A seller of packaged coffees could have caused dilution by blurring of the trademarks of coffee seller Starbucks Corp. by marketing a blend of roasted coffee under the names "Charbucks Blend" and "Mister Charbucks," according to the U.S. Court of Appeals in New York City. A decision by the federal district court in New York City (TRADEMARK LAW GUIDE ¶61,252), ruling after a bench trial that Starbucks had failed to prove a likelihood of dilution, was vacated and remanded.

The district court did not err in finding that the Starbucks and Charbucks marks were only "minimally similar," the appellate court said. The Charbucks marks were displayed on packaging with a very different appearance from that used by Starbucks, and Charbucks, unlike Starbucks, was never used as a stand-alone term.

The district court erred, however, in determining that the lack of substantial similarity between the marks negated the likelihood of dilution. Substantial similarity was not required to establish a likelihood of dilution under Sec. 43(c) of the Lanham Act, as amended by the Trademark Dilution Revision Act, the appellate court said.

The current federal dilution statute defined dilution by blurring as an "association arising from the similarity between a mark ... and a famous mark that impairs the distinctiveness of the famous mark." The statute did not use the words "very" or "substantial" in connection with the similarity factor to be considered in analyzing a federal dilution claim, the court noted.

One of the six non-exhaustive "likelihood of dilution" factors listed in Sec. 43(c)(2)(B) is the degree of similarity between the marks, which did not lend itself to a requirement that the similarity between the marks be "substantial." A requirement of substantial similarity would materially diminish the significance of the other five factors because they would have no relevance unless the degree of similarity between the marks was deemed "substantial," the court reasoned.

Dismissal of New York state-law dilution claims on the ground that the marks were insufficiently similar was affirmed, however. Substantial similarity was an element of a New York state-law dilution claim.

The district court erred in determining that the seller had the intent to associate Charbucks with Starbucks but that this factor did not weigh in favor of Starbucks because the seller did not act in "bad faith." The determination of an "intent to associate" did not require the additional consideration of whether the defendant acted with bad faith, the appellate court said. The federal dilution statute only required an intent to create an association with the famous mark.

It was also error to determine that there was no evidence of "actual association" favoring Starbucks in the dilution analysis. A telephone survey showed that 30.5 percent of respondents gave the answer "Starbucks" to the question "What is the first thing that comes to mind when you hear the name 'Charbucks'?" It was not required for Starbucks to provide evidence of actual confusion between the marks, or even a likelihood of confusion, according to the appellate court.

The appellate court affirmed the district court's finding that the Charbucks marks were not likely to cause dilution by tarnishment of the Starbucks marks. Starbucks failed to establish that consumers' negative perceptions, if any, of the word "Charbucks" in association with coffee would have a negative impact on Starbucks' brand name recognition. There was insufficient evidence that the Charbucks product was of such inferior quality that its association with Starbucks would harm the reputation of the Starbucks marks.

Use of the Charbucks marks was not protected from Starbucks' dilution claims by a parody defense, the court held. The Charbucks marks did not fall under the federal dilution statute's parody exception because the Charbucks marks were used as a designation of source for the seller's own goods, that is, its Charbucks line of coffee. Use of the Charbucks marks was, at most, a subtle satire of the Starbucks marks and did not demonstrate a clear parody of Starbucks.

The owner of the Charbucks brand testified that the name Charbucks referred to Starbucks' tendency to roast its products more darkly than other producers, and that the Charbucks line was the darkest roast of coffee that the seller produced. Thus, the Charbucks name was promoted not as a commentary on Starbucks but as a beacon to identify Charbucks as a coffee that competed at the same level and quality as Starbucks in producing dark-roasted coffees.

Starbucks Corp, 2nd Cir., ¶61,532.