Owners of Famous Trademarks Must Prove "Actual Dilution" in Federal Trademark Dilution Act Claims

03/04/2003

Supreme Court resolves Circuit split by setting forth standard that owners of famous trademarks must prove “actual dilution” as opposed to “likelihood of dilution” in order to prevail on a Federal Trademark Dilution Act (FTDA) claim.

The Supreme Court handed down its decision in the Moseley dba Victor’s Little Secret v. V Secret Catalog case on March 4, 2003, wherein the key issue was whether proof of “actual” injury to the economic value of a famous mark as opposed to a presumption of harm arising from the “likelihood of dilution” standard is required for relief under the Federal Trademark Dilution Act (FTDA), 15 U.S.C. §1125(c).  Although the Supreme Court did not explain how actual dilution can be proven, it reversed the Sixth Circuit and held that a trademark owner must prove that “actual dilution” has already occurred for there to be a violation of the FTDA.  Click here for copies of the opinion and the concurrence.

As a little background, V Secret Catalogue Inc. owns the famous trademark VICTORIA’S SECRET for use in connection with lingerie, retail stores and catalog services. Victoria’s Secret filed a Complaint in the District Court of Western Kentucky against Moseley alleging trademark infringement and violation of the FTDA, as a result of his use of the mark "Victor's Little Secret" for an adult toy and lingerie store. Although the District Court granted summary judgment to Moseley on plaintiff’s federal trademark infringement claims on the basis that Victoria's Secret had not provided sufficient evidence to establish a likelihood of confusion between the two marks, it deemed that the “Victor's Little Secret” mark had a “tarnishing effect” on the famous mark VICTORIA’S SECRET under the FTDA (Note: Moseley did not challenge the mark’s fame).  Consequently, even though the District Court did not find that any actual tarnishment or blurring had occurred, it enjoined Moseley from making future use of the “Victor's Little Secret” mark.  The Court of Appeals for the Sixth Circuit affirmed, and in doing so, expressly rejected the standard set forth by the Fourth Circuit in the "Greatest Snow on Earth” Case requiring the owner of a famous trademark to prove that the junior user has caused “actual economic harm to the famous mark’s economic value by lessening its former selling power as an advertising agent for its goods and services.”  Ringling Bros. Barnum & Bailey v. Utah, 170 F.3d 449 at 461 (4th Cir. 1999).  Rather, the Sixth Circuit embraced the “likelihood of dilution” standard rooted in the various state dilution laws and further supported by the Second Circuit in Nabisco Inc. v. PF Brands Inc., 191 F.3d 208, 51 USPQ2d 1882 (2d Cir. 1999), and the Seventh Circuit ruling in Eli Lilly & Co. v. Natural Answers Inc., 233 F.3d 456, 56 USPQ2d 1942 (7th Cir. 2000).

In order to resolve the split in Circuits with respect to the standard for proving dilution under the FTDA, the Supreme Court granted certiorari in the Moseley case.  The Supreme Court reversed the Sixth Circuit’s decision and held that “where the marks at issue are not identical, the mere fact that consumers mentally associate the junior user’s mark with a famous mark is not sufficient to establish actionable dilution,” but rather “actual dilution” must be proven.  In doing so, the Court focused on the language of the FTDA which provides that the owner of a famous mark is entitled to injunctive relief against another person's "commercial use in commerce" of a mark or trade name if such use "causes dilution of the distinctive quality of the mark."  Unlike other provisions of the Lanham Act which repeatedly refer to a “likelihood of harm,” Justice Stevens noted, the text of the statute requires a showing of “actual dilution.”

Exactly how the owner of a famous mark is expected to prove that “actual dilution” has occurred is still unclear.  Dilution is defined by the FTDA as "the lessening of the capacity of a famous mark to identify and distinguish between goods or services regardless of the presence or absence” of competition between the marks or a likelihood of confusion or competition between the marks. 15 U.S.C. §1127.  The Court did expressly state that the “consequences of dilution, such as an actual loss of sales or profits” or consumer surveys are not always necessary if actual dilution can be reliably proven through “circumstantial evidence.”  Besides stating that an obvious case of circumstantial evidence proving actual dilution is where the junior and senior marks are identical, the Court unfortunately did not provide guidance as to types of circumstantial evidence which could successfully demonstrate that actual dilution had occurred with junior mark variations such as the one in the Moseley case.  Rather, applying the rule that actual dilution must be proven to prevail on an FTDA claim to the facts in the case, Justice Stevens simply stated that although the record demonstrated that a customer did make a mental association between “Victor’s Little Secret” and VICTORIA’S SECRET and was very offended by the junior user, the customer did not form any different impression of Victoria’s Secret – and consequently, actual dilution was not successfully demonstrated by Victoria’s Secret.

In conclusion, this decision fails to provide a clear cut evidentiary standard for demonstrating actual dilution while simultaneously making it more difficult for the owners of famous trademarks to stop others from using similar forms of the mark for non-competitive businesses.

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