Preventing dilution of the Federal Trademark Dilution Act of 1995: why the FTDA requires actual economic harm.

Author:Kim, Paul Edward
Position:Federal Trademark Dilution Act of 1995
 
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INTRODUCTION

Judicial interpretation of the Federal Trademark Dilution Act of 1995 (FTDA), (1) which created a federal cause of action to afford famous marks protection against later, unauthorized uses that blur, tarnish, or harm these marks' distinctiveness, (2) has been unnecessarily inconsistent. Courts have reached conflicting conclusions regarding a claimant's prima facie requirements under the FTDA ever since the statute's enactment, despite the FTDA's intended effect of providing "predictability and uniformity" to trademark dilution law. (3) Not only has their analysis of what constitutes a famous trademark deserving of federal protection been incongruent, (4) the judiciary has also split over what must be shown to prove actionable dilution. Specifically, the Fourth and Fifth Circuits have maintained that a claimant must show actual economic injury (5) to its famous mark in order to prevail under the FTDA, while the Second, Third, Sixth, and Seventh Circuits have held that a plaintiff need only demonstrate a likelihood of harm. (6)

The Supreme Court has yet to resolve this "circus among the circuits, (7) but if the high Court eventually grants certiorari for an FTDA claim, this Comment contends that the Court must adopt the actual economic harm standard; the FTDA requires nothing less. Part I of this Comment provides an overview of trademark law, mapping out in particular the history and origins of dilution theory and its culmination in the FTDA. Part II highlights the three ways in which a trademark can be diluted under the FTDA: cybersquatting, tarnishment, and blurring. Part III discusses current federal dilution jurisprudence and outlines two appellate decisions (and their progeny) representing ground zero of the actual harm versus likelihood of injury debate. The Comment concludes in Part IV by contending that the decisions that required an actual economic harm test to prove dilution are on the jurisprudential path most aligned with Congressional intent, the language of the FTDA, and the underlying purposes of trademark law. On the other hand, the circuits that follow the likelihood of dilution standard provide incentives for judicial irresponsibility, subjective intuition rather than law-based decision making, and statutory interpretative abuse, resulting in anticompetitive (and thus, anti-FTDA) effects

  1. The history of dilution theory and its culmination in the FTDA

    1. Trademark Protection: A Brief Introduction (8)

      Trademarks are the distinctive names, slogans, devices, designs, or symbols used by companies or individuals to distinguish, identify, and advertise the source of their products and services to consumers. (9) In identifying and differentiating products, trademarks facilitate advertising and marketing by efficiently conveying to the minds of consumers positive associations between goods and the company that is the source of those goods. (10) Trademarks compactly inform buyers that they will receive the same quality of products that they previously purchased from a company, ensuring them a consistent level of quality in the goods and services provided by that company. (11) Thus, as consumer recognition of the mark and its associated product or service line increases, the trademark's value increases: it "comes to embody the goodwill built up in consumers based on their experience with [that] product." (12)

      If two or more trademarks in the marketplace are the same or very similar, they are likely to cause consumer confusion, especially if the marks are present in the same product or service market. Trademark infringement is designed to remedy this situation by protecting purchasers from being confused by the concurrent uses of the marks on the goods as well as the relationship between the companies that produce and sell the goods. (13) Every infringement suit is thus centered on the likelihood of consumer confusion. The laws proscribing trade mark infringement therefore serve to protect consumers in their purchasing decisions and to prevent company injury manifested in diverted customers due to free-riding on the more famous marks. (14)

      Trademark dilution laws, on the other hand, are not designed to protect consumers per se but the trademarks themselves and their owners. (15) Dilution seeks to safeguard the advertising power of marks--their persuasive ability to sell products. (16) In this regard, dilution differs from traditional infringement in that infringement concerns competing parties' trademarks, while dilution concerns competing as well as noncompeting parties' trademarks. (17)

      Dilution is the diminishment of the capacity of a distinctive trademark to identify and distinguish the source of goods and services bearing that mark. (18) This is "serious injury" to a trademark's essence since identifying and distinguishing the source of products is the very function of a company's mark. (19) Laws proscribing dilution are therefore directed to protect the distinct nature of a trademark and its associated selling power from being destroyed by those who appropriate the mark for their own gain, whether or not there is consumer confusion. (20)

      The addition of trademark dilution to the Lanham Act is "vital" in that it "fills a void [that exists for owners of] famous trademarks unable to sustain an infringement claim against the user of their mark on a non-competing product or service." (21) In other words, dilution begins where infringement and its likelihood of confusion test reach their doctrinal limits. (22)

      Professor Frank Schechter is generally credited with originating the theory of trademark dilution in his 1927 article The Rational Basis of Trademark Protection. (23) His historical account and criticism of early twentieth-century trademark protection in THE HISTORICAL FOUNDATIONS OF THE LAW RELATING TO TRADE-MARKS, written just two years before his seminal article, highlighted trademark law's inability to keep pace with modern commercial trade and the post-Industrial Revolution explosion. (24) Schechter's critique of trademark law's "stagnation" article. was the "launching point" for his 1927 article. (25)

      Schechter described dilution as the "gradual whittling away or dispersion of the identity and hold upon the public mind of the mark or name by its use upon non-competing goods." (26) This "whittling away" was the injury Schechter believed needed legal protection. (27) He argued that certain trademark uses on noncompeting goods, while not creating any buyer confusion as to the source of such goods, nevertheless constituted a wrong against the trademark's owner. (28)

      Therefore, according to Schechter, "the preservation of the uniqueness of a trademark" was the only rational basis for the mark's protection. (29) Indeed, taking Schechter's proposal of divorcing trademark rights from protecting consumer deception to its logical end would inevitably lead to an in-gross right in the mark itself, limited only by traditional property law. (30)

    2. State Dilution Statutes and the Origins of the FTDA

      Schechter's arguments were initially criticized and resisted (31) and it took two decades before dilution made its formal entry into trademark law. (32) In 1947, Massachusetts became the first state to codify the theory of trademark dilution. (33) The state's antidilution statute provided: "Likelihood of injury to business reputation or of dilution of the distinctive quality of a trade name or trade-mark shall be a ground for injunctive relief ... notwithstanding the absence of competition between the parties or of confusion as to the source of goods or services." (34) Other states followed Massachusetts's lead and by January 1996, when the FTDA was signed into law, a total of twenty-eight states had adopted similar antidilution statutes. (35)

      Despite the majority of states including antidilution provisions in their statutes, however, the application of these laws created problems. (36) In particular, state dilution laws lacked uniformity and consistency in their application which led to an uneven "patch-quilt system" of state dilution jurisprudence. (37) This lack of harmonization and the forum shopping it encouraged created calls to nationalize dilution protection and to provide judicial uniformity.

    3. The Scope and Provisions of the FTDA

      "Under increasing pressure to provide uniform protection for trademarks throughout the United States in order to facilitate [domestic commerce and international trade]," (38) Congress amended the

      Lanham Act of 1946 to provide a federal cause of action for trademark dilution. (39) With overwhelming approval and little debate, (40) the Federal Trademark Dilution Act was passed by the House of Representatives on December 16, 1995, (41) by the Senate on December 29, 1995, (42) and was signed into law on January 16, 1996. The FTDA provides federal protection of famous marks against dilution by the subsequent and unauthorized use of others, regardless of whether the mark is used on similar or noncompeting goods. (43)

      According to the FTDA, dilution is "the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of--(1) competition between the owner of the famous mark and other parties, or (2) likelihood of confusion, mistake, or deception." (44) For a claim to be successful under the FTDA, the plaintiff must first show that its mark is famous. (45)

      Upon proving the trademark's fame and distinctiveness, the plaintiff is then required to show that the defendant's mark "causes dilution of the distinctive quality of the [plaintiffs] mark." (46) In this regard, the federal statute substantially differs from most of its state counterparts, which only require that a claimant prove a "likelihood of dilution" of its trademark. (47)

  2. The three types of dilution

    1. Cybersquatting

      The three types of dilution that can occur under the FTDA are cybersquatting, blurring, and tarnishment. (48) The...

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