Trademarks and Related Property

Extracts from Business Law: Texts and Cases by Miller Clarkson

A trademark is a distinctive mark, motto, device, or implement that a manufacturer stamps, prints, or otherwise affixes to the goods it produces so that they can be identified on the market and their origins made known. In other words, a trademark is a source indicator. At common law, the person who used a symbol or mark to identify a business or product was protected in the use of that trademark. Clearly, by using another's trademark, a business could lead consumers to believe that its goods were made by the other business. The law seeks to avoid this kind of confusion. In this section, we examine various aspects of the law governing trademarks.

Statutory Protection of Trademarks and related property is provided at the federal level by the Lanham Act of 1946. The Lanham Act was enacted, in part, to protect manufacturers from losing business to rival companies that used confusingly similar trademarks. The Lanham Act incorporates the common law of trademarks and provides remedies for owners of trademarks who wish to enforce their claims in federal court. Many states also have trademark statutes.

Before 1995, federal trademark law prohibited only the unauthorized use of the same mark on competing–or on noncompeting but "related"–goods or services. Protection was given only when the unauthorized use would likely confuse consumers as to the origin of those goods and services. In 1995, Congress amended the Lanham Act by passing the Federal Trademark Dilution Act, which allowed trademark owners to bring suits in federal court for trademark dilution. Trademark dilution laws protect "distinctive" or "famous" trademarks (such as Jergens, McDonald's, Dell, and Apple) from certain unauthorized uses even when the use is on noncompeting goods or is unlikely to confuse. More than half of the states have also enacted trademark dilution laws. A famous mark may be diluted not only by the use of an identical mark but also by the use of a similar mark. A similar mark is more likely to lessen the value of a famous mark when the companies using the marks provide related goods or compete against each other in the same market.

CASE IN POINT. Samantha Lundberg operated "Sambuck's Coffeehouse," a small business in Astoria, Oregon, even though she knew that "Starbucks" is one of the largest coffee chains in the nation. When Starbucks Corporation filed a dilution lawsuit, the federal court ruled that use of the "Sambuck's" mark constituted trademark dilution because it created confusion for consumers. Not only was there a "high degree" of similarity between the marks, but also both companies provided coffee-related services and marketed their services through "stand-alone" retail stores. Therefore, the use of the similar mark (Sambuck's) reduced the value of the famous mark (Starbucks).

Trademarks may be registered with the state or with the federal government. To register for protection under federal trademark law, a person must file an application with the U.S. Patent and Trademark Office in Washington, D.C. Under current law, a mark can be registered (1) if it is currently in commerce or (2) if the applicant intends to put it into commerce within six months. In special circumstances, the six-month period can be extended by thirty months, giving the applicant a total of three years from the date of notice of trademark approval to make use of the mark and file the required use statement. Registration is postponed until the mark is actually used. Nonetheless, during this waiting period, any applicant can legally protect his or her trademark against a third party who previously has neither used the mark nor filed an application for it. Registration is renewable between the fifth and sixth years after the initial registration and every ten years thereafter (every twenty years for those trademarks registered before 1990).

Registration of a trademark with the U.S. Patent and Trademark Office gives notice on a nationwide basis that the trademark belongs exclusively to the registrant. The registrant is also allowed to use the symbol ® to indicate that the mark has been registered. Whenever that trademark is copied to a substantial degree or used in its entirety by another, intentionally or unintentionally, the trademark has been infringed (used without authorization). When a trademark has been infringed, the owner of the mark has a cause of action against the infringer. To succeed in a trademark infringement action, the owner must show that the defendant's use of the mark created a likelihood of confusion about the origin of the defendant's goods or services. The owner need not prove that the infringer acted intentionally or that the trademark was registered (although registration does provide proof of the date of inception of the trademark's use). The most commonly granted remedy for trademark infringement is an injunction to prevent further infringement. Under the Lanham Act, a trademark owner that successfully proves infringement can recover actual damages, plus the profits that the infringer wrongfully received from the unauthorized use of the mark. A court can also order the destruction of any goods bearing the unauthorized trademark. In some situations, the trademark owner may also be able to recover attorneys' fees.

A trademark must be sufficiently distinct to enable consumers to identify the manufacturer of the goods easily and to distinguish between those goods and competing products. Fanciful, arbitrary, or suggestive trademarks are generally considered to be the most distinctive (strongest) trademarks. Marks that are fanciful, arbitrary, or suggestive are protected as inherently distinctive without demonstrating secondary meaning. These marks receive automatic protection because they serve to identify a particular product's source, as opposed to describing the product itself. Fanciful trademarks are inherently distinctive and include invented words, such as "Xerox" for one manufacturer's copiers and "Kodak" for another company's photographic products. Arbitrary trademarks are those that use common words in an uncommon way that is nondescriptive, such as "Dutch Boy" as a name for paint. Even a single letter used in a particular style can be an arbitrary trademark.

CASE IN POINT. Sports entertainment company ESPN sued Quiksilver, Inc., a maker of surfer clothing, alleging trademark infringement. ESPN claimed that Quiksilver's clothing had used the stylized "X" mark that ESPN uses in connection with the "X Games," a competition focusing on extreme action sports. Quiksilver filed counterclaims for trademark infringement and dilution, arguing that it had a long history of using the stylized X on its products. ESPN created the X Games in the mid-1990s, and Quiksilver has been using the X mark since 1994. ESPN, which has trademark applications pending for the stylized X, asked the court to dismiss Quiksilver's counterclaims. A federal district court ruled that the X on Quiksilver's clothing is clearly an arbitrary mark. Noting that "the two Xs are similar enough that a consumer might well confuse them," the court refused to dismiss Quiksilver's claims and allowed the dispute to go to trial.

Suggestive trademarks suggest something about a product's nature, quality, or characteristics, without describing the product directly. These marks require imagination on the part of the consumer to identify the characteristic. For example, "Dairy Queen" suggests an association between its products and milk, but it does not directly describe ice cream. "Blu-ray" is a suggestive mark that is associated with the high-quality, high-definition video contained on a particular optical data storage disc. Although blue-violet lasers are used to read blu-ray discs, the term blu-ray does not directly describe the disc.

Descriptive terms, geographic terms, and personal names are not inherently distinctive and do not receive protection under the law until they acquire a secondary meaning. A secondary meaning may arise when customers begin to associate a specific term or phrase (such as London Fog) with specific trademarked items (coats with "London Fog" labels) made by a particular company.

CASE IN POINT. Frosty Treats, Inc., sells frozen desserts out of ice cream trucks. The video game series Twisted Metal depicts an ice cream truck with a clown character on it that is similar to the clowns on Frosty Treats' trucks. In the last game of the series, the truck bears the label "Frosty Treats." Frosty sued the video game maker for trademark infringement, but the court held that "Frosty Treats" is a descriptive term and is not protected by trademark law unless it has acquired a secondary meaning. To establish secondary meaning, Frosty Treats would have had to show that the public recognized its trademark and associated it with a single source. Because Frosty Treats failed to do so, the court entered a judgment in favor of the video game producer.

Once a secondary meaning is attached to a term or name, a trademark is considered distinctive and is protected. Even a color can qualify for trademark protection, as did the color schemes used by some state university sports teams, including Ohio State University and Louisiana State University.
Generic terms that refer to an entire class of products, such as bicycle andcomputer, receive no protection, even if they acquire secondary meanings.[pic] A particularly thorny problem arises when a trademark acquires generic use. For example, aspirin and thermos were originally the names of trademarked products, but today the words are used generically. Other trademarks that have acquired generic use are escalator, trampoline, raisin bran, dry ice,lanolin, linoleum, nylon, and corn flakes.

A service mark is essentially a trademark that is used to distinguish the services (rather than the products) of one person or company from those of another. For example, each airline has a particular mark or symbol associated with its name. Titles and character names used in radio and television are frequently registered as service marks. Other marks protected by law include certification marks and collective marks. A certification mark is used by one or more persons, other than the owner, to certify the region, materials, mode of manufacture, quality, or other characteristic of specific goods or services. When used by members of a cooperative, association, or other organization, it is referred to as a collective mark. Examples of certification marks are the phrases "Good Housekeeping Seal of Approval" and "UL Tested." Collective marks appear at the ends of motion picture credits to indicate the various associations and organizations that participated in the making of the films. The union marks found on the tags of certain products are also collective marks.

The term trade dress refers to the image and overall appearance of a product. Trade dress is a broad concept and can include either all or part of the total image or overall impression created by a product or its packaging. For example, the distinctive decor, menu, layout, and style of service of a particular restaurant may be regarded as trade dress. Trade dress can also include the layout and appearance of a catalogue, the use of a lighthouse as part of the design of a golf hole, the fish shape of a cracker, or the G-shaped design of a Gucci watch. Basically, trade dress is subject to the same protection as trademarks. In cases involving trade dress infringement, as in trademark infringement cases, a major consideration is whether consumers are likely to be confused by the allegedly infringing use.

Counterfeit Goods copy or otherwise imitate trademarked goods, but they are not the genuine trademarked goods. The importation of goods that bear counterfeit (fake) trademarks poses a growing problem for U.S. businesses, consumers, and law enforcement. In addition to the negative financial effects on legitimate businesses, certain counterfeit goods, such as pharmaceuticals and nutritional supplements, can present serious public health risks. It is estimated that nearly 7 percent of the goods imported into the United States from abroad are counterfeit.

The Stop Counterfeiting in Manufactured Goods Act (SCMGA) was enacted to combat counterfeit goods. The act makes it a crime to traffic intentionally in or attempt to traffic in counterfeit goods or services, or to knowingly use a counterfeit mark on or in connection with goods or services. Before this act, the law did not prohibit the creation or shipment of counterfeit labels that were not attached to any product. Therefore, counterfeiters would make labels and packaging bearing another's trademark, ship the labels to another location, and then affix them to an inferior product to deceive buyers. The SCMGA closed this loophole by making it a crime to knowingly traffic in counterfeit labels, stickers, packaging, and the like, regardless of whether the item is attached to any goods.

Counterfeiting Penalties. Persons found guilty of violating the SCMGA may be fined up to $2 million or imprisoned for up to ten years (or more if they are repeat offenders). If a court finds that the statute was violated, it must order the defendant to forfeit the counterfeit products (which are then destroyed), as well as any property used in the commission of the crime. The defendant must also pay restitution to the trademark holder or victim in an amount equal to the victim's actual loss.

CASE IN POINT. Wajdi Beydoun pleaded guilty to conspiring to import cigarette-rolling papers from Mexico that were falsely marked as "Zig-Zags" and selling them in the United States. The court sentenced Beydoun to prison and ordered him to pay $566,267 in restitution. On appeal, the court affirmed the prison sentence but reversed the restitution because the amount exceeded the actual loss suffered by the legitimate sellers of Zig-Zag rolling papers.

Case 8.1: The Coca-Cola Co. v. The Koke Co. of America
Supreme Court of the United States, 254 U.S. 143, 41 S.Ct. 113, 65 L.Ed. 189 (1920).

Company Profile John Pemberton, an Atlanta pharmacist, invented a caramel-colored, carbonated soft drink in 1886. His bookkeeper, Frank Robinson, named the beverage Coca-Cola after two of the ingredients, coca leaves and kola nuts. Asa Candler bought the Coca-Cola Company (www.thecoca-colacompany.com) in 1891, and within seven years, he had made the soft drink available throughout the United States, as well as in parts of Canada and Mexico. Candler continued to sell Coke aggressively and to open up new markets, reaching Europe before 1910. In doing so, however, he attracted numerous competitors, some of which tried to capitalize directly on the Coke name.
Background and Facts The Coca-Cola Company sought to enjoin (prevent) the Koke Company of America and other beverage companies from, among other things, using the word Koke for their products. The Koke Company of America and other beverage companies contended that the Coca-Cola trademark was a fraudulent representation and that Coca-Cola was therefore not entitled to any help from the courts. The Koke Company and the other defendants alleged that the Coca-Cola Company, by its use of the Coca-Cola name, represented that the beverage contained cocaine (from coca leaves), which it no longer did. The trial court granted the injunction against the Koke Company, but the appellate court reversed the lower court's ruling. Coca-Cola then appealed to the United States Supreme Court.

IN THE LANGUAGE OF THE COURT
Mr. Justice HOLMES delivered the opinion of the Court.
* * * *
* * * Before 1900 the beginning of [Coca-Cola's] good will was more or less helped by the presence of cocaine, a drug that, like alcohol or caffeine or opium, may be described as a deadly poison or as a valuable [pharmaceutical item, depending on the speaker's purposes]. The amount seems to have been very small,[pic] but it may have been enough to begin a bad habit and after the Food and Drug Act of June 30, 1906, if not earlier, long before this suit was brought, it was eliminated from the plaintiff's compound.
* * * Since 1900 the sales have increased at a very great rate corresponding to a like increase in advertising. The name now characterizes a beverage to be had at almost any soda fountain. It means a single thing coming from a single source, and well known to the community. It hardly would be too much to say that the drink characterizes the name as much as the name the drink. In other words Coca-Cola probably means to most persons the plaintiff's familiar product to be had everywhere rather than a compound of particular substances. * * * Before this suit was brought the plaintiff had advertised to the public that it must not expect and would not find cocaine, and had eliminated everything tending to suggest cocaine effects except the name and the picture of [coca] leaves and nuts, which probably conveyed little or nothing to most who saw it. It appears to us that it would be going too far to deny the plaintiff relief against a palpable [readily evident] fraud because possibly here and there an ignorant person might call for the drink with the hope for incipient cocaine intoxication. The plaintiff's position must be judged by the facts as they were when the suit was begun, not by the facts of a different condition and an earlier time. [Emphasis added.]
Decision and Remedy The district court's injunction was allowed to stand. The competing beverage companies were enjoined from calling their products Koke.
Impact of This Case on Today's Law In this early case, the United States Supreme Court made it clear that trademarks and trade names (and nicknames for those marks and names, such as the nickname "Coke" for "Coca-Cola") that are in common use receive protection under the common law. This holding is significant historically because it is the predecessor to the federal statute later passed to protect trademark rights–the Lanham Act of 1946, to be discussed next. In many ways, this act represented a codification of common law principles governing trademarks.
What if the Facts were Different? Suppose that Coca-Cola had been trying to make the public believe that its product contained cocaine. Would the result in this case likely have been different? Why or why not?