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Nov 21 2013

NY Fed.Court: Starbucks Can’t Stop Coffeehouse from Selling “Charbucks” Coffee

Starbucks received a big legal blow last week when the Second Circuit (NY’s Federal Appeals Court) held that use of the phrase “Charbucks” by a New Hampshire coffeehouse does not dilute the “Starbucks” trademark. The Black Bear Coffee Micro Roastery in New Hampshire began marketing “Charbucks Blend” and “Mister Charbucks Coffee” in 1997 and was promptly sued by Starbucks for “trademark dilution.”
“Federal law allows the owner of a ‘famous mark’ to enjoin a person from using ‘a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark.’”  Tiffany (NJ) Inc. v. 20 eBay Inc., 600 F.3d 93, 110–111 (2d Cir. 2010) (quoting 15 U.S.C. § 1125(c)(1)). “Dilution by blurring” is the “whittling away of the established trademark’s selling power and value through its unauthorized use by others.” Tiffany at page 111.  

When a lower federal court ruled that there was not enough of an association between the two names to hurt Starbucks and that the mega-coffeehouse did not prove actual dilution of its mark, they appealed. Until recently, in order to win on one of these claims, the trademark owner had to prove ‘actual dilution’ that is, that their brand was actually harmed and watered-down by the other company’s similar mark. But while the appeal on this case was pending, Congress passed the Trademark Dilution Revision Act of 2006 (“TDRA”), which provided that the owner of a famous mark seeking an injunction need only prove that the defendant’s mark “is likely to cause dilution . . . of the famous mark,regardless of the presence or absence of actual or likely confusion, of competition,or of actual economic injury.” The TDRA further redefined “dilution by blurring” as “association arising from the similarity
between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark.” These changes made it a whole lot easier to prove trademark dilution and was a big help to owners of famous marks. Before deciding the appeal, the Second Circuit sent the case back to the lower court to determine the case under the new guidelines established by the TDRA.

The TDRA sets forth six relevant factors, for the court to consider:

(i) The degree of similarity between the mark or trade name and the famous mark.

(ii) The degree of inherent or acquired distinctiveness of the famous mark.

(iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of
the mark.

(iv) The degree of recognition of the famous mark.

(v) Whether the user of the mark or trade name intended to create an association with the famous mark.

(vi) Any actual association between the mark or trade name and the famous mark. 

The lower court found that factors (ii) through (v) were in favor of Starbucks: (ii)its mark is very distinctive; (iii) it is the only one using its mark and it regularly fights to protect its mark; (iv) the mark is known worldwide; and (v) Black Bean intended for there to be an association between the marks. On this point it was established that Black Bean used the term “Charbucks” so customers would associate this particular blend of beans because it was very dark, like Starbucks signature blends. Indeed, on its website, the company describes the blend as “our darkest roasted coffee. It has the strong ‘dark’ notes that West Coast coffee drinkers like.”

MrCharbucksBut the lower court found and the appellate court agreed that the other two factors were in favor of Black Bean: (i) the marks were not that similar and (vi) there was no evidence of any actual association between the two. Here the defendant was helped by the clear difference between its “Charbucks logo pictured to the right, and the ubiquitous Starbucks logo (No need for me to post a picture of it, right?). The court said the mark had to be taken in context as a whole – not just the name. So while there might be similarity in the name, there was no other similarity between the two. On “actual association” all Starbucks lawyers presented was a phone survey of 600 people. They were asked “What’s the first thing you think of when you hear the name Charbucks?” About 30% of responders said “Starbucks” and another 9% said “Coffee” (other popular responses were “charcoal” at 7.9% and “restaurant” at 7.5%. The second question asked was “Can you name a company or store that might sell a product called Charbucks?” the most popular responses were “grocery store” at 18.3% and “discount store” at 16.9%. Only 3.1% said “Starbucks” and only 1.3% said “coffeehouse.” Again, the court faulted Starbucks for doing a survey that just focused on the name. Instead, the court said the survey should have been conducted in the market place and with the use of the full logos. It also noted that in light of the fame of Starbucks “the fact that more survey participants did not think of “Starbucks” upon hearing“Charbucks” reinforces the District Court’s finding that the marks are only minimally similar, and therefore unlikely to prompt an association that impairs
the Starbucks Mark.” It’s true – how could only 30% of people think of Starbucks when they hear Charbucks? And why did Starbucks lawyers use these statistics in court? When the numbers came back they should have realigned the questions and tried again. Perhaps they did and these are the strongest numbers they got after repeated attempts.

This case has languished for years with several trips to the appellate level. Kudos to Charbucks and its lawyers for a great job fighting back against the Goliath that is Starbucks which had a diluted TDRA on its side to go along with its massive budget. Starbucks started with a single Seattle coffee shop in 1971 and now has 8,700 locations and revenue of about $5.3 billion. It’s an American success story for sure. But here it just didn’t prove its case and this case could lead the way to other plays on its name and the names of other famous marks. Those companies may have a hard time showing that they are hurt by their clever smaller competitors.

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