Patagonia Case Cautions Against Rule 12 Motions to Dismiss Dilution Claims

Source: Order Denying Motion to Dismiss

The U.S. District Court for the Central District of California recently issued a decision in the closely watched Patagonia, Inc. v. Anheuser-Busch, LLC, 19-CV-02702 case. Here, the clothing company Patagonia sued the beer company Anheuser-Busch for trademark infringement, unfair competition, dilution of a famous mark, and cancellation of Anheuser-Busch’s various PATAGONIA trademark registrations. Anheuser-Busch moved to dismiss certain claims, including the dilution claim, for failure to state a claim under Rule 12(b)(6). The court issued a decision finding that Patagonia had adequately pled its dilution claim. The case provides trademark practitioners with insight into early case strategies when asserting and defending against a trademark dilution claim.

Meeting the Threshold for Dilution

The federal trademark dilution statute allows trademark owners to protect their famous marks against dilution by blurring or tarnishment. Dilution by blurring is the “association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark.”  15 U.S.C. § 1125(c)(2)(B). Dilution by tarnishment is “association arising from the similarlity between a mark or trade name and a famous mark that harms the reputation of the famous mark.”  15 U.S.C. 1125(c)(2)(C).

Critically, trademark dilution does not require any likelihood of confusion, and dilution law is not predicated on consumer protection; rather, trademark dilution is intended to protect trademark owners against third parties seeking to freeride on the extensive investment in the famous trademark. Accordingly, the Lanham Act is clear that only owners of famous marks may avail themselves of the benefits of the Federal Antidilution Act.

A brief review of the legislative history helps to frame the issue raised in the Anheuser-Busch Motion to Dismiss. Although Congress enacted the original Federal Antidilution Act in 1995, the courts split on the meaning and application of core provisions of the statute, which led to forum shopping and uncertainty. House Judiciary Committee Report H.R. 109-23 on H.R. 683 (109th Cong. 1st. Sess) (March 17, 2006). As a result, in 2006, Congress passed the Trademark Dilution Revision Act. Among the changes, Congress clarified that marks that had acquired distinctiveness would be protectable as famous marks under the Act. Indeed, inherent distinctiveness was not even included as one of the factors weighed in the analysis of whether a mark is famous. This addressed a common problem with the original Federal Antidilution Act, namely, that courts varied on whether marks that had acquired distinctiveness could be protected as famous marks. H.R. 109-23 on H.R. 683 (109th Cong. 1st. Sess.) (March 17, 2006). Additionally, in the Trademark Dilution Revision Act, Congress sought to increase “the threshold of ‘fame’ and thereby den[y] protection for marks that are famous only in ‘niche’ markets.”  Id.

Anheuser-Busch Moves to Dismiss

As noted above, Anheuser-Busch sought to dismiss the trademark dilution claim (among other claims), and argued that Patagonia had not pled the appropriate threshold level of fame. First, Anheuser-Busch argued that Patagonia had not pled facts sufficient to show that its mark is a “household name”. Anheuser-Busch argued that Patagonia lacked specific metrics to support its allegations. Rather, the pleadings included a number of generalized statements, including that the PATAGONIA mark has appeared on millions of products for decades, that its products have been sold worldwide, that the PATAGONIA mark is “among the most identifiable brands in the world,” that Patagonia has spent enormous amounts of time, money, and effort advertising and promoting its mark, and that the PATAGONIA mark enjoys strong consumer recognition.

Second, Anheuser-Busch argued that the PATAGONIA mark lacked the “requisite level of distinctiveness to be a famous mark.” Anheuser-Busch argued that Patagonia is a well-known geographic location and that other third parties used the the term Patagonia for other businesses. Finally, it argued that accepting Patagonia’s dilution claim would grant Plaintiffs a monopoly over a word that represents a geographic location.

The court denied Anheuser-Busch’s Motion to Dismiss, finding that Patagonia had adequately pled fame. In reaching this conclusion, the court reviewed the four non-exclusive factors set forth in the Trademark Dilution Revision Act for establishing fame, namely:

1. The duration, extent, and geographic reach of advertising and publicity of the mark, whether advertised or publicized by the owner or third parties;
2. the amount, volume, and geographic extent of sales of goods or services offered under the mark;
3. the extent of actual recognition of the mark; and
4. whether the mark was registered.

15 U.S.C. § 1125(c)(2)(A).

At the pleading stage, a court must accept as true all material allegations in the complaint – as well as any reasonable inference to be drawn from them. With that in mind, the court did not appear to hesitate in concluding that the facts as alleged were sufficient to plead that the mark was famous and distinctive. The court specifically pointed to the following facts as persuasive in its analysis:  the PATAGONIA mark was registered since 1982; the mark has been in use for more than 40 years; Patagonia spent enormous amounts of time, money, and effort in advertising and promoting the products and services on which their PATAGONIA trademarks are used; and Patagonia has had approximately $10 billion in sales under its mark since 1985.

Notably, in reviewing the four fame factors, the court did not address the argument that the PATAGONIA mark does not have the requisite level of distinctiveness to be famous. As noted above, there is no requisite level of “distinctiveness” to qualify as a famous mark under the Lanham Act, so the court’s decision not to consider distinctiveness in the fame analysis appears to have been proper.

Takeaways

The case provides several useful takeaways for trademark practitioners asserting or defending a trademark dilution claim:

1. There is a high hurdle for a successful motion to dismiss for failure to state a claim. The complaint need not plead detailed factual allegations, but only enough facts to state a claim to relief that is plausible on its face.
2. Plaintiffs can point to this case to argue that detailed metrics are not always necessary to plead fame. In this case, Patagonia did allege facts concerning the length of time and rough sales figures under the mark, but only pled more generalized allegations pertaining to marketing, worldwide sales, and consumer recognition.
3. Trademark owners frequently ask what volume of sales is required to establish that a mark is famous. In this case, the court concluded that allegations of $10 billion in sales over an approximately 30-year period and use of the mark for over 40 years, along with the other allegations, were sufficient to plead fame.
4. While a factor in the dilution analysis, the distinctiveness of the mark is not an element of the fame analysis. In this case, challenging the fame of a mark based on the distinctiveness of the trademark was not an effective approach, and did not appear to factor into the court’s analysis.