This essay has been submitted by a law student. This is not an example of the work written by our professional essay writers.
Published: Fri, 02 Feb 2018
Dilution Under Trademark Law
The progressive development of Intellectual Property Law over the last century has seen to an exponential increase in the commercial and economic importance of various intellectual property rights. One of the more prominent and, in the writer’s opinion, commercially viable of these IP rights is the trademark. Legal protection of trademarks was started by the courts as early as the 16th century and in those days the primary function was mainly to assist or enable consumers to identify the source or origin of a product or service and this function has since remained fundamental to trademark law. However, around the start of the 20th century, the gradual evolution of trademark law and theory brought other functions of trademarks to the fore. These functions include, amongst other things, the use of trademarks as a marketing tool, for the purpose of advertising and most importantly, as an indicator of quality. The recognition of the rising commercial and intrinsic value of trademarks and their new found functionalities inevitably resulted in a clamour by proprietors for increased protection of their marks and has led to an expansion of actionable claims that can be brought under trademark protection. This has been reflected in significant changes over time in the laws relating to the protection and infringement of trademarks. This essay will focus on the interesting yet controversial concept of trademark dilution. It will attempt to chart a brief history of the emergence and development of this concept from its introduction under the tort of passing off, to its recognition by statute. The essay will seek to establish the challenges facing the acceptance and practical implementation of this doctrine, the position of the courts in England, the US and the EU and assess the difficulty in asserting damage or injury under a claim for dilution. It will also critically examine the criteria upon which a mark holder may exercise this right of action.
Historical Perspective of Dilution Theory
Traditional trademark law bestows upon the proprietor, a property right exercisable to the extent necessary to prevent confusion or deception as to the origin of a product. This was the general theme of early trademark law  which had as its main focus, the protection of the public. The concept of dilution, however, represents a fundamental shift in the nature of trademark protection from the public or consumer to the protection of the proprietor’s property in the mark itself. It is safe to say that this concept is mainly intended to protect famous marks that may have, over time, built up considerable reputation and goodwill. There has been a lot of controversy trailing the emergence of this concept because while some (proprietors mostly) see it as a welcome and overdue development to enhance legal protection of their registered marks which they have expended considerable resources into building up, others see it as an unacceptable and dangerous expansion of the protection afforded under trademark law  .
What is Dilution?
Dilution under trademark law is a term taken from American jurisprudence and can be understood as a form of damage that occurs despite the absence of confusion as to the source or origin of a product or service  . It typically arises where there are two similar marks or signifiers, the existence of which may result in reduction in distinctiveness of the one earlier in time. It is important to note however, that the products represented by these marks are sufficiently different to remove any confusion as to source and this in turn effectively negates the conventional infringement action  . The likelihood of, or confusion per se is therefore not a necessary ingredient to constitute dilution. In other words, dilution applies where the consumer is not confused about the origin of the goods and damage to reputation may be unlikely  . This theory is based on the preservation of the distinctive quality of a trademark and any third party use that diminishes this distinctiveness is considered to be dilution  . The concept of dilution as a recognised trademark theory first emerged in the United States in a famous article written by trademark attorney Frank Schechter in 1927 and it was his view that the use of a mark by a third party tended to diminish the consumers association of that mark with the owner and should not be allowed as the advertising power of the mark was the real value worth protecting  . Although records indicate that the concept of trademark dilution may have first emerged in Germany  , and maybe even in the UK  , it is this article written by Schechter over 80 years ago that heralded the introduction of the concept into modern trademark law. Schechter argued that the protection offered by trademarks over third party use should not be restricted to competing goods only but should extend to non-competing goods even where there is little or no likelihood of confusion because such third party usage (non-competing/non-confusing) caused injury to the mark holder as it had the propensity to dissipate the identity of the mark within public consciousness. In his words, “the real injury was the gradual whittling away of the identity and hold upon the public mind of the mark or name by its use upon non-competing goods”  . The main thrust of his essay was that modern trademark law should have a single rational basis and that “the preservation of the uniqueness of a trademark should constitute the only rational basis for its protection”  . At this point it is instructive to note that dilution was initially regarded as a radical extension of the tort of passing off and was believed by some academics to largely distort the rationale for the tort by shifting the focus from customer confusion/deception to the protection of the trader or mark holder  . The relationship between dilution and the tort of passing off is discussed subsequently.
Dilution and Passing Off
The tort of passing off protects against misrepresentation by one trader which damages the goodwill of another. In the popular ‘Jif Lemon’ case Lord Oliver summarised thus, ‘no man may pass off his goods as those of another’  . The tort is designed to protect both consumers and traders from the confusion of misrepresentation. The main property right protected therefore was the goodwill which was defined by Lord McNaughton as, ‘the attractive force that builds up a business.’  The three essential elements needed to constitute the tort of passing of are misrepresentation, goodwill and damage otherwise known as the classic trinity. The locus classicus on passing off is the Advocaat case  where Lord Diplock further identified five characteristics that are essential to making a valid claim under a passing off action thus, “(1) a misrepresentation (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or good will of another trader and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or will probably do so.”
As can be inferred from the foregoing paragraph, misrepresentation and goodwill are elements that must be present in any successful action for passing-off and damage to that goodwill must also be established. To simply allege customer confusion due to a misrepresentation is insufficient  and the necessary damage must be in relation to the plaintiff’s goodwill. It is instructive to note that a plaintiff need not prove that he has suffered actual damage as the probability or likelihood of damage to the plaintiff’s goodwill is sufficient  . Subsequently, several heads of damage have been established with ‘direct loss of sales’  and ‘inferiority of defendant’s goods/services’  being the most prominent. As the tort developed, so have misrepresentations relevant to it. This invariably led to the extension of the concept of goodwill to represent not only the customer’s identification to a source but the customers’ identification to a particular product  . Other heads of damage subsequently established include, ‘injurious association to plaintiff’, ‘exposure to liability or risk of litigation’, ‘damage to reputation within the trade’ etc. Plaintiffs have continuously sought to expand upon the heads of damage under the tort of passing off and It is within this process of enlarging the heads of damage that the concept of dilution, among similar claims as ‘loss of exclusivity’ and ‘erosion or swamping of distinctiveness’ started to appear  . This is not to summarily conclude that that all these heads are established and applicable in every case but were applied according to the particular circumstances  .
The courts have since shown some disposition towards entertaining these claims when William J., in delivering his opinion in the New Zealand case of Levi Strauss & Co v. Kimbyr Investments Ltd  applied the judgement of McGechan J. In Taylor Bros Ltd v. Taylors Group Ltd  in accepting that the damage in passing-off could be by diversion, damage to reputation or dilution. In the Lego v. Lego M. Lemelsrich case  , the court also recognised and made reference to the plaintiff’s interest in maintaining the exclusivity of its mark.
Dilution as a Head of Damage
Following gradual recognition of the concept of trademark dilution or the notion of ‘erosion of distinctiveness’ as a head of damage by the courts, it became a more frequent feature in trademark infringement claims as plaintiffs began to allege dilution particularly in attempting to demonstrate ways in which they have suffered damage to their goodwill by the alleged misrepresentation of the defendant.
In the US, although the common law did not recognise dilution as a head of damage, it was nonetheless recognised by virtue of statutory provisions of various state legislations. As a result of pressure from the global trademark body (International Trademarks Association, INTA); different states began to pass their own anti-dilution laws with the first being in Massachusetts in 1947  .
In England, the idea of damage by dilution was acknowledged in the popular champagne case where an action was brought by champagne houses to preserve the exclusivity of the name ‘Champagne’  . In that case the court of first instance held that the claimants had not established any likelihood of damage to their goodwill but the court of appeal in overturning the decision of the lower court held that the damage arose from ‘a blurring or erosion of the uniqueness associated with the name ‘champagne’ and that the defendant’s use of the name ‘champagne’ brought about a gradual debasement, dilution or erosion of what is distinctive’. Millett LJ was however of a different opinion in the Harrods v. Harrodian School case  where in his decision he opined that, “although erosion of the distinctiveness of a brand name has been recognised as a form of damage to the goodwill of the business with which the name is connected, unless care is taken this could mark and unacceptable extension of the tort of passing off.” He went further to express his reservations about an action based on confusion that recognised a distinct head of damage (dilution) that does not depend on confusion. This judgement heightened uncertainty as to the extent to which dilution can be acknowledged as a head of damage. Asides the ‘champagne’ case, the Court of Appeal subsequently recognised dilution or erosion of distinctiveness as a legitimate head of damage in the BT v. One in a Million case  but upon closer examination of these cases, it would seem that dilution was not the only head of damage relied on as the claimants either had to demonstrate a monopoly interest in the mark or prove fraud 
Statutory Protection against Trademark Dilution
EU and UK Provisions
As has been discussed previously, the concept of trademark dilution allows proprietors a wider range of protections for their marks, especially those marks that can be described as famous or having a reputation. However, in the UK, dilution was a concept rooted within the common law tort of passing off and it was not until the EU Trade Mark Directive (TMD) of 1989  which allowed member states to provide greater protection for famous marks in line with Article 5(2), did it become embodied in statute by virtue of the Trade Marks Act 1994. The ECJ in subsequent case law interpreted Art. 5(2) of the trade marks directive and held that it ‘provided a protection for the benefit of trademarks with a reputation which did not require the existence of a likelihood of confusion. It applied to all situations in which the specific condition of the protection consisted of a use of the sign in question without due cause which took unfair advantage of, or was detrimental to, the distinctive character or repute of the trade mark’  I.
Similar legislation was subsequently passed in the UK  to make new provisions for registered trademarks, implementing the 1988 directive. Although the wording ‘dilution’ cannot be found in any of these instruments, The TMA 1994 legislation accorded protection against dilution which was provided for under ss. 5(3) and 10(3) of the Act. While sec. 5(3) addresses grounds (relative) under which an application may be refused for the registration of a trademark which is identical or similar to an earlier mark to the extent that the earlier mark has a reputation in the UK where such registration would take unfair advantage of or be detrimental to the distinctive character or repute of the earlier mark  , sec.10 (3) lays down the conditions for infringement and defines the infringement of a registered trademark as ‘including the use of a sign, in the course of trade, which is identical or similar to a trademark where it is used on goods and services dissimilar to those for which the trademark is registered, where the trademark has a reputation and the use of that sign without due cause take unfair of or is detrimental to the distinctive character or repute of the trademark  ’. This section can be said to be targeted towards those who will take undue advantage of a reputable mark or do damage to the commercial magnetism of a mark  . The wordings of these very significant provisions are very close to, and, effectively implement Arts. 4(3) 4(4)(a) and 5(2) of the 1988 directive respectively  . These sections perhaps embody the most significant change to statutory provisions in UK trademark law by expressing a direct emergence of dilution as codified in the 1994 Act. Also worthy of note here are the community trademarks which have effect in both jurisdictions and particularly the provisions of Arts. 8(5) and 9 (1)(c) which deal with registration and infringement by dilution of community trademarks respectively. It is observed that these provisions are quite similar to the provisions of Arts. 4(3) 4(4)(a) and 5(2) of the 1988 directive with the slight distinction being that Art. 8(5) consider usage that is likely to take advantage of the distinct character of an earlier mark instead of usage which has already done so  .
In the US, the Lanham Act 1946 is the primary trademark statute. However dilution was not recognised on the federal level despite the passing of anti-dilution legislation by several states. It was the introduction of the Federal Trademark Dilution Act (FTDA) 1995 that added §43(c) to the Lanham Act which provides that,
‘The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person’s commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark, and to obtain such other relief as is provided in this subsection’  .
It went further to identify factors which the courts will take into consideration in determining if a mark qualifies as ‘famous and distinctive’ for the purpose of the Act. These factors include:
a) the degree of inherent or acquired distinctiveness of the mark;
b) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;
c) the duration and extent of advertising and publicity of the mark;
d) the geographical extent of the trading area in which the mark is used;
e) the channels of trade for the goods or services with which the mark is used;
f) the degree of recognition of the mark in the trading areas and channels of trade used by the mark’s owner and the person against whom the injunction is sought;
g) the nature and extent of use of the same or similar marks by third parties; and;
It should be pointed out that the FTDA 1995 only provided the claimant with injunctive reliefs and did not make dilution a ground for either opposition of an application for registration of a mark or cancellation of an already registered mark  . This was however later provided for under § 6 & 7 of the Trademark Amendment Act (TAA) 1999 respectively.
Dilution: What must be proved?
There are two ways by which dilution occurs in respect of a reputable mark. A newer mark may be said to dilute a previously existing mark by either being detrimental to the distinctive character of the older mark i.e. it acts to erode the distinctiveness of a mark by its use on other goods which is a practice otherwise known as ‘blurring’ or, where it attacks the reputation or goodwill associated with the mark by tainting it in connection with its use on other products of inferior quality or as a result of being portrayed in a negative context  .
Having established the statutory provisions in the UK for protection against trademark dilution, it is important to identify the necessary ingredients that are required to make a successful claim either as a ground for refusal of registration under sec.5 (3) or for infringement by dilution under Sec. 10 (3) of the TMA 1994.
In generally opposing the registration of a mark under sec.5 of the TMA, the entire burden of proof lies with the opposing party and it his duty to show that registration will cause him damage  . The wordings of sec.5 (3) of the Act as amended  expressly states that a trademark will not be registered where:
The later mark is identical or similar to an earlier mark;
The earlier trademark has a reputation in the UK or the European community in the case of a community trademark;
The use of the later mark will take unfair advantage of, or be detrimental to, the distinctive character or the repute of the earlier mark (blurring and tarnishment);
The use of the later mark is without due cause.
These provisions state the elements that must be proven to achieve success in a claim against dilution and provide that the earlier mark in question must be both reputable and distinctive and that the later mark must not be identical or similar to the earlier mark or used without due cause. (The provisions are similar for the infringement counterpart in sec. 10 (3) and the burden of proof remains the same save for having to show actual damage under infringement as opposed to a likelihood of future risk in opposing an application under sec. 5 (3).)
The notion of ‘reputation’ was treated extensively by the Court of Justice (ECJ) in General Motors v. Yplon  where the court made reference to a ‘knowledge threshold’ and indicated that a mark will be reputable where it is know by a substantial portion of the public concerned with the products covered by that mark and it was only where a satisfactory level of this knowledge existed that would lead the public to make a connection between the two marks (even for dissimilar products), can damage be said to occur. In other words,‘niche fame’ was considered sufficient to enjoy protection from dilution. The court further listed certain criteria upon which reputation can be determined to include, value of investment in promoting the mark, geographical extent and duration of use and also the market share controlled by the mark. It therefore follows that in proving reputation of an earlier mark the standard of proof would be for the proprietor to demonstrate how long (and how well) the mark has been in use. This would increases the likelihood of the marks popularity and its being known by the public. Also showing the value of investment and resources channelled towards marketing, advertising and building up the mark by documented expenditure will also aid this proof of reputation.
In the case of identical or similar marks, the courts have held that the test under sec. 5 (3) is such that is sufficient for the average consumer to be able to establish a link between the marks. In the popular Adidas case  it was observed by the ECJ that, “it is sufficient for the degree of similarity between the mark with a reputation and the sign to have effect that the relevant section of the public establishes a link between the sign and the mark”. The court was however silent on what precisely would constitute that link but added that a solely decorative sign would not be sufficient to establish this link. However in the case of Intel Corp v. CPM UK Ltd  , Jacobs LJ in referring particular questions to the ECJ was of the opinion that for the purpose of establishing a link, it was not sufficient that the mark and sign merely ‘called each other to mind’ and considered it an untenable position. He further offered that such protection from dilution should only exist where the facts are such to lead the consumer to wonder if there is a trade connection between the mark and the sign; for instance if a license was issued. According to him, an effect on the economic behaviour of the consumer must be demonstrated before an infringement action or a refusal to register can be justified  . The ECJ in its November 2008 ruling  seemed to agree with the English Court of Appeal but upon further scrutiny of the ruling it seemed to establish two categories of marks with different levels of protection from dilution. The first is marks with reputations not restricted to a certain class; in which case the court has sustained the decision in Adidas  by providing in the instant case that a link between the marks is sufficiently established where the later mark calls the earlier one to mind and any use within that scope is actionable. The second category concerns marks that can be regarded as having acquired ‘niche fame’ i.e. restricted to a certain class of goods (Intel in this case) where the court found that it is insufficient that the later mark would merely call the earlier one to mind but rather there should be at least a likelihood of change in the economic behaviour of the average customer  . It would seem from this ruling that the courts have sought to limit the protection afforded against dilution particularly regarding marks that are restricted in category and this indicates a substantial shift in the perception of the courts toward trademark dilution.
On the criteria to show unfair advantage or detriment, this may be broken down into, (1) taking unfair advantage, (2) detriment to distinctiveness or blurring and (3) detriment to reputation or tarnishment. It is also worthy to note that sec 5 (3) deals with grounds for refusal of prospective applications and so the standard of proof required is to demonstrate a likelihood of future risk. The provisions against taking unfair advantage would seem to be targeted at ‘free-riders’ who want to unfairly reap the advantages from the reputation of a well known brand. The burden in this case would be establishing how value will transfer form one mark to the later mark. This in itself is not a difficult burden to discharge particularly in cases where the earlier mark has a huge reputation and is distinctive or where the later mark is identical to the earlier mark and the products or services are similar or connected. The courts have, always found it easier to conclude in favour of earlier marks where the marks are identical  but will not necessarily conclude same for signs relating to unrelated goods. Another arm under this ground for refusal is to show the probability of a detrimental effect to the earlier mark. Detrimental effect has been said to occur, ‘where the later mark is used for goods or services which provoke a reaction of annoyance or displeasure, whether through their intrinsic nature or because of the unpleasant mental association with goods for which the mark is earlier reputed’  . The case of Premier Brands UK v Typhoon Europe  establishes two ways by which detriment can be caused. First is by blurring which means a gradual erosion of the distinctiveness of the earlier mark as seen in the Taittinger case  . Secondly, It may also occur where the mark applied for is used in a context which proves to be incompatible with the earlier marks image e.g. Sheimar trademark application  where it was held that the use of the name VISA on condoms was bound to have a detrimental effect on the mark VISA used for credit card services  . This is known as tarnishment
Cite This Essay
To export a reference to this article please select a referencing style below: