Friday, November 15, 2013

Some days Starbucks gets the bear, some days the bear gets Starbucks

Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., No. 12364cv (2d Cir. Nov. 15, 2013)

The district court found that defendant’s Mister Charbucks and Charbucks Blend coffee wasn’t likely to dilute Starbucks’ mark. The court of appeals affirmed on the third trip to the court of appeals, in what I choose to believe is a hopeful sign that the idiocy of dilution is again being recognized.  The court found no reversible error in the district court’s factual findings, and, balancing the statutory dilution factors de novo because that’s a legal determination, agreed that Starbucks failed to prove likely dilution.

Starbucks famously sells coffee.  So, unfamously, does defendant (doing business as Black Bear), and it called its dark roast blend “Charbucks Blend,” now “Mister Charbucks.”  One of the reasons for the name was the public perception that Starbucks roasts its beans unusually dark. 

Starbucks submitted a consumer survey: a phone poll of 600 participants.  When asked “What is the first thing that comes to your mind when you hear the name ‘Charbucks,’ spelled CHARBU CKS?,” 30.5 percent of participants answered “Starbucks,” while percent answered “coffee.”  Other common responses included “barbeque” or “charcoal” (7.9 percent); “restaurant” or “grill” (7.5 percent); “meat,” “steak,” or “hamburger” (4.6 percent); and “money” (3.9 percent).  When the participants were asked, “Can you name any company or store that you think might offer a product called ‘Charbucks’?,” 3.1 percent responded “Starbucks,” and another 1.3 percent responded “coffee house.”  However, other, more popular responses included: “grocery store” (18.3 percent); “discount store” (16.9 percent); “restaurant” (7.0 percent); “department store” (4.8 percent); and “hardware store” or “home improvement store” (3.7 percent).  The expert concluded that the number one association of Charbucks was with Starbucks, but that it was impossible to measure the reaction to visual cues with a phone survey.

The court of appeals in a previous opinion upheld the district court’s finding that the marks had minimal similarity, because the context of the Charbucks Marks on Black Bear’s packaging, on its website, and in the phrases “Charbucks Blend” and “Mister Charbucks” differentiated them from the famous marks.  But it remanded because the district court erroneously required substantial similarity between the marks, and similarity was only one of six factors in the blurring test (though one would think it’d be a damned important one, since most of the others just go to the fame of the plaintiff’s mark!).  Also, the initial district court TDRA opinion erred by requiring bad faith before intent to associate the marks could favor the plaintiff, and erred by relying on lack of actual confusion, which doesn’t directly matter for dilution.

On remand, the district court found that Starbucks’ distinctiveness, exclusive use, and fame favored Starbucks.  But minimal similarity between the marks in context still favored Black Bear.  And it discounted the survey results for looking for associations only from the isolated word Charbucks, and not in their full context.  Here, only 30.5% of repsondents associated the two, while other dilution cases featured higher percentages.  Thus, the actual association factor weighed no more than minimally in Starbucks’ favor.  Overall, the court found association and similarity to be important factors, given the statutory definition of blurring as “association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark” (emphasis added).  Thus, Starbucks failed to carry its burden of showing likely dilution.

The court of appeals ran through the history of federal dilution law, noting but not explicitly highlighting the fact that dilution’s proponents always emphasized the idea that dilution protected the use of famous marks on noncompeting goods.  E.g., Sen. Judiciary Comm. Rep. on S. 1883, S. Rep. No. 100515 (the law was “specifically intended” to come into play “where the unauthorized use by others, on dissimilar products for which the trademark is not registered, dilutes the distinctiveness of [a] famous work.”).  (This is, in fact, worth highlighting: as here, if a plaintiff can’t show infringement when the goods directly compete, there’s very little justification for allowing it a bite at the dilution apple.) 

The court of appeals also nodded to the Chewy Vuiton case: “we need not consider all six statutory factors listed in U.S.C. § 1125(c)(2)(B)(i)–(vi) if some are irrelevant to the ultimate question; nor are we limited to those six factors. See Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 507 F.3d 252, 266 (4th Cir. 2007).”  Instead, citing pre-TDRA law, the court of appeals endorsed a “cautious and gradual approach,” “which favors the development of a nonexclusive list of trademark dilution factors over time.”

Starbucks challenged the minimal similarity and weak association factual findings, but the court of appeals found no clear error.  The first finding had already been affirmed in the previous appeal because of the distinct packaging and the addition of other terms to “Charbucks.”
As to a weak showing of actual association, Starbucks argued that Black Bear’s admitted intent to create an association triggered a presumption of association, or at least was strong evidence of actual association.  But intent is a separate factor under the TDRA, not per se evidence that actual association weighs in the plaintiff’s favor.  McCarthy, and Federal Express Corp. v. Federal Espresso, Inc., 201 F.3d 168 (2d Cir. 2000), say that intent can be evidence of successful association, and the intent factor is indeed important.  But to avoid making any clause superfluous, the court declined to merge the intent to associate and actual association factors.  So there was no clear error in finding that testimony about the origins of the Charbucks marks wasn’t an admission of actual association or proof thereof.

Comment: Fancy footwork indeed.  Perhaps this could be done more rationally: blurring isn’t just association; it’s association that harms the distinctiveness of the famous mark—whatever that means.  Thus, just as many circuits now recognize that intent to copy is not itself evidence of likely confusion, though intent to confuse would be, we could say, consistent with many confusion cases, that intent to associate isn’t itself particularly weighty, unless it’s intent to harm the distinctiveness of the famous mark.  Maybe that intent will be rare—but let’s face it, how many Buick Aspirins do you see?

Turning to the survey, the court of appeals also found that the district court didn’t err when it discounted the survey because it only tested “Charbucks,” rather than the whole marks in context and because the 30.5% association was relatively small.  Surveys should try to approach marketplace conditions.  The Lanham Act covers the defendant’s “use of a mark . . . in commerce that is likely to cause dilution by blurring,” so “the way the defendant’s mark is used in commerce is central to the dilution inquiry.”  Starbucks presented no record evidence that “Charbucks” is ever read or heard in isolation—though “Mr. Charbucks” was presented in plain text on at least one page of Black Bear’s website, all other record uses of the Charbucks marks used Black Bear’s distinct color scheme, font, and layout.  It wasn’t clearly erroneous to find that prefixes or suffixes lessened the similarity between the marks.

Starbucks argued that 30.5% wasn’t small.  While the court deemed “What is the FIRST THING that comes to your mind when you hear the name ‘Charbucks,’ spelled CHARBUCKS?” to be the question “most probative of actual association,” it was notable that the next question, “Can you name any company or store that you think might offer a product called ‘Charbucks’?” produced much tinier numbers—only 3.1% answered “Starbucks” and 1.3% answered “coffee house.” Those percentages showed minimal actual association.  This question tested source confusion, which can be probative of association, because confusion requires that Charbucks call Starbucks to mind.  Some of the other answers could be consistent with an association with Starbucks (e.g., grocery store, restaurant), but they’re also consistent with other things, such as meat or a charcoal grilling product, as 38.5% said.  Thus, the district court didn’t clearly err when it evaluated the actual association factor as weighing only minimally in Starbucks’ favor.  If the survey had presented the Charbucks mark in commerce, the court of appeals might well have found clear error, but it didn’t.

Engaging in de novo balancing, the court also concluded that Starbucks didn’t meet its burden.  “[T]he ultimate question is whether the Charbucks Marks are likely to cause an association arising from their similarity to the Starbucks Marks, which impairs the Starbucks Marks’ tendency to identify the source of Starbucks products in a unique way.”  In a ridiculous overstatement, the court doubled down on its earlier holding: “Certainly, a plaintiff may show a likelihood of dilution notwithstanding only minimal similarity.”  But in this case, “minimal similarity strongly suggests a relatively low likelihood of an association diluting the senior mark.”  Indeed, the statute itself emphasizes similarity in its definition of dilution by blurring as association arising from similarity that impairs distinctiveness.  While there’s no threshold of substantial similarity, a finding of minimal similarity can be highly probative.

The next three factors—the degree of distinctiveness, exclusive use, and recognition—“are features of the senior mark itself that do not depend on the use of the junior mark.”  Distinctiveness makes the plaintiff’s rights bigger and thus more likely to be impaired by a junior use (of course, that conclusion doesn’t follow at all, since more famous marks are more likely to resist dilution because consumers have such a strong conception of their meaning, but whatever!).  The more important factors are similarity of marks and actual association, as the district court held.  (You mean, the factors that the district court found to be important the first time around?  Given that the Second Circuit says that weighing the factors is done de novo, remind me why this had to go back to the district court?)  Viewed in light of Starbucks’ fame, “the fact that more survey participants did not think of ‘Starbucks’ upon hearing ‘Charbucks’ reinforces the District Court’s finding that the marks are only minimally similar, and therefore unlikely to prompt an association that impairs the Starbucks Marks.”

As for intent, the court of appeals gave it “moderate” significance.  Black Bear was capitalizing on an historic connection between the word “Charbucks” and “Starbucks,” which arose out of the socalled “coffeewars” in Boston.  This favored a finding of likely dilution. 

But actual association was highly relevant, though evidence thereof is not required to prevail.  The survey evidence was weak at best.  Given that Starbucks bore the burden of showing entitlement to injunctive relief, the district court was affirmed.

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