United States: Supreme Court Holds That The Federal Trademark Dilution Act Requires Proof of Actual Injury

The Supreme Court unanimously held today that the Federal Trademark Dilution Act ("FTDA") unambiguously requires proof of actual injury, as opposed to a presumption of harm arising from a subjective "likelihood of dilution" standard. Moseley v. V Secret Catalogue, Inc., Case No. 01-1015 (Mar. 24, 2003).

The FTDA provides that the "owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark." 15 U.S.C. §1125(c). The Act defines the term dilution as, "the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of (1) competition between the owner of the famous mark and other parties, or (2) likelihood of confusion, mistake, or deception." 15 U.S.C. §1127.

The Courts of Appeals have split on the proper standard of injury to be applied in dilution cases. In Ringling Brothers-Barnum & Bailey Combined Shows, Inc. v. Utah Division of Travel Dev., 170 F.3d 449 (4th Cir. 1999), the Fourth Circuit adopted a stringent standard that the plaintiff must suffer "actual, present injury" by reason of the dilution. The Fifth Circuit followed, Westchester Media v. PRL USA Holdings, Inc., 214 F.3d 658 (5th Cir. 2000). In contrast, the Second and Seventh Circuits adopted a "likelihood of injury" standard, more in line with the "likelihood of confusion" standard that applies to cases of trademark infringement. Nabisco, Inc. v. PF Brand, Inc., 191 F.3d 208 (2d Cir. 1999); Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456 (7th Cir. 2000).

In the present case, V Secret Catalogue is the owner of the trademark VICTORIA’S SECRET for women’s lingerie and other clothing and accessories. V Secret alleged trademark infringement and dilution against defendants Victor and Cathy Moseley whose store, "Victor’s Little Secret," sold lingerie and adult novelties. The district court granted summary judgment in favor of the defendants on the infringement claim, holding that V Secret had not established sufficient evidence of likelihood of confusion to create a genuine issue of material fact. The court granted summary judgment in favor of V Secret on the dilution claim, finding that the plaintiff had presented sufficient evidence to support its claim that the defendants’ use of the name "Victor’s Little Secret" was likely to cause blurring or tarnishment of the VICTORIA’S SECRET mark.¹ On appeal, the Sixth Circuit adopted Second Circuit’s less demanding "likelihood of dilution" Nabisco standard, and affirmed the district court’s grant of summary judgment in favor of V Secret. V Secret Catalogue, Inc. v. Moseley, 259 F.3d 464 (6th Cir. 2000).

Justice Stevens wrote for a unanimous Court that, unlike traditional infringement law, the prohibitions on trademark dilution are not the product of common-law development and are not motivated by an interest in protecting consumers. Slip Op. at 10. The Court reviewed the legislative history of the FTDA with particular emphasis on portions of the committee report, which state that the purpose of the legislation is to protect famous marks from subsequent uses that blur or tarnish the distinctiveness of the mark. Id. at 12.

In dicta, the Court hinted that the FTDA may not apply to cases of tarnishment. The Court noted that the defendants did not dispute the relevance of the tarnishment claim, "presumably because that concept was prominent in litigation brought under state antidilution statutes" (which expressly refer to both "injury to business reputation" and to "dilution of the distinctive quality of a trade name or trademark") and because it was mentioned in the legislative history. The Court questioned, however, whether tarnishment is actually embraced by the statutory text. Indeed, the Court noted, the contrast between the state statutes and the legislative history of the federal statute, which refers only to blurring, arguably supports a narrower reading of the FTDA. Id. at 13.

The Court also noted that, unlike the FTDA, many of these state statutes refer to "likelihood" of harm, rather than to a completed harm. The absence of this language, the Court held, "unambiguously requires a showing of actual dilution, rather than a likelihood of dilution." Id. at 14. This conclusion is buttressed by the FTDA’s contrasting definition of "dilution" as the "lessening of the capacity of a famous mark to identify and distinguish goods and services" regardless of any "likelihood of confusion". Id.

The Court disagreed with the Fourth Circuit’s suggestion in Ringling Bros., supra, that a dilution plaintiff must prove the actual consequences of dilution such as actual loss of sales or profits. However, where the marks are not identical, the mere association of a junior user’s mark with a famous mark is insufficient to establish actionable dilution under the FTDA. In the instant case, despite evidence that a consumer who saw the advertisement for the defendant’s store made an association with the plaintiff’s mark, there was no evidence of any lessening of the capacity of the VICTORIA’S SECRET mark to identify or distinguish the plaintiff’s goods. Moreover, the Court found that although the consumer was offended by the advertisement, it did not change his conception of the plaintiff’s goods or services. Id. at 14-15.

The Court finally addressed the arguments made by amici that consumer surveys and other means of demonstrating actual dilution are expensive and often unreliable. The Court commented that such surveys might be unnecessary if actual dilution can be proven reliably through circumstantial evidence – for example, where the junior and senior marks are identical. Id. at 15-16. In the instant case, the Court held that the evidence was insufficient to support summary judgment on the dilution count.

Justice Kennedy authored a concurring opinion to address the factors that should be considered to establish dilution in cases seeking injunctive relief. Calling particular attention to the word "capacity" in the statute, Justice Kennedy found that the term imports both the present and potential power of the mark to identify and distinguish goods. Concurrence, Kennedy, J. at 1. He noted that, "in some cases the fact that this power will be diminished could suffice to show dilution." Id. Thus, if a mark will "erode or lessen the power of a famous mark to give customers the assurance of quality and full satisfaction" from purchasing goods bearing a famous mark, dilution may be established. Id. at 2. Justice Kennedy found that this diminishment may be shown by the "probable consequences" flowing from use or adoption of the competing mark, which is supported by the Act’s authorization of injunctive relief to "prevent future wrong, although no right has yet been violated." Thus, "a holder of a famous mark threatened with diminishment of the mark’s capacity to serve its purpose should not be forced to wait until the damage is done and the distinctiveness of the mark has been eroded." Id. at 2.