Reforming anti-dilution protection in the globalization of luxury brands.

Author:Sun, Haochen
  1. INTRODUCTION II. ANTI-DILUTION PROTECTION AS THE LIFEBLOOD OF LUXURY BRANDS A. The Rise of the Luxury Industry in the Global Economy B. Luxury Brands and Anti-Dilution Protection 1. Protecting Exclusivity 2. Protecting Quality Reputation III. ANTI-DILUTION PROTECTION IN INTERNATIONAL TRADEMARK LAW A. The Paris Convention B. The TRIPS Agreement C. Geographic Indications IV. DIVERGENCES IN DOMESTIC ANTI-DILUTION LAWS A. Divergences in the U.S. and E.U. 1. Requisite Level and Proof of Fame 2. Requisite Degree and Proof of Association 3. Blurring or Detriment to Distinctive Character 4. Tarnishment or Detriment to Repute of a Trademark 5. Taking Unfair Advantage of Distinctive Character or Repute 6. Defenses a. Fair use b. Non-commercial use 7. Summary B. China 1. Statutory Sources of Anti-Dilution Protection 2. Recognition of Well-Known Marks 3. Prohibited Dilution Acts 4. Dilution Doctrine in Action V. CONCLUSION I. INTRODUCTION

    Just across the street from its store on Rue de Sevres in Paris, Hermes is gutting a second space, to open in September.... Nearly all the stock will be produced in China. This isn't another branch of Hermes: It's the first international site for the luxury company's subsidiary Shang Xia. (1)

    [D]ilution is an infection which, if allowed to spread, will inevitably destroy the advertising value of the mark. (2)

    A new tale of two cities occurred across the Atlantic in 2008. In June 2008, the Paris Commercial Court held eBay secondarily liable for offering online venues to sell counterfeit Louis Vuitton products. In particular, the Court ruled that eBay had harmed the reputation of Louis Vuitton's trademarks. (3) On the other side of the Atlantic, eBay was sued in the United States by another luxury company, Tiffany, on the same grounds for facilitating the sale of counterfeit Tiffany products on the eBay website. In this case, the Southern District Court of New York ruled in favor of eBay, holding that eBay did not harm the reputation of the Tiffany trademark. (4)

    Why did the two judicial decisions regarding trademark dilution turn out to be at odds with each other? After all, the facts of the two cases were very similar. Both involved luxury companies and an Internet company (eBay) that provided venues for the sale of counterfeit luxury products.

    This Article aims to explore the larger policy reason that has led to the rift between these judicial opinions. It reveals that the rift is actually the tip of the iceberg in the global anti-dilution protection of luxury brands. As a form of trademark protection, the anti-dilution right entitles the owner of a well-known trademark to prevent and stop acts that would blur the distinctiveness and tarnish the reputation of the trademark. (5) Anti-dilution protection is afforded even in the absence of consumer confusion regarding sources of goods or services. Hence, the rise of the anti-dilution right has advanced trademark protection from preventing consumer confusion to granting a strong property right (6) to protect the "uniqueness" of a well-known mark. (7)

    This Article will reveal that luxury companies face two major challenges in securing adequate anti-dilution protection. At the international level, the major intellectual property treaties afford no minimum standards for anti-dilution protection of well-known trademarks. (8) At the domestic level, divergences in anti-dilution protections in the world's three main luxury markets, Europe, the United States, and China, have rendered it more difficult for luxury companies to prevent and stop the potential dilutions of their brands. (9)

    The major issues discussed in this Article have far-reaching implications for both the domestic and global economies. Global sales of personal luxury goods reached approximately 191 billion [euro] in 2011. (10) The luxury industry is even larger if luxury services (such as luxury hotel and resort services) are included. Luxury goods and services are also intertwined with fashion, because many luxury companies have been major fashion trend-setters. It was estimated that the 2012 revenue of the fashion industry hit $482.8 billion, (11) a record that eclipses the publishing and entertainment industries. (12)

    This Article will reveal that anti-dilution protection plays an important role in preserving and enhancing the exclusivity and quality reputation of luxury brands. (13) Therefore, a comprehensive and thorough discussion of the global anti-dilution protection system has profound implications for the luxury industry in the context of the increased global marketing of luxury goods. (14) This Article will suggest how policymakers should improve anti-dilution protection for luxury brands while meeting their duties to adequately protect the public interest.

    Part II discusses the rapid global expansion of the luxury industry and the role of anti-dilution laws in protecting the luxury industry. Parts III reveals that international trademark treaties do not afford clear-cut minimum standards for preventing and stopping dilutive uses of well-known trademarks, many of which are luxury brands. Part IV further argues that variations in domestic anti-dilution laws have caused grave business risks for companies in merchandizing luxury goods or services in China, the E.U. and the United States, the three major luxury markets. Based on these discussions, the Article argues that it is high time to consider how anti-dilution protection should be developed globally. It will consider the major issues pertaining to how the global anti-dilution system should be reformed.


    During the past two decades, the luxury industry rapidly developed and expanded its presence in many major cities around the world. With such rapid development, the luxury industry has played an important role in many contemporary western and eastern societies. This Part will first examine the rapid growth of the luxury industry in the global economy. It will then consider the role of anti-dilution protection in protecting the value of luxury brands, the assets that are of pivotal importance for any luxury companies.

    1. The Rise of the Luxury Industry in the Global Economy

      Europe, the United States, and China are the three major luxury markets in the world. Europe is the global hub for designing, producing, and merchandizing luxury goods. Most luxury brands have originated from Europe. The major luxury conglomerates, such as Kering, Louis Vuitton Moet Hennessy (LVMH), and Compagnie Financiere Richemont SA (Richemont), are headquartered in Europe. The continent also has three of the four fashion capitals (London, Milan, New York, and Paris). Research shows that Europe accounted for thirty-seven and thirty-five percent of global luxury goods sales in 2011 and 2012, respectively. (15) Despite the economic slowdown in Europe, tourists account for a big portion of luxury sales and have helped its luxury market grow steadily. (16) Gucci reportedly sells more than fifty percent of its products to tourists in Europe, (17) and Burberry confirms that Chinese tourists alone account for around thirty percent of its total London sales. (18)

      The U.S. market has also been vibrant, with huge demand for luxury goods and rapid growth of American luxury brands. The French luxury shoe-maker Christian Louboutin sold fifty-two percent of its shoes in the United States, while it only sold thirty percent in Europe, the Middle East, and Russia combined. (19) Though the U.S. market was hit hard during the 2008 financial crisis and has continued to stagnate, it remains one of the important luxury markets in the world. With economic improvements, the sale of luxury goods has been steadily recovering in the United States. (20) In 2011, it was estimated that many major luxury brands received ten to twenty percent sales growth. (21)

      China has become the world's largest luxury market based on country-specific calculation. (22) Wealthy Chinese consumers have been very eager to shop for luxury goods and services in order to upgrade their lifestyles. In 2012, estimates showed that China accounted for twenty-five percent of global luxury spending, five percent higher than the United States. (23) Research also showed that Chinese consumers made half of all luxury purchases in Asia and nearly one-third of those in Europe. (24) Responding to exploding demand, luxury companies have opened up stores in major Chinese cities and have highlighted the role of the Chinese market in their long-term development strategies. (25) By setting prices higher in China than in Europe and the United States, luxury companies are said to earn more profits there. (26) Meanwhile, fueled by talented Chinese fashion designers and a combination of Eastern and Western design inspirations, China's domestic luxury brands have been growing rapidly and nurturing their domestic and international fame. (27)

    2. Luxury Brands and Anti-Dilution Protection

      The luxury industry has long hailed intellectual property protection as a key to the industry's success. Representatives from the industry consistently argue that adequate protection of intellectual property ensures that luxury companies can recoup their investments in the creation and dissemination of their copyrighted works, trademarked logos, or patented designs. (28) They point out that without intellectual property protection, a flood of counterfeits in the market would destroy the brand distinction and value of luxury goods. (29)

      Louis Vuitton, for example, started in 1858 as a simple retailer of travel luggage. Today, the Vuitton brand is worth approximately $25 billion. (30) Louis Vuitton achieved its legendary growth through innovative efforts in designing and merchandizing products. But Louis Vuitton has also asserted that such marvelous achievements could only have been made due to adequate intellectual property protection. Otherwise its brands and designs...

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