Charbucks case bounced back for third round

Starbucks Corp. v. Wolfe's Borough Coffee, Inc., --- F.3d ----, 2009 WL 4349537 (2nd Cir.)

The Second Circuit generally likes dilution, at least when Judge Leval isn’t around, and in this case it cut back on one of the most powerful limits on dilution: the requirement that an accused mark be substantially similar to the plaintiff’s mark before dilution could be found. Also, and relatedly, this case marks the first significant articulation I can recall of a difference between state and federal dilution claims. Stuck with precedent about the similarity requirement, the court of appeals nonetheless went with a broader balancing test for federal dilution.

As we all know, Starbucks is big and famous. Wolfe’s does business as Black Bear, a small business that sells coffee via mail order, the internet, and a limited number of New England supermarkets. In 1997, Black Bear began selling a dark roasted blend, Charbucks Blend, and later Mister Charbucks. The Charbucks Blend package showed a picture of a black bear above BLACK BEAR MICRO ROASTERY in large font, with the large slogan “You wanted it dark … You’ve got it dark!” Mister Charbucks had Black Bear’s name on it, a picture of a man walking, and the slogan “Roasted to the extreme … for those who like the extreme.”

Starbucks demanded that Black Bear stop using the Charbucks marks, but Black Bear declined. Its principal testified: “[m]y main objection was that basically this was a large corporation coming at me and saying, telling us what to do, and, oh, by the way you're going to pay for it, too.... [S]ome of the requests that they were making were really off the wall.”

At trial, Starbucks introduced the testimony of Dr. Warren Mitofsky, “a scientist in the field of consumer research and polling.” Based on his telephone survey of 600 consumers, he concluded that consumers associated “Charbucks” with “Starbucks,” and that the connections made were negative.

Black Bear won the trial; Starbucks appealed, and by then the TDRA had passed, so the Second Circuit remanded for further proceedings, and also commented that it wasn’t clear that New York dilution law was coextensive with federal dilution as amended. The parties being in agreement that no further evidentiary submissions were required, they briefed the issues and the district court again ruled for Black Bear. Starbucks appealed again.

Federal dilution law includes a six-factor test: (1) degree of similarity between the marks; (2) degree of famous mark’s inherent/acquired distinctiveness; (3) extent of famous mark’s substantially exclusive use; (4) degree of recognition of famous mark; (5) junior user’s intent to create an association with the famous mark; (6) actual association.

First, the court of appeals found no clear error in the district court’s finding that the Charbucks marks were “minimally similar” to the Starbucks marks. As presented to consumers, Charbucks is part of either “Mister Charbucks” or “Charbucks Blend” in packaging with Black Bear’s name “in no subtle manner,” and the packaging also makes clear that Black Bear is a New Hampshire “Micro Roastery.” The images, color, and format differ from those of Starbucks. On the Black Bear website, the dissimilarity between the marks is still evidence because of Black Bear’s domain name, blackbearcoffee.com, and other products such as T-shirts and mugs displaying the Black Bear mark.

It’s unlikely that Charbucks will appear to consumers outside this context, since it appears only on the packaging and the website, unlike the fish-shaped crackers at issue in Nabisco v. PF Brands, which might have been separated from their boxes. It was not clearly erroneous for the district court to find that the Mister prefix and Blend suffix lessened the similarity between the marks. The court of appeals rejected the argument that Charbucks was the only term of note, because Mister and Blend were generic and/or too weak to serve a brand-identifying function.

The district court then concluded that dissimilarity alone was enough to defeat the blurring claim, and anyway weighed strongly against Starbucks. The court of appeals concluded that the first conclusion was error, and the district court may have placed “undue significance” on similarity in determining likely dilution. The existence of some, even “not substantial,” similarity between the marks may be sufficient “in some cases” to show likely dilution by blurring. Substantial similarity is not a requirement for federal dilution. (Well, so much for resolving cases on summary judgment. And that’s too bad, given how sensible the original rule was and how consistent with the articulated rationale for dilution in the legislative history—think of all the classic dilution examples given by Congress, all of which weren’t just substantially similar but identical.)

The Second Circuit’s prior substantial similarity requirement, the court of appeals reasoned, “can likely be attributed to the lack of guidance under the former federal statute and the existence of a ‘substantially similar’ requirement under state dilution statutes, which were better defined.” But the TDRA lists six nonexclusive factors, and it doesn’t use the words “very” or “substantial” in connection with the similarity factor. (There are lots and lots of trademark cases finding that failure on one of the key factors—mark similarity and product relatedness are the classic ones—is alone fatal to a trademark claim, even though the test is multifactor. If one concedes that at a certain point dissimilarity alone would be fatal—imagine similarity that was merely “both marks are English words”—then I don’t see why courts can’t easily conclude that substantial showings have to be made on key factors. The court’s reasoning, though, is good evidence for Bill McGeveran’s claim that courts are increasingly engaging in mechanical rather than common-law methods of interpreting the trademark statute.)

Under the TDRA, one of the factors is the “degree of similarity” between the marks, which “does not lend itself” to a requirement of substantial similarity. If there were a substantial similarity requirement, the significance of the remaining five factors would be “materially diminished” because they’d have no relevance without substantial similarity. (Of course, (2) and (4)—degree of distinctiveness and extent of recognition—are always going to favor the famous mark if it is in fact famous, so their significance is pre-diminished, or I suppose pre-enhanced. The various factors are not all of equal weight, and the statute does nothing to suggest that they are. By adopting a common-law type multifactor test, I would argue, Congress accepted the history of trademark multifactor tests, which do typically weigh certain factors more heavily than others, both formally and, as Barton Beebe has shown, empirically.)

The court of appeals concluded that the district court’s error likely affected its view of the other factors in analyzing the blurring claim. Indeed, the district court erred on evaluating the remaining two disputed factors: (1) intent to create an association and (2) evidence of actual association. The district court determined that Black Bear intended to associate Charbucks with Starbucks, but that Black Bear didn’t act in bad faith. But the intent element of the blurring statute doesn’t require bad faith; intent to create an association alone favors a finding of likely dilution.

As for actual association, 3.1% of 600 consumers surveyed responded that Starbucks was a “possible” source of Charbucks, and 30.5% responded that Starbucks was the first thing that comes to mind when they heard the name Charbucks. The absence of confusion, to which the district court referred, has no probative value in the dilution analysis. Thus, the federal dilution by blurring claim was remanded.

Tarnishment requires reputational harm: linkage to products of shoddy quality, or portrayal in an unwholesome/unsavory context such that it won’t serve as a wholesome identifier of plaintiff’s product. Starbucks argued that Charbucks evoked the image of bitter, over-roasted coffee; 30.5% of those surveyed immediately associated Charbucks with Starbucks, and 62% of them indicated they’d have a negative impression of Charbucks.

The court of appeals was unpersuaded. A mere association between Charbucks and Starbucks, plus a negative impression of Charbucks, is insufficient to establish likely dilution by tarnishment—nothing there shows that the consumer would view the junior mark as harming the reputation of the famous mark. The more relevant question (and one can sense why Starbucks didn’t ask it) is how Mister Charbucks/Charbucks Blend would affect positive impressions of Starbucks coffee. “We will not assume that a purportedly negative-sounding junior mark will likely harm the reputation of the famous mark by mere association when the survey conducted by the party claiming dilution could have easily enlightened us on the matter.” In fact, the court speculated, Charbucks might even strengthen the positive impressions of Starbucks by contrast—it brings to consumers’ attention the fact that Starbucks has no “Char,” and therefore of the two, Starbucks might be more attractive. “Juxtaposition may bring to light more appealing aspects of a name that otherwise would not have been brought to the attention of ordinary observers.”

Starbucks argued that “Charbucks” is already a pejorative term for Starbucks coffee (a risky tactic—in Hormel, the Second Circuit was willing to find SPAM pre-tarnished) and thus causes negative associations. The court of appeals disagreed. Although the term was once used pejoratively during the “coffee wars” in Boston, Black Bear wasn’t propagating that negative meaning, but is redefining it for a positive image for its own line. Consistent with Black Bear’s intent to profit, the coffee is “[v]ery high quality. It's our life. We put everything into it.” This won’t harm Starbucks’ reputation. The fact that Charbucks is marketed as high-quality is inconsistent with the concept of tarnishment. (Would the Second Circuit be willing to make the same finding about high-quality porn?) Product similarity may affect blurring, but it also undercuts tarnishment.

What about parody, as in the Chewy Vuiton case? Black Bear can’t qualify under the statutory parody exception because it’s using Charbucks as a designation of source for its own goods. The Second Circuit held that, even if it were to follow the Chewy Vuiton case and hold that parody can defeat a dilution claim against a source-indicating use, that wouldn’t help Black Bear.

Here, Black Bear’s use is, “at most, a subtle satire” of Starbucks as a reference to Starbucks’ dark roast, but that’s not a clear enough parody to qualify for the Fourth Circuit rule. The owner testified, “[t]he inspiration for the term Charbucks comes directly from Starbucks’ tendency to roast its products more darkly than that of other major roasters.” By using that term for its own high-quality, darkest-roated product, Charbucks is “promoted not as a satire or irreverent commentary of Starbucks but, rather, as a beacon to identify Charbucks as a coffee that competes at the same level and quality as Starbucks in producing dark-roasted coffees.” Therefore, it wouldn’t effect an increase in public identification of the Starbucks mark with Starbucks. (Isn’t this logic in contradiction with the tarnishment analysis above?)

Black Bear sustained its victory on state dilution. State law doesn’t require fame, and its multifactor test (invented, by the way, by the Second Circuit) is different from the TDRA’s multifactor test. Most important here, New York requires “substantial” similarity. (Further on that “by the way”: the Second Circuit’s multifactor test for NY dilution is “(i) the similarity of the marks; (ii) the similarity of the products covered; (iii) the sophistication of the consumers; (iv) the existence of predatory intent; (v) the renown of the senior mark; and (vi) the renown of the junior mark.” New York Stock Exchange, Inc. v. New York, New York Hotel LLC, 293 F.3d 550, 558 (2d Cir. 2002). Is there a relevant word beginning with ‘s’ missing from (i)? Or is it not missing at all, because it doesn’t need to be there to be part of the caselaw?) Given that the district court didn’t clearly err in finding lack of substantial similarity, the state law claim failed.

Likewise, the court of appeals upheld the finding of no liability for infringement/unfair competition. Though the Starbucks marks are strong and the goods are similar, with no gap to bridge, that’s not enough. Bridging the gap is irrelevant and shouldn’t favor Starbucks when the parties compete directly. (I take this to mean that identicality of goods already makes the similarity of goods factor weigh as strongly as it can in the plaintiff’s favor, and to then add in bridging the gap would be double-counting. That there is no gap to bridge hardly seems irrelevant in the abstract. But mostly the fact that we need to angst so much about how to deal with the identical-goods situation suggests that the multifactor test, despite the Second Circuit’s hopes, is always at risk of becoming mechanical and detached from its underlying objective. It’s also confirmation of Mark McKenna’s argument that things went bad in trademark when courts decided that they’d use the multifactor test for everything, even competing-goods cases.)

The court of appeals rejected Black Bear’s argument that the extreme strength of the Starbucks marks should weigh against likely confusion, because the (mechanical) rule is that strength favors the plaintiff. True, a strong mark can weigh against likely confusion where the defendant’s mark is a clear parody and there’s widespread familiarity with the parody, as when the parodist is a Muppet. But Charbucks is at most, familiar only to the New England region and some consumers on the internet. “More importantly, Charbucks is not a ‘clear parody’” because it’s on a directly competing product.

On the rest of the factors, there was no clear error except on the sophistication of consumers. For example, Starbucks’ telephone survey--which found that 3.1% of respondents named Starbucks as a possible source of Charbucks, plus greater levels of association with Starbucks and with coffee--was insufficient because it didn’t present Charbucks in the context in which Black Bear uses it. (Also, 3.1% is a ridiculously low level of confusion, even more so given the tentativeness of the question—a “possible” source?) Also, Starbucks couldn’t produce any evidence of actual confusion, and eleven years of coexistence without confusion is a “powerful indication” of no likely confusion, given that Black Bear has sold about $7000 annually of Charbucks.

Nor was Black Bear’s intentional reference to Starbucks problematic. The only relevant intent is intent to confuse, which is considerably different from an intent to copy. The district court isn’t required to draw an inference of bad faith from deliberate copying where there’s evidence to the contrary. Black Bear has always taken the position that “Char” and the different trade dresses prevented confusion, and indeed as a small, local business, its owner testified that association with a large corporation “would be very bad for us.” Thus, the district court’s conclusion on intent was reasonable.

On quality of goods, Starbucks argued that the high quality of both parties’ products should favor a confusion finding, but when goods or services of equal quality compete, the quality factor “cuts both ways.” (The Second Circuit should just en banc this to get it out of the test. It’s a useless factor in modern trademark law, whatever its utility when tarnishment mattered to a confusion finding; a footnote in this opinion gestures in that direction, pointing out that it’s not clear why inferiority of goods/services has anything to do with likely confusion as we currently understand it.)

Finally, the district court concluded that ordinary consumers were unlikely to mistake Charbucks for Starbucks, whether or not they were “highly discriminating.” Starbucks argued that its customers are not sophisticated and generally make quick, casual purchasing decisions about low-cost goods. The court of appeals agreed that the district court was wrong to weigh this factor against Starbucks—it was basically anticipating its overall weighing of the factors, not making an independent finding about sophistication—but that wasn’t enough to change the outcome. It’s true that case law associates the purchase of low-cost goods in a supermarket with low sophistication. But price alone isn’t determinative of consumer care. Because there wasn’t much evidence before the district court on this factor, the court of appeals declined to give it much, if any, weight.

Given that the district court erred in weighing bridging the gap in Starbucks’ favor, and didn’t screw up too badly on the rest, the court of appeals “a fortiori” affirmed the ultimate conclusion of no likely confusion.