Tomorrow's annual session on U.S. cases will look at issues such as aesthetic functionality, initial interest deception and some novel attempts to block the registration of trademarks. Shahnaz Mahmud and James Nurton preview it.
While there have been no U.S. Supreme Court trademark cases in the past year, the lower courts have seen some interesting disputes which have addressed fundamental issues about what can be protected as a trademark, and what constitutes infringement. In the INTA Annual Meeting's annual review of Federal Court and Trademark Trial and Appeal Board developments, which takes place tomorrow morning, Ted H. Davis of Kilpatrick Stockton and Jordan S. Weinstein of Oblon Spivak McClelland Maier & Neustadt will discuss some of the major decisions and explain their significance.
Aesthetic functionality defined
Davis told the INTA Daily News that his "candidate for best decision of the year" is the decision of the U.S. Court of Appeals for the Ninth Circuit in Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc. et. al., in which the Ninth Circuit addressed the aesthetic functionality doctrine.
The case arose in a dispute between auto makers Audi and Volkswagen and a company called Auto Gold, which produces and sells automobile accessories such as license plates and key chains under brands such as CADILLAC, FORD, LEXUS, JEEP, HONDA and TOYOTA. Auto Gold has license agreements with several manufacturers, but had failed to negotiate deals with either Audi or Volkswagen. It therefore sold AUDI and VOLKSWAGEN branded goods with disclaimers on the packaging.
Following a 1996 dispute with BMW, in 2001 Auto Gold sought a declaratory judgment in the District Court of Arizona that its activities did not infringe Audi's or Volkswagen's marks. The car companies counterclaimed. Auto Gold's case rested on the argument that the aesthetic functionality doctrine – which says that functional products do not enjoy protection under trademark law – applied to its reproduction of the car companies' logos. Specifically, it argued that the logos are aesthetically functional elements of the product or "the actual benefit that the consumer wishes to purchase" and therefore unprotected by trademark law.
The aesthetic functionality doctrine is designed to promote competition by preventing a producer monopolizing a useful product feature, and was affirmed by the U.S. Supreme Court in its 1982 opinion in Inwood Labs., Inc. v. Ives Labs., Inc. In cases since the 1950s, the doctrine has been used successfully to deny trademark protection to, for example, patterns on china, and even (in a 1980 case) the name and emblem JOB'S DAUGHTER on jewelry.
Based in particular on that decision by the Ninth Circuit, and the fact that there was no specific guidance from the Supreme Court on the question, some parties have sought to extend the doctrine of aesthetic functionality to cover not just product features but also logos and insignia, arguing that consumers buy products bearing famous logos not because they signify the product's ownership but because they are appealing in themselves (and therefore "functional"). That was Auto Gold's position. And, in a blow to trademark owners, in a summary judgment in 2003 the district court agreed. It found that Auto Gold used the logos "because there is a[n] aesthetic quality to the marks that purchasers are interested in having," granted Auto Gold summary judgment and said its use of the marks did not amount to trademark infringement or counterfeiting.
But, in its August 2006 ruling, the Ninth Circuit emphatically reversed the district court's position. It said that to accept Auto Gold's position "would be the death knell for trademark protection. It would mean that simply because a consumer likes a trademark, or finds it aesthetically appealing, a competitor could adopt and use the mark on its own products." It added: "Taken to its limits, as Auto Gold advocates, this doctrine would permit a competitor to trade on any mark simply because there is some 'aesthetic' value to the mark that consumers desire." The court added that Auto Gold's incorporation of the car companies' marks on its products was "nothing more than naked appropriation of the marks."
Davis says this case is a firm signal from the court that the doctrine of aesthetic functionality cannot be extended to cover logos: "The Ninth Circuit historically has been receptive towards the doctrine but has suddenly turned against it. This really restricted the concept of aesthetic functionality."
Had the Ninth Circuit upheld the district court's ruling, owners of famous trademarks would have found it difficult to stop their use by competitors if those competitors had argued that the marks had an aesthetic quality that appealed to consumers. "Even exact reproductions of marks could be found 'aesthetically' functional if consumers purchasing goods bearing the reproductions do so to show their loyalty or some other relationship to the marks' owners," explains Davis.
Back to school
The doctrine of functionality was also raised in another of last year's most interesting cases, Bd. Of Supervisors of Louisiana State University v. Smack Apparel Co., in which a group of universities (Louisiana State University, Ohio State University, the University of Oklahoma, the University of Southern California) and their licensee the Collegiate Licensing Company (CLC) successfully sued Smack Apparel Company, a sportswear manufacturer, which was offering for sale merchandise bearing the colors of the universities.
In the decision in July last year, the U.S. District Court for the Eastern District of Louisiana ruled in a summary judgment that Smack Apparel had intentionally infringed the universities' trademarks and trade dress. The decision was notable for recognizing that the universities had established secondary meaning in their color schemes, logos, and designs and that there was a likelihood of confusion.
Smack Apparel had argued in court that the universities' color schemes, logos and designs are functional. It also claimed that, even if the color schemes are entitled to trademark protection, its use of them amounted to fair use and it argued that the universities had taken an unreasonable delay in bringing the case.
But Judge Mary Ann Vial Lemmon rejected all these arguments, stating: "It is undisputed that the universities have used their color combinations for a lengthy period of time. The universities market scores of items bearing their color schemes, logos, and designs, and sales of these items exceed tens of millions of dollars. The universities advertise items with their school colors in almost every conceivable manner, and the record contains ample evidence that the universities' school colors have been referenced numerous times in magazines and newspapers. The universities have even used the colors to refer to themselves, i.e., LSU sometimes refers to itself as the 'Purple and Gold.'"
Smack Apparel has said it will appeal the decision.
Abusing the system?
One case from 2006 has sparked a political debate as it concerns the appropriations process in Congress. In recent years, some members of Congress have found it easier to introduce controversial amendments into spending bills, rather than bringing separate legislative proposals that have little chance of being implemented. Some trademark practitioners say that the process now threatens the propriety of the trademark registration system.
In September 2006, the U.S. District Court for the Eastern District of Virginia ruled on the legality of this practice in Last Best Beef v. Dudas. The case arose after a Montana company, Last Best Beef, applied to the USPTO in 2005 to register trademarks including the phrase LAST BEST PLACE for its mail order service.
However, on November 22, 2005, President Bush signed into law the Science, State, Justice, Commerce, and Related Agencies Appropriations Act of 2006. Section 206 of this Act, sponsored by U.S. Senator Conrad Burns from Montana, prohibited the registration of the mark LAST BEST PLACE. Burns claimed he wanted to reserve the phrase for its rightful owner, the State of Montana.
Following the introduction of the law, in January 2006, the USPTO rejected Last Best Beef's six pending trademark applications, and cancelled two that were already registered.
Last Best Beef then sued the USPTO. In its ruling, the district court held that Section 206 of the Act "improperly circumvents" the Lanham Act and is therefore invalid. It added that there was no precedent for poking holes in the Lanham Act to except specific marks. "The proper course of action here therefore would have been for Congress to amend the Lanham Act to bar registration of LAST BEST PLACE as a trademark, rather than deprive the USPTO of funds to process and maintain claims to the mark. This type of abuse goes against the trademark process," says Davis. He believes that the decision is an appropriate response to what he calls the "covert introduction" of Lanham Act-related items into spending bills.
Fond of filing
Another area where the correct use of the trademark system has come under scrutiny involves the activities of Leo Stoller. Stoller, who owns the website Rent-A-Mark.com, claims to own trademark rights to a vast number of words, such as AEROSPACE, STABLE, STEALTH and TRUMP – and uses these claims as the basis for filing oppositions and extensions at the USPTO.
Stoller filed more than 1,100 requests to extend the time to file notices of opposition between November 2005 and March 2006, an unprecedented number. The Board questioned the validity of all of his requests. It also found that Stoller did not have rights to any of the marks that he claims. He was barred from filing any new extensions directly and after that only with the assistance of counsel.
Initial interest deception
The issue of initial interest deception is at the heart of In re: ALP of South Beach. In this Trademark Trial and Appeal Board case, a New York and Miami restaurateur applied for rights to the mark CAFETERIA in a stylized font. The restaurateur's application was refused on the ground that it would deceive potential customers. The restaurateur's answer to this argument was that anyone who saw the restaurant would know immediately that it was not a typical cafeteria before he even ordered food and could not therefore be deceived.
But the Board found that the customer's initial interest in dining at a "cafeteria" would be generated by seeing, for example, a billboard or a newspaper review for the CAFETERIA restaurant, and he might believe he would be venturing into an ordinary cafeteria – a place serving a familiar array of food to restaurant-goers standing in a line and holding trays. The Board suggested this kind of deception was analagous to initial interest confusion in the context of trademark infringement. As the Board found this would not be the actual experience at the restaurant, in March last year it held that customers would be deceived.
Weinstein doesn't necessarily agree with the result. "While I'm not saying the Board didn't reach the right conclusion under the law, this decision doesn't sit well with me," he says.
Procedural issues and the TTAB
Tomorrow's session will also address two interesting developments relating to registration procedures.
The first is the imminent release of the new discovery rules by the TTAB, which may be a controversial change. "How much of the proposed rules the Board adopts will have a great impact on Board practice," says Jordan Weinstein of Oblon Spivak. The proposed rules require the parties to make initial disclosures, which will involve gathering and producing a great deal of information, "front-loading" costs for opposition proceedings. More than 90 percent of Board proceedings are settled, and typically both parties find that the filing of a notice of opposition is a good time to talk. But now, the stakes may change. If the proposed rules are passed, "there will be a great deal of work that the opposing party will have to do up front. We will most likely find more hesitation to file oppositions because there will be significant costs up front," says Weinstein.
The other development is the Board's new position on the citation of unpublished decisions. Previously, unpublished decisions were unciteable, says Weinstein. Board judges disregarded these citations and scolded those who referred to them in briefs. But (like the Court of Appeals for the Federal Circuit) the Board has changed its position. "While unpublished Board decisions are still non-precedential, lawyers now can use these citations for their persuasive weight," says Weintein. This is expected to be widely used by the trademark community, because the scarcity of published Board decisions on many issues means there is sometimes little precedent to cite. So the new stance by the Board may ultimately lead to it making more precedential decisions. "This may be a source of enlightenment. At the very least it could be the basis for an argument, if not precedent," says Weinstein.
