Charbucks – Trademark Dilution?

Posted by on Dec 6, 2013

Is the use of the term “Charbucks” by a coffee company trademark dilution of the famous “Starbucks” coffee mark?

The United States District Court for the Southern District of New York said that the use of “Charbucks Blend” and “Mister Charbucks” marks by Black Bear (a coffee company and micro roastery) had not been sufficiently proven by plaintiff Starbucks to be trademark dilution under the Lanham Act.  Plaintiff then appealed to the United States Court of Appeals for the Second Circuit.

Trademark Dilution is addressed by the Lanham Act.  Condensing a somewhat complicated situation, during the pendency of various iterations of the lawsuit, Congress passed the TDRA or Trademark Dilution Revision Act of 2006.  This act made it somewhat easier for the holder of a famous mark to obtain an injunction, vacating the requirement to show actual economic harm, and making it enough to show defendant’s mark is “likely to cause dilution…of the famous mark.”  The District Court had to use the TDRA in making their decision.

Background

Starbucks is a very famous, near ubiquitous brand, in fact it is not unheard of for two franchises to be at opposite ends of the same street or even the same shopping mall.  Starbucks spends an estimated $30 to $40 million per year on advertising.  Starbucks marks satisfied the statutory definition of “famous” well before Black Bear started using Charbucks.

Black Bear sells coffee primarily over the internet, possessing a single retail store in New Hampshire and having a shelf presence in a limited number of grocery stores in the American Northeast.

Analysis

The TDRA outlines a 6-factor balancing test to assess dilution via blurring which it defines as “an association arising from the similarity of a mark…and a famous mark that impairs the distinctiveness of the famous mark.”  However these factors are non-exclusive which means a court may use its own judgment to supplement these factors.

These factors are: (condensed for brevity):

1) Degree of similarity

2) Distinctiveness of the famous mark

3) Exclusive use by the owner of the famous mark

4) Degree of recognition of famous mark

5) Intent by the user of the mark to create association with the famous mark

6) Any actual association between the two marks

The factor that proved most damaging to Starbucks, both at trial and on appeal was factor (1) – the degree of similarity.  The District Court consistently ruled that the degree of similarity between the marks was “minimal.”  The District Court ruled that this alone was sufficient to defeat Starbucks’ claim for injunction.  This is very interesting reasoning, but ultimately, makes a great deal of sense from a common-sense standpoint.  Minimally similar marks cannot and should not be ruled to dilute one another.

Starbucks introduced a consumer study performed by an expert in the field.  It consisted of a telephone survey of 600 people, asking them “What is the first thing that comes to mind when you hear the name ‘Charbucks?’”  According to Mitofsky, 30.5% of respondents replied “Starbucks” while 9% replied “Coffee.”  However, neither the District Court nor the Court of Appeals was swayed by this survey with regard to factor (1).

The District Court then ruled that (2) (3) and (4) all favored Starbucks.  Factor (5) went to Black Bear, because the intent to cause association with Starbucks did not constitute bad faith.  The expert testimony (Mitofsky’s survey) did not conclusively establish actual confusion – the court seems to view this factor (6) as more or less even or very, very slightly in Starbucks’ favor.

The reasoning for factors (5) and (6) seems weak, and the Court of Appeals found error in the District Court’s reasoning.  They said the reasoning that “bad faith” was required was in error.  They also said that the survey results could be interpreted to show association between the marks, which is sufficient to support dilution – the lower court’s reasoning regarding actual confusion was clearly an error because actual confusion is not a statutory requirement.

However, the Court of Appeals upheld and renewed, de novo, the conclusion regarding factor (1) – a finding of a minimal degree of similarity between the marks.  The key factor was the context in which Charbucks was used.  The packaging, use of the term “Mr. Charbucks,” and manner of display on the website served as clear differentiation with the Starbucks mark.