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U.S. Federal Courts Explore the Boundaries of Dilution Law
- 12/1/1999

The Federal Trademark Dilution Act of 1995 (the "Dilution Act"), 15 U.S.C. ' 1125(c), which made dilution a federal cause of action, continues to produce novel issues for the federal courts to consider. In the latest decision, Syndicate Sales Inc. v. Hampshire Paper Corp., 52 U.S.P.Q.2d 1035 (7th Cir. Sept. 13, 1999), the Seventh Circuit Court of Appeals considered whether a mark that is famous within a niche (a special area of demand for a product or service) can qualify as a "famous" mark for purposes of the Dilution Act.

At the trial court level, Syndicate Sales sued Hampshire Paper alleged, among other things, trade dress infringement and trade dress dilution. Syndicate Sales manufactured and sold plastic baskets used for funeral floral bouquets since 1960. Hampshire Paper entered the plastic products market in 1994. In designing its baskets, Hampshire Paper used Syndicate Sales' funeral baskets as models. The baskets of the two different companies featured teardrop-shaped handles, round buckets and bases with triangle supports and had similar appearances. Both companies sell their baskets in boxes to wholesalers who resell them in the same boxes to distributors. Those boxes of each company containing the baskets bear the respective company names "Syndicate Sales" and "Hampshire Paper."

The trial court granted Hampshire Paper summary judgment dismissing Syndicate Sales' trade dress infringement claim. Syndicate Sales admitted that wholesalers would not be confused as to the source of origin of the boxes of baskets. However, Syndicate Sales contended that retailers would be confused. The Seventh Circuit affirmed the summary judgment by holding that the trial court correctly held that the packaging differences provided strong evidence against a likelihood of confusion. The Seventh Circuit agreed with the trial court that many retailers do not care about the source of the goods because they merely order funeral baskets generically and without regard to brand name. The Seventh Circuit noted that customers who do not care about the source of goods they buy are not considered when determining whether or not confusion is likely. Those remaining retailers who actually do care about the source of the baskets are considered to use the ordinary amount of care that it would take to distinguish the clearly marked Syndicate Sales and Hampshire Paper packages. Even retailers who are initially confused upon receiving a shipment of the baskets can return the incorrect goods to receive the intended goods. As a result, the Seventh Circuit held that Syndicate Sales had failed to prove the necessary likelihood of confusion to support its claim for trade dress infringement.

On Syndicate Sales' other claim for trade dress dilution, however, the Seventh Circuit reversed the decision of the trial court granting Hampshire Paper summary judgment. The trial court had held that fame in a niche market, such as wholesalers and retail florists, cannot be sufficient to establish fame for purposes of the Dilution Act. The Seventh Circuit disagreed and held that the trial court had not properly considered the scope of the market in which a mark has fame.

The Dilution Act contains a non-exclusive list of factors relevant to determining whether a mark is famous. One of the factors is "the degree of recognition of the mark in the trading areas and channels of trade used by the marks' owner and the person against whom the injunction is sought." 15 U.S.C. ' 1125(c)(1)(F). The trial court held that fame in a niche market, such as among wholesale and retail florists, cannot be sufficient to satisfy this statutory requirement. The Seventh Circuit noted that case authority on the issue was divided, with some courts finding niche market fame sufficient, and other courts finding it insufficient, for supporting a federal dilution claim. However, the Seventh Circuit found that these cases were divided into two different lines of authority: (1) cases that held niche market fame to be insufficient generally involved the plaintiff and defendant using the mark in separate and unrelated markets, and (2) cases that held niche market fame sufficient typically concerned the plaintiff and defendant using the mark in the same or related markets. The Seventh Circuit, quoting from a treatise known as the Restatement, explained this distinction as follows:

A mark that is highly distinctive only to a select class or group of purchasers may be protected from diluting uses directed at that particular class or group. For example, a mark may be highly distinctive among purchasers of a specific type of product. In such circumstances, protection against a dilution of the mark's distinctiveness is ordinarily appropriate only against uses specifically directed at that particular class of purchasers; uses of the mark in broader markets, although they may produce an incidental diluting effect in the protected market, are not normally actionable.

Restatement (Third) of Unfair Competition ' 25 cmt. e (1995).

The Seventh Circuit found that the narrowness of the market is less important when the defendant and plaintiff use the mark in the same market. In the case at bar, Syndicate Sales and Hampshire Paper operated within the same market. Accordingly, the Seventh Circuit remanded the case to the trial court with instructions to consider whether Syndicated Sales' trade dress is sufficiently famous among wholesale and retail florists.

The Syndicate Sales decision appears to greatly expand the number and type of marks entitled to protection under the Dilution Act. In addition to famous company names that are well known among most all individual consumers, such as NEC, OLYMPUS and MURATA, trademarks and trade dress that have achieved commercial success within a limited niche can try to claim protection against dilution. Therefore, it is recommended that trademark owners evaluate their portfolios to determine whether they should police their secondary marks or trade dress against dilution by others.