The Moseley Decision: The Supreme Court On Trademark Dilution

What Did The Supreme Court Say?

Justice Stevens authored the unanimous opinion for the Court and began by noting the differences between state antidilution statutes and the FTDA. Most importantly, state statutes 'expressly refer to both 'injury to business reputation' and to 'dilution of the distinctive quality of a trade name or trademark,' while the FTDA only expressly refers only to the latter.' Quoting the language of the statute, the Court declared that injunctive relief is provided 'against another person's commercial use of a mark or trade name if that use 'causes dilution of the distinctive quality' of the famous mark.' Accordingly, by literally interpreting the FTDA, the Court held the 'text [of the FTDA] unambiguously requires a showing actual dilution, rather than a likelihood of dilution.'

In addition, 'consequences of dilution, such as an actual loss of sales or profits' are not required under the statute, and the Court rejected the Fourth Circuit's opinion in Ringling Bros. requiring proof of an actual loss of sales or profits. However, the Supreme Court agreed that 'where the marks at issue are not identical, the mere fact that consumers mentally associate the junior user's mark with a famous mark is not sufficient to establish actionable dilution.' Ultimately, the Court held that 'there is a complete absence of evidence of any 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.' This holding was premised on the fact that while the particular consumer in this case was offended by Moseley's ad, it did not change his conception of Victoria's Secret. However, this Court conceded that the VICTORIA'S SECRET mark is 'unquestionably valuable,' especially since Moseley did not challenge the proposition that the VICTORIA'S SECRET mark was famous.

So how does one prove actual dilution? According to the Court, consumer surveys 'are expensive and often unreliable.' The Court even admitted that it 'may be difficult' to show 'evidence of an actual 'lessening of the capacity of a famous mark to identify and distinguish goods or services.” However, the Court offered some guidance and stated that direct evidence of dilution may not be necessary if circumstantial evidence is available, as in the situation where the junior and senior marks are identical. In the end, the Court stated that while the burden of proof may be difficult, it cannot simply 'dispens[e] with proof of an essential element of a statutory violation.'

Finally, in a concurring opinion, Justice Kennedy curiously stated that this opinion does not foreclose the use of dilution claims in the future. For if a party's mark is 'threatened with diminishment,' the party does not have to 'wait until the damage is done and the distinctiveness of the mark has been eroded.'

What Does This Mean?

The FTDA was enacted to protect famous trademarks from subsequent uses that blur the famous mark's distinctiveness or tarnish or disparage it, even if a likelihood of consumer confusion does not exist. Such tarnishment or disparagement is typically a gradual harm to a famous trademark that occurs over many years. As time passes, the famous mark loses some of its distinctiveness and the mark's ability to identify the owner diminishes.

Because Victoria's Secret failed to show actual dilution, the Supreme Court's decision authorizes Moseley to continue using the name and mark VICTOR'S LITTLE SECRET in connection with the sale of lingerie and adult products. (The Moseley case was an appeal from the grant of a motion for summary judgment. Accordingly, Victoria's Secret still has an opportunity to obtain an injunction after a full trial.) Nothing prevents Moseley from expanding his use of VICTOR'S LITTLE SECRET nationwide, advertising his trademark and product. Likewise, if VICTOR'S LITTLE SECRET can be used in connection with competing goods, third parties will have a strong argument to support adoption of other 'non-identical' marks in connection with competing goods, such as VICTORIAN SECRECY, VICTORIOUS SECRET, VIKTORIA'S SEKRET, etc. Over time, these uses will weaken the distinctiveness of the VICTORIA'S SECRET mark. Accordingly, the Supreme Court's decision in the Moseley case opens the door to the very harm that the FTDA was enacted to prevent he gradual blurring and tarnishment of a famous mark.

By requiring trademark owners to demonstrate a showing of actual dilution, as opposed to likely dilution, the Supreme Court puts the owners of famous trademarks in a precarious position. By its very nature, the harm of a diluting mark does not immediately show itself. When a third party adopts a diluting mark, unless the marks are identical, the trademark owner may not immediately have a cause of action. Even worse is the situation where the trademark owner discovers the prospective launch of a diluting trademark. It will not be easy to obtain a temporary restraining order or preliminary injunction under the FTDA, as the trademark owner will have to demonstrate that a mark not yet in use causes actual dilution. Despite Justice Kennedy's concurring opinion, this will be a challenging task.

On the other hand, if the trademark owner waits several years for the actual dilution to become apparent, then a dilution claim may be subject to the defenses of laches and acquiescence. The defenses of laches and acquiescence are equitable defenses that prevent a trademark owner from taking action after the dilutor has relied to its detriment on the trademark owner's failure to take action.

The result is that the Supreme Court's ruling in Moseley paralyzes trademark owners, as they are required to immediately show actual dilution, which by its very nature, does not immediately become apparent. Alternatively, famous trademark owners can wait a number of years for the dilution to become readily apparent. However, the trademark owners will face the defenses of laches and acquiescence. Even worse, if the trademark owners wait for actual dilution to occur, the trademark owners suffer damage to the goodwill associated with their mark, the very irreparable harm the FTDA was designed to prevent.

The Supreme Court's decision was a literal interpretation of the statute. Accordingly, the fault may lie in the drafters of the FTDA, which used the term 'causes dilution' as opposed to 'causes a likelihood of dilution.' Thus, it may be time for the legislature to give the FTDA an overhaul. In the meantime, to be successful in a dilution claim under the FTDA, owners of famous trademarks will need to gather and prepare evidence, such as consumer surveys (even if expensive and sometimes unreliable), expert testimony and customer declarations, significant enough to prove actual dilution.

Joseph V. Norvell, a shareholder, and Joseph T. Kucala, Jr., an associate, specialize in trademark and copyright law at the intellectual property law firm Brinks Hofer Gilson & Lione in Chicago.

The U.S. Supreme Court recently issued its first decision interpreting the Federal Trademark Dilution Act of 1995 (FTDA) in Moseley v. V Secret Catalogue, Inc., No. 01-1015 (March 4, 2003). In an opinion that corporate counsel were eagerly awaiting, the unanimous Court held that proof of actual dilution was required to succeed on a claim of trademark dilution under the FTDA. This decision effectively raises the bar for trademark owners and their counsel to prove a claim of actual dilution.

What Happened In The Lower Court?

Operating a lingerie and adult toy business in Kentucky under the name 'Victor's Little Secret,' Moseley found himself entangled in a lawsuit with Victoria's Secret, which operates 750 lingerie stores nationwide. Victoria's Secret sued Moseley for trademark infringement and dilution under the FTDA. The district court found no likelihood of confusion to support an infringement claim. However, the court found the VICTORIA'S SECRET mark to be famous and it was entitled to protection under the FTDA. Moseley appealed to the Sixth Circuit arguing that Victoria's Secret failed to prove actual economic loss or harm, as required by the Fourth Circuit. Rejecting this argument, the Sixth Circuit held that only a likelihood of harm was required under the FTDA. The Supreme Court granted certiorari on the sole issue of whether the FTDA requires proof of actual trademark dilution.

What Did The Supreme Court Say?

Justice Stevens authored the unanimous opinion for the Court and began by noting the differences between state antidilution statutes and the FTDA. Most importantly, state statutes 'expressly refer to both 'injury to business reputation' and to 'dilution of the distinctive quality of a trade name or trademark,' while the FTDA only expressly refers only to the latter.' Quoting the language of the statute, the Court declared that injunctive relief is provided 'against another person's commercial use of a mark or trade name if that use 'causes dilution of the distinctive quality' of the famous mark.' Accordingly, by literally interpreting the FTDA, the Court held the 'text [of the FTDA] unambiguously requires a showing actual dilution, rather than a likelihood of dilution.'

In addition, 'consequences of dilution, such as an actual loss of sales or profits' are not required under the statute, and the Court rejected the Fourth Circuit's opinion in Ringling Bros. requiring proof of an actual loss of sales or profits. However, the Supreme Court agreed that 'where the marks at issue are not identical, the mere fact that consumers mentally associate the junior user's mark with a famous mark is not sufficient to establish actionable dilution.' Ultimately, the Court held that 'there is a complete absence of evidence of any 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.' This holding was premised on the fact that while the particular consumer in this case was offended by Moseley's ad, it did not change his conception of Victoria's Secret. However, this Court conceded that the VICTORIA'S SECRET mark is 'unquestionably valuable,' especially since Moseley did not challenge the proposition that the VICTORIA'S SECRET mark was famous.

So how does one prove actual dilution? According to the Court, consumer surveys 'are expensive and often unreliable.' The Court even admitted that it 'may be difficult' to show 'evidence of an actual 'lessening of the capacity of a famous mark to identify and distinguish goods or services.” However, the Court offered some guidance and stated that direct evidence of dilution may not be necessary if circumstantial evidence is available, as in the situation where the junior and senior marks are identical. In the end, the Court stated that while the burden of proof may be difficult, it cannot simply 'dispens[e] with proof of an essential element of a statutory violation.'

Finally, in a concurring opinion, Justice Kennedy curiously stated that this opinion does not foreclose the use of dilution claims in the future. For if a party's mark is 'threatened with diminishment,' the party does not have to 'wait until the damage is done and the distinctiveness of the mark has been eroded.'

What Does This Mean?

The FTDA was enacted to protect famous trademarks from subsequent uses that blur the famous mark's distinctiveness or tarnish or disparage it, even if a likelihood of consumer confusion does not exist. Such tarnishment or disparagement is typically a gradual harm to a famous trademark that occurs over many years. As time passes, the famous mark loses some of its distinctiveness and the mark's ability to identify the owner diminishes.

Because Victoria's Secret failed to show actual dilution, the Supreme Court's decision authorizes Moseley to continue using the name and mark VICTOR'S LITTLE SECRET in connection with the sale of lingerie and adult products. (The Moseley case was an appeal from the grant of a motion for summary judgment. Accordingly, Victoria's Secret still has an opportunity to obtain an injunction after a full trial.) Nothing prevents Moseley from expanding his use of VICTOR'S LITTLE SECRET nationwide, advertising his trademark and product. Likewise, if VICTOR'S LITTLE SECRET can be used in connection with competing goods, third parties will have a strong argument to support adoption of other 'non-identical' marks in connection with competing goods, such as VICTORIAN SECRECY, VICTORIOUS SECRET, VIKTORIA'S SEKRET, etc. Over time, these uses will weaken the distinctiveness of the VICTORIA'S SECRET mark. Accordingly, the Supreme Court's decision in the Moseley case opens the door to the very harm that the FTDA was enacted to prevent he gradual blurring and tarnishment of a famous mark.

By requiring trademark owners to demonstrate a showing of actual dilution, as opposed to likely dilution, the Supreme Court puts the owners of famous trademarks in a precarious position. By its very nature, the harm of a diluting mark does not immediately show itself. When a third party adopts a diluting mark, unless the marks are identical, the trademark owner may not immediately have a cause of action. Even worse is the situation where the trademark owner discovers the prospective launch of a diluting trademark. It will not be easy to obtain a temporary restraining order or preliminary injunction under the FTDA, as the trademark owner will have to demonstrate that a mark not yet in use causes actual dilution. Despite Justice Kennedy's concurring opinion, this will be a challenging task.

On the other hand, if the trademark owner waits several years for the actual dilution to become apparent, then a dilution claim may be subject to the defenses of laches and acquiescence. The defenses of laches and acquiescence are equitable defenses that prevent a trademark owner from taking action after the dilutor has relied to its detriment on the trademark owner's failure to take action.

The result is that the Supreme Court's ruling in Moseley paralyzes trademark owners, as they are required to immediately show actual dilution, which by its very nature, does not immediately become apparent. Alternatively, famous trademark owners can wait a number of years for the dilution to become readily apparent. However, the trademark owners will face the defenses of laches and acquiescence. Even worse, if the trademark owners wait for actual dilution to occur, the trademark owners suffer damage to the goodwill associated with their mark, the very irreparable harm the FTDA was designed to prevent.

The Supreme Court's decision was a literal interpretation of the statute. Accordingly, the fault may lie in the drafters of the FTDA, which used the term 'causes dilution' as opposed to 'causes a likelihood of dilution.' Thus, it may be time for the legislature to give the FTDA an overhaul. In the meantime, to be successful in a dilution claim under the FTDA, owners of famous trademarks will need to gather and prepare evidence, such as consumer surveys (even if expensive and sometimes unreliable), expert testimony and customer declarations, significant enough to prove actual dilution.

Joseph V. Norvell, a shareholder, and Joseph T. Kucala, Jr., an associate, specialize in trademark and copyright law at the intellectual property law firm Brinks Hofer Gilson & Lione in Chicago.