The Second Circuit Speaks on Color Marks and the Aesthetic Functionality Doctrine

Louboutin filed its suit in April 2011, asserting claims for federal trademark infringement and counterfeiting, false designation of origin and unfair competition, and dilution, as well as New York state law claims for trademark infringement and dilution, unfair competition, and unlawful deceptive acts and practices. YSL asserted two counterclaims, seeking cancellation of the Red Sole Mark and damages for tortious interference with business relations and unfair competition. The district court issued its decision four months later, denying the injunction and holding that Louboutin had not shown a likelihood of success on the merits of its claims. 778 F. Supp. 2d 445.

The central question at issue was “whether the Lanham Act extends protection to a trademark composed of a single color used as an expressive and defining quality of an article of wear produced in the fashion industry.” The district court drew its analysis from the U.S. Supreme Court's holding in Qualitex Co. v. Jacobson Products Co., 514 U.S. 159 (1995), which held that a color is protectable as a trademark only if it “acts as a symbol that distinguishes a firm's goods and identifies their source without serving any other significant function.” The district court reasoned that because color serves both ornamental and aesthetic functions in the fashion industry, the color red could not operate as a protectable trademark, even if it had gained enough recognition in the market to have acquired secondary meaning. Thus, the district court denied Louboutin's request for a preliminary injunction and also issued an order to show cause why it should not cancel Louboutin's trademark registration. Louboutin appealed.

The Second Circuit's Opinion

On Sept. 5, 2012, the Second Circuit issued its opinion, which focused on two main issues ' the district court's application of the controversial aesthetic functionality doctrine to the fashion industry, and the availability and scope of trademark protection for Louboutin's red-soled shoes. But before diving into these issues, the court first delivered a concise discussion on the development of protection for color marks, citing the Federal Circuit's decision in In re Owens-Corning Fiberglas Corp., 774 F.2d 116 (Fed. Cir. 1984), which was the first decision after the passage of the Lanham Act to find that single-color marks were eligible for trademark protection and federal registration, and the Supreme Court's decision in Qualitex, which was the Supreme Court's first opportunity to speak on the issue, finding that color marks are protectable as trademarks if they have acquired secondary meaning and meet the other requirements under the Lanham Act.

Functionality

The court then eagerly launched into a discussion of the functionality doctrine, which was central to the district court's holding that the Red Sole Mark was not protectable. The court explained that the functionality doctrine prevents trademark law from inhibiting legitimate competition by giving monopoly control to a producer over a useful product ' that is, aspects of a product that are “functional” generally cannot serve as a trademark. The functionality doctrine, which operates as an affirmative defense to trademark infringement claims, is widely accepted as a fundamental principle of trademark law. What is novel about the Second Circuit's opinion is that it explicitly adopts the “aesthetic functionality” doctrine, which the intellectual property community has debated with increasing fervor since the Supreme Court's decision in TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001). In TrafFix, the Supreme Court stated in dictum that “a functional feature is one the exclusive use of [which] would put competitors at a significant non-reputation-related disadvantage.”

In its brief, Louboutin argued that the district court erred in holding, based on the doctrine of “aesthetic functionality,” that the Red Sole Mark was not entitled to legal protection. The Second Circuit explained that the traditional understanding of functionality, which is accepted by all courts, is that a product feature is considered to be functional in a utilitarian sense if it is essential to the use or purpose of the article or if it affects the cost or quality of the article. The court noted that federal circuits are divided over whether to recognize the aesthetic functionality doctrine, but nevertheless asserted that the Second Circuit had “long accepted the doctrine ' ” The court then took its discussion one step further by suggesting that a reading of the Supreme Court's dicta in Qualitex and TrafFix actually “validates the aesthetic functionality doctrine as it had already been developed” by other courts. Thus, the court held that “a mark is aesthetically functional, and therefore ineligible for protection under the Lanham Act, where protection of the mark significantly undermines competitors' ability to compete in the relevant market.” The court recognized the inherent difficulty in distinguishing between branding success and aesthetic function, but was satisfied that by focusing on hindrances to legitimate competition, courts could apply the aesthetic functionality doctrine to “accommodate consumers' somewhat conflicting interests in being assured enough product differentiation to avoid confusion as to source and in being afforded the benefits of competition among producers.”

The court then turned to the issue of a per se rule of functionality for color marks in the fashion industry. The district court's decision made clear its view that although color marks generally are eligible for trademark protection, the unique nature of the fashion industry prevented any one producer from monopolizing the use of a particular color. The Second Circuit rejected this holding, finding that Qualitex expressly forbade the implementation of a per se rule that would deny protection for the use of a single color as a trademark in a particular industrial context. Instead, Qualitex required an “individualized, fact-based inquiry into the nature of the trademark, and [could not] be read to sanction an industry-based per se rule.”

Protectability of the Red Sole Mark

In the first step of its trademark infringement analysis, determining whether the Red Sole Mark was a valid mark, the court applied the rule in Qualitex that color marks are never inherently distinctive but must acquire secondary meaning. The court looked to evidence of Louboutin's advertising expenditures, media coverage, and sales success, and determined that the Red Sole Mark had gained secondary meaning that caused it to be uniquely associated with the Louboutin brand. However, the court curtailed this determination in finding that Louboutin failed to demonstrate that the secondary meaning of the Red Sole Mark extended to uses in which the sole does not contrast with the upper ' that is, Louboutin had not established that a red sole served as a mark identifier when used on a monochromatic red shoe (like the shoe at issue). Thus, the court instructed the USPTO to “limit the registration of the Red Sole Mark to only those situations in which the red lacquered outsole contrasts in color with the adjoining 'upper' of the shoe.”

Ironically, the Second Circuit's discussion of the aesthetic functionality doctrine was more or less irrelevant to its determination of whether the Red Sole Mark was protectable under the Lanham Act. Turning to the second step of the trademark infringement claim, the court succinctly found that having limited the protection afforded the Red Sole Mark, YSL's use of red on the sole of its monochromatic red shoes did not equate to “use” of the Red Sole Mark. On this basis, the court declined to address either the likelihood of consumer confusion or whether the Mark was functional in either a utilitarian or aesthetic sense. The Second Circuit remanded the action to the district court to enter judgment in favor of YSL on the issue of the preliminary injunction, but reversed the district court's determination that the Louboutin registration should be canceled.

Impact on Trademark Law

This decision is remarkable on several levels. Interestingly, Louboutin has claimed the decision a success based on the Second Circuit's validation of Louboutin's trademark registration for the Red Sole Mark; but, its registration now is significantly limited from its original form. Further, Louboutin ultimately lost on its trademark infringement claims against YSL, which now has the Second Circuit's approval to use red on the soles of its monochromatic red shoes.

From a procedural standpoint, it is also noteworthy that the Second Circuit ordered modification of Louboutin's registration at the preliminary injunction stage, an unusual action that is normally reserved as part of a final remedy and only after a complete record has been developed. For example, one wonders whether Louboutin might have actually proved evidence of secondary meaning of its Red Sole Mark on all footwear soles if given the opportunity to present evidence during later stages of litigation. Practitioners also will note the Second Circuit's rather peculiar reasoning that because YSL had not “used” Louboutin's Red Sole Mark as modified, no likelihood-of-confusion inquiry was necessary. After all, trademark infringement does not require that marks be identical, but rather that use of a junior mark creates a likelihood of confusion with a senior mark. In this case, however, conducting a detailed likelihood-of-confusion analysis probably would not have influenced the outcome as it appears the Second Circuit had already concluded no infringement has occurred.

Notwithstanding these peculiarities, on a doctrinal level, this case does several important things. First, it sets out in explicit terms the Second Circuit's recognition of the aesthetic functionality doctrine and explains the Circuit's definition of the doctrine. This deepens the divide among federal circuits on the aesthetic functionality doctrine, which is an issue that ultimately must be resolved by the Supreme Court. Second, and most importantly for brand owners, it strengthens the body of law recognizing the protection of color marks and their ability to act as source-identifiers in not just any marketplace, but in an industry where colors often are central to consumers' purchasing decisions.

Finally, although Louboutin answers the immediate question of the protectability of color marks in the fashion industry, it raises even more questions about the aesthetic functionality doctrine and trademark infringement analyses, which are left for other courts to grapple.

Samantha L. Hayes is an associate in the Atlanta office Kilpatrick Townsend & Stockton LLP.

It is not often when fashion and style blogs cover federal court decisions, but the fashion world currently is abuzz with the Second Circuit's recently issued decision in Christian Louboutin S.A. v. Yves Saint Laurent America Holdings, Inc., No. 11-3303-cv, 2012 WL 3832285 (2d Cir. Sept. 5, 2012). As the courts involved in this case have noted, Christian Louboutin's red-soled shoes have become ubiquitous on red carpets and in fashion circles as high-style, high-priced footwear that are immediately associated with Louboutin. So much so, that in 2008, the USPTO granted Louboutin a federal registration for a red, lacquered sole on footwear (the “Red Sole Mark”).

The controversy over the Red Sole Mark began in early 2011, when Louboutin discovered that Yves Saint Laurent (“YSL”), a venerable French fashion house also known for high-style, high-priced footwear and apparel, was preparing to market a line of monochromatic shoes in various colors, including red. Louboutin filed suit in the Southern District of New York, seeking a preliminary injunction preventing YSL from marketing or selling its red monochromatic shoes that also featured red soles. Although the case immediately sparked the interest of the fashion industry, clamoring to watch two fashion giants duke it out in court, intellectual property scholars and practitioners also took note of the novel issues presented in the case. Though perhaps for different reasons, all observers eagerly awaited the Second Circuit's decision determining whether Louboutin could indeed prevent others from using the color red on footwear soles.

The District Court's Decision

Louboutin filed its suit in April 2011, asserting claims for federal trademark infringement and counterfeiting, false designation of origin and unfair competition, and dilution, as well as New York state law claims for trademark infringement and dilution, unfair competition, and unlawful deceptive acts and practices. YSL asserted two counterclaims, seeking cancellation of the Red Sole Mark and damages for tortious interference with business relations and unfair competition. The district court issued its decision four months later, denying the injunction and holding that Louboutin had not shown a likelihood of success on the merits of its claims. 778 F. Supp. 2d 445.

The central question at issue was “whether the Lanham Act extends protection to a trademark composed of a single color used as an expressive and defining quality of an article of wear produced in the fashion industry.” The district court drew its analysis from the U.S. Supreme Court's holding in Qualitex Co. v. Jacobson Products Co. , 514 U.S. 159 (1995), which held that a color is protectable as a trademark only if it “acts as a symbol that distinguishes a firm's goods and identifies their source without serving any other significant function.” The district court reasoned that because color serves both ornamental and aesthetic functions in the fashion industry, the color red could not operate as a protectable trademark, even if it had gained enough recognition in the market to have acquired secondary meaning. Thus, the district court denied Louboutin's request for a preliminary injunction and also issued an order to show cause why it should not cancel Louboutin's trademark registration. Louboutin appealed.

The Second Circuit's Opinion

On Sept. 5, 2012, the Second Circuit issued its opinion, which focused on two main issues ' the district court's application of the controversial aesthetic functionality doctrine to the fashion industry, and the availability and scope of trademark protection for Louboutin's red-soled shoes. But before diving into these issues, the court first delivered a concise discussion on the development of protection for color marks, citing the Federal Circuit's decision in In re Owens-Corning Fiberglas Corp., 774 F.2d 116 (Fed. Cir. 1984), which was the first decision after the passage of the Lanham Act to find that single-color marks were eligible for trademark protection and federal registration, and the Supreme Court's decision in Qualitex, which was the Supreme Court's first opportunity to speak on the issue, finding that color marks are protectable as trademarks if they have acquired secondary meaning and meet the other requirements under the Lanham Act.

Functionality

The court then eagerly launched into a discussion of the functionality doctrine, which was central to the district court's holding that the Red Sole Mark was not protectable. The court explained that the functionality doctrine prevents trademark law from inhibiting legitimate competition by giving monopoly control to a producer over a useful product ' that is, aspects of a product that are “functional” generally cannot serve as a trademark. The functionality doctrine, which operates as an affirmative defense to trademark infringement claims, is widely accepted as a fundamental principle of trademark law. What is novel about the Second Circuit's opinion is that it explicitly adopts the “aesthetic functionality” doctrine, which the intellectual property community has debated with increasing fervor since the Supreme Court's decision in TrafFix Devices, Inc. v. Marketing Displays, Inc. , 532 U.S. 23 (2001). In TrafFix, the Supreme Court stated in dictum that “a functional feature is one the exclusive use of [which] would put competitors at a significant non-reputation-related disadvantage.”

In its brief, Louboutin argued that the district court erred in holding, based on the doctrine of “aesthetic functionality,” that the Red Sole Mark was not entitled to legal protection. The Second Circuit explained that the traditional understanding of functionality, which is accepted by all courts, is that a product feature is considered to be functional in a utilitarian sense if it is essential to the use or purpose of the article or if it affects the cost or quality of the article. The court noted that federal circuits are divided over whether to recognize the aesthetic functionality doctrine, but nevertheless asserted that the Second Circuit had “long accepted the doctrine ' ” The court then took its discussion one step further by suggesting that a reading of the Supreme Court's dicta in Qualitex and TrafFix actually “validates the aesthetic functionality doctrine as it had already been developed” by other courts. Thus, the court held that “a mark is aesthetically functional, and therefore ineligible for protection under the Lanham Act, where protection of the mark significantly undermines competitors' ability to compete in the relevant market.” The court recognized the inherent difficulty in distinguishing between branding success and aesthetic function, but was satisfied that by focusing on hindrances to legitimate competition, courts could apply the aesthetic functionality doctrine to “accommodate consumers' somewhat conflicting interests in being assured enough product differentiation to avoid confusion as to source and in being afforded the benefits of competition among producers.”

The court then turned to the issue of a per se rule of functionality for color marks in the fashion industry. The district court's decision made clear its view that although color marks generally are eligible for trademark protection, the unique nature of the fashion industry prevented any one producer from monopolizing the use of a particular color. The Second Circuit rejected this holding, finding that Qualitex expressly forbade the implementation of a per se rule that would deny protection for the use of a single color as a trademark in a particular industrial context. Instead, Qualitex required an “individualized, fact-based inquiry into the nature of the trademark, and [could not] be read to sanction an industry-based per se rule.”

Protectability of the Red Sole Mark

In the first step of its trademark infringement analysis, determining whether the Red Sole Mark was a valid mark, the court applied the rule in Qualitex that color marks are never inherently distinctive but must acquire secondary meaning. The court looked to evidence of Louboutin's advertising expenditures, media coverage, and sales success, and determined that the Red Sole Mark had gained secondary meaning that caused it to be uniquely associated with the Louboutin brand. However, the court curtailed this determination in finding that Louboutin failed to demonstrate that the secondary meaning of the Red Sole Mark extended to uses in which the sole does not contrast with the upper ' that is, Louboutin had not established that a red sole served as a mark identifier when used on a monochromatic red shoe (like the shoe at issue). Thus, the court instructed the USPTO to “limit the registration of the Red Sole Mark to only those situations in which the red lacquered outsole contrasts in color with the adjoining 'upper' of the shoe.”

Ironically, the Second Circuit's discussion of the aesthetic functionality doctrine was more or less irrelevant to its determination of whether the Red Sole Mark was protectable under the Lanham Act. Turning to the second step of the trademark infringement claim, the court succinctly found that having limited the protection afforded the Red Sole Mark, YSL's use of red on the sole of its monochromatic red shoes did not equate to “use” of the Red Sole Mark. On this basis, the court declined to address either the likelihood of consumer confusion or whether the Mark was functional in either a utilitarian or aesthetic sense. The Second Circuit remanded the action to the district court to enter judgment in favor of YSL on the issue of the preliminary injunction, but reversed the district court's determination that the Louboutin registration should be canceled.

Impact on Trademark Law

This decision is remarkable on several levels. Interestingly, Louboutin has claimed the decision a success based on the Second Circuit's validation of Louboutin's trademark registration for the Red Sole Mark; but, its registration now is significantly limited from its original form. Further, Louboutin ultimately lost on its trademark infringement claims against YSL, which now has the Second Circuit's approval to use red on the soles of its monochromatic red shoes.

From a procedural standpoint, it is also noteworthy that the Second Circuit ordered modification of Louboutin's registration at the preliminary injunction stage, an unusual action that is normally reserved as part of a final remedy and only after a complete record has been developed. For example, one wonders whether Louboutin might have actually proved evidence of secondary meaning of its Red Sole Mark on all footwear soles if given the opportunity to present evidence during later stages of litigation. Practitioners also will note the Second Circuit's rather peculiar reasoning that because YSL had not “used” Louboutin's Red Sole Mark as modified, no likelihood-of-confusion inquiry was necessary. After all, trademark infringement does not require that marks be identical, but rather that use of a junior mark creates a likelihood of confusion with a senior mark. In this case, however, conducting a detailed likelihood-of-confusion analysis probably would not have influenced the outcome as it appears the Second Circuit had already concluded no infringement has occurred.

Notwithstanding these peculiarities, on a doctrinal level, this case does several important things. First, it sets out in explicit terms the Second Circuit's recognition of the aesthetic functionality doctrine and explains the Circuit's definition of the doctrine. This deepens the divide among federal circuits on the aesthetic functionality doctrine, which is an issue that ultimately must be resolved by the Supreme Court. Second, and most importantly for brand owners, it strengthens the body of law recognizing the protection of color marks and their ability to act as source-identifiers in not just any marketplace, but in an industry where colors often are central to consumers' purchasing decisions.

Finally, although Louboutin answers the immediate question of the protectability of color marks in the fashion industry, it raises even more questions about the aesthetic functionality doctrine and trademark infringement analyses, which are left for other courts to grapple.

Samantha L. Hayes is an associate in the Atlanta office Kilpatrick Townsend & Stockton LLP.