Last week, while one giant was vindicated after years of litigation—even if its name was spelled “Goggle” on page 2 of Judge Chin’s decision—another was dealt a decisive, possibly final blow in federal court. In what I believe will be called “Starbucks VI,” which constitutes the third appellate decision in Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., the United States Court of Appeals for the Second Circuit affirmed the decision of the United States District Court for the Southern District of New York (“Starbucks V”) concluding that Starbucks failed to prove that the defendant’s use of the marks MISTER CHARBUCKS and CHARBUCKS BLEND is likely to dilute Starbucks’s famous marks including, of course, STARBUCKS.
Here are the salient points from what will be—unless Starbucks appeals to the Supreme Court—the last word in the matter [For some previous words, start here — RDC]
Way back in 2005, a bench trial was held in the Southern District to determine whether Wolfe’s Borough Coffee, a New Hampshire corporation doing business as “Black Bear Micro Roastery,” was infringing on some of the more than 56 registered trademarks of Starbucks Corp.—including the mark STARBUCKS and those that incorporate that mark—by using marks that include the word “Charbucks.” Even before Black Bear began using its CHARBUCKS marks, the Starbucks marks had become famous. And if we’re talking about famous marks, then of course we’re going to talk about dilution.
Indeed, dilution is all the Second Circuit addressed in its most recent decision, because Starbucks’s claims of trademark infringement in violation of 15 U.S.C. § 1114(1), unfair competition in violation of 15 U.S.C. § 1125(a), trademark dilution in violation of NY Gen. Bus. Law § 360-l, deceptive acts and business practices and false advertising in violation of NY GBL §§ 349 & 350, and unfair competition in violation of New York common law were all dismissed previously. In other words, Starbucks kept losing grounds. Er, ground.
At the trial, “two matters of significance to [the last] appeal occurred,” according to the Second Circuit. One of those is that Starbucks introduced the testimony of a “scientist in the field of consumer research and polling.” Warren J. Mitofsky explained the results of a telephone survey he had conducted of “six hundred participants, designed to be representative of the United States population.”
The survey asked, “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 percent of participants answered “Starbucks.” Nine percent answered “coffee.” (Other common responses included “barbecue” or “charcoal”; “restaurant” or “grill”; “meat,” “steak,” or “hamburger”; and “money.”) When the participants were asked “Can you name a company or store that might offer a product called ‘Charbucks’?,” 3.1 percent responded “Starbucks,” and another 1.3 percent responded “coffee house.” But more popular responses to the second question included: “grocery store”; “discount store”; “restaurant”; “department store”; and “hardware store” or “home improvement store.”
In December 2005, the District Court ruled in favor of Black Bear and dismissed Starbucks’s complaint. (That decision is “Starbucks I,” in case you’re keeping track.) The District Court determined that there was neither actual dilution, which would establish a violation of federal trademark law, nor a likelihood of dilution, which would establish a violation of New York trademark law.
Starbucks appealed. And while that (first) appeal was pending… Congress passed the Trademark Dilution Revision Act of 2006 (the “TDRA”), which “amended the F[ederal] T[rademark] D[ilution] A[ct] to clarify that the owner of a famous mark seeking an injunction need prove only that the defendant’s mark ‘is likely to cause dilution… of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.” The TDRA (codified at 15 U.S.C. § 1125(c)(1), as amended) offered some guidelines to federal courts hearing dilution claims, in the form of six relevant factors to consider (among others). In light of the clarification of the governing law, the Second Circuit vacated Starbucks I (in Starbucks II) and remanded the case.
On remand, the District Court again ruled in favor of Black Bear (Starbucks III). Starbucks appealed again, arguing that the District Court had “erred in finding that the Charbucks Marks are not likely to dilute the Starbucks Marks.” In Starbucks IV, the Second Circuit held that the District Court “did not clearly err in finding that the Charbucks Marks were minimally similar to the Starbucks Marks,” but concluded that the District Court had “erred to the extent [that] it required ‘substantial similarity between the marks,” suggesting that the lower court had overemphasized the similarity factor. The District Court had made some other errors as well, so the Circuit Court remanded the case a second time.
Still with me? If you want to take a break and grab a cup of coffee, this would be a good time.
In its third opinion (Starbucks VI, issued on December 23, 2011), the District Court “recognized that the second through fifth statutory factors”—i.e.: the distinctiveness of the Starbucks Marks; the exclusivity of Starbucks’s use of its marks; the high degree of recognition of the Starbucks Marks; and Black Bear’s intent to associate the Charbucks Marks with the Starbucks Marks—“favored Starbucks,” but the lower court found again that the first factor (the similarity of the marks) favored Black Bear because the marks were only minimally similar when presented in commerce.
And the sixth factor—actual association—went Black Bear’s way as well, even if the results of the Mitofsky survey “constitute evidence of actual association”–because the District Court found Mitofsky’s survey flawed and ultimately unpersuasive on the whole. The survey had failed to present to participants the relevant marks in full context, and when compared to other survey results, a 30.5 percent association fell well short of the more common 70-90 percent associations of other dilution cases. The District Court fund that the actual association factor weighs “no more than minimally” in Starbucks’s favor. And considering the likelihood of dilution, the District Court emphasized that the statutory language leaves no doubt that the factors of association and similarity are “obviously important.”
So the District Court found for a third time in favor of Black Bear, and Starbucks for a third time appealed, challenging the factual findings of minimal similarity and weak association and the legal conclusion that it, Starbucks, had failed to demonstrate a likelihood of dilution.
The Second Circuit opinion provides a through and delightful discussion of the history of federal trademark dilution law, which I leave to the reader to enjoy. The Circuit Court then reminds us of the applicable standards of review: It will not disturb the District Courts findings of fact absent clear error, but it will review the lower court’s balancing of the statutory factors de novo. As one might expect, the Circuit Court found no clear error in the trial court’s determinations that there is only a minimal degree of similarity between the Starbucks Marks and the Charbucks Marks and that Starbucks demonstrated only a weak association between the marks at issue. We need not delve deeply into this first part of the review, but one (multifaceted) point deserves some ink, so to speak:
Starbucks contended that the District Court’s finding that actual association “weighs no more than minimally” in Starbucks’s favor was erroneous for two reasons:
- because Black Bear’s admission that it had intended to create an association (the fifth statutory factor) raises a “presumption of association,” or is at least strong evidence of actual association (the sixth factor); and
- because the lower court improperly discounted the survey evidence which proves a high degree of actual association.
But, the Circuit Court points out, an intent to create an association does not constitute per se evidence of actual association, notwithstanding the wisdom of McCarthy, which states that “If a junior [user] intended to create an association, the law may assume that it succeeded.” Because, after all, intent to associate and actual association are two separate factors enumerated in the amended dilution law, and therefore it was not error for the District Court not to conflate them.
And as for Mitofsky, the trial court did not err when it discounted the survey evidence, inasmuch as the survey asked respondent to react, by phone, to the isolated word “Charbucks,” rather than to the marks in context… and even under the flawed circumstances, the number of respondents who associated the marks in question was “relatively small.”
Finally—finally!—the Second Circuit balanced the relevant factors itself—the factors enumerated in § 1125(c)(2)(B) “along with any other factors that bear on a likelihood of dilution.”
And ultimately—ultimately!—the Circuit agreed with the Southern District that “Starbucks did not demonstrate a likelihood of dilution by blurring.” Starbucks, the appellate court pointed out, bore the burden of showing that it was entitled to injunctive relief, but its principal evidence of association, the Mitofsky survey, “was fundamentally flawed.”
So, some eight years after trial, Starbucks has failed to crush Black Bear, a company many of us wouldn’t know but for this lawsuit.