Jack Daniel’s Continues, with Trademark Dilution as the New Battleground

Image from court documents

By now, most IP practitioners are familiar with the U.S. Supreme Court’s ruling in June 2023 in Jack Daniel’s Properties, Inc. v. VIP Products, Inc. The highly publicized ruling came after almost a decade of litigation between the parties over VIP’s “Bad Spaniels” parody dog toy designed to mimic a bottle of Jack Daniel’s.

The ruling addressed VIP’s defenses to trademark infringement and trademark dilution. The High Court ruled that VIP had no defense to either cause of action. The Court held that both defenses require that the defendant used the at-issue mark in a non-trademark manner. VIP could not claim non-trademark use, according to the Court, because the spoofed Jack Daniel’s marks served a trademark function even in a mock sense.

But the story does not end there. It continues on remand in Arizona federal court, where this case first began a decade ago in 2014. The litigation that has unfolded in the past year foretells the downstream implications of the Supreme Court ruling, particularly for trademark dilution law.

The Ruling’s Impact on Trademark Dilution Law

To date, scholars have tended to focus on the ruling’s impact on infringement claims— opining that the impact on defendants might not be so drastic because absence of likelihood of confusion could be the savior for creative trademark uses that had previously been dismissible under fair use. This could very well be true in some cases. Take, for instance, Punchbowl, Inc. v. AJ Press LLC, a trademark dispute between an event invitations company and a news outlet. There, the defendant initially won at the district court based on fair use, the judgment was vacated due to Jack Daniel’s, and then on remand, the defendant still won due to no likelihood of confusion.

For dilution, by contrast, Jack Daniel’s leaves certain defendants with little defense. The dilution statute contains three exemptions: news reporting, fair use other than as a mark, and non-commercial use. Historically, proponents of the statute have regarded these defenses as sufficiently protective of First Amendment interests. But after Jack Daniel’s, two of the three defenses do not apply to trademark uses: the Supreme Court held that non-commercial use requires a non-trademark use, and fair use other than as a mark already expressly required non-trademark use. As a result, most uses of famous marks in an arguably source-identifying manner—even for purposes of humor or parody—are now entirely unprotected under the Lanham Act.

In these cases, the only way that defendants can establish non-liability is by rebutting prima facie dilution. This result highlights pre-existing First Amendment concerns about the premise of dilution laws generally.

Unlike infringement, dilution under Lanham Act section 43(c) does not require evidence of likelihood of consumer confusion. This cause of action is available only to owners of “famous” trademarks, i.e. marks that are widely recognized nationally. The statute recognizes two different types of dilution: dilution by blurring and dilution by tarnishment. For dilution by blurring, courts ask whether it is likely that consumers will associate two marks in a way that impairs the distinctiveness of the famous mark. For dilution by tarnishment, courts ask whether it is likely that consumers will associate two marks in a way that harms the reputation of the famous mark. No proof of economic harm is required for either cause of action. The standard for both causes of action is likelihood of association, and the remedy is an injunction forbidding the accused use.

Jack Daniel’s alleges dilution by tarnishment because the “Bad Spaniels” dog toy contains references to defecation. Alluding to the OLD NO. 7 trademark normally seen on a bottle of Jack Daniel’s, the dog toy refers to “Old No. 2.” To amplify the parody, the toy also contains the phrases “43% Poo by Vol” and “100% Smelly.”  The whiskey giant claims that these defecation references inevitably degrade consumers’ perception of the Jack Daniel’s brand.

But should that type of commentary be legally punishable? VIP Products, faced with rebutting dilution without the benefit of any defenses, has urged the Arizona district court to abolish dilution by tarnishment as unconstitutional under the First Amendment. The court will soon hear oral argument. Regardless of how, or if, the Arizona court rules on VIP’s constitutional argument, dilution could very well be the next battleground for free speech in the trademark context.

The Battle Continues at the Lower Court

Arizona-based VIP Products originally filed suit in 2014 in the District of Arizona as a declaratory judgment action in response to demand letters from Jack Daniel’s. After two Ninth Circuit appeals and a landmark Supreme Court ruling in 2023, the case is now back in the court where it began. All along, Jack Daniel’s has sought only injunctive relief and no monetary damages—suggesting that vindication on the merits is at the heart of this now-decadelong case.

Earlier this year, both parties moved for judgment as a matter of law. The briefing is complete, and the court will hear oral argument in December 2024.

Most of the disputed issues are not new to this court, which ruled in Jack Daniel’s favor on infringement and dilution after a four-day bench trial in 2018. What is new is VIP’s argument that dilution by tarnishment should be abrogated as unconstitutional.

This type of argument has long existed in the academia. Over the years, the constitutionality of dilution law as a whole has been questioned by a growing number of trademark experts—including Harvard Law professor Rebecca Tushnet, UCLA Law professor Eugene Volokh, and Stanford Law professor Mark Lemley. The common critique is that dilution, if it exists, is too abstract and too far-removed from tangible consumer harm to justify government restrictions on speech.

VIP focuses specifically on dilution by tarnishment, arguing that the ban constitutes unconstitutional viewpoint-based discrimination because it penalizes only speech that offends a famous mark and does not penalize other viewpoints.

Applying strict scrutiny, a viewpoint-discriminatory regulation is permissible only if it is narrowly tailored to achieving a compelling government interest. VIP argues that no such compelling government interest exists: “Because the dilution cause of action does not require confusion, damages, or injury, the only explicable governmental interest in prohibiting junior marks that tarnish is to stop speech that the government does not like, or to stop criticism of speech it does like.” VIP also contends that the law is not narrowly tailored because “likelihood of association” is overly broad and too easy to satisfy.

Jack Daniel’s views dilution by tarnishment as a constitutional, content-neutral law that regulates the manner of speech rather than its content. Regulations of the time, place, or manner of speech have greater constitutional leeway than content-based restrictions. Jack Daniel’s claims that liability under the statute is based not on content but on the effect of the speech—i.e., harm to the reputation of the famous mark. Such harm can occur regardless of whether the tone of the speech is positive, negative, or neutral, Jack Daniel’s says.

Ultimately, Jack Daniel’s contends that the law is a manner restriction that is appropriately tailored to the purpose of protecting the commercial value of famous marks. The rationale is that even if consumers are not confused, a famous mark loses its strength if the public’s recollection of the famous mark becomes muddled with competing mental associations. As to the evidentiary standard, Jack Daniel’s contends that “likelihood of association” is not overbroad but in fact necessary to stopping instances of dilution before they can cause even greater, potentially irreparable harm to the famous mark.

Thoughts and Predictions

Free-speech challenges to content-based trademark doctrines are not so far-fetched. In Matal v. Tam in 2018, the Court invalidated the Lanham Act’s disparagement clause, which had denied federal registration for trademarks whose content was disparaging as to race, religion, or otherwise. Then in 2019, the Court in Iancu v. Brunetti invalidated the immorality clause, which had denied registration for trademarks with sexual, profane, or other scandalous content.

However, this is the first time that a First Amendment challenge in a high-profile case has been directed at a generally applicable trademark law, as opposed to a trademark registration requirement like in Tam, Brunetti, and most recently Vidal v. Elster. (In Elster, decided in June 2024, the High Court declined to abrogate the consent requirement for trademarks referring to a living person.)

The briefing presents an interesting question as to whether dilution by tarnishment discriminates based on viewpoint. The answer could be outcome-determinative because viewpoint-based regulations must satisfy a higher level of scrutiny in order to be upheld as constitutional.

The problem with viewing the law as viewpoint-neutral, as Jack Daniel’s urges, is that reputational harm is the ultimate basis for liability. Reputational harm is distinct from economic harm, which is why the tarnishment cause of action does not require proof of economic injury. Unlike economic harm, reputational harm is ultimately judged from the viewpoint of the harmed party. To institute a cause of action, the famous mark owner must decide what type of message it finds reputationally harmful. Declaring such a scheme viewpoint-neutral is problematic, I think, because it prioritizes the viewpoints of powerful parties over the viewpoints of would-be tarnishers.

If the court rules on the constitutional argument, I predict that the court will uphold the statute regardless of which level of scrutiny applies. This result is signaled by the court’s rejection of an amicus brief for VIP filed by a group of esteemed trademark scholars. In May 2024, the professors—including Tushnet, Volokh, and Lemley—filed a 20-page brief elaborating on VIP’s constitutional arguments. The court rejected the brief as untimely, even though it was submitted more than six months prior to oral argument.

The court acknowledged in its order that there was no set filing deadline and that courts are entitled to use discretion to determine whether an amicus brief was timely filed. To me, this decision signals the court’s disinclination to invalidate Lanham Act section 43(c) on constitutional grounds.

It is also possible that the court could decline to rule on the constitutional argument altogether. Lower courts typically avoid constitutional issues if the matter can be resolved on non-constitutional grounds. Here, waiver is a concern because VIP has raised this constitutional argument for the first time on remand without raising it in earlier proceedings, including before the Supreme Court. The court, already seemingly disinclined towards VIP’s position, could very well reject the constitutional challenge on that basis alone.

Were the court to overlook waiver, the constitutional argument could potentially have legs to stand on—if not at this court, then at higher levels of review. Compared to the registration bars abrogated in Tam and Brunetti, the invalidation of section 43(c) would be even more consequential, for this statute restricts speech that is arguably diluting to famous marks even where no trademark registration is sought. With the parties’ cross-motions pending, it is yet to be seen whether this could be the most impactful First Amendment trademark challenge to date, or whether it was simply brought a little too late.