Saying that deciding otherwise "would be the death knell for trademark protection," the U.S. Court of Appeals for the Ninth Circuit held that the doctrine of aesthetic functionality does not render trademarks unprotectable, even when it is the trademarks themselves that consumers wish to buy. Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc., et al, 457 F.3d 1062 (9th Cir., Aug. 11, 2006) (McKeown, C.J.).
Au-Tomotive Gold sells car accessories such as key chains and license plate holders featuring famous car manufacturers’ trademarks. It is licensed by some manufacturers, but Volkswagen and Audi refused to grant Au-Tomotive Gold a license because the firms already licensed others to make such products. Au-Tomotive Gold brought an action for declaratory judgment that its products did not infringe Volkswagen’s and Audi’s trademarks. The auto manufacturers counter-claimed for trademark infringement and dilution. Au-Tomotive Gold argued that because consumers purchase its products for the trademarks themselves and not because the trademarks indicate the products’ source, the trademarks are aesthetically functional and thus unprotectable on these goods. The district court agreed and enjoined Volkswagen and Audi from enforcing their trademarks against Au-Tomotive Gold. The car companies appealed.
The Ninth Circuit began its analysis by tracing the history of the aesthetic functionality doctrine in the Ninth Circuit and the Supreme Court. It noted that under the Supreme Court’s TrafFix precedent, evaluating functionality is a two-step process. First, a court must determine whether under the Inwood test the trademark is functional, i.e., whether it is essential to the use or purpose of the product or affects the product’s cost or quality. If so, the trademark is unprotectable. The Court held that Volkswagen’s and Audi’s trademarks were not functional under Inwood, because Au-Tomotive Gold’s products would still hold keys or frame license plates if they didn’t bear the trademarks. Proceeding to the second step, the court applied the Qualitex test, examining whether the auto companies’ exclusive use of their trademarks on these types of goods would put Au-Tomotive Gold at a significant non-reputational competitive disadvantage. The court answered no to the second question, holding that the desirability of the trademarks is related to their source-indicating nature. Consumers desire Au-Tomotive Gold’s products bearing the trademarks because the trademarks are related to Audi and Volkswagen, not because the trademarks are aesthetically pleasing. Thus, "[a]ny disadvantage Au-Tomotive Gold claims in not being able to sell Volkswagen or Audi marked goods is tied to reputation and association with Volkswagen and Audi." The court went on to hold that Au-Tomotive Gold’s use of the trademarks created a likelihood of confusion.
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