"Actual Harm" - A Prerequisite to Relief Under the Federal Trademark Dilution Act

On March 4, 2003, the Supreme Court issued its Opinion on an appeal from the Sixth Circuit in the case of Moseley v. V Secret Catalogue, Inc., 155 L. Ed. 2d 1, 123 S. Ct. 1115, 2003 U.S. LEXIS 1945, 71 U.S.L.W. 4126, 16 Fla. L. Weekly Fed. S 114, 65 U.S.P.Q.2d (BNA) 1801 (U.S. 2003) In its Opinion, the Court sought to "resolve the conflict" among the Circuits on whether a plaintiff has to demonstrate "actual injury to the economic value of a famous mark" or mere "likelihood" of injury under the Federal Trademark Dilution Act of 1995 ("FTDA").

The FTDA was added to the Trademark Act of 1946, 15 U.S.C. § 1125, by Congress in 1995. Congress' purpose in adding the FTDA Amendment was to protect famous trademarks from future uses that blurred such a mark's distinctiveness, or tarnished or disparaged it, even if a likelihood of confusion were absent.

The FTDA provides in pertinent part that:

The Owner of a famous mark shall be entitled,..... 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,....

The threshold questions in any FTDA case are: (1) Is the mark in question "famous" and "distinctive"?; and (2) Is the subsequent use at issue a "dilution" of the famous and distinctive mark? "Dilution" is defined as the "lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence of -

(1) competition between the owner of the famous mark and other parties; or

(2) likelihood of confusion, mistake, or deception."

In Moseley, the Respondent, V Secret Catalogue, Inc., Et.Al. ("Victoria's Secret") filed suit against Victor and Cathy Moseley, who in February, 1998 announced the opening of a retail store in a Kentucky strip mall under the name "Victor's Secret". "Victor's Secret" featured lingerie for women, dresses, pagers, adult novelties and gifts. After being alerted of the opening of "Victor's Secret" by a patron, Victoria's Secret, through counsel, sent a cease and desist letter to the Moseley's contending that their selected business name was likely to cause confusion with its well-known "Victoria's Secret" mark, and would likely "dilute the distinctiveness" of its mark. In response, the Moseley's changed the name of their business to "Victor's Little Secret." Discontent with the response, Victoria's Secret filed suit against the Moseley's in the Federal District Court for the Western District of Kentucky alleging, among other things, trademark dilution pursuant to the FTDA.

At the conclusion of discovery, the parties filed cross-motions for summary judgment. Although Victoria's Secret presented an expert witness affidavit detailing the "enormous value" of its mark, it produced no evidence whatsoever about what impact, if at all, the Moseley's use of "Victor's Little Secret" had on the value of its mark. The District Court ruled that as a matter of law there was "no likelihood of confusion" between the competing marks and entered judgment in favor of the Moseley's on Victoria's Secret claims of infringement and unfair competition. The Court concluded, however, that the Moseley's use of the competing mark violated the FTDA because it was undisputed that Victoria's Secret's mark was "famous," the Moseley's use of their mark was "sufficiently similar to cause dilution," and such dilution had a "tarnishing effect upon the Victoria's Secret mark." Id., at 6 (quoting W. D. Ky Decision at 38a-39a). Accordingly, an injunction pursuant to the FTDA was entered against the Moseley's future use of their competing mark.

On appeal, the Sixth Circuit Court of Appeals affirmed the District Court ruling, but used the standards enumerated in the Second Circuit case of Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 208 (1999) for determining "dilution" under the FTDA. The Sixth Circuit instructed that any FTDA claim requires not only a finding of whether a mark is "famous," but also whether the mark is "distinctive." The Court also decided whether injunctive relief could be imposed by the District Court prior to the occurrence of "actual dilution." Id., at 6-7. The Court held that: (1) Victoria's Secret's mark was in fact "distinctive" and "famous" because it was "arbitrary and fanciful" deserving of a "high level of trademark protection." Id., at 7 (quoting 259 F.3d, at 470); but (2) since the Moseley's mark "tarnished" and blurred the Victoria's Secret mark, no actual harm had to be demonstrated in order to prevail in a dilution analysis. Recognizing the confusion in the Circuits on the issue of demonstrating "actual harm," the Supreme Court granted certiorari to "resolve the conflict." Id., at 9.

In its Opinion, the Supreme Court unanimously held that the relevant text of the FTDA "unambiguously requires a showing of actual dilution, rather than a likelihood of dilutions" because Congress' use of the phrase "causes dilution of the distinctive quality" of a famous mark. Id., at 14. Despite the foregoing statement, the Court made it clear that an "actual loss of sales or profit" is not a prerequisite to relief under the FTDA. Because the Victoria's Secret customer at issue in Moseley made the mental association with "Victoria's Secret" upon seeing the competing Moseley mark, but did not "form any different impressions" of Victoria's Secret as a result, there was no "lessening of the capacity of the Victoria's Secret mark to identify and distinguish goods or services sold in Victoria's Secret stores or advertised in its catalogs." Id., at 15. Moreover, since Victoria's Secret's expert said nothing about any negative impact or harm on the strength of the Victoria's Secret mark as a result of the use of the Moseley's mark, injunctive relief was unwarranted, and unavailable under the FTDA.

Conclusion

In the last paragraph of its Opinion, the Supreme Court concedes that proof of "actual harm" in FTDA cases by direct evidence such as "customer surveys" is difficult to obtain. Such "direct" evidence is also expensive for plaintiff's seeking to enforce their trademarks, and will unquestionably be subject to attack as unreliable. Although the Court states that "actual dilution can reliably be proven through circumstantial evidence," little, if any, guidance was provided by the Court.

It is clear following the Moseley decision that in order for a FTDA plaintiff to be successful, direct or circumstantial evidence of "actual harm" must be established as a result of a defendant's use of a competing mark. What has also become clear following Moseley is that the Supreme Court has made it significantly more difficult for a plaintiff to prevail in a FTDA case unless a defendant's use of a competing mark is identical to that of a plaintiff. The prerequisite of "actual harm" will surely compel counsel to fully analyze and marshal all damage evidence prior to suit, and parties to resort to alternative means of dispute resolution short of trial.