Victoria´s Secret: The Aftermath

By Laurence R. Hefter and Montia Givens Pressey

Many commentators have characterized the Supreme Court’s recent decision in Mosley v. V Secret Catalogue, Inc.¹ involving the Federal Trademark Dilution Act ("FTDA"), as a loss for Victoria’s Secret and, by extension, for all trademark owners. The Court resolved one important issue under the Act when it held that proof of economic harm to the value of a famous mark is not required for relief. But to the dismay of many in the intellectual property bar and among trademark owners, the Court also held that a showing of "actual dilution," rather than "likelihood of dilution," is required. And in briefly addressing the issues, such as the tarnishment and blurring prongs of dilution, the Court seems to have raised more questions than it answered. As a result, an act born of a doctrine intended to protect owners of famous marks from dilutive uses - regardless of likelihood of confusion or competition—has generated uncertainty about the nature of proof required to obtain relief.

While many unanswered questions remain, three positive points in the decision merit attention: (1) the Court concluded that proof of economic harm is not required for relief under the Act; (2) the Court suggested that, for a famous, distinctive mark held eligible for protection under the Act, use of the identical mark may be per se dilution; and finally (3) the Court hinted that the more liberal "likelihood of dilution" standard in some state dilution statutes could still apply.

Plaintiff V Secret Catalogue, owner of the VICTORIA’S SECRET trademark and 750 Victoria’s Secret stores nationwide, had objected to the defendants’ operation of a lingerie and adult gift and novelty store called "Victor’s Secret" in Elizabethtown, Kentucky. In response to a demand letter from Victoria’s Secret’s counsel, the defendants changed the name of the store to "Victor’s Little Secret." Victoria’s Secret responded by filing suit, claiming that the new name infringed its famous VICTORIA’S SECRET mark and diluted it by "blurring" its distinctiveness and "tarnishing" its reputation by linking it to unsavory adult themes. Many believe that the manner by which Victoria’s Secret was first alerted to the defendants’ store overwhelmingly supported these claims: An army colonel saw the defendants’ store and was personally offended by what he perceived as an attempt to "use a reputable company’s trademark to promote the sale of ‘unwholesome, tawdry merchandise.’"²

The U.S. District Court in Kentucky granted Victoria’s Secret’s motion for summary judgment on its dilution claim, and the Court of Appeals for the Sixth Circuit affirmed, holding that "consumers who hear the name ‘Victor’s Little Secret’ are likely automatically to think of the more famous store and link it to the Moseleys’ adult-toy, gag gift, and lingerie shop."³ (Emphasis added.) The Circuit Court discussed two issues not specifically raised by the District Court, concluding that the VICTORIA’S SECRET mark was distinctive and, turning to the legislative history, that relief could be granted under the FTDA before dilution actually occurred. The Circuit Court characterized the case as a "classic instance" of both dilution by tarnishing (associating the VICTORIA’S SECRET name with lewd merchandise) and by blurring (linking the Victoria’s Secret chain with the defendants’ unauthorized establishment), and affirmed the District Court’s decision.

The narrow question presented to the Supreme Court was whether relief under the FTDA requires proof of economic harm to the value of a famous mark.⁴

The Court concluded that evidence of loss of sales or profits is not required for relief under the FTDA.⁵ Indeed, such a requirement is not supported by the language of the statute, which reads, in part:

The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person’s commercial use in commerce of a mark or trade name, if such use . . . causes dilution of the distinctive quality of the mark.⁶

The Act defines "dilution" as:

The lessening of the capacity of a famous mark to identify and distinguish
goods or services, regardless of the presence or absence of:
(1) competition between the owner of the famous mark and other parties; or
(2) likelihood of confusion, mistake, or deception.⁷

Nothing in this text indicates that the capacity or ability of a mark to identify and distinguish goods and services is not lessened until proof of tangible, economic harm is available. To the contrary, the FTDA provides that the owner of a famous mark shall be entitled to an injunction against a third party’s commercial use of a mark if the use causes dilution of the mark’s distinctive quality—not its economic value. The Act specifically states that a noncompeting use of a famous mark can dilute its distinctive quality.⁸ If two products do not directly compete with one another, it is not likely that the dilutive use will siphon sales away from the trademark holder, leading to direct financial harm. Therefore, proof of direct financial harm does not appear to be contemplated by the Act.

The defendants in the Victoria’s Secret case had suggested that, unless proof of actual economic harm is required under the FTDA, it would create an unlimited "right in gross" that would harm competition and violate the First Amendment. But this concern is misplaced since, to receive protection under the FTDA, courts must first conduct a three-step analysis.

The first step determines whether a mark even qualifies for dilution protection by focusing on the consumers’ perception of the mark as a famous and distinctive indicator of goods and services. If the trademark owner cannot prove that the mark is famous and distinctive to the consuming public, then the mark is not entitled to protection under the statute. Thus, dilution protection exists only as long as the mark is "famous and distinctive" in the minds of the consuming public. The second step determines whether the use is in fact dilutive of the famous mark, and the third step applies certain statutory exemptions designed to protect the fair use of the famous mark and First Amendment concerns. The Court’s holding on the issue of economic loss comports with both the language and the intent of the FTDA.

The Court’s second holding, however, has sent waves throughout the intellectual property community. While acknowledging that economic harm is not required under the FTDA, the Court concluded that the statute "unambiguously requires a showing of actual dilution, rather than likelihood of dilution."⁹ The holding resolves the split in the federal appellate courts on this very issue where the Second and Seventh Circuits interpreted the FTDA as permitting a showing of a "likelihood" or tendency towards harm, and the Fourth and Fifth Circuits concluded that actual dilution was required.

In discussing this issue, the Court contrasted state statutes that expressly include "likelihood" of dilution standards and the FTDA as support for its holding: "[T]hose state statutes, like several provisions in the federal Lanham Act, repeatedly refer to a ‘likelihood’ of harm, rather than to a completed harm. The relevant text of the FTDA . . . provides that ‘the owner of a famous mark’ is entitled to injunctive relief against another person’s commercial use of a mark or trade name if that use ‘causes dilution of the distinctive quality’ of the famous mark."¹⁰

The Court indicated that the evidence in the present record was insufficient to support summary judgment on the dilution claim—not that there was no dilution—and remanded the case for further proceedings on the issue. Therefore, the Court suggests that injunctive relief might still be available with appropriate evidence of actual dilution, and also hints at what it would look for to support such a finding. Specifically, the Court concluded that, even though the evidence established a mental association between the "Victoria’s Secret" and "Victor’s Little Secret" stores, "it also shows that [the army officer] did not therefore form any different impression of [Victoria’s Secret]. There is a complete absence of evidence of any lessening of the capacity of the VICTORIA’S SECRET mark to identify and distinguish good or services sold in Victoria’s Secret stores or advertised in its catalogues."

Many would argue that the requirement that Victoria’s Secret provide evidence of "loss of capacity" conflicts with what the Court acknowledged was the stated purpose of the statute, i.e., "to protect famous trademarks from subsequent uses that blur the mark’s distinctiveness or tarnish or disparage it, even absent a likelihood of confusion."¹¹

In adopting the dilution statute, Congress accepted the proposition that, without some mitigating or equitable factors, the actual and inevitable result of a third party’s use of a famous mark itself blurs, and thus dilutes, the distinctive quality of the mark.¹² Supporters of this line of argument maintain that dilution of a mark’s "distinctive quality" is diminished immediately upon commercial use by any unrelated third party - regardless of how imperceptible or seemingly inconsequential the initial effect may be.

However, the Court apparently sought evidence that the officer changed his conception of Victoria’s Secret as a result of the defendants’ use, or expert testimony addressing the impact of the defendants’ name on the strength of the VICTORIA’S SECRET mark to prove actual dilution.¹³ Both proof standards could require Victoria’s Secret to permit the dilutive use to continue for some period of time for sufficient proof of loss of capacity - in direct contravention of the stated purpose of the FTDA, i.e., the protection of famous trademarks. Further confusing the issue of actual dilution, the Court suggests there could be two different standards of proof depending on the marks at issue, i.e., direct evidence or, in the case of identical marks, circumstantial evidence.

The inevitable question raised by the Court’s holding about actual dilution is this: How does a trademark owner prove actual dilution? Before the Victoria’s Secret decision, many courts had used circumstantial and contextual factors.¹⁴ The Court acknowledged the difficulty in providing actual dilution through direct evidence, such as consumer surveys, but stated that difficulty alone was insufficient reason to ignore the requirement for proof. Many find it interesting that the Court chose to avoid the question of the specific type of direct evidence required to prove actual dilution; others counter that it is not the Court’s responsibility to lay out a road map, especially in view of the heavy fact dependency of each case.

The Court unequivocally stated what is not sufficient to establish actual dilution—or did it? According to the Court, "[A]t least where the marks at issue are not identical, the mere fact that consumers mentally associate the junior user’s mark with a famous mark is not sufficient to establish actionable dilution."¹⁵ By requiring actual dilution, but providing no guidance on the type of evidence required to fulfill the burden of proof, and concluding that a mental association alone is insufficient to support a finding of actual dilution, has the Court effectively eviscerated dilution by "blurring?" Association is blurring. And if a member of the public contacting Victoria’s Secret, unprompted, because he immediately recognized the defendants’ attempt to use Victoria’s Secret’s reputable name to promote the sale of their products is not enough to establish blurring, what is required? The status of tarnishment could also be in jeopardy, in view of the Court’s questioning "whether it [tarnishment] is actually embraced by the statutory text."¹⁶

Of considerable importance, the Court suggests that in cases involving identical marks, proof of mental association or circumstantial evidence could be sufficient to establish dilution, in effect creating a possible category for dilution per se.¹⁷ In expressly disagreeing with the Fourth Circuit’s opinion in Ringling Bros.,¹⁸ the Court hints that evidence of such an association could be sufficient in these cases. Therefore, for a famous, distinctive mark held eligible for protection under the FTDA, use of the identical mark may be per se dilution. And in all other cases, trademark owners must prove the lessening of the capacity of the mark through direct evidence.

A note for trademark practioners: Due to the strict evidentiary standard for cases involving nonidentical marks under the FTDA, trademark practioners should be more judicious in charging dilution and instead should closely evaluate the facts of the case to determine whether an infringement claim is more appropriate.

In evaluating whether to proceed on dilution claims, practioners should also investigate applicable state dilution statutes for the less strict "likelihood" of harm standard because of dicta in the Court’s decision on this issue. Before holding that proof of "actual dilution" was required under the FTDA, the Court considered state statutes that expressly include "likelihood-of-injury" language.¹⁹ In acknowledging the more liberal state standards, the Court arguably suggested that these standards may still apply. Therefore, trademark practioners may be wise to rely more heavily on state dilution statutes when faced with a possible dilution problem in the case of nonidentical marks. Ironically, state statutes, and not the FTDA, could be a safe haven for owners of famous and distinctive trademarks from the very Act created to protect them.

Endnotes