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Nov. 18 --Starbucks has not demonstrated that its brand is being diluted by a New Hampshire coffee producer's use of the term “Charbucks,” and therefore Starbucks is not entitled to injunctive relief prohibiting further use of the Charbucks mark in commerce, the U.S. Court of Appeals for the Second Circuit ruled Nov. 15 (Starbucks Corp. v. Wolfe's Borough Coffee, Inc., 2013 BL 316638, 2d Cir., No. 12-364-cv, 11/15/13).
The Charbucks marks and the Starbucks marks are only minimally similar, particularly since consumers only see the Charbucks mark in connection with the defendant's other marks, which are not at all similar to Starbucks' marks, the court said. The Second Circuit also determined that there was only a weak association between the two marks. This finding was made notwithstanding the fact that the defendant admitted to choosing the Charbucks mark in order to bring attention to the perception that Starbucks' coffee was known to be dark, or charred.
The decision marked the third time that the appeals court has ruled on the case, and it presumably brings an end to litigation that began more than 12 years ago after the New Hampshire company decided to sell Charbucks branded coffee.
Seattle-based Starbucks Corp. is a well-known operator of a chain of retail shops selling coffee and related products. Starbucks holds federal trademark registrations incorporating the term “Starbucks.” Wolfe's Borough Coffee Inc. d/b/a Black Bear Micro Roastery of Center Tuftonboro, N.H., is a family-run business that sells coffee products through its website and a retail store in New Hampshire.
In 1994, Black Bear introduced a dark-roasted coffee blend under the name Charbucks, a satirical reference to a perception that Starbucks coffee is over-roasted. In 2001, Starbucks sued Black Bear, alleging trademark infringement and dilution under the Lanham Act and the Federal Trademark Dilution Act of 1995. Starbucks moved for an injunction.
In 2006, Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York denied Starbucks' motion and entered judgment for Black Bear on all claims (06 PTD, 1/10/06).
Subsequently, Congress passed the Trademark Dilution Revision Act of 2006, requiring only a demonstration of “likelihood of dilution,” rather than actual dilution. The Second Circuit vacated the district court's judgment and remanded for further proceedings consistent with the TDRA, holding that since Starbucks was seeking prospective relief, application of an intervening statute would not be impermissibly retroactive. 477 F.3d 765, 81 USPQ2d 1927 (2d Cir. 2007) (33 PTD, 2/20/07).
On remand, the district court ruled that Black Bear's use of the Charbucks mark did not constitute dilution of Starbucks' mark (112 PTD, 6/11/08).
The Second Circuit then partially vacated that judgment, finding that the district court had misapplied two of the prongs of the standard for dilution by blurring (235 PTD, 12/10/09). According to the appeals court, Starbucks was not necessarily required to show that the Charbucks mark was “substantially similar” to its famous mark. Furthermore, the court said, a likelihood of confusion is not applicable to determining likelihood of success on the merits of a dilution claim.
(i) [t]he degree of similarity between the mark or trade name and the famous mark; (ii) [t]he degree of inherent or acquired distinctiveness of the famous mark; (iii) [t]he extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark; (iv) [t]he degree of recognition of the famous mark; (v) [w]hether the user of the mark or trade name intended to create an association with the famous mark; [and] (vi) [a]ny actual association between the mark or trade name and the famous mark.
The court summarily found four of the factors to favor Starbucks, leaving only the similarity of the marks and actual confusion left for consideration (250 PTD, 12/30/11).
In considering the similarity of the terms Charbucks and Starbucks, the court first noted that as used by Black Bear, Charbucks is never used in commerce without other indicators that are dissimilar to the Starbucks mark and logo, such as the Black Bear logo. The court also noted that computer users viewing Charbucks information online are aware that they are accessing the domain name blackbearcoffee.com.
“Thus, although the term 'Ch'arbucks is similar to 'St'arbucks 'in sound and spelling' when compared out of context, the marks are only minimally similar as they are presented in commerce,” the court said. “Here, the Charbucks marks are used exclusively with terms 'Mister,' 'Mr.' or 'Blend' and in contexts dissimilar from the contexts in which the Starbucks marks are used.”
Thus, the court found this factor weighing for Black Bear.
Evidence of actual confusion offered by Starbucks, in the form of a telephone survey conducted by Warren J. Mitofsky, was found to weigh for Starbucks, but only “minimally.” Specifically, the court noted that the survey did not present the Charbucks mark in the context that it would be encountered in commerce.
Taking all the factors into account, the court concluded that “the Charbucks marks are only weakly associated with the minimally similar Starbucks marks and, thus, are not likely to impair the distinctiveness of the famous Starbucks marks.”
Thus, the court found no likelihood of dilution by blurring, denied the motion for an injunction and ordered the entry of judgment in Black Bear's favor. Starbucks once again appealed.
In its latest appeal, Starbucks raised two primary challenges to the district court's decision. First, Starbucks argued that it was an error to find that there was only a minimal degree of similarity between the marks. Second, it challenged the lower court's weak association ruling.
The appeals court noted that it in its 2009 ruling, which it called Starubucks IV, it affirmed the district court's similarity ruling. Specifically, “We highlighted the difference between the Starbucks Marks and Charbucks Marks when the latter are placed in the context of Black Bear's packaging and the word 'Charbucks' is incorporated into the phrases 'Charbucks Blend' and 'Mister Charbucks,' ” Judge Raymond Lohier Jr. said.
Starbucks tried to escape an application of the law of the case doctrine--which would foreclose re-litigation of an issue that was explicitly settled previously in the case--by arguing that the earlier ruling was only in connection with a likelihood of confusion analysis.
“We reject such a crabbed view of the holding and adhere to our prior ruling that the District Court did not clearly err in finding minimal similarity,” the Second Circuit said.
The court then turned to Starbucks' challenge to the district court's association ruling. A finding that a defendant chose a mark with the intent of creating an association with a famous brand should result in a presumption of association, Starbucks argued.
In this case it was not disputed that Black Bear intended to create an association. Indeed, the company's owner admitted that he chose the term Charbucks in order to evoke an image of the type of dark-roasted coffee that is sold by Starbucks. But, the appeals court nonetheless rejected the presumption argument.
“Adopting Starbucks' presumption argument would effectively merge the intent to associate and the actual association factors, by making the former determinative of the latter, rather than treating them as distinct but related considerations,” the court said. Accordingly, the district court did not err when it determined that Big Bear's intent to create an association was not evidence of actual association, the appeals court said.
The Second Circuit also affirmed the district court's determination that the telephone survey weighed only slightly in favor of Starbucks. That determination was made “because the defendant's marks were not presented to survey respondents as they are actually 'presented and packaged' in commerce” and therefore the district court did not err when it accorded the survey limited probative value, the court said.
Ultimately what tips the balance in this case is that Starbucks bore the burden of showing that it was entitled to injunctive relief on this record. Because Starbucks' principal evidence of association, the Mitofsky survey, was fundamentally flawed and because there was minimal similarity between the marks at issue, we agree with the District Court that Starbucks failed to show that Black Bear's use of its Charbucks Marks in commerce is likely to dilute the Starbucks Marks.
Chief Judge Robert Katzmann and Judge Amalya Lyle Kearse joined the opinion.
Starbucks was represented by David E. Sipiora of Kilpatrick Townsend & Stockton LLP, Denver. Black Bear was represented by Christopher Cole of Sheehan Phinney Bass & Green, P.A., Manchester, N.H.
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