March 4, 2003, was a dark day for big business. On that date the Supreme Court handed down its decision in Moseley v. V. Secret Catalogue Inc., a ruling that gutted one of companies’ main bulwarks for protecting well-known trademarks: the Federal Trademark Dilution Act (FTDA).

The FTDA gives special legal protection to owners of famous marks. Ordinary trademark law protects a mark only against activity that’s likely to confuse consumers. By contrast, the FTDA protects a famous mark against anything that may impair the distinctiveness of the mark–even if there is no danger of consumer confusion. The protection it offers is broad and powerful.

Or it was, until the Supreme Court’s decision in Moseley. That decision significantly raised the evidentiary standard required for a plaintiff to win a dilution suit. No longer could a plaintiff win simply by proving a likelihood of dilution; now a plaintiff has to prove actual dilution–a standard few plaintiffs can meet.

But the owners of famous marks may have the last laugh. Congress is poised to enact a bill that would effectively overrule the High Court and make it far easier for owners of famous marks to stop others from harming the distinctiveness or reputation of their trademarks.

The Trademark Dilution Revision Act (H.R. 683) will restore the old likelihood-of-dilution standard. And the law will go further, altering which trademarks can claim dilution protection and increasing protections for certain fair uses of famous marks.

“If passed, the bill would accomplish a lot,” says David H. Bernstein, an IP attorney in the New York office of Debevoise & Plimpton. “It will be the most significant improvement to U.S. trademark law in a decade.”

Slow Erosion

The bill’s most important change would be ending the requirement that a plaintiff prove actual dilution. This standard is “in most cases virtually impossible to satisfy,” says William Barber, a trademark attorney at Fulbright & Jaworski’s Austin, Texas office.

The problem with that high standard arises from the nature of dilution. Dilution is a gradual erosion of the mark’s distinctiveness. One diluting use may produce negligible effects, but over time, if there are hundreds or thousands of diluting uses, a once famous mark could become just another name in a crowd.

The actual-dilution standard requires a plaintiff to prove that its mark’s distinctiveness has been harmed by a single diluting use. The problem, though, is that it’s extremely difficult to prove dilution.

“That is one of the reasons why the likelihood-of-dilution standard is so important,” Bernstein says. “Famous brand owners need to be able to stop the first [diluting use], even though that first [use] may not really cause any harm at all, because if it is left unaddressed, it will be the first step in a process that inevitably will end with the destruction of the brand’s distinctiveness.”

Some experts disagree with that analysis, arguing that dilution is just an imaginary problem and that reinstating the likelihood-of-dilution standard will do more harm than good.

“No one has ever shown Congress that something has caused dilution and by the time I could do something about it, my mark was irretrievably diluted,” says Jessica Litman, who teaches trademark law at University of Michigan Law School in Ann Arbor. “No one has ever shown there’s a real problem here.”

Moreover, the likelihood-of-dilution standard has created problems for courts and litigants in the past. The standard was amorphous and created uncertainty for trademark owners. “The cases were incoherent,” Litman says.

Diluted Law

Part of the reason FTDA case law was so inconsistent was that courts greatly expanded the use of the FTDA in attempts to combat cybersquatting. Congress originally intended FTDA to protect only famous trademarks, but when individuals and companies first began cybersquatting–registering others’ trademarks as domain names–the courts went searching for a law that would allow them to stop the practice. In the absence of a law that explicitly forbade cybersquatting, the courts seized on the FTDA, reasoning that the defendants’ domain names would dilute the distinctiveness of plaintiffs’ marks.

However, the courts didn’t limit this relief to nationally renowned marks. To stop cybersquatting, the courts watered down the FTDA’s fame requirement, finding that all sorts of marks were famous. Marks known in only certain parts of the country, such as a grocery chain found only in Pennsylvania and New Jersey, were deemed famous–and thus protected by the FTDA. Courts also held marks that were unknown to the general public, but which were recognized in niche markets, to be famous. For example, one court found the shape of a plastic funeral urn, which was well-known among funeral directors, a famous mark.

The Trademark Dilution Revision Act would change all of this. The bill requires that a famous mark must be “widely recognized by the general consuming public of the United States.” It would thus end federal dilution protection for marks in regional and niche markets.

The bill also would end a line of cases that held that the FTDA didn’t extend to trademarks based on a person’s name (e.g., McDonald’s) or to descriptive trademarks (e.g., a kids’ clothing store named The Children’s Place). The bill makes clear that such marks can be protected if they are famous.

“The bill better defines what it means to be a famous mark,” says Katherine Basile, a trademark attorney in the East Palo Alto, Calif., office of Howrey. “That’s important because the concept of dilution provides a fairly broad scope of protection, so the statute should only be used to protect truly famous marks.”

New Weapon

Owners of famous trademarks have put a lot of pressure on Congress to pass the bill and their efforts seemed to have paid off. Both the Senate and the House overwhelmingly passed slightly different versions of the bill and the two are expected to reconcile their differences with little fanfare. There is some dispute, however, about whether the bill’s passage will be good for business and for trademark law.

Proponents of the bill claim it will benefit everyone. “It provides greater certainty as to what is and is not permitted, thus deterring truly diluting uses while discouraging inappropriate litigation by mark owners,” Bernstein says.

Opponents, however, fear that the bill will result in more, not less, litigation because the likelihood-of-dilution standard makes it easier for them to win. In addition, companies may bring dilution suits to hobble competition.

“Lots of businesses will sue to get a commercial advantage, delaying competition for six months to six years,” Litman says.

There will also be uncertainty over various provisions in the law, and this will lead to legal wrangling. “There are still some very interesting legal questions about what types of evidence you should present to show your mark is famous and that there is a likelihood of dilution,” Basile says.

All sides agree that the bill will give trademark owners a powerful legal weapon. The question is how they will use that weapon.

“I have seen no sign that the dilution law we have is being used judiciously to stop real dangers to famous marks,” Litman argues. “So I see no reason to expect that the new law won’t be overused as well.”