Designer Christian Louboutin can claim trademark protection for the red outsole on his women’s shoes, but not if the rest of the shoe is also red, a federal appellate panel ruled yesterday, allowing rival Yves Saint-Laurent to continue selling an entirely red shoe.

The U.S. Court of Appeals for the Second Circuit in Christian Louboutin v. Yves Saint Laurent America, 11-3303-cv, rejected Southern District Judge Victor Marrero’s (See Profile) holding that a single color could never be trademarked when it serves as an element of fashion design. Judge José Cabranes (See Profile) wrote the decision, joined by Judges Chester Straub (See Profile) and Debra Ann Livingston (See Profile).

Christian Louboutin claimed that its trademark for red-soled shoes, above, was violated by Yves Saint Laurent’s entirely red shoes.

Cabranes said that Louboutin’s trademark, a red lacquered color known as Chinese red, “has acquired limited ‘secondary meaning’ as a distinctive symbol that identifies the Louboutin brand.”

However, he said that because the color of the sole of YSL’s shoe did not contrast with the rest of the shoe, it did not infringe the trademark. The panel thus affirmed Marrero’s refusal to grant Louboutin a preliminary injunction.

Louboutin sued YSL in April 2011, alleging that a shoe offered by YSL infringed Louboutin’s trademark, registered in 2008, on women’s shoes with a red outsole, violating the Lanham Act. Louboutin’s iconic high-end, red-soled shoes, introduced in 1992, have been spotted on celebrities including Sarah Jessica Parker, Victoria Beckham and Rihanna. The shoes sell for up to $1,000 a pair.

YSL’s shoes are entirely red, including their outsoles, and are part of a line of similarly monochrome shoes, also in purple, green and yellow.

Marrero denied Louboutin’s motion for a preliminary injunction in August 2011. He ruled that a color, being an essential element of fashion design, could not be trademarked, despite the strong connection in the public mind between red soles and Louboutins. The judge compared the suit to Pablo Picasso suing Claude Monet to assert a trademark for a particular shade of blue.

Marrero cited the U.S. Supreme Court’s decision in Qualitex v. Jacobson Products, 514 U.S. 159, 162 (1995), which involved industrial products that were colored to distinguish their manufacturer. The court in that case ruled that a color could be trademarked if it has no significant function except to identify a product’s maker. Marrero said that because color necessarily does have an additional function in fashion, as an aesthetic element of design, it could not be trademarked.

Louboutin appealed to the Second Circuit, where the case attracted amicus briefs from the International Trademark Association, a group of trademark holders, and from jeweler Tiffany & Co. on Louboutin’s side, and from a group of trademark law professors on YSL’s side.

The circuit ruled that Marrero had erred in imposing a “per se rule” for the entire fashion industry. Qualitex ”requires an individualized, fact-based inquiry into the nature of the trademark, and cannot be read to sanction an industry-based per se rule,” the panel said.

“Even if Qualitex could be read to permit an industry-specific per se rule of functionality (a reading we think doubtful), such a rule would be neither necessary nor appropriate here,” the panel added.

The concept of aesthetic functionality, the panel said, did not mean that all fashion designers must be allowed to use any aesthetic element at all, but only that they must be allowed to compete “fairly” in the marketplace, citing Wallace Int’l Silversmiths v. Godinger Silver Art, 916 F.2d 76, 80 (2d Cir. 1990).

However, the panel found that the “evidentiary record further demonstrates that the Louboutin mark is closely associated with contrast,” not just the red color, and that the trademark must be narrowed to cover only situations where the red sole of a shoe contrasts with a differently colored upper part.

Harley Lewin of McCarter & English, counsel to Louboutin, said he was pleased with the decision to reinstate Louboutin’s trademark and strike down the lower court’s blanket rule.

“The court did carve out this monochrome exception, but it really doesn’t trouble us much,” Lewin said.

But David Bernstein of Debevoise & Plimpton, counsel for YSL, praised the ruling as “a total victory for us,” since the company can continue making its all-red shoes.

“They brought this case to stop us from making these shoes and they lost,” he told Associated Press. “Our client has the right to continue to do what it has always done.”

In a statement, YSL rejected Louboutin’s claims that it was trying to imitate its competitor’s color scheme, saying it was “a venerated fashion house with the utmost in creative talent and has no need to trade on the goodwill of other brands.” It said it has featured red and other colored outsoles since the 1970s.