Victor’s Pyrrhic Supreme Court Victory (Still…after all these years)

By Scot Duvall, Guest Blogger

In early May 2010, the Sixth Circuit Court of Appeals (the appellate court having jurisdiction over cases filed in federal court in Kentucky) issued yet another decision in the ongoing saga of Victor and Cathy Moseley, who dared to use the name “Victor’s Little Secret” for their Elizabethtown, KY business, much to the dismay of the owner of the Victoria’s Secret brand. See link to Case No. 08-5793. The Moseley business sold, among other things, specialty lingerie, and adult videos and novelties. The district court found no infringement when the case was first decided, so the issue of trademark confusion is not involved at all.

Instead, the case concerns the area of law known as “dilution”—protection of famous brands regardless of traditional infringement requirements. There are two species of dilution under federal law: “blurring” (which seeks to avoid a proliferation of uses similar to an established famous brand, so to preserve clarity of that brand in the marketplace) and “tarnishment” (which seeks to avoid harm to reputation of a famous brand presented by a new similar mark). I will spare you the entire procedural labyrinth that has brought the case to where it now stands. Instead, I will focus on some essentials.

Victor opened his store years before the passage of the 2006 Trademark Dilution Revision Act (TDRA), which changed the legal standard from one of “actual dilution” to “likelihood of dilution.” Victor Moseley contended that because Victor is his given name, and he planned his new business venture without the knowledge of his former employer, the store name was apropos. Victoria’s Secret sued Victor and won an injunction to make him stop using his chosen name. He complied, changing it to Cathy’s Little Secret (after his wife)—and appealed. Victor won the case in the U.S. Supreme Court which applied the prior law, the Federal Trademark Dilution Act, to the lawsuit brought by Victoria’s Secret. The Supreme Court pointed to the dearth of evidence brought forth by Victoria’s Secret—a letter written by a Fort Knox Army officer who was offended that Victor’s Little Secret would dare to use a similar name (after all, his own wife and daughter shopped at Victoria’s Secret).

On remand from the U.S. Supreme Court, the Sixth Circuit waited over four years to take further action on the case. As it happened, the Sixth Circuit remanded only after Congress changed the law and reduced the burden of proof from a showing of “actual dilution” (i.e. proof of actual dilution harm) to “likelihood of dilution.” The district court applied the new TDRA and held that the Victor’s Little Secret name was nevertheless likely to “tarnish” the Victoria’s Secret brand under the new law.

The only issue in the latest appeal was the tarnishment claim brought by Victoria’s Secret. The “sex related”-ness of those products—the legality of which was beyond question—proved to be Victor’s undoing in the Sixth Circuit. Under the TDRA, a newcomer’s use causes “dilution by tarnishment” if consumers associate it with the famous mark based on their similarity, and harm to the reputation of the famous brand results. Under the new legal standard, a likelihood of dilution by tarnishment is sufficient to support an injunction against the junior use. In the process, Congress also clarified that tarnishment was included in the law (the Supreme Court expressed its doubts about that) and actually provided a definition that made clear that the cause of action is all about harm to reputation, regarding which Victoria’s Secret had submitted no proof. Nor did Victor (who, having won in the Supreme Court, understandably would not have seen any reason to do so).

What Victor (and I expect Congress) didn’t count on was that a court would create a presumption of tarnishment from whole cloth, based on the nature of some of his goods, and the single letter of complaint that made a connection of similarity between the two store names. Since the newly minted presumption was rebuttable and Victor had submitted no proof of a negative (i.e., that his name did NOT tarnish Victoria’s Secret), he lost. Thus Victor fell prey to a sort of judicial Catch-22.

The good news for Victor is that one judge gave voice to the inherent injustice of giving a plaintiff a procedural advantage beyond that which Congress made known through statutory language. The very strong and well-reasoned dissent explained that the main opinion took a few words out of context from a Congressional report—ignoring the rest—to justify the presumption, the strongest type of procedural rule that could benefit a plaintiff. In short, the Court shifted the burden of proof to the defendant, essentially forcing the junior user to prove a negative. Neither party submitted surveys of how the Victoria’s Secret brand was harmed, or not harmed, by Victor’s Little Secret. If tarnishment is to be reduced to an assessment of whether the goods of the user are “sex-related,” the success of a plaintiff will not turn on evidence of likely harm to reputation, as Congress intended, but as the court admitted, its perceptions of “conventional consumers” and their tastes.

The decision is particularly troubling because it confuses the concept of “burden of proof” with the standard of harm necessary for a famous mark owner to win a claim for dilution by tarnishment. Congress did not change the burden of proof at all when it enacted the TDRA. The majority misread a passing reference to “undue burden” in the legislative history to mean that it should interpret the statute to reduce the plaintiff’s overall burden of proof. A lessening of the standard of harm – expressly embodied in the new statute as “likelihood of dilution by tarnishment” certainly reduced the “burden” on the plaintiff, but it did not necessitate a shifting of the burden of proof to the defendant.

The decision is also troubling because it speaks with three voices on the burden of proof for dilution by tarnishment under the new statute. The main opinion asserts that a rebuttable presumption of tarnishment exists once the goods or services of the newcomer are deemed to be “sex-related” and there is shown to be a “semantic associa[tion]” between the famous mark and the newcomer’s mark. The concurring opinion asserts that a “strong inference” is created requiring the defendant to present “some evidence that there is no likelihood or probability of tarnishment.” The dissent, by contrast, faithfully read the statutory provisions to mean that “evidence that the junior mark is likely to harm the reputation of the senior mark … is precisely the showing required under the plain language” of Lanham Act Section 43(c)(2)(C) to prove dilution by tarnishment. The main opinion is not the sort of opinion that fosters clarity in the law.

The dissenting judge’s opinion essentially sets forth a template for appeal to the entire Sixth Circuit, or failing that, to the U.S. Supreme Court (again), and is also a well-reasoned basis for other circuits to decline to follow the main opinion in future cases. The facts of the case showed only that a single potential consumer of Victoria’s Secret thought less of the Moseleys on account of the VICTOR’S LITTLE SECRET mark, not that the potential consumer thought less of the VICTORIA’S SECRET brand as a result. The latter, not the former, is the type of evidence that could show a likelihood of “harm to reputation” under the TDRA. Time will tell whether the full Sixth Circuit takes on this case.

Scot Duvall is a director and shareholder of Middleton Reutlinger in Louisville, Kentucky. He has significant experience in the field of dilution law, having served on INTA’s drafting team for the TDRA, and having authored and co-authored several articles on the subject of trademark dilution.

Scot Duvall did not represent the Moseleys after remand from the Sixth Circuit, in the district court or on appeal, but represented them in the Supreme Court which decided the case unanimously against Victoria’s Secret in 2003. He has appeared as counsel on numerous amicus curiae briefs filed on behalf of the International Trademark Association (INTA). Mr. Duvall’s opinions are his own and should not be construed as being offered on behalf of the Moseleys or INTA.