Dilution By Common English Words (Visa Int'l Service Ass'n v. JSL Corp., 610 F. 3d 1088 (9th Cir. 2010)

In late June 2010, the 9th Circuit Court of Appeals issued an opinion written by Chief Judge Kozinski affirming the trial courts' decision that a common English word, eVISA, could dilute the famous VISA credit card trademark.  eVisa was being used by appellant JSL for a multilingual education services.  JSL argued that its eVisa mark could not dilute the VISA trademark because visa is a common English word meaning a travel document that authorizes the bearer to enter a foreign country and as a result VISA's use of this common word could not be distinctive as is required under 15 U.S.C. §1125(c).

The Court disagreed with JSL but its opinion took pains to distinguish fanciful trademarks from those that are common English words for purposes of applying the dilution statute as follows:

When a trademark is also a word with a dictionary definition it may be difficult to show that the trademark holder's use of the word is sufficiently distinctive to deserve anti-dilution protection because such word is likely to be suggestive of an essential attribute of the trademarked goods.  Moreover, such a word may already be in use as a mark by third parties.

To be diluted the mark must be both famous and distinctive. A non-distinctive mark can not be diluted and it is likely that a common English word used as a trademark will not be considered distinctive if others have adapted that word, which is likely in the case of these common words.  Thus, if there are other uses of the mark, dilution by blurring is unlikely because the mark has not been associated with only one product and the new use of the mark is not likely to evoke in the minds of consumers an association with only one other product.

The Court held that although VISA, as used by the credit card giant, was a common dictionary word, its use of VISA was sufficiently distinctive "because it played only weakly off the dictionary meaning" of the term visa.  It also held that the significant factor is not whether the word is a common word, but instead whether the use of the word VISA by the credit card issuer was sufficiently unique to warrant trademark protection.  The Court explained "there are many camels but just one Camel [cigarette]; many tides, but just one Tide [detergent]...".

Although there is widespread use of the word visa for its common English meaning, e.g. Fred's Visa Service, JSL did not use visa for its common everyday meaning and as a result there were now two products in the market named VISA, the Court having disregarded the "e" as being meaningless to distinguish the two marks.

The Court patiently explained that trademark law will not prevent a person from using another's common word mark in its everyday, intended, manner, e.g. Joe's Apple Orchard; or Bob's Camel Farm.  Conferring anti-dilution rights to common English words used as such would deplete the inventory of available and useful words.

But JSL did not use Visa for its literal dictionary meaning, and VISA was found to be strong and distinctive.  As a result, eVisa diluted VISA by blurring and its use was enjoined because a consumer seeing eVisa was likely to associate it with VISA.

In summary, this is what the Court concluded:

• Common English words can dilute a famous and distinctive mark.
• Whether dilution exists is a question of fact, but summary judgment may be granted if no reasonable fact finder could fail to find a likelihood of dilution, as occurred here.
• Where the mark is in the dictionary as a word, it may be different to establish that the mark is sufficiently distinctive.  This is particularly true where there are other uses of the word as a mark.
• Use of another's mark for its dictionary meaning should not be enjoined, e.g. JSL's Visa Service. 

These practice pointers may help establish protectable rights in common English words:

• A common English word proposed to be used should be tested to determine if it is being used in its dictionary sense, or in an arbitrary sense.  If arbitrary, it may dilute another use if that use is famous and distinctive, e.g. Blackberry Farms v. Blackberry Motors.  If arbitrary and there are no other trademark uses of this word, it may be protectable or distinctive although it must also be famous.
• Look for other uses of the mark; it is more likely that the mark does not dilute if there are other trademark uses of the mark.
• Dilution does not require a finding that there is a likelihood of confusion.

LexisNexis Emerging Issues Analysis by Jim Astrachan

Bankrupt Licensor’s Rejection of Executory Contracts

Bankruptcy of a trademark licensor can be a very unwelcome event for its licensee.  In 1985 the Fourth Circuit Court of Appeals permitted a licensor of technology who had filed for bankruptcy under Chapter 11 to reject the licensee as being an executory contract.  That licensee lost all rights in the license and the licensed technology and was left with solely a monetary damage remedy against an already insolvent debtor.  Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F 2d. 1043 (4th Cir. 1985). 
       
In the case of a financially troubled licensor, rejecting the license may well be in its best interest, for often the value of the licensed technology has grown, and the licensor may be able to relicense it for a higher price.  Sometimes, unfortunately for the licensee, this is due to its efforts. 

Interests convinced Congress that the ability of a technology licensor to reclaim the licensed property through rejection of the license in bankruptcy was unfair.  Congress passed legislation that would allow licensees to avoid this hardship in the future.  The Intellectual Property in Bankruptcy Act of 1988 was intended to allow licensees whose bankrupt licensors rejected their licenses to reclaim rights in the licenses. 11 U.S.C.A section 365(n).  The Act provides that the case of intellectual property, other than a trademark, trade name or service mark, a licensee of a bankrupt licensor can elect to retain its rights under the license for the duration of the license plus extensions and, in exchange, continue to pay royalties due under the license.  Unfortunately, numerous decisions have held, correctly, that the Act, while it covers all other forms of intellectual property, such as copyrights, trade secrets and patents, does not cover trademarks.  Gucci v. Sinatra, 126 F. 3d 380 (2nd Cir. 1998).  As authority for so holding, this court and others have simply reviewed the legislative history of the Act which provides, “the bill does not address the rejection of executory trademark, trade name or service mark licenses.”  Indeed, bankruptcy law does not even define a trademark, service mark or trade name as intellectual property.  11 U.S.C. §101 (35A).  This is a harsh result for the licensee of a trademark who might have built its entire business around the mark.  One court, however, has held that where trademark rights are melded with other intellectual property rights Section 356(n) may apply to trademarks.  In re: Matusalem, 158 B.R. 514 (Bankr. S.D. Fla. 1993).
       
The apparent purpose for excluding trademarks, service marks and trade names from the definition of intellectual property for purposes of Section 356(n) can be found in the Senate Report and heavily implicates the requirement that, to protect the consuming public, a licensor must be able to control the quality of the products or services associated with its licensed mark.  Congress determined that issues of quality control and supervision were well beyond the scope of this corrective legislation and would require extensive study before it could consider making trademarks subject to Section 356(n).  Apparently, this exclusion of trademarks has never been revisited by Congress.
       
Practice Tip:  There really is no way to avoid the exclusion of Section 356(n) when it comes to trademark licensing unless the license is truly not executory; most licenses are, however, as they require quality control and royalty payments.  However, there may be limited circumstances where licensing can be avoided through the use of a coexistence, or “live and let live” agreement by which the parties merely acknowledge the other’s rights without transferring rights via a license.

LexisNexis Emerging Issues Analysis by Jim Astrachan