Stephen M. Kramarsky
Stephen M. Kramarsky ()

What’s the first thing that comes to mind when you hear the word “Charbucks?” If it’s coffee—and it probably is—ask yourself what the answer would have been 20 years ago, just before the iconic and ubiquitous coffee giant Starbucks opened its first store in New York City. If Starbucks is so firmly linked to coffee in your mind that even a quite different word, like “Charbucks,” can bring up the same connections, you can bet that association didn’t come cheap. In fact, Starbucks has spent billions of dollars establishing its name as synonymous with premium coffee and related products, and it has been enormously successful in doing so. The result of these efforts is that its brand name has achieved the most coveted position available under U.S. trademark law: It is famous.

Under U.S. trademark law, “a mark is famous if it is widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark’s owner.”1 The test, in this context, is a stringent one that requires a strong, well-established connection in the minds of consumers across the country—particularly if the mark is a common word. Coca-Cola is the usual law school example of a “famous” mark, and some well-known brands (such as Coach leather goods) have failed the test. A mark that is “famous,” however, is entitled to special protection beyond traditional trademark infringement.

In a traditional infringement action, the owner of the mark must show that the alleged infringement creates a likelihood of confusion among consumers about the source or origin of the products or services at issue. That is, the owner must show that consumers are likely to be misled about the actual goods or services they are buying. Famous marks, in addition to being protected from infringement, are protected from “dilution,” which occurs when the mark, or some confusingly similar mark, is used in a way that lessens its value as a signifier, even if consumers are not actually confused about the source of the products they are buying. The U.S. trademark law currently recognizes two kinds of dilution. Dilution by “tarnishment” occurs when a mark similar to the famous mark is associated with something off-brand or unsavory; dilution by “blurring” occurs when a similar mark “impairs the distinctiveness of the famous mark.”2

Dilution is a complex and often misunderstood area of trademark law and it has changed substantially in recent years, first with a 2003 U.S. Supreme Court decision and then with a 2006 amendment to the law designed to reverse portions of that decision. Throughout that period, Starbucks and a tiny competitor—the maker of a product called “Mr. Charbucks”—have been fighting over these issues. After 12 years of litigation, three lower court opinions and two remands, the Second Circuit appears finally to have put an end to the controversy and in the process has provided some much-needed guidance for practitioners and the lower courts in this difficult area. To understand that guidance, it is worth taking an in-depth look at the case.

The ‘Charbucks’ Controversy

On Nov. 15, 2013, the Second Circuit issued its third opinion in the long-raging dispute between Starbucks and the New England-based coffee producer Black Bear Micro Roastery.3 The Charbucks line of cases—now consisting of six opinions—revolves around Starbucks’ attempts to prevent Black Bear from marketing and selling its “Charbucks” line of coffee products. Starbucks’ claims included, among other things, that “Charbucks” products infringed on its protected trademarks, and specifically that Black Bear’s actions constituted trademark dilution in violating of 15 U.S.C. §§1125(c) and 1127.4

Black Bear manufactures and sells coffee and related goods. In 1997, it developed a dark-roast coffee blend called “Charbucks Blend” that it now sells under the name “Mister Charbucks” or “Mr. Charbucks.” Black Bear is fully aware that the name “Charbucks” sounds like “Starbucks” and selected the name for its dark blend in part as a play on “the public perception that Starbucks roasted its beans unusually darkly.”5 After unsuccessfully demanding that Black Bear stop using the “Charbucks” name, Starbucks sued Black Bear in 2001, seeking protection of its trademarks.

In 2005, after a two-day bench trial, the U.S. District Court for the Southern District of New York issued an opinion holding that Starbucks had failed to prove any of its many claims, and entered a judgment in Black Bear’s favor.6 On Starbucks’ dilution claims, the court noted that, under federal law at that time, an owner of a mark was required to make “a showing of actual dilution, rather than a likelihood of dilution” in order to obtain injunctive relief. Applying that rule, the court held that Starbucks had failed to show that Black Bear’s use of the “Charbucks” named caused any actual diminution in the capacity of its marks to serve as unique identifiers for its goods.7

Starbucks appealed, and two years later, the Second Circuit reversed the district court because Congress had, in the interim, amended federal trademark law.8 Specifically, in 2006, Congress passed the Trademark Dilution Revision Act (TDRA), which extensively amended the Federal Trademark Dilution Act (FTDA) that had been effective since Jan. 16, 1996. The amendments were a response to the 2003 Supreme Court decision Mosley v. V Secret Catalogue, which held that a dilution claim required proof of “actual dilution, as opposed to a likelihood of dilution.”9 The TDRA reversed that opinion, allowing mark owners to seek injunctive relief against “use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.”10 The 2006 law also specifically defined trademark dilution by blurring and established a list of factors to be used to determine whether actionable blurring exists.

On remand in 2008, the district court held that even though the TDRA had expanded its rights, Starbucks had still failed to demonstrate entitlement to relief. Again, the court entered judgment in Black Bear’s favor on all counts, and again, Starbucks appealed.

This time around, the Second Circuit took the opportunity to more fully interpret the statutory amendments passed in the TDRA. It issued an opinion partially affirming and partially vacating and remanding the district court’s opinion.11 In doing so, it found the district court had incorrectly applied several new provisions of the TDRA. For example, before the TDRA, a plaintiff could only prevail on a claim of trademark dilution if the marks at issue were “very” or “substantially” similar. The court held that the enactment of the TDRA necessitated discarding the “substantially similar” requirement in dilution cases, as none of the six statutory factors use the words “very” or “substantially” similar. Thus, the Second Circuit held that the statute only required the consideration of the “degree” of similarity.12 Similarly, the Second Circuit held that the district court misapplied two of the other six factors—using a “bad faith” standard where the TDRA addresses only “intention” and looking for evidence of “actual confusion” where the TDRA addresses “actual association.”13

With these issues in mind, the district court once again considered Starbucks’s dilution claims. The court evaluated the six non-exclusive statutory factors, in light of “the ultimate analytical question presented by a dilution-by-blurring claim”: “whether there is an association, arising from the similarity of the relevant marks, that impairs the distinctiveness of the famous mark.”14 It held that the Charbucks and Starbucks marks were “only minimally similar” when considered in their commercial context, which weighed in Black Bear’s favor, and that although Starbucks had offered evidence of actual association (presented in the form of consumer surveys), the evidence was only minimally in its favor. After reviewing all of the six factors, the court found the Charbucks mark “only weakly associated with the minimally similar Starbucks marks, and, thus … [was] not likely to impair the distinctiveness of the famous Starbucks marks.”15 It therefore again dismissed all of Starbucks’s claims.

Starbucks again appealed. This time, the Second Circuit reviewed the district court’s determinations on each of the six non-exclusive factors under a “clear error” standard and its balancing of those factors—the ultimate determination as to whether Starbucks adequately supported a claim of trademark dilution—de novo.16

The ‘Starbucks VI’ Opinion

The Second Circuit’s opinion in Starbucks VI is extensive and begins with a discussion of the history and purposes of the trademark dilution action, as distinct from ordinary infringement. As the court notes, the trademark dilution doctrine, as it exists in the United States, originated with the academic work of Frank Schechter in the 1920s, in which he “argued that a mark both symbolizes existing good will and can generate good will.”17 Thus, the opinion explains, dilution by blurring can be seen as “‘the whittling away of the established trademark’s selling power and value through its unauthorized use by others.’”18

The opinion then moves on to examine the two TDRA factors explicitly at issue in the appeal: (1) the similarity of the marks, and (2) the association between the marks. As to the first factor, the court found no reason to revisit its ruling on the similarity of the marks. It reaffirmed its previous findings—embracing a contextual evaluation of the “similarity factor”—and explicitly rejected a proposal from Starbucks that the court should ignore the commercial context of the Charbucks mark.

As to the second factor—”actual association”—the court again rejected Starbucks’s arguments. The court found that the “intent to create an association does not constitute per se evidence that the actual association factor weighs in favor of the owner of the famous mark.” To rule otherwise, it held, would be to merge the intent to associate and the actual association factors, improperly rendering statutory language meaningless.19

The court also affirmed the district court’s finding that the survey evidence presented by Starbucks in support of its claim was unpersuasive. After considering the specific attributes of the surveys, it held that “the word ‘Charbucks’ was presented [in the surveys] outside of its marketplace context, and Starbucks, which bears the burden of proof, failed to show that this flaw did not materially impact the survey results.”20

Finally, the court analyzed the balancing of the factors de novo. The court found that the distinctiveness, recognition, and exclusivity factors favored Starbucks. Further, the court found the intent to create an association between the Charbucks and Starbucks marks—Black Bear’s play on the Starbucks name—to be moderately significant. But nevertheless, it held that “the more important factors in the context of this case are the similarity of the marks and actual association”—factors that Starbucks supported with only weak evidence.21 It therefore upheld the lower court’s decision.

Import of the ‘Charbucks’ Cases

The back and forth between the circuit and the district court that culminated in Starbucks VI provides some key lessons for businesses and individuals utilizing trademarks similar to famous marks. As a legal matter, when determining whether your mark may dilute another’s, you must consider—and be able to defend—its use in its specific commercial context. As a practical matter, you must realize that, if it is a close question, defending your mark is going to get very, very expensive.

While courts continue to incrementally unpack the meaning of the six factors of the TDRA, they will likely take into account the general purposes of trademark protection and the prohibition against trademark dilution, both of which must be explained in the specific context of individual marks. That analysis is complex, fact-specific and unpredictable—even with the new guidance from Congress and the Second Circuit. In most cases, the better advice will be avoid getting too close to the line, unless 12 years of litigation is your cup of … tea.

Stephen M. Kramarsky, a member of Dewey Pegno & Kramarsky, focuses on complex commercial and intellectual property litigation. Joseph P. Mueller, an associate at the firm, provided substantial assistance with the preparation of this article.

Endnotes:

1. 15 U.S.C. §1125(c)(2)(A).

2. 15 U.S.C. §1125(B), (C).

3. Starbucks v. Wolfe’s Borough Coffee, 736 F.3d 198 (2d Cir. 2013) (Starbucks VI).

4. Starbucks also asserted various other state and federal trademark and related claims, which were dismissed along the way.

5. Starbucks VI, 736 F.3d at 201.

6. Starbucks v. Wolfe’s Borough Coffee, No. 01Civ.5981(LTS)(THK), 2005 WL 3527126 (S.D.N.Y. Dec. 23, 2005) (Starbucks I).

7. Id. at *7-9.

8. Starbucks v. Wolfe’s Borough Coffee, 477 F.3d 765, 766 (2d Cir. 2007) (Starbucks II).

9. Id., citing Mosely v. V Secret Catalogue, 537 U.S. 418, 433 (2003).

10. 15 U.S.C. §1125(c)(1).

11. Starbucks v. Wolfe’s Borough Coffee, 736 F.3d 198 (2d Cir. 2013) (Starbucks IV).

12. Id. at 207-09.

13. Id. at 208-10.

14. Starbucks v. Wolfe’s Borough Coffee, No. 01 Civ. 5981(LTS)(THK), 2011 WL 6747431, at *5 (S.D.N.Y. Dec. 23, 2011) (Starbucks V).

15. Id. at *6.

16. Starbucks VI, 736 F.3d at 207.

17. Starbucks VI, 736 F.3d at 205, citing Frank I. Schechter, “The Rational Basis of Trademark Protection,” 40 Harv. L. Rev. 813, 819 (1927) (“The mark actually sells the goods. And, self-evidently, the more distinctive the mark, the more effective its selling power.”).

18. Starbucks VI, 736 F.3d at 205, quoting Tiffany (NJ) v. eBay, 600 F.3d 93, 111 (2d Cir. 2010).

19. Id. at 209.

20. Id. at 211 (citation omitted).

21. Id. at 212.