Sunday, October 07, 2007

Santa Clara dilution conference: Dilution Regulation, Part 1 (A Look Back)

Barton Beebe, Cardozo School of Law

The TDRA Case Law After One Year: A “Whole New Ballgame”

Not so much to report, one year later: Courts are still applying the FTDA, which is pretty shocking.

How many opinions actually consider the TDRA? For copyright fair use, the ratio of articles to decisions is roughly 3:1. Are courts thinking about dilution, or is it just academics and C&D letters? So far, courts continue to apply the FTDA; not very many cases yet.

Where are the opinions coming from? Widespread, in fact, not just the SDNY. Summary judgment motions that make it to the opinion stage tend to be granted, though of course there are selection biases; both defendants and plaintiffs make them. Both bench trials found dilution.

What was the relationship between infringement and dilution? 32 district and 5 circuit opinions addressed both, and 34 of 37 had the same outcome, a correlation of .939. The outliers: infringer ceased conduct before TDRA; the American Blinds case (no fame); and a third case where the court didn’t seem to know dilution was being argued but dealt with it anyway. The word count of infringement v. dilution shows that courts devote 4 words on infringement to every 1 on dilution.

Robert Bone, Boston University School of Law
Schechter’s Ideas in Historical Context and Dilution’s Rocky Road

Schechter offered a general theory of TM law; we need to see him as a legal realist, arguing in a pragmatic and instrumental style. No one criticized his article on the merits, though no one adopted it either. It was received positively, which surprised Bone given how radical his thesis was. But Schechter was more of a scholar than an advocate, and there was already a good theory – goodwill as property, which had the benefit of uniting consumer harm and producer benefit as a justification for expanding trademark.

His first premise: The true function of a TM is to sell the goods. During the 1920s, psychological advertising was at peak popularity, and Schechter had the magnetic, drawing power of the mark in mind. He was deriving from actual practice. Second step: selling power depends on distinctiveness. If those things are true, then law should protect selling power, and the only rational basis for TM was the protection of distinctiveness.

Conventional account: Schechter was trying to bring TM theory in line with modern advertising, and the main doctrine he was trying to modify was the direct competition requirement. He failed because he never really offered a justification for dilution (as opposed to expanding infringement).

Bone says no. (1) He wasn’t targeting one particular doctrine but applying his new general theory. (2) He wasn’t impatient with the pace of doctrinal change. He knew the best way to get the courts to expand TM law to cover noncompeting goods was to push on confusion-based theories, and his contemporaries did just that. Rather, he thought he had the right theory. (3) He offered a functional justification: TM should serve the way marks actually function in the economy. (4) He was not a formalist; he didn’t think the label “property” did much help in figuring out what rights people should have.

So what was he doing? As a pragmatist, Schechter had to explain why the way the market worked in the 1920s was a good thing. He was looking at why the market was putting pressure on the competition requirement, and why courts were tempted to relax it, in order to expose the policies behind these changes and focus on the underlying policy issues rather than the formalist categories used to channel policies.

Shari Seidman Diamond, Northwestern University School of Law
Expansion and Contraction with the Trademark Dilution Revision Act?

Diamond is interested in comparing dilution to another change in the law whose practical effects were unclear: Daubert, when courts were told they’d have to become gatekeepers for scientific evidence. The Court wrote Daubert as if it were clarifying the FRE. But what really happened after? Diamond suggest results similar to Beebe’s: less going on in the courts than in the law reviews. She refers to Clarisa Long’s empirical analysis of dilution claims, including ones without reported opinions. Over time, opinions became less and less friendly to dilution claimants. Can the TDRA reverse this?

Some of the TDRA’s clarifications expanded dilution (express coverage of tarnishment, marks with acquired distinctiveness, likelihood of dilution), others contracted it (no niche fame, scope of the exclusions). (I’m not so confident that the scope of the exclusions is now broader, specifically with respect to titles of expressive works, which now may qualify as “use as a mark.”)

Why do we see so little change? Most dilution claims are tacked on to a laundry list of other claims, and generally turn on traditional infringement.

In the past 6 months, some marks have been found to be famous – including Nike, “for dummies,” but also possibly “Tempur-Pedic.” Not famous: Tyler Green, Air Cargo News, and Cosi’s (though the court there merged its fame and blurring analysis, holding that branches in 16 states & DC wasn’t enough to constitute fame).

It’s possible that it’s just too soon to see change, or that cases are settling and aren’t reported. Also, some circuits already applied these various limits, and few fact patterns actually need/fit a dilution action.

Shubha Ghosh, SMU Dedman School of Law
Competition Norms in the Law of Trademark Dilution: The Ascendancy of Misappropriation and the Descent of Competitive Entry?

Competition norms pervade IP generally. Competition arguments include: (1) first mover/misappropriation model, where we prevent competition through mere imitation or free riding; (2) controlled entry, where we control unnecessary duplication and excessive entry, often through licensing; (3) consumer welfare protection, in which competition protects consumer interests, sometimes recognizing competition between consumers and producers – fair use, experimental use, TM; (4) wealth maximization.

TM includes both (1) and (3), trying to reduce search costs.

Ghosh looked at 130 appelate cases on dilution. 49 contained a substantive ruling on dilution, and 22 involved claims against competitors. Of those, the TM owner won 9 and the alleged diluter won 13. Half of the victories for the alleged diluter were before Moseley. 5 out of the 9 TM owner victories were after the TDRA, while only 3 out of the 13 diluter victories were.

Dilution is often just redundant; should it ever be available against a competitor? Perhaps, when the infringer is duplicating the brand in order to reduce its own costs.

(My question: What would those costs be? Communicating what the brand is to consumers? But that’s very close to nominative fair use/comparative advertising. His answer: Ghosh suggests there are different types of search costs – (1) knowing where to find things on the shelf or (2) consumers have no idea what the product is like and the TM serves as a screening device; in the latter type of case there is a role for dilution. I’m very interested in the paper expanding on this concept, because I’m not sure I can see the difference. In a case I worked on, XALATAN v. TRAVATAN for two drugs competing in the market for glaucoma medications, there’s no classic or nominative fair use, but the allegedly dilutive use of ATAN can communicate something about the type of drug precisely because it borrows part of the allegedly unique and famous mark. Borrowing the TM helps doctors screen, but truthfully so. In any case between competitors, it seems to me that (1) is more likely to win out.)

Lisa Ramsey: What percentage of opinions are not reported? What effects on results?

Diamond: It’s a significant number. There are distortions; even PACER is incomplete.

Lemley: Touts coming Stanford IP Litigation Clearinghouse, to collect this type of data. TDRA has a damages reset: No damages unless the dilution began after Oct. 2006. That means that the subset of cases decided in the last year is likely to be skewed in interesting ways.

Graeme Dinwoodie for Bone: That contradicts conventional wisdom on the radical nature of Schechter’s theory. But didn’t he still have a concern over free riding?

Bone: He was certainly concerned about it in general, though he said little about it in Rational Basis. He looked for fair trade in trade practices, which was difficult but was the standard difficult problem for legal realism of finding the good in the extant.

My comment on Diamond: What’s notable about the list of TDRA changes to me is that the “expansions” are all reversals of things that outlier courts did contrary to pretty obvious congressional intent. We’re “expanding” our way to the situation immediately post-FTDA – which is not necessarily a small thing, given that courts at first applied the FTDA broadly. Congress sent a signal, but it is at least one the courts can choose to interpret as a rebuke only on specific doctrines rather than an instruction to apply dilution broadly. Compare the as-yet unenthusiastic judicial response to the TDRA to the enthusiastic embrace, and expansion, of Dastar. Hypothesis: Part of a general overall move to laissez-faire in civil cases that here affects outcomes of business-v.-business cases as well as the more obvious effects in consumer-v.-business cases?

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