Intellectual Property

After four years, the quest to obtain federal trademark protection for the mark MATTRESS.COM by owner 1800Mattress.com IP, LLC, formerly Dial-A-Mattress Operating Corp, has been put to bed. The United States Court of Appeals for the Federal Circuit has finally held that the mark is generic and not entitled to registration.

On December 9, 2005, Dial-A-Mattress filed U.S. Trademark Application Serial No. 78/976,682, seeking to register the mark MATTRESS.COM for an “online retail store services in the field of mattresses, beds, and bedding.” On February 14, 2008, the trademark examiner assigned to the application finally refused registration of the mark on the basis that it is generic. Dial-A-Mattress appealed the refusal to the United States Trademark Trial and Appeal Board, which affirmed the examiner’s refusal to register the mark. Dial-A-Mattress timely appealed to the Federal Circuit.

This case reflects the fine and often illusive line between marks that are merely descriptive and those that are generic. The distinction can make a very big difference to the mark owner. Descriptive marks are registrable on the Supplemental Register and are capable of elevation to the Principal Register after obtaining secondary meaning, while generic marks are never capable of registration.

15 U.S.C. §1052 provides that no trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it …. (e) Consists of a mark which, (1) when used on or in connection with the goods of the applicant is merely descriptive or deceptively misdescriptive of them. A mark is considered merely descriptive if it describes an ingredient, quality, characteristic, function, feature, purpose, or use of the specified goods or services. For example, the mark APPLE PIE has been held merely descriptive of potpourri and the mark BED & BREAKFAST REGISTRY held merely descriptive of lodging reservations services. The determination of whether a mark is merely descriptive requires consideration of the context in which the mark is used or intended to be used in connection with those goods/services, and the possible significance that the mark would have to the average purchaser of the goods or services in the marketplace. The mark need not describe all the goods and services identified, as long as it merely describes one of them.

By contrast, generic terms are terms that the relevant purchasing public understands primarily as the common or class name for the goods or services. Put in common parlance, if the general public primarily understands the word to designate the product rather than the producer, the word is generic. Generic terms are incapable of functioning as registrable trademarks denoting source, and are not registrable on the Supplemental Register or on the Principal Register after having acquired secondary meaning. Generic terms are terms that the relevant purchasing public understands primarily as the common or class name for the goods or services. For example, in Yellow Cab Co. of Sacramento v. Yellow Cab Co. of Elk Grove, 266 F. Supp. 2d 1199 (E.D. Cal. 2003) the court determined that the mark YELLOW CAB was determined generic for taxi service, and in Retail Servs., Inc. v. Freebies Publishing, 364 F.3d 535 (4th Cir. 2004) the court determined that the mark FREEBIE is generic for free products or services

There is a two-part test used to determine whether a designation is generic: (1) What is the class of goods or services at issue? and (2) Does the relevant public understand the designation primarily to refer to that class of goods or services? The test turns upon the primary significance that the term would have to the relevant public.

On appeal, Dial-A-Mattress argued that in upholding the refusal to register the TTAB did not show by clear evidence that the relevant public refers to the class of on line stores selling mattresses by the mark MATTRESS.COM. The Federal Circuit disagreed with Dial-A-Mattress, concluding that substantial evidence supported the TTAB’s conclusion that the mark is generic. The Federal Circuit noted that the TTAB considered each part of the mark, “mattress” and “.com” and determined that both were generic. Considered in its entirety, the term “mattress.com” added no new meaning. In coming to this conclusion the TTAB noted the prevalence of this term in the website addresses of several online mattress retailers that provide the same services as Dial-A-Mattress. The Federal Circuit noted that such reliance is permissible to that the relevant public would understand and believe that a website operating under the term “mattress.com” provides online mattress store services.

Determining the line between marks that are merely descriptive and generic is often extremely difficult. It is easy to understand the basis for a generic based refusal for the marks E-TICKET for a computerized reservation and ticketing of transportation services, IM for instant messaging or ICE PAK for a reusable ice substitute for use in food and beverage coolers. However given the challenge of determining where the line between a mark being descriptive and being generic cases like Dial-A-Mattress are always challenging for trademark attorneys and mark owners. One solution – avoid choosing marks that push the envelope of descriptiveness.

Earlier this year, the Tenth Circuit court upheld a preliminary injunction granted in favor of an electronics equipment manufacturer against a reseller of its goods in a trademark infringement action. In Beltronics v. Midwest Inventory Distribution, the reseller (Midwest) argued that it was able to resell the manufacturer’s goods based on the first sale doctrine. The court, however, disagreed with this assessment and ruled that the resellers violated the manufacturer’s trademark rights because Midwest’s sales caused consumer confusion.

Beltronics, a manufacturer of electronics equipment, sells its equipment under its trademark. Beltronics has used authorized distributors to sell its products at a specified minimum price. At one point in time, these distributors violated their agreements by selling radar detectors to a reseller. The reseller, Midwest, then resold the radar detectors on eBay. Prior to reselling the goods on eBay, Midwest removed the serial number label from the radar detector to prevent Beltronics from discovering that Midwest resold their goods. Beltronics learned of the sales when it was contacted by several customers seeking warranties on the products purchased on eBay. Beltronics’ warranty policy, however, only covers products that were purchased with a valid serial number on the product. Because Beltronics would not warranty products purchased on eBay, these consumers became upset with Beltronics. These customers expressed their belief that Beltronics had deceived them. Obviously, these complaints harmed Beltronics’ reputation and goodwill.

Learning of the possible damages to its goodwill, Beltronics filed a suit against Midwest for trademark infringement and sought preliminary injunction to stop further sales. The district court granted the injunction and Midwest filed an appeal. The issue that the court examined on appeal was whether or not Midwest violated Beltronics trademark rights.

The guiding principle in trademark law is that trademarks are granted in order to protect consumers. Trademarks protect consumers by identifying the source of goods. If a product sold in the marketplace causes confusion to the source of goods, then the sale may constitute trademark infringement. The more likely the confusion, the more likely infringement has occurred.

Beltronics argued that the manner in which Midwest sold radar detectors caused confusion in the minds of consumers. Midwest, however, relied on a specific defense to trademark infringement known as the first sale doctrine. The first sale doctrine states that those who resell genuine trademarked products are generally not liable for trademark infringement. The rationale behind this defense is as stated above. Trademark law is designed to prevent sellers from confusing consumers about the source of products. If a genuine article is being resold, this confusion does not exist. If a purchaser of a product does no more than “stock, display and resell a producer’s product under the producer’s trademark” no trademark violation has occurred.

The first sale doctrine, however, does not apply when the reseller sells trademarked goods that are materially different than those sold by the trademark owner. Since a materially different product is not genuine, consumers may be confused as to the source of the products. In order to determine if Midwest could rely on the first sale doctrine, the court determined whether the changes that Midwest made to the product as sold on eBay constituted a materially different product. Midwest argued that its changes were not materially different because the changes revolved solely around the product’s warranty. Midwest claimed that it removed the serial number, so consumers would know that the purchaser would not be covered under Beltronics’ warranty. In addition, on its eBay sales page, Midwest disclosed to potential purchasers that the product was covered by Midwest’s own warranty and not any other. Based on these facts, Midwest argued that the changes to the product were immaterial and that it was protected from any liability under the first sale doctrine.

The court, however, was not persuaded by these arguments. The court held that even though there may have been no physical change in the products, there was a material difference in the nonphysical characteristics associated with the product. Since Midwest did not offer the same warranty as Beltronics did, the court held that this constituted a material difference. The court stated that such characteristics as warranties and customer service must be considered when examining the product as a whole. Since the resale of a trademarked product that is materially different constitutes trademark infringement, the court upheld the preliminary injunction.

On the other hand, the court may have ruled differently if Midwest’s disclosures were more effective. Because several consumers who purchased the radar detectors through eBay eventually came to Beltronics seeking warranty coverage shows that consumer confusion actually did exist. Consumers thought they were purchasing a radar detector that was covered by Beltronics’ warranty and service commitments. What they actually were purchasing was the same physical product but without the nonphysical services associated with the trademark. This led the court to conclude that Midwest infringed on Beltronics’ trademark rights. If Midwest disclosures were effective and consumers were not actually confused, the court may have ruled in favor of Midwest.

Several weeks ago, on November 9, 2009, the United States Supreme Court heard oral argument in a key patent case. The case is Bilski v. Kappos (the USPTO). The issue before the Court was whether the Court should reverse the Federal Circuit’s “machine-or-transformation” test for the patentability of process inventions. The Supreme Court’s decision will determine the extent to which processes (or methods), particularly business methods, are patentable.

Bilski filed a patent application for a method of hedging the risks in commodities trading. The Patent and Trademark Office rejected the claims as unpatentable on the grounds that the invention was an abstract idea. The Board of Patent Appeals and Interferences affirmed the rejection. The Federal Circuit Court of Appeals, in an en banc decision in 2008, affirmed the rejection. The court established a new test for the patentability of process inventions called the “machine-or-transformation” test. Pursuant to the new test, in order to be patentable, a process must either: (1) transform an article from one state into another state; or (2) be tied to a specific machine.

Bilski appealed to the Supreme Court. Over 60 amicus curiae briefs were filed.

At oral argument Bilski’s attorney, J. Michael Jakes, argued that the Supreme Court should reverse the machine-or-transformation test as being too rigid and not based on the statutes that define patentable subject matter (35 USC § 101). He argued that § 101 was intended to be read broadly to allow for inventions in new areas of technology. He emphasized that the machine-or-transformation test, which applies only to processes and not to other types of patentable subject matter, is not based on Supreme Court precedent or on the patent statutes.

Several Justices appeared skeptical that all processes should be patentable. They suggested that Bilski’s approach would result in every successful businessman having a patentable invention. The Justices asked what the limits on patentability should be.

Mr. Jakes argued that there are limits as to what is patentable. He said that, for example, the fine arts are not patentable. The Justices then asked whether human activities should be patentable. Mr. Jakes answered that they are patentable, and as an example, cited surgical methods performed by doctors. When pressed by Justices Breyer and Stevens as to what should be patentable, Mr. Jakes stated that the rule was set forth in Diamond v. Diehr. In that case, the Court specifically identified what is not patentable, such as abstract ideas. Justice Ginsburg asked Mr. Jakes why the Court could not adopt a system similar to that in Europe, in which business methods have been held not patentable. Mr. Jakes responded that the European system is based on a definition of “technology” that excludes business methods and that the U.S. cannot adopt.

The Justices challenged Mr. Jakes to explain the advantages of providing patent protection to inventions. Mr. Jakes explained that there are two advantages: the patent laws encourage people to invent and also force a disclosure of new inventions to the public. In response, Justice Breyer said that there are also two disadvantages to the patent laws: patents result in higher prices for products, which results in less use of those products, and the licensing process is too time-consuming.

The deputy Solicitor General, Malcolm Stewart, represented the PTO. He argued that the machine-or-transformation test is not rigid. He explained that the Court did not need to decide the harder question of what to do if part of a process is tied to a machine and part of a process is not.

Justice Sotomayor asked Mr. Stewart if it wouldn’t be safer to simply exclude all business methods from patent protection. Mr. Stewart replied that that would not be correct because it would eliminate claims to new machines or software that are patentable.

The Justices then questioned Mr. Stewart extensively about the State Street Bank case. Mr. Stewart explained that under the machine-or-transformation test, the result in State Street Bank would be the same. He said that the claims in that case were patentable because they were directed to a machine, not a process.

When pushed by the Justices, Mr. Stewart stated that Bilski was not the right case for the Court to address the “hard questions” concerning the patentability of software or medical diagnostics. He argued that these questions should be left unresolved for another case. Justice Ginsburg stated that the Federal Circuit had indicated that the machine-or-transformation test was sufficient for the invention before it and that other types of inventions could be addressed as the cases arose. She concluded that the Court could decide Bilski without addressing those difficult questions.

Mr. Stewart concluded by stating that the economic history of the United States would have been very different had people believed that process inventions like Bilski’s could be patented and that competitors could be precluded from using such methods.

On rebuttal, Mr. Jakes stated that the difficult questions must be faced now because the Federal Circuit has established the machine-or-transformation test as the proper test for all process inventions. He said that the proper question before the Court was whether Bilski’s invention is an abstract idea. He further argued that the test should not be whether an invention is transformed, but whether it is a practical application of a useful result.

The commentators do not agree on how the Court will decide Bilski. Some believe that the Court will strike down all business methods, while others believe that the Court will further modify the machine-or-transformation test to allow such patents.

Most people are familiar with the concept of trademarks in the form of logos or words. But intellectual property can also be embodied in sounds not represented by words and drawings, but rather musical notes and/or auditory tones. While sound marks are not nearly as common as word marks, many sound marks are immediately recognizable, including Southwest Airline’s “Ding!,” MGM’s roaring lion, AOL’s “You’ve got mail,” the Pillsbury Doughboy’s giggle, NBC’s chimes, Nokia’s default cell phone ringtone, and the Harlem Globetrotter’s theme song. However, the legal requirements to register such sound marks are different than word marks, and much less well-defined by the courts.

According to United States Patent and Trademark Office trademark examination protocol: “A sound mark identifies and distinguishes a product or service through audio rather than visual means. Examples of sound marks include: (1) a series of tones or musical notes, with or without words, and (2) wording accompanied by music.” As one court described the standard applicable to sound marks: “A sound mark depends upon aural perception of the listener which may be as fleeting as the sound itself unless, of course, the sound is so inherently different or distinctive that it attaches to the subliminal mind of the listener to be awakened when heard and to be associated with the source or event with which it is struck.” In re General Electric Broadcasting Co., 199 U.S.P.Q. 560, 562-63 (T.T.A.B. 1978).

In sum, if a sound can be readily associated with the source of a product or service in the minds of consumers, it can potentially serve as a trademark. Therefore, to be protected, sound marks must be a distinctive source identifier – as in, when you hear the DING!, you know it’s Southwest Airlines. But a different spectrum of distinctiveness than that applied to traditional word marks is followed in the case of sound marks. The U.S. Trademark Trial and Appeal Board (TTAB) has defined the spectrum as the distinction between “unique, different, or distinctive” sounds on the one hand and “commonplace” sounds on the other hand. Unfortunately, no further explanation of this distinction has been made by the courts. The most that can be said is the former are inherently distinctive and thus do not require secondary meaning, while the latter require secondary meaning to demonstrate distinctiveness. Secondary meaning for sounds has been described as whether consumers “recognize and associate the sound with the offered services . . .exclusively with a single, albeit anonymous, source.” In re General Electric Broadcasting Co. at 563.

Presuming that an applicant for a sound mark can demonstrate distinctiveness, often times the applicant must then address a registration refusal based on the doctrine of functionality. In the case of sound marks, the functionality doctrine primarily comprises “utilitarian functionality” which can defeat a mark containing a product feature that “is essential to the use or purpose of the article or . . . affects the cost or quality of the article.” Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, n.10 (1982).

Harley-Davidson dealt with the functionality hurdle when it applied to register “the exhaust sound of applicant’s motorcycles, produced by V-twin, common crankpin motorcycle engines when the goods are in use,” and was opposed by several other competing motorcycle companies. See Kawasaki Motors Corp. v. H-D Michigan, Inc., 43 U.S.P.Q.2d 1521 (T.T.A.B. 1997); Honda Giken ogyo Kabushiki Kaisha v. H-D Michigan Inc., 43 U.S.P.Q.2d 1526 (T.T.A.B. 1997). The opposing parties argued that the exhaust sound proposed to be trademarked by Harley was purely functional because it merely the sound produced by any engine of that type. Ultimately, the question of whether the Harley exhaust sound was functional was never decided because Harley abandoned its trademark application in the face of substantial opposition. Regardless, the issue of functionality is an important issue to consider when contemplating a sound mark. There are many products and services that create a unique sound that consumers recognize as an indication of unique source. The question then becomes how functional is that sound when produced. If the sound is merely functional, registration of the mark may be difficult.

In today’s business environment, considerable money is spent so that products and services can not only be seen, but also “heard” by consumers. If you have associated your business with a unique, non-functional sound, it may be worth registering your sound mark to ensure that the sound of your business remains your own.

Section 2019.210 of the Code of Civil Procedure requires that a plaintiff identify its alleged trade secrets with “reasonable particularity” before that party can commence discovery on its claims based upon trade secret misappropriation. In Perlan Therapeutics, Inc. v. Superior Court (NexBio, Inc.), a California appellate court revisited the requirements of section 2019.210 and held that a trial court has “broad discretion” in determining whether a plaintiff has complied with its obligations under section 2019.210.

Defendant Mang Yu incorporated Perlan in 1997 to develop “protein based therapeutics for the treatment of diseases caused by viral infection and diagnostic products to detect viral infection.” He and his wife, Fang Fang, served as directors and officers of Perlan at various times. Perlan developed a product known as “ColdSol,” a daily nasal spray for treating the common cold. Yu resigned from Perlan in June 2001 and incorporated a new company, NexBio, Inc., the following August. Fang continued to work at Perlan until May 2003. She then joined her husband as a director and officer of NexBio. NexBio obtained more than $50 million in grants to fund its research into “protein therapies for influenza”. Perlan sued NexBio, Yu and Fang claiming that they had secretly formed NexBio “to wrongfully exploit and misappropriate the Perlan technology inventions and other proprietary information.” Perlan’s second amended complaint included 12 causes of action that were all based, at least in part, on allegations of trade secret misappropriation.

Perlan attempted to conduct discovery after providing an initial 2019.210 trade secret disclosure statement but defendants moved for a protective order. Perlan then amended its 2019 statement which was again met with a motion for protective order. Perlan’s amended trade secret statement consisted of a “preliminary statement” and “general objections” that often appear in typical discovery responses. The rest of the amended trade statement consisted of four pages, much of which repeated the narrative in the second amended complaint and provided additional technical details concerning the trade secrets that was also publicly available. The statement continued to provide additional details about an invention and related processes that were not included in the second amended complaint but contained only general descriptions and did not provide the specific identification of particular ingredients used in the process. The statement concluded by claiming that the trade secrets also included “all related research, development, advancements, improvements and processes related thereto.”

In granting the defendant’s motion for protective order and thus preventing plaintiff from engaging in discovery, the Court concluded that Perlan “failed to demonstrate that the purported trade secret(s) is not generally known to the public or to other persons who can obtain economic value from its disclosure or use.” The Court also held that, although plaintiff was pursuing a claim for the misappropriation of several trade secrets, “the statement has not clearly identified all of the trade secrets at issue.” After the Court granted the protective order, plaintiff filed a petition for a writ of mandate challenging the Court’s discovery order.

The reviewing Court noted that although “writ proceedings are not the favored method for reviewing discovery orders,” it published “this opinion to emphasize that trial courts still have broad discretion under section 2019.210.” The Court began by noting the purpose of section 2019.210 was to: (1) Promote well-investigated claims and dissuade the filing of meritless trade secret complaints; (2) prevent plaintiffs from using the discovery process as a means to obtain the defendant’s trade secret; (3) assist the court in framing the appropriate scope of discovery and in determining whether plaintiff’s discovery requests fall within that scope; and (4) enable defendants to form complete and well-reasoned defenses. With these considerations in mind, the Court, after reviewing the record, concluded “(1) Perlan has the ability (but not the inclination) to provide clearer, more specific information about at least one of its alleged trade secrets; and (2) although Perlan lacks any particular information beyond three purported trade secrets, Perlan wishes to reserve the right to unilaterally amend (without leave of the Court) its identification so it can broaden its lawsuit to include claims it hopes to develop in discovery.” In reaching this conclusion, the Court reviewed two recent California appellate decisions, Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826 and Brescia v. Angelin (2009) 172 Cal.App.4th 133.

The Court noted that the Advanced Modular court observed that “the letter and spirit of section 2019.210 require the plaintiff … to identify or designate the trade secrets at issue with ‘”sufficient particularity’” to limit the permissible scope of discovery by distinguishing the trade secrets ‘”from matters of general knowledge in the trade or of special knowledge of those persons … skilled in the trade.”’” The Court noted that although trade secret identification does not require “every minute detail” of the trade secret to be disclosed or the “greatest degree of particularity possible,” nor does it envision a “miniature trial on the merits of a misappropriation claim before discovery ay commence,” the Court noted that where the alleged trade secrets consist of incremental variations on, or advances in the state of the art in a “highly specialized technical field;” then “a more exacting level of particularity may be required to distinguish the alleged trade secrets from matters already known to persons skilled in that field.”

Likewise, in reviewing the Brescia decision, the Court recognized that section 2019.210 “does not create a procedural device to litigate the ultimate merits of the case – that is, to determine as a matter of law on the basis of evidence presented whether the trade secret actually exists.” The Court noted that the Brescia court rejected the theory “that a trade secret claimant must, in every case, explain how the alleged trade secret differs from information available in the public domain.”

In light of these decisions, the Perlan court concluded that the legal interpretation of “the meaning of section 2019.210’s `reasonable particularity’ requirement” is a de novo review. However, a trial court’s determination of whether a party has complied with 2019.210 which does not include an improper understanding of the legal meaning of “reasonably particular” will be reviewed only for an abuse of discretion. The Perlan court noted that “so long as a trial court applies the correct legal standard and there is a basis in the record for its decision, appellate courts should not micromanage discovery. Rather, the trial court must exercise its sound discretion in determining how much disclosure is necessary to comply with section 2019.210 under the circumstances of the case.”

With that standard in mind, the Perlan court concluded that the trial court correctly determined that Perlan’s amended trade secret disclosure statement was inadequate. First, Perlan did not identify all of its trade secrets that it claimed to have been misappropriated. Second, Perlan was not entitled to include broad “catch all” language as a tactic “to preserve an unrestricted unilateral right to subsequently amend its trade secret statement.” The Court cautioned that if plaintiff did not known what its only trade secrets were, it had no basis to allege that defendants misappropriated them. The Court also noted that, if Perlan uncovered additional evidence during discovery that more of its trade secrets had been misappropriated, “it may have good cause to amend its trade secret statement under appropriate circumstances.”

Finally, the Court noted that Perlan was not being required “to convince defendants or the court in its section 2019.210 statement that its alleged trade secrets are not generally known to the public. This is an element of their case that must be proven, but not at the pre-discovery stage of the action.” The Court recognized, however, that the trial court was “simply applying the rule that in a `highly specialized technical field’ (such as developing protein based treatments for viral infections) a more exacting level of particularity may be required to distinguish the alleged trade secrets from matters already known to persons skilled in that field.”

The Perlan decision reminds plaintiffs of their duty to identify their alleged trade secrets with reasonable particularity and that a determination of whether this requirement has been satisfied will be left to the broad discretion of the trial court. In cases involving “highly specialized” fields of expertise, a plaintiff may wish to error on the side of caution and provide more detail about its alleged trade secrets because the trial court may place a greater burden on the party to make a detailed disclosure prior to allowing discovery to commence.

Recently the 7th Circuit in Sunstar, Inc. v. Alberto-Culver Company provided a reminder to attorneys engaging in a business transaction between domestic and a foreign parties. Stated plainly, the 7th Circuit reminded business attorneys that if a term is included in a transaction document – especially if that term is a foreign word – be sure you understand what it means. This case presented the question of how a foreign legal term included in a trademark license agreement should be interpreted where the choice of law for such agreement was Illinois state law.

In 1980, Alberto-Culver, a major producer of skin and hair care products, including the “Alberto V05” line of products, entered into a license agreement with Sunstar to license a number of trademarks, including the Alberto V05 mark, to Sunstar for 99 years. The license agreement contained the provision which stated that if at any time during the term of the agreement the licensor had a “reasonable ground” for thinking that Sunstar had committed an act that created a “danger to the value or validity of licensor’s ownership and title in the licensed trademarks” Sunstar would have to cease use of the trademarks in question until the licensor “reasonably determined” that the danger had passed. In the event of an actual breach of the license agreement by Sunstar, the license was to be rescinded and the marks returned to Alberto-Culver.

Additionally, the license agreement refers to the license granted to Sunstar as a senyoshiyoken, which in English means “exclusive use rights.” According to Japanese trademark law, the holder of a senyoshiyoken not only has an exclusive right to use the licensed trademarks within the geographical scope of the license but, holds other rights and privileges such as the right to sue infringers of the trademarks in its own name. Under Japanese trademark law, the holder of a senyoshiyoken is treated, in certain circumstances, as if they were the trademark owner.

In 1999 Sunstar began using a variant of the Alberto-Culver’s V05 mark. Sunstar described it as a “modernized” version of the licensed trademark. Alberto-Culver refused to amend the license agreement to permit Sunstar to use the modernized version and considered such use a breach of the license agreement. Sunstar filed suit seeking a declaration that Sunstar’s use of the modernized version of the mark was permitted by the license and as a holder of a senyoshiyoken.

At the District Court, Albert-Culver took the position that the parties used the term “senyoshiyoken” merely to indicate that Sunstar could register the license with the Japanese trademark office and that the term did not confer on Sunstar the rights that a senyoshiyoken confers on a holder under the Japanese law. The District Court agreed and refused to instruct the jury on the legal meaning of the Japanese term.

On appeal, the 7th Circuit found fault with the District Court and stated that it could not find any basis for the proposition that the term senyoshiyoken should be defined as suggested by Alberto-Culver. The court noted that when parties to a contract, especially sophisticated parties, use a technical term there is a presumption that they are using it in its technical sense. Where a technical term also happens to be a foreign term the presumption is that it is used in its foreign technical sense. Here, the 7th Circuit noted that the parties were using a foreign technical legal term, and despite that the contract calls for Illinois law to govern, the meaning of senyoshiyoken is to be determined under Japanese trademark law. (The court noted that the parties certainly could not have meant that the meaning of senyoshiyoken would be decided under Illinois law as the word has no meaning under Illinois law.)

Accordingly, the court turned to Japanese trademark law to determine whether the holder of a senyoshiyoken is permitted to use variants of the license the trademark. After reviewing various scholarly articles on Japanese trademark law, the court determined that as a holder of a senyoshiyoken, the Japanese rule of law would allow the type of changes that Sunstar sought to make to the licensed trademarks. Under Japanese trademark law (as well as under U.S. trademark law) the change Sunstar sought to make, notably a change in the trademark typeface, is not considered a material alteration of the original trademark. The court further explained that the longer the term of the license, the less plausible it is to assume that, in the absence of an express prohibition, the license was forbidden to make small changes to the licensed trademark. Here, the court noted that the license was for 99 years and changes in language, typeface, marketing methods, and trademark styles would be likely and would require the modification to the wording or appearance of the licensed mark in order to enable the branded product to be marketed effectively.

Although in this case both U.S. and Japanese law were the same, the 7th Circuit’s holding would allow for a situation where a foreign legal term, interpreted pursuant to the laws of its home nation, could result in a determination that would otherwise not occur under U.S. law. Thus, where foreign counsel insists on the inclusion of a foreign legal term U.S. counsel should be certain how that term will affect the transaction under the laws of the foreign nation.

Not all trademark law is aimed at protecting consumers. The Federal Trademark Dilution Act (“Act”) is aimed at protecting a company’s property right in its trademark. Dilution is defined as “the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of competition between the parties or the likelihood of confusion, mistake or deception.” In essence, dilution forbids the use of a famous trademark by others in any manner that lessens the uniqueness of the mark. Again, the purpose of the dilution doctrine is not to protect the consumer, but to protect the property right and goodwill that a company has developed in a mark.

Dilution can be separated into two related concepts: blurring and tarnishment. Blurring occurs when a defendant uses or modifies the plaintiff’s trademark to identify the defendant’s goods and services, raising the possibility that the plaintiff’s mark will lose its ability to serve as a unique identifier of the plaintiff’s product. In these cases, consumers are not confused as to the source of the mark. The original trademark, however, is lessened. For example, if a car company decided to sell cars under the trademark McDonalds, the link and image between the word “McDonald’s” and fast food is weakened.

Besides blurring, dilution can be caused by tarnishment. Tarnishment occurs when the trademark is used in an unsavory or unflattering manner. In a case last year, Hershey, the chocolate maker, claimed that an individual sold marijuana in packages that resembled Hershey products, the Hershey trademark was degraded by such use.

In order for a trademark owner to succeed on a trademark dilution claim, it must satisfy the elements of the claim. The first and most important aspect of a dilution claim is that the mark must qualify as a distinctive and famous mark. The Act states that courts should consider, but are not limited to, eight factors. These are:

1. The degree of inherent or acquired distinctiveness of the mark
2. Duration and extent of the use of the mark in connection with the goods and services
3. Duration and extent of advertising and publicity of the mark
4. Geographical extent of the trading area in which the mark is used
5. Channels of trade for the goods or services for which the mark is used
6. Degree of recognition of the mark in the trading areas and channels of trade used by the mark’s owner and the person against whom the injunction is sought
7. Nature and extent of use of the same or similar marks by third parties; and
8. When and how the mark was registered.

From these eight factors, it is clear that Hershey’s, in the above case, would constitute a famous mark based on its duration of use of its mark along with its advertising and publicity.

The traditional remedy in dilution cases is an injunction against the trademark violator. In addition, monetary damages may be rewarded if the defendant is found to have willfully intended to trade on the trademark owner’s reputation or to cause dilution of the famous mark.