Charbucks proves that context is everything in trade mark dilution claims

Starbucks’ 12-year legal battle with a small New Hampshire coffee producer recently ground to a halt. The Second Circuit ruled that the multinational chain could not prevent the Black Bear Micro Roastery from selling its Charbucks Blend and Mister Charbucks products.

In Starbucks v Wolfe’s Borough Coffee, Seattle-based Starbucks sued Wolfe's Borough Coffee, which trades as Black Bear Micro Roastery, for trade mark infringement and dilution. Despite acknowledging that the Charbucks name is an unflattering reference to Starbucks’ product, the New York appeals court said the gobal coffee shop chain had failed to prove that consumers would be confused. The three-judge panel found that the marks were only minimally similar, and refused to grant an injunction preventing Wolfe from using its mark.

By Wolfe’s own admission, the name Charbucks was a “particularly direct and blunt” play on the perception that Starbucks beans are “over-roasted”. Despite its disdain for Starbucks’ product, Wolfe said it came up with the blend in response to customers’ demands for a dark roasted coffee. On its website, the company justifies its provocative branding:

The case is reminiscent of the Fourth Circuit’s ruling that a dog toy marketed as the Chewy Vuiton did not dilute LVMH’s Louis Vuitton trade mark. In Louis Vuitton Malletier v Haute Diggity Dog, the Fourth Circuit concluded that the “unmistakable” parody was “a comment on the rich and famous, on the Louis Vuitton name and related marks, and on conspicuous consumption in general”.

While the Fourth Circuit acknowledged that a successful parody does not dispose of a dilution claim, it concluded that “an effective parody will actually diminish the likelihood of confusion”.

Writing shortly after the November 2007 ruling, Stacia Layof law firm Hendricks & Lewis noted that, ironically, “the strength and distinctiveness of the Louis Vuitton mark worked against Louis Vuitton in the context of its dilution by blurring claim, making it more likely that a parody (at least an obvious one) will not impair the distinctiveness of the famous mark”.

Starbucks might similarly have been a victim of its own success in its claim against Wolfe, but changes to the law while the case was on appeal significantly reduced the fair use protection available to a defendant. When the Second Circuit previously ruled on the Charbucks case in December 2009, Wolfe attempted a parody defence. But in that decision, the court said Wolfe cannot qualify under the statutory exception for parody because the Charbucks name is a designation of source for Wolfe’s own product.

From a common sense perspective it is not obvious why a name could not simultaneously function as a parody and a source identifier, but the court’s ruling on this point makes sense in the context of recent changes in the law. While Starbucks’ appeal was pending in 2006, Congress passed the Trademark Dilution Revision Act (TDRA), significantly reducing the burden of proof on owners of famous marks. In order to obtain an injunction, the plaintiff now only has to show that an alleged infringer’s mark is likely to cause dilution instead of demonstrating actual dilution. Under Section 1125(c)(3), which was added after the passage of the TDRA, fair use defences cannot be invoked if the mark is being used as a designation of source for the person’s own goods.

Given the reduced fair use defences, some commentators have expressed surprise that the Second Circuit ruled in Wolfe’s favour.

The Second Circuit seemed sceptical of some of the Fourth Circuit’s reasoning in the Chewy Vuiton case. The judges cited the TDRA’s disqualification of marks functioning as source identifiers for the alleged infringer’s goods and in any case refused to recognise Charbucks as a successful parody.

“Although we recognize some humor in ‘Char’bucks as a reference to the dark roast of the Starbucks coffees, Black Bear’s claim of humor fails to demonstrate such a clear parody as to qualify under the Fourth Circuit's rule,” they wrote.

Instead, the panel arrived at its conclusion based largely on the lack of customer confusion and association between the two marks. The primary concern of most brand owners is protecting their brand, and Starbucks appears to be no different in this respect. But the purpose of trade mark law is to protect customers from confusion over the origin of the goods.

Starbucks presented the court with a phone survey of 600 people, which concluded that “the number one association of the name ‘Charbucks’ in the minds of consumers is with the brand ‘Starbucks’”.

But the Second Circuit found that the District Court had been right to discount the results of this survey, because it measured respondents’ associations with the isolated word, rather than the mark in context.

When asked who might sell “Charbucks”, just 4.4% said “Starbucks” or “coffee house”. “Grocery store” was the most popular answer to that question.

While the Second Circuit concluded that this demonstrated a weak association between the two marks, an alternative explanation is that, in the case of a parody, members of the public can associate two marks without assuming they originate from the same source.

The Second Circuit judges may not have considered Charbucks a successful parody, but the survey results suggest that the public disagreed once the joke was presented in context. Charbucks may have made people think of Starbucks but perhaps for those who understood the backstory or got the pun, it was hard to believe that Starbucks would market a blend under that name.

Despite the very different rationale applied by the courts in the Charbucks and Chewy Vuiton decisions, the Second Circuit and the Fourth Circuit both concluded that no infringement had occurred. Despite recent changes in the law, it seems it is still difficult for brand owners to show that dilution has occurred when satire is involved. These two cases seem to demonstrate that in both parodies and dilution claims, context is everything.