act (FTDA), as then in effect, and the New York state anti-dilution statute, New York General Business Law § 360-1. The case was decided after the Supreme Court's decision in Moseley v V Secret Catalogue Inc, but before the recent amendments to the FTDA brought in by the Trademark Dilution Revision Act of 2006. Thus, the district court considered an actual dilution standard under federal law but a likelihood of dilution standard under state law. In either circumstance, however, the trial court determined that Starbucks had not proved its case, finding that the record did:

"not demonstrate any actual, or likely, diminution of the capacity of the STARBUCKS marks to serve as unique identifiers of Starbucks's products by reason of defendant's commercial activities."

The trial court also determined, based on the survey evidence of record, that Starbucks had "failed to sustain its burden of demonstrating actual or likely dilution by way of blurring".

In its decision vacating the district court's judgment, the Second Circuit held that Starbucks was entitled to a decision under the amended FTDA. Thus, the district court's application of the earlier version of the FTDA as construed in the Moseley Case to require a showing of actual dilution was vacated. Even though the district court also considered a likelihood of dilution standard under the state statute, the Second Circuit found the district court's analysis under the state statute "did not permit a review of whether the analysis conforms with the amended [FTDA]".

The case has been remanded to the district court for further proceedings consistent with the opinion without any expression of opinion as to any other arguments presented on appeal. Accordingly, it appears that the issues to be decided on remand pertain only to the dilution claims.

Karin Segall, Darby & Darby PC, New York