5th Circuit requires use as a mark, but finds Krusty Krab restaurant in SpongeBob qualifies

Viacom Int’l, Inc. v. IJR Capital Investments, L.L.C., No. 17-20334 (5^th Cir. May 22, 2018)

The Fifth Circuit here adopts a “use as a mark” requirement, though not a very vigorous one, indicating once again that the concept is too useful to abandon, however much the Second Circuit might like us to think otherwise (at least, when it’s not using the concept itself, as in the Louboutin case).

Viacom sued IJR for infringing its common law trademark of The Krusty Krab— a fictional restaurant in the popular “SpongeBob SquarePants” animated television series—by taking steps to open seafood restaurants using the same name. The court of appeals affirmed summary judgment for Viacom.

SpongeBob SquarePants is “a sea sponge that wears square shorts, lives in an underwater pineapple, and works at the fictional [you don’t say] The Krusty Krab restaurant as a fry cook.” His show has been the most-watched animated television series for 15 consecutive years, with over 73 million viewers in the second quarter of 2016 alone. One-third of all viewers are 18 or older.  The Krusty Krab “played a prominent role in the pilot episode of the series and has appeared in 166 of 203 episodes,” as well as in two feature films, Viacom’s mobile app “SpongeBob Moves In” (seven million global downloads), a play called The SpongeBob Musical, and ads and online outreach (about seven million page views per week). The press has also referenced The Krusty Krab many times when discussing the show.

The Krusty Krab is also licensed to third parties, including for Krusty Krab playsets ($1.4 million in royalties since 2009), the video game “SpongeBob SquarePants Creature from The Krusty Krab” (over one million units), The Krusty Krab aquarium accessories (187,000 units), and The Krusty Krab shirts sold at The SpongeBob Store at Universal Studios in Florida. Viacom has never attempted to license The Krusty Krab mark to a restaurant, though its subsidiary did license Bubba Gump Shrimp Co. for seafood restaurants based on the fictional business from the 1994 movie “Forrest Gump.”

In 2014, IJR’s owner decided to open seafood restaurants in California and Texas. He claimed that he was describing the crusted glaze applied to cooked seafood when he chose The Krusty Krab. Nonetheless, an IJR investor mentioned SpongeBob “out of the blue” while discussing the restaurant.  Though the owner became aware of the fictional Krusty Krab, he didn’t find an actual restaurant using the mark, and IJR filed an ITU trademark application, which was allowed.  IJR’s business plan makes no reference to the SpongeBob franchise or the fictional restaurant The Krusty Krab. IJR postponed its plans during this lawsuit.

Viacom’s survey found that 30% of respondents thought The Krusty Krab was connected with Viacom and 35% of respondents associated the hypothetical restaurant with Viacom.

Viacom, the court reasoned, would have a protectable mark “if it establishes ownership by demonstrating that it uses The Krusty Krab as a source identifier. Often this court has bypassed the use inquiry and conducted only a distinctiveness analysis. However, the two issues are separate questions,” since the Lanham Act requires that a symbol be used or intended to be used “to identify and distinguish” goods and services; use as a mark is a question of fact.  It was clear that The Krusty Krab appeared on goods in the market. The question was whether Viacom used The Krusty Krab “to indicate origin.”

Elements from within a television show can be valid marks.  The court pointed to an earlier case affirming a judgment against the junior use of Conan the Barbarian—the title character of a comic book series—in a restaurant concept, as well as to the Second Circuit’s Warner Bros., Inc. v. GayToys, protecting the General Lee—an orange muscle car with a Confederate flag emblem that was “prominently featured” on the “The Dukes of Hazzard.”  [Just some good ol’ boys, celebrating treason.]

If a TV show element serves as a source identifier, then protecting it serves the purposes of trademark, which are to protect goodwill/producer investment against free riding and “to protect consumers against confusion and monopoly.”  Still, use within a popular TV series isn’t necessarily use as a source identifier.

If the matter “creates a separate and distinct commercial impression...[it] performs the trademark function of identifying the source.” Thus, the role of the element in the show must be evaluated, not the overall success or recognition of the show itself. “When an element only occasionally appears in a successful television series, the indication-of-origin requirement may not be met.” The court gave the example of Paramount Pictures Corp.v. Romulan Invasions, which declined to protect “Romulan” for a fictional alien race in the “Star Trek” series that was featured in episodes, movies, books, licensed plastic spaceship models and dolls, puzzles, games, etc. The TTAB reasoned that the term was “only” used “from time to time” and held that Paramount “failed to establish any use of the term Romulan...as a mark to distinguish its services.” The court here commented that “Star Trek fans may vehemently disagree with this analysis as a factual matter.” [No, no we don’t!]

Elements playing a more central role can “ordinarily” get trademark protection.  The example here was “The Daily Planet,” which “has over the years become inextricably woven into thefabric of the Superman story.” So too with Kryptonite, “a staple of the Superman character and story,” which “is immediately recognized or associated with the character Superman.”

The court found The Krusty Krab analogous to these protected marks, deeming it “integral” and “central” to SpongeBob, given its prominence in the material. This centrality was itself “strong evidence” that “The Krusty Krab” was “recognized in itself as an indication of origin for Viacom’s licensed goods and television services.” Viacom’s licensing, which has generated millions of dollars, “provides further evidence that Viacom uses The Krusty Krab as a source identifier and therefore owns the mark.” Even though it typically appears alongside the SpongeBob mark, that didn’t prevent it from being a mark too because it created a distinct commercial impression, “signifying to consumers that products like Krusty Krab playsets or aquarium ornaments originate from the famous fictional restaurant that employs their beloved sea sponge character.”  Nor did it matter that the term was used in varying styles, fonts, and sizes on the licensed products, because the mark was a word mark, not a design mark, “so the focus is whether the words themselves are consistently used as an indicator of source.”

It’s interesting that this factual question seems in the court’s view to be completely about what Viacom does, not what consumers perceive in response.  This is perhaps the only way to distinguish use as a mark from distinctiveness, but does it make sense?

Speaking of distinctiveness, the evidence showed distinctiveness, even without a survey or direct consumer testimony.

Confusion: given the standard for summary judgment, the evidence of intent couldn’t be weighed against IJR, but there was still enough to find confusion as a matter of law.  Strength and similarity easily favored Viacom for any reasonable jury, as did relatedness of goods/services.  For relatedness, the court of appeals compared the fictional hamburger restaurant, not a TV show/aquarium accessories/playsets, to the planned seafood restaurant.  This seems technically erroneous but practically understandable. “While there is little evidence of thematic overlap between the restaurants, IJR nevertheless plans to open a restaurant, and given the success of SpongeBob, that indicates a likelihood of confusion.”  Plus, affiliation or sponsorship confusion are more likely “when the junior user’s services are in a market that is one into which the senior user would naturally expand.” The Conan case said that “today’s consumers expect [cartoon character] endorsements and act favorably toward them” in the restaurant setting, and “Viacom could naturally develop a real The Krusty Krab restaurant based on the fictional eatery, as its subsidiary did when it licensed Bubba Gump Shrimp Co.”

Identity of retail outlets and purchasers: IJR intended to target “the general public,” particularly “families, singles, and students . . . as well as the area’s work force.” “At this general level of abstraction, Viacom also targets the general public,” but though the district court found that this factor favored Viacom, there were “substantial differences in the retail outlets and the predominant purchasers that mitigate the possibility of confusion.”  Viacom “presumably” targeted TV viewers, toy stores, and online retailers, versus brick-and-mortar restaurants.  There was some overlap in purchasers, since one third of SpongeBob viewers are “technically” adults [ouch], but the core consumers were dissimilar. Though it was reasonable to infer that some SpongeBob fan children would influence decisions to eat at a Krusty Krab restaurant, and that adult fans “might well dine at a Krusty Krab restaurant, at least once, due to the name,” the extent of the overlap wasn’t clear on the record.  Likewise, similarity of advertising media couldn’t be judged on this record.

The district court specifically erred in weighing intent against IJR, even after acknowledging that it was “not clear” whether IJR intended to derive benefits from Viacom’s reputation, because a principal “associated” the phrase with SpongeBob and IJR’s owner was aware of Viacom’s use before he applied to register the mark. Word association, without more (such as using more elements of the show, rather than just one unregistered term), couldn’t establish bad faith at summary judgment, and “‘mere awareness’ of the senior user’s mark does not ‘establish[]...bad intent.’” There was enough to create a genuine issue, but it didn’t matter.

Evidence of actual confusion: the survey plus anecdotal evidence of association by principals/investors. The key question was whether the survey was “substantially defective”; there was no problem of the representativeness of the sample, but “parts of the survey resembled a word-association test. … [T]he survey asked if ‘THE KRUSTY KRAB restaurant [is] affiliated or connected with any other company or organization.’ This invites word association, and ‘a mere word-association test is entitled to little weight.’” But this went only to weight, so the district court didn’t err in admitting the survey.  The bar on actual confusion is low; the probative value of the survey plus the anecdotal evidence [of word association] weighed in favor of finding confusion. [Interestingly, the court of appeals doesn’t say that a reasonable jury would have to so find—and I would think it wouldn’t have to.]

Overall, there was no genuine issue of material fact on likelihood of confusion.