MEMORANDUM

TO: Assigning Partner, Big 9th Circuit Law Firm

FROM: Alice Marie Beard

DATE: 00/00/0000

RE: W. J. Barone, Inc. Considerations regarding proceeding with federal trademark dilution claims against Protect It

QUESTION PRESENTED

Under the Federal Trademark Dilution Act of 1995, is W. J. Barone, Inc., likely to prevail against Protect It, Inc., in a federal trademark "dilution claim" based on Protect It's use of Barone's federally registered trademark "PreciousThings" as an internet domain name?

BRIEF ANSWER

Yes, probably. Under the Federal Trademark Dilution Act of 1995, W. J. Barone, Inc., appears to have a strong case against Protect It, Inc. Within the last 18 months, the 9th Circuit Court of Appeals has handed down three decisions that seem favorable to our client's position.

FACTS

Pertinent facts: Our client, W. J. Barone, Inc., has had the trademark "PreciousThings" registered and in continuous use since 1978. The company is well known in the broader industry in which it does business; its product is known as "top of the line." When Barone attempted to register <preciousthings.com> with Network Solutions in June 1999, the company learned that Protect It had registered that domain name in Dec. 1997 and has been using the website to sell a similar product that is in direct competition with our client's products. Protect It's product is almost a "knock off" of our client's product, and the two companies compete in the same geographic and trade areas. Protect It has been in business since the early 1990s; it has no trademarks registered or in use. Protect It has had its web site up for almost two years. During that time, Protect It has grown to be a company with sales and advertising numbers that are nearly the same as our client's. Protect It admits that one-third of its sale come from the web site. Our client has experienced a decline in sales in the past six months. Protect It has begun using the <preciousthings.com> domain name on stationery and in advertising. We have sent Protect It a cease-and-desist letter. The company refuses to change, relinquish, or sell the domain name.

DISCUSSION

THE LAW:

Statutory law on the issue took effect Jan. 16, 1996, and is found at 15 U.S.C. §1125(a)(1)(A) and (c)(1) and (4), with definitions at 15 U.S.C. §1127:

15 U.S.C. §1125
(a)(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which --

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person

shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act.
(c)(1) The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark, and to obtain such other relief as is provided in this subsection. In determining whether a mark is distinctive and famous, a court may consider factors such as but not limited to --

(A) the degree of inherent or acquired distinctiveness of the mark;
(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;
(C) the duration and extent of advertising and publicity of the mark;
(D) the geographical extent of the trading area in which the mark is used:
(E) the channels of trade for the goods or services with which the mark is used;
(F) the degree of recognition of the mark in the trading areas and channels of trade used by the marks' owner and the person against whom the injunction is sought;
(G) the nature and extent of use of the same or similar marks by third parties; and
(H) whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.

(c)(4) The following shall not be actionable under this section:

(A) Fair use of a famous mark by another person in comparative commercial advertising or promotion to identify the competing goods or services of the owner of the famous mark.
(B) Noncommercial use of a mark.
(C) All forms of news reporting and news commentary.

15 U.S.C. §1127:
The term "dilution" means the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of --

(1) competition between the owner of a famous mark and other parties, or
(2) likelihood of confusion, mistake, or deception.

ANALYSIS:

Our client would argue that Protect It, in connection with the sale of a good, is using a term that is likely to cause confusion among potential customers.

Our client would argue that it registered the name "PreciousThings" in 1978 and has continually used the name since then. Protect It has been in business only since the early 1990s and has used the conflicting domain name since 1997.

Regarding § 1125 (c)(1)(A), it can be argued that Barone's PreciousThings acquired distinctiveness since it is regarded as top of the line. Regarding § 1125 (c)(1)(B) and (c)(1)(C), Barone's has used the trademark continually since 1978, and Baron's continually has invested in advertising. It spends $115,000 per year on national advertising. Regarding § 1125 (c)(1)(D), with the use of the internet, Protect It has expanded its geographical sales area to include the entire United States and beyond. We would need to get more information from Barone, but the fact that Barone's budgets in terms of national advertising argues that Barone's geographic sales area includes all of the United States. Regarding § 1125 (c)(1)(E), the channels of trade are identical. Regarding § 1125 (c)(1)(F), this is the "fame" issue, and this is the point on which the case will turn. Sec. 1125 (c)(1)(G) is a non-issue, and § 1125 (c)(1)(H) has been met by Barone's.

Protect It could not use any of the § 1125 (c)(4) defenses to the charge of dilution.

The heart of the issue is found in 15 U.S.C. §1127, the definition of the term "dilution." The use of the domain name by Protect It has lessened the ability of Barone to use its trademark to distinguish its product.

Besides statutory law, there is another aspect to consider: As explained in Panavision Int'l, LP, v. Toeppen, 141 F.3d 1316, 1319 (9th Cir. 1998), although Network Solutions registers domain names on a first-come, first-served basis, Network Solutions requires that

(1) the applicant's statements are true and the applicant has the right to use the requested domain name; (2) the "use or registration of the domain name . . . does not interfere with or infringe the rights of any third party in any jurisdiction with respect to trademark, service mark, trade name, company name or any other intellectual property right"; and (3) the applicant is not seeing to use the domain name for any unlawful purpose, including unfair competition.

RELEVANT CASES:

As made clear in Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresgee Co., 316 U.S. 203, 205 (1942), "The protection of trade-marks is the law's recognition of the psychological function of symbols." While a trademark of the 1940s was as simple as a white rectangular band with a red ball, times have changed, and Judge Trott stated it well in Avery Dennison Corp. v. Sumpton, 189 F.3d 868 (9th Cir., 1999): "We are the third panel of this court in just over a year faced with the challenging task of applying centuries-old trademark law to the newest medium of communication -- the Internet."

Besides Avery Dennison, two other 9th Circuit cases are on point: Panavision Int'l., LP, v. Toeppen, 141 F.3d 1316, 1319 (9th Cir. 1998), and Brookfield Communications, Inc., v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir. 1999). Since these cases are defining the law and building on each other, they will be presented chronologically:

Panavision dealt with a "cybersquatter." Defendant acquired domain names matching over 100 well-known trademarks and then attempted to sell the domain names to the companies who owned the trademarks. The court was emphatic in its support of trademark owners against "cybersquatters" as it affirmed the district court's decision that to do so was a dilution of the trademark. At 1327, the court said, "We reject [defendant] Toeppen's premise that a domain name is nothing more than an address. A significant purpose of a domain name is to identify the entity that owns the web site." The court went on to quote from Cardservice Int'l v. McGee, 950 F. Supp. 737, 741 (E.D. Va. 1997): "A customer who is unsure about a company's domain name will often guess that the domain name is also the company's name. ... [A] domain name mirroring a corporate name may be a valuable corporate asset, as it facilitates communication with a customer base." The court concluded that the defendant's registration of the plaintiff's "trademarks as his domain names on the Internet diluted those marks within the meaning of the Federal Trademark Dilution Act, 15 U.S.C. §1125(c)."

Brookfield dealt with whether federal trademark laws prohibit a video store chain (West Coast) from using the trademark of an entertainment-industry information provider (Brookfield) in the domain name of the video store's web site. Brookfield was founded in 1987; in about December 1993, the company began a part of its business that it began marketing under the name "MovieBuff." In 1996, Brookfield tried to register the domain name <moviebuff.com> but was informed by Network Solutions that the domain name had already been registered by West Coast. On August 19, 1997, Brookfield applied for a trademark on the name "MovieBuff." Trademark was granted September 29, 1998. October 1998, Brookfield learned that West Coast planned to begin a web site using the <moviebuff.com> domain name. In the decision for Brookfield, the court said,

"Brookfield's registration of the mark on the Principal Register in the Patent and Trademark Office constitutes prima facie evidence of the validity of the registered mark and of Brookfield's exclusive right to use the mark on the goods and services specified in the registration. . . . West Coast can rebut this presumption by showing that it used the mark in commerce first, since a fundamental tenet of trademark law is that ownership of an inherently distinctive mark such as 'MovieBuff' is governed by priority of use. . . . The first to use a mark is deemed the 'senior' user and has the right to enjoin 'junior' users from using confusingly similar marks in the same industry and market or within the senior user's natural zone of expansion."

The court ruled that the favor goes to the party with the first use. In Brookfield, there had even been some question about "first use." With W. J. Barone, there is no question about first use.

The court noted that establishing seniority is only half the battle: "Brookfield must also show that the public is likely to be somehow confused about the source of sponsorship of West Coast's . . . web site -- and somehow associate that site with Brookfield." In Brookfield, the two "marks" had some minor difference that the court ruled inconsequential; the businesses were also similar but not identical. The court, however, ruled for Brookfield. The Brookfield court noted, "[T]he more similar the marks in terms of appearance, sound, and meaning, the greater the likelihood of confusion." The court further noted,

"In the Internet context, in particular, entering a web site takes little effort . . . ; thus Web surfers are more likely to be confused as to the ownership of a web site than traditional patrons of a brick-and-mortar store would be of a store's ownership. . . . And even where people realize, immediately upon accessing . . . that they have reached [the wrong site, that site] will still have gained a customer by appropriating the goodwill that Brookfield has developed. . . ."

The court quoted Official Airline Guides, 6 F.3d at 1394: "When an alleged infringer knowingly adopts a mark similar to another's, courts will presume an intent to deceive the public."

Avery Dennison involved Avery Dennison and a business selling "vanity" e-mail addresses and web sites. Sumpton had acquired hundreds of domain names corresponding to commonly used surnames. His business was selling the domain name or e-mail address to persons wanting a domain name which corresponded with their own names. Avery Dennison sued on the use of both "Avery" and "Dennison." Avery Dennison lost because they were unable to show any connection between a web site with the commonly used surname of Avery or Dennison, and because there was no indication of any business competition regarding any product or sale.

Avery Dennison quotes Panavision's interpretation of 15 U.S.C. §1125(c)(1): "[I]njunctive relief is available under the Federal Trademark Dilution Act if a plaintiff can establish that (1) its mark is famous; (2) the defendant is making commercial use of the mark in commerce; (3) the defendant's use began after the plaintiff's mark became famous; and (4) the defendant's use presents a likelihood of dilution of the distinctive value of the mark." Panavision Int'l, LP v. Toeppen, 141 F.3d 1316, 1324.

The standard in the 9th Circuit is clear. We can prove points 2, 3, and 4 for our client. Point 1 we can argue from a strong position.

CONCLUSION

While it appears that Barone's case against Protect It would be a strong one based on the recently decided binding cases in the 9th Circuit, there are words of caution to be noted from Professor J. Thomas McCarthy. McCarthy is one of the "authorities" on the issue of trademark law. He is the author of McCarthy on Trademarks and Unfair Competition (4th ed. 1997) and McCarthy's Desk Encyclopedia of Intellectual Property (2nd ed. 1995). In "The 1996 Federal Anti-Dilution Statute," 16 Cardozo Arts & Ent LJ 587, 589, McCarthy notes,

"There is no place to go to find out if a particular mark is 'famous.' There is no special registration for famous marks. Fame must be determined on a case by case basis in litigation. This uncertainty introduces the major source of unpredictability applying the law and giving legal advice and counseling." And at 592: "The challenge to plaintiff is how to muster evidence in court to prove that there has in fact been, in the words of the statute, a 'lessening of the capacity of a famous mark to identify and distinguish goods or services.'"

W. J. Barone appears to have a strong case, but the interpretations on the law are new. Our task will be to argue that the internet, while a new venue for commerce, should not be a safe harbor for violating property rights.