Standing On Uncertain Ground To Enjoin Dilutions

LAST JANUARY marked the fifth anniversary of the signing of the Federal Trademark Dilution Act (FTDA),¹ which permits the owner of a famous trademark to enjoin the unauthorized commercial uses of a similar or identical mark by a third party, even when such unauthorized uses do not compete with the owner's goods or services nor are likely to cause confusion among consumers.

Although a sizable body of case law has developed interpreting various aspects of the FTDA, few cases have sought to identify the parties with standing to bring claims under the act. The legislative history of the act and the few reported judicial decisions on the issue indicate that courts eventually may analyze FTDA standing issues according to principles developed in trademark infringement actions under § 32(1) of the Lanham Act.² Accordingly, in certain circumstances, exclusive licensees of famous trademarks could have standing to maintain dilution actions under the FTDA.

The text of the FTDA seemingly suggests that there is little room for judicial interpretation on the issue of standing. It provides that "owners of famous marks" are entitled to injunctions and other remedies for dilution of their marks.³ The only two courts to have considered FTDA standing questions, however, have reached different conclusions, indicating that the statutory language might not be so rigid after all.

The first court to interpret the act's standing requirement was the U.S. District Court for the Northern District of California in STX Inc. v. Bauer USA Inc.⁴ The STX court concluded that "owner", as used in the FTDA, grants standing solely to the actual owner of a famous mark, and it ruled that the exclusive licensee of a trademark does not have standing to bring a cause of action under the FTDA.⁵ The STX court found that the license agreement at issue did not grant the plaintiff-licensee any ownership rights in the licensed marks, and the court placed particular emphasis on the fact that the licensor explicitly retained all rights, title and interest in and to the licensed marks and the exclusive right to take action against infringers or imitators.⁶ The STX court nevertheless did take note of the proposition set forth in one of its previous decisions, Ultrapure Systems Inc. v. Hamlet Group,⁷ that an exclusive licensee has a property interest in a licensed trademark when the license agreement does not restrict the licensee's ability to enforce the trademark.⁸

This suggestion, in dicta, that an exclusive licensee possessing the right to take action against infringers and imitators may have an enforceable property interest in the licensed mark was subsequently echoed by the U.S. District Court for the District of Connecticut in World Championship Wrestling v. Titan Sports Inc.⁹ In denying the defendant's motion to dismiss for lack of standing, the World Championship Wrestling court distinguished on the facts the STX court's "persuasive" opinion.¹⁰ The World Championship Wrestling court indicated that the plaintiff-licensee in fact might have standing to assert its dilution claims under the FTDA if it could demonstrate that the license agreements at issue transferred greater ownership rights in the licensed trademarks than the license agreement in STX.¹¹

The reasoning of STX and the holding of World Championship Wrestling suggest that the term "owner" as used in the FTDA may be extended to include certain licensees. Not only does such an interpretation of the act appear to contradict the literal language of the statutory text, however, but neither has any court yet attempted to enumerate the necessary rights in a trademark that must be transferred to a licensee for it to be deemed the owner of the mark for purposes of the FTDA.

The key to resolving these issues may lie with the act's legislative history. The FTDA, as originally introduced in March 1995, entitled the "registrant of a famous mark" to an injunction for dilution of its famous mark.¹² On July 27, 1995, at the suggestion of the U.S. Patent and Trademark Office, the House of Representatives Subcommittee on Courts and Intellectual Property approved an amendment to the act extending dilution protection to both registered and unregistered marks.¹³ The purpose of the amendment, as noted in the House report accompanying the final version of the act, was to ensure protection for all trademarks sufficiently well known to be deemed "famous" under the FTDA, regardless of whether such marks were registered or unregistered.¹⁴

The act's legislative history indicates that Congress changed "registrants" to "owners" solely to protect a broader class of trademarks, rather than to limit the intended class of plaintiffs. The class of plaintiffs that may bring actions under the FTDA as owners of famous trademarks therefore arguably should include, at the very least, that class of plaintiffs that could bring actions as the registrant of famous marks.

In a context analogous to dilution, Congress has granted the registrant of a trademark the sole right to bring a claim for infringement under § 32(1) of the Lanham Act against any person using a trademark registered with the Trademark Office in connection with goods and services and in a manner likely to cause confusion among consumers.¹⁵ Sec. 45 of the Lanham Act states that the term "registrant" includes the legal representatives, predecessors, successors and assigns of the registrant.¹⁶

In contrast to the FTDA, a significant body of case law has developed on the issue of standing to bring claims for trademark infringement under § 32(1) of the Lanham Act. Several courts have indicated that an exclusive licensee can obtain sufficient rights in a trademark to be deemed an "assignee" of the licensor for standing purposes.

For example, the U.S. Court of Appeals for the 7th Circuit ruled in Finance Investment Co. (Bermuda) Ltd. v. Geberit AG that an exclusive licensee possessing the right to exclude even the licensor from using the licensed trademark should be equated with an assignee because no right to use the mark is reserved to the licensor.¹⁷ Because § 45 of the Lanham Act defines "registrant" to include the registrant's assigns, an exclusive licensee that can be considered the equivalent of an assignee has standing to bring a § 32(1) infringement claim.¹⁸

Similarly, in a decision affirmed by the 4th Circuit, the U.S. District Court for the Eastern District of Virginia held in Shoney's Inc. v. Schoenbaum that the plaintiff-licensee obtained rights sufficient to give it standing to bring a claim under § 32(1) when the license agreement at issue provided for the plaintiff's exclusive use of the licensed trademark within the licensed territory.¹⁹ The 3d Circuit and the 6th Circuit have reached similar conclusions regarding standing to bring infringement claims under § 32(1).²⁰

The courts that have considered the issue of standing under § 32(1) have tended to focus on two key factors in determining whether an exclusive licensee obtained sufficient rights to be deemed a registrant: whether the licensor had transferred to the licensee the right to sue for infringement of the mark, and whether the license agreement explicitly stated that the licensor retained any ownership rights in the registered mark.

Two decisions of the U.S. District Court for the Northern District of Illinois best demonstrate the importance of these factors in determining a licensee's standing to bring claims under § 32(1). In Etri Inc. v. Nippon Miniature Bearing Corp., the district court held that the plaintiff-licensee had standing to sue under § 32(1) because the licensor transferred to the plaintiff all of its rights to use the trademark within the licensed territory, including the right to enforce the registered trademark.²¹ The Etri court noted that it may have ruled differently if the license agreement had stated that the licensee had no ownership interest in the licensed trademarks.²²

The same Illinois district court did in fact rule differently eight years later in Gruen Marketing Corp. v. Benrus Watch Co.²³ The Gruen court held that an exclusive licensee lacks standing to bring a claim under § 32(1) when the license agreement explicitly states that the licensor retains exclusive ownership of the licensed trademark, even if the license agreement transfers to the licensee the right to sue for infringement.²⁴

Another example is the Ultrapure decision cited by the STX court, which held that the plaintiff-licensee qualified as an assignee when the license agreement gave the plaintiff exclusive use of the licensed trademark in the United States and did not set forth any restrictions on its ability to enforce the mark.²⁵ The Ultrapure court, however, stated that a licensee lacks standing under § 32(1) when the license agreement explicitly states that the licensor retains exclusive ownership of the trademark.²⁶

The approach taken by the Etri, Gruen and Ultrapure courts in trademark infringement actions under § 32(1) of the Lanham Act is entirely consistent with the reasoning of the California court in STX. A licensee, even an exclusive licensee, is not an owner or registrant of a licensed trademark when the licensor expressly retains all right, title and interest in and to the mark. As demonstrated in Gruen, this is the case even when the licensee receives the right to enforce the licensed trademark. If the licensee obtains the right to enforce the mark and the licensor does not specifically retain exclusive ownership rights, however, the licensee may be deemed the real party-in-interest for purposes of standing. As the U.S. District Court for the District of New Jersey observed in Ferrero U.S.A. v. Ozak Trading Co., to rule otherwise would "deny the reality" of the situation.²⁷

Parties negotiating trademark licenses and concerned about maintaining claims under the FTDA should be mindful of the potential standing issues that may arise. Transferring to an exclusive licensee the right to enforce the licensed mark against dilution and infringement, without the licensor's explicit retention of ownership rights, may be sufficient to transfer to the licensee the right to bring a claim under the act.

If the licensor does not want its licensee to have standing to bring claims for trademark dilution, the license agreement should incorporate the licensor's specific reservation of ownership rights in the licensed mark. Until additional courts develop the standing requirements for the FTDA, however, there will continue to be uncertainty in this area of trademark law.

1. 15 U.S.C. 1125(c) (2000) (codifying Lanham Act § 43(c)).
2. See id. § 1114(1) (codifying Lanham Act § 32(1)).
3. See id. § 1125(c).
4. 43 U.S.P.Q.2d 1492 (N.D. Cal. 1997).
5. Id. at 1495-96.
6. Id. at 1495.
7. 921 F. Supp. 659 (N.D. Cal. 1996).
8. 43 U.S.P.Q.2d at 1495.
9. 46 F. Supp. 2d 118 (D. Conn. 1999).
10. Id. at 122.
11. Id. Apparently, neither party provided the court with copies of the license agreements in connection with the motion to dismiss.
12. H.R. Rep. No. 374, at 3 (1995).
13. 50 Pat., Trademark & Copyright J. (BNA) 344 (Aug. 3, 1995).
14. H.R. Rep. N. 374, at 3 (1995).
15. 15 U.S.C. 1114(1) (codifying Lanham Act § 32(1)).
16. See id. § 1127 (codifying Lanham Act § 45).
17. 165 F.3d 526, 531-32 (7th Cir. 1998).
18. Id. at 532.
19. 686 F. Supp. 554, 563 (E.D. Va. 1988), aff'd, 894 F.2d 92 (4th Cir. 1994).
20. See Ferrero U.S.A. Inc. v. Ozak Trading Co., 753 F. Supp. 1240, 1245 (D.N.J. 1991) (stating that denying standing under § 32(1) to exclusive U.S. distributor of trademark owner's goods would "deny the reality of the actual party in interest"), aff'd, 935 F.2d 1281 (3d Cir. 1991), rev'd in part on other grounds, 952 F.2d 44 (3d. Cir. 1991); Wynn Oil Co. v. Thomas, 839 F.2d 1183, 1189-90 (6th Cir. 1988) (holding, without explanation or citation to authority, that exclusive licensee has standing to sue for infringement under § 32(1)).
21. No. 85-C-615, 1989 WL 99575, at *3 (N.D. Ill. Aug. 18, 1989).
22. Id. at *3 n.7.
23. 955 F. Supp. 979 (N.D. Ill. 1997).
24. Id. at 983.
25. 921 F. Supp. at 665-66.
26. Id. at 665.
27. 753 F. Supp. at 1245.

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