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Congress Re-Examines Federal Trademark Dilution Act

It took years of lobbying, but the hard work finally paid off Jan. 16, 1996, when President Clinton signed a law that promised to revolutionize trademark law.

The Federal Trademark Dilution Act (FTDA) made it easier for owners of famous trademarks--such as McDonald's, Chrysler and Exxon--to get protection for their marks. The FTDA gave owners of famous marks a new federal cause of action, allowing them to protect their marks against any later trademarks--in any industry or any part of the country--that would impair the distinctiveness of their famous marks.

But the revolution soon came to a screeching halt.

In 2001 the 2nd Circuit ruled trademarks such as Disney, McDonald's, Chrysler, American Airlines and General Electric weren't "inherently distinctive" and were thus outside the statute's protections. In 2003 the U.S. Supreme Court imposed a daunting requirement for obtaining injunctive relief under the statute: The owner of a famous mark must show not just a likelihood of dilution, but also must prove actual dilution occurred. A plaintiff has to establish that consumers have become less likely to associate a famous mark with the plaintiff's goods or services because of the defendant's mark.

Most trademarks counsel believe that is almost impossible to prove.

"The standard of proof is impractically high," says Anne Gundelfinger, president of the International Trademark Association (INTA) and Intel's associate general counsel in charge of trademarks. "Companies don't mind providing proof, but if the standard of proof is too high, there is no real remedy."

Today, few trademark owners think the FTDA gives them adequate protection.

"Because of the problems created by the courts, many trademark owners

have simply forgone dilution litigation," says Allen Greenberg, an IP expert at Duane Morris.

Congress, however, may be riding to the rescue. On March 17, the House Judiciary Committee approved H.R. 683, a bill that would overhaul the FTDA. "This bill is very important to companies with famous trademarks," says Mike Heltzer, government relations manager for the International Trademark Association (INTA).

Victor's Little Secret

The bill would effectively overturn the Supreme Court's 2003 ruling in Moseley v. V Secret Catalogue Inc. In that case, the Court reversed a FTDA victory by Victoria's Secret lingerie company against a small, Kentucky adult store named "Victor's Little Secret."

The Court ruled that a famous trademark owner cannot get an injunction merely by showing a likelihood of dilution; even if consumers were likely to mentally associate a famous mark with another's mark. Instead, the Court said, owners of famous marks must prove there has been actual dilution-- i.e., some decrease in the mark's power as a distinguishing identifier of a certain good or service.

The Court recognized it might be difficult for trademark owners to obtain such evidence. Some IP experts, though, argue that it's impossible. "Dilution is, as a practical matter, unprovable in most cases," Gundelfinger says.

Except in unusual circumstances, it seems that the only way of proving actual dilution is by conducting a consumer survey. However, it's unclear how a company would conduct such a survey and whether it would pass judicial standards for survey evidence. In addition, many trademark owners believe that even if you could prove dilution occurred, it would be too late to reverse the damage.

"By the time you can prove dilution has occurred, the harm has been done," says Kathryn Barrett Park, trademark counsel for General Electric Co. "If the brand has been harmed, money can't really compensate."

H.R. 683 avoids all these problems, rewriting the FTDA so a plaintiff can obtain an injunction if there is merely a likelihood of dilution. This would bring the FTDA's standards in line with those of ordinary trademark law, which allows a plaintiff to get relief if there is a likelihood of confusion (not just actual confusion) between its mark and an allegedly infringing mark.

Protecting Famous Marks

The legislation also would resolve the problems created by several 2nd Circuit rulings, which have set tough limits on what marks the FTDA protects. That appellate court has repeatedly held that the FTDA covers only inherently distinctive trademarks, such as Exxon and Kodak. Descriptive marks that have become distinctive over time, such as Continental Airlines, Metropolitan Life and Allied Chemical aren't protected under 2nd Circuit rulings--even if such marks eventually become famous. Companies named after their founders, such as McDonald's, Kraft, Chrysler and Gallo, are similarly unprotected, since these brand names weren't distinctive until they became well-known over time, says David Bernstein, a trademark law expert at Debevoise & Plimpton.

Some courts have rejected the 2nd Circuit's approach, ruling that when a descriptive mark becomes well known over time, the FTDA protects the mark. For instance, the 3rd Circuit found that the FTDA protected the descriptive name of a sports-oriented newspaper, "The Sporting News." The 9th Circuit ruled that the Avery Dennison stationery company could be entitled to FTDA protection if it showed its name had acquired secondary meaning.

Although the courts are split over whether the FTDA covers descriptive marks, many companies remain troubled by the 2nd Circuit's position. The court's rulings are "very scary for us," Park says. She notes that her company's trade name, General Electric, wouldn't be protected under the 2nd Circuit standard--and her company is headquartered in that circuit.

The House bill would provide relief to General Electric and many other trademark owners by redefining the types of marks the FTDA protects. The bill explicitly grants protection to any famous mark "that is distinctive, inherently or through acquired distinctiveness."

Small Scale

However, the bill is bad news for many smaller companies. It would remove the FTDA's protection from trademarks that are famous in only limited geographic areas or in niche markets.

The brand name "Teletech," for instance, is unknown to the vast majority of people in the United States, but a federal district court in California found it was famous in the teleservicing industry, and was thus sufficiently famous to be protected by the FTDA. Similarly, a federal court in Maryland ruled that "Gazette" was famous as a newspaper brand, even though the mark was known in just two counties in the state.

Other courts have taken a different stance. Some have ruled that the FTDA protects only marks that are famous in a substantial part of the country. Others have ruled the FTDA protects only marks that are famous among the general populace, as opposed to a specific industry.

The House bill would resolve this judicial confusion by adding a new, more explicit definition of "famous." The bill states, "a mark is famous if it is widely recognized by the general consuming public of the United States. ..."

Despite the bill's effect on smaller companies, H.R. 683 seems to be attracting little opposition. It is, however, generating strong support from big business and national IP organizations, including INTA, AIPLA and the Intellectual Property Owners Association. The bill has been moving through the House at a good clip, and although a companion bill hasn't yet been introduced in the Senate, some observers say that the bill's chances for passage look good.

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[SIDEBAR]

The Other Half Of Dilution

Before Congress passed the FTDA in 1996, a few states enacted laws to protect famous trademarks against dilution. These statutes protected against two different strains of dilution: blurring and tarnishment. So when Congress enacted the FTDA, it was thought the federal statute also protected against both of these harms. That, however, is no longer certain.

The U.S. Supreme Court, in Moseley v. V Secret Catalogue Inc., recognized that the FTDA protects a famous mark against other marks that would whittle away at its distinctiveness. For instance, Exxon's famous brand name would become less distinctive over time if other companies could produce Exxon beans, Exxon soap, Exxon computers, etc. The FTDA can stop such blurring.

The second type of dilution, tarnishment, occurs when a famous mark is brought into disrepute. For instance, Kraft, which owns the Velveeta mark, won a dilution suit in 2002 against an adult Web site, "King VelVeeda's Cheesygraphics.com." But in Moseley, the Supreme Court noted that the FTDA protected only against "dilution of the distinctive quality of a trade name or trademark," and contained no explicit protection against injury to business reputation. Then the high Court suggested, in dicta, that the FTDA didn't protect against tarnishment.

The bill currently making its way through Congress would remove this cloud over tarnishment causes of action.

Contributor

Steven Seidenberg

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