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MR. CHARBUCKS Not Likely to Dilute STARBUCKS: Second Circuit
Practical Law Legal Update 0-549-3860 (Approx. 5 pages)
MR. CHARBUCKS Not Likely to Dilute STARBUCKS: Second Circuit
by Practical Law Intellectual Property & Technology
| Published on 19 Nov 2013 • USA (National/Federal) |
In Starbucks Corporation v. Wolfe's Borough Coffee, Inc., the US Court of Appeals for the Second Circuit affirmed the US District Court for the Southern District of New York's decision which held that Starbucks failed to prove that the defendant's use of the marks Mr. CHARBUCKS and CHARBUCKS BLEND were likely to dilute Starbucks' STARBUCKS marks.
On November 15, 2013, the US Court of Appeals for the Second Circuit issued an opinion in Starbucks Corporation v. Wolfe's Borough Coffee, Inc. d/b/a Black Bear Micro Roastery, affirming the decision of the US District Court for the Southern District of New York which held that Wolfe's Borough Coffee, Inc.'s (d/b/a Black Bear Micro Roastery) use of the marks MISTER CHARBUCKS, and MR. CHARBUCKS and CHARBUCKS BLEND were not likely to dilute Starbucks Corporation's STARBUCKS marks. The Second Circuit affirmed the decision finding that the district court did not clearly err in any of its factual determinations or its evaluation of the factors for assessing likelihood of dilution under the Lanham Act.
Background
Starbucks, which owns at least 56 trademarks, displays its STARBUCKS marks on signs, in multiple locations within Starbucks stores and its website. Starbucks began as a specialty coffee shop in Seattle in 1991.
In 1997, defendant Black Bear developed a coffee blend it named CHARBUCKS BLEND. It now sells a dark-roast coffee called MISTER CHARBUCKS or MR. CHARBUCKS . After Black Bear began selling CHARBUCKS BLEND coffee, Starbucks sent Black Bear a cease and desist letter demanding Black Bear stop using the CHARBUCKS mark. Black Bear continued to use the mark and Starbucks filed suit against Black Bear in 2001, alleging, among other claims, trademark dilution of its famous STARBUCKS marks in violation of Trademark Dilution Revision Act (Section 43 (c) of the Lanham Act, 15 U.S.C. § 1125(c)).
During a 2005 bench trial, Starbucks introduced evidence of a telephone survey it conducted that revealed:
- 30.5% of the participants thought of Starbucks when they heard the name CHARBUCKS, while 9% thought of coffee.
- 3.1% of the participants thought Starbucks might offer a product called Charbucks, while 1.3% thought a coffee house might offer such a product.
Following the bench trial, the district court determined that there was neither actual dilution nor a likelihood of dilution. Starbucks appealed, and while the appeal was pending Congress passed the Trademark Dilution Revision Act (TDRA). The TDRA amended the Lanham Act to clarify that an owner of a famous mark (as defined by the TDRA) seeking an injunction only needed to prove that the defendant's mark was likely to cause dilution of the famous mark, not actual dilution. Because the TDRA clarified the standard, the Second Circuit vacated the judgment and remanded the matter to district court for further proceedings.
On remand, the district court ruled in favor of Black Bear again for substantially the same reasons as after the bench trial, but it also analyzed the federal dilution claim under the new TDRA. Specifically, the district court considered the six non-exclusive factors enumerated in the TDRA for assessing dilution by blurring and found:
- The marks were minimally similar, which the court found was sufficient alone to defeat Starbuck's claims.
- The distinctiveness of the STARBUCKS marks, their exclusivity of use by Starbucks and their high degree of recognition all weighed in favor of Starbucks.
- The intent factor weighed in favor of Black Bear because Black Bear's intent to create an association with the STARBUCKS marks did not constitute bad faith. During testimony, Black Bear had admitted that through its use of CHARBUCKS it was capitalizing on a historic connection between the word CHARBUCKS and STARBUCKS, arising out of "coffee wars" in Boston.
- Starbucks' survey was insufficient to make the actual confusion factor weigh in Starbucks' favor.
Starbucks appealed to the Second Circuit again and argued that the district court had erred in finding that the CHARBUCKS marks were not likely to dilute the STARBUCKS marks. The Second Circuit held that while the district court did not clearly err in finding that the CHARBUCKS marks were minimally similar to the STARBUCKS marks, it did err when it:
- Required a substantial similarity between the marks. The Second Circuit noted that the degree of similarity factor was only one of six factors and a low degree of similarity does not bar a dilution-by-blurring claim.
- Required bad faith to find that the intent to associate factor favored Starbucks.
- Relied on evidence that supported the absence of actual confusion to conclude that the actual association factor did not weigh in Starbucks' favor.
Accordingly, the court vacated the district court's judgment and remanded the matter once again for reconsideration of the claim in light of its rulings on various factors.
On remand, the district court continued to find that the similarity of the marks factor favored Black Bear because the marks were only minimally similar when viewed as used in commerce, for example, on product packaging. In considering the actual association factor, the district court found that the survey was evidence of actual association but discounted those results because the survey asked only about the isolated word CHARBUCKS and did not present the CHARBUCKS name in full context. As a result, it found that the actual association factor weighed no more than minimally in Starbucks' favor. On balance, the district court held that after considering the six TDRA factors Starbucks had failed to meet its burden of showing that it was entitled to injunctive relief.
Outcome
In the present appeal, Starbucks challenged the two following district court findings:
- There was only a minimal degree of similarity between the STARBUCKS marks and the CHARBUCKS marks.
- Starbucks demonstrated only a weak association between the marks.
Degree of Similarity
The Second Circuit rejected Starbucks' arguments regarding this factor because in the previous appeal it already held that the district court had not clearly erred in finding the CHARBUCKS marks minimally similar to the STARBUCKS marks. Specifically, the court highlighted the difference between the STARBUCKS marks and the CHARBUCKS marks when CHARBUCKS is placed in the proper commercial context and on product packaging as well as when CHARBUCKS is used in the phrases CHARBUCKS BLEND and MISTER CHARBUCKS. The court found that Starbucks failed to advance any new theory on why the court should revisit its previous ruling.
Actual Association
The Second Circuit also rejected Starbucks' arguments regarding this factor and held the district court did not err in finding that actual association weighs no more than minimally in Starbucks' favor because:
- Black Bear's admitted intent to create an association neither triggers a presumption of association nor evidences actual association because intent is a separate factor under the TDRA.
- Starbucks' survey evidence did not prove a high degree of actual association.
The court emphasized that the intent to create an association factor and the actual association factors are two separate factors for assessing likelihood of dilution under the TDRA. The court ruled that Starbucks' argument that admitted intent triggers a presumption of association incorrectly applies the TDRA by effectively treating these two factors as one determination instead of two distinct, but related, considerations. Therefore, the court concluded the district court did not err in finding that Black Bear's testimony about the origin of the CHARBUCKS marks was not an admission of actual association and that the intentions did not evince proof of an actual association.
Regarding Starbucks' survey, the court found that the district court correctly discounted the survey. The survey only tested the isolated word CHARBUCKS and did not test the CHARBUCKS marks in the correct context of marketplace conditions. The court came to this conclusion because discounting the survey:
- Is consistent with its previous decision finding no clear error in the district court's consideration of context in assessing mark similarity for Starbucks' trademark infringement claim. In that previous decision, the court found that the survey:
- failed to demonstrate significant actual confusion, particularly because the survey was administered by telephone and did not present CHARBUCKS in the context that Black Bear used it; and
- should have examined the effects of a hypothetical coffee named MISTER CHARBUCKS or CHARBUCKS BLEND or on the respondents' impressions of STARBUCKS coffee as a measure of dilution by tarnishment.
- Comports with precedent and other cases unrelated to Starbucks which established that to be probative, consumer surveys should present the marks at issue as they appear in commerce.
The court also disagreed with Starbucks' argument that its survey provided evidence of substantial actual association. For the question, "What is the FIRST THING that comes to your mind when you hear the name 'Charbucks,' spelled C-H-A-R-B-U-C-K-S?", 30.5% of respondents said "Starbucks" and 9% said "coffee." However, when respondents were asked, "Can you name any company or store that you think might offer a product called 'Charbucks'?", only 3.1% of respondents answered "Starbucks" and 1.3% answered "coffee house." Given the low percentages for the second question on source, the court found that the survey failed to demonstrate anything more than minimal actual association.
Because Starbucks presented the word CHARBUCKS outside of its marketplace context and failed to show that this did not materially impact the survey results, the court weighed the actual association favor only minimally in Starbucks' favor.
Overall Assessment
In balancing all the TDRA factors de novo, the court found that:
- The minimal similarity between the marks weighed heavily in Black Bear's favor as minimal similarity strongly suggests a relatively low likelihood of an association diluting the senior mark. The court further noted that under the TRDRA similarity is an integral element of the definition of blurring.
- The factors of distinctiveness, recognition and exclusivity favored Starbucks.
- The intent factor was of moderate significance and weighed in Starbucks' favor as Black Bear had admitted that through its use of CHARBUCKS it was capitalizing on an historic connection between the word CHARBUCKS and STARBUCKS, arising out of "coffee wars" in Boston.
- The actual association factor was highly relevant and weighed only minimally in Starbucks' favor.
In this context, the court regarded mark similarity and actual association as more important than the other factors. The distinctiveness, recognition and exclusivity factors did not sufficiently overcome the weak evidence of actual association between the marks given the fundamentally flawed Starbucks survey and the minimal similarity between the marks. Therefore, the court found that Starbucks failed to meet its burden of proving a likelihood of dilution by blurring and affirmed the district court's denial of Starbuck's request for an injunction
Practical Implications
The outcome in this case shows the difficulty in prevailing on a federal dilution claim, even where the plaintiff's mark is particularly famous and distinctive. Plaintiffs are unlikely to prevail where:
- The defendant's mark is only minimally similar to the plaintiff's.
- The plaintiff fails to present compelling evidence of actual association.
In constructing a consumer survey to show actual association, plaintiffs should take note of the court's discussion of the importance of replicating the marketplace conditions in which the marks appear.