In 2001, Starbucks Corporation, prominent global purveyor of specialty coffee, brought an action for trademark dilution by blurring against Wolfe’s Borough Coffee, Inc., doing business as Black Bear Micro Roastery, to enjoin Black Bear’s use of “Mister Charbucks,”“Mr. Charbucks,” and “Charbucks Blend.” Black Bear manufactures and sells roasted coffee beans.

After a trial in 2005, the United States District Court for the Southern District of New York concluded that the Charbucks Marks were not likely to dilute Starbucks’ famous Starbucks Marks. Starbucks twice appealed rulings of the District Court to the United States Court of Appeals for the Second Circuit. Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., 477 F.3d 765 (2d Cir. 2007)(“Starbucks I”); Starbucks Corp.v. Wolfe’s Borough Coffee, Inc., 588 F.3d 97 (2d Cir. 2009)(“Starbucks II”).

In 2005, Starbucks operated 8,700 retail locations worldwide, had revenues in excess of $5 billion, and had registered over 50 United States trademark registrations. From 2000-2003, Starbucks spent over $136 million advertising and promoting its Starbucks Marks. The Starbucks Marks were “famous” within the meaning of the Federal Trademark Dilution Act (15 U.S.C. § 1125(c)(2)(A)) long before Black Bear started using its Charbucks Marks.

Black Bear was aware of the Starbucks Marks in 1997, when it developed Charbucks Blend. One reason Black Bear used the term “Charbucks” was the public perception that Starbucks roasted its beans very darkly. Soon after Black Bear began selling Charbucks Blend, Starbucks demanded that it stop, bringing suit when Black Bear refused.

At trial, Starbucks relied on the results of a consumer telephone survey in which 30.5% of the participants responded “Starbucks” when asked “What is the first thing that comes to your mind when you hear the name ‘Charbucks’?” The District Court held that there was neither actual dilution (required at the time under the federal dilution statute) nor a likelihood of confusion (required under the New York state dilution statute). Starbucks appealed and, while that appeal was pending, Congress amended the dilution statute to require only a likelihood of dilution rather than actual dilution. The amendments also defined “dilution by blurring” as an “association arising from the similarity between a mark or trade name and a mark that impairs the distinctiveness of the famous mark.” 15 U.S.C.§ 1125(c)(2)(B).

Under the federal dilution statute, a court must consider all relevant factors, including (1) the degree of similarity between the mark and the famous mark, (2) the degree of inherent or acquired distinctiveness of the famous mark, (3) the extent to which the owner of the famous mark is engaging in substantially exclusive use of  the mark, (4) the degree of recognition of the famous mark, (5) whether the user of the  mark intended  to create an association with the famous mark, and (6) any actual association between the mark and the famous mark. Because of   the   change   in   the law, the Second Circuit (in Starbucks I) sent the case back to the District Court for further proceedings. After analyzing the six dilution factors, the District Court again ruled in Black Bear’s favor, concluding that the marks were only minimally similar, which was enough to find no dilution. The District Court also found that Black Bear’s intent to create an association with Starbucks   Marks   was   not in bad faith and the survey evidence was insufficient to make the actual confusion factor weigh in Starbucks’ favor. The District Court found the other factors to weigh in Starbucks’ favor.

Starbucks appealed again, and the Second Circuit (in Starbucks II) held that the District Court was correct that the marks were only minimally similar but was mistaken in finding that there had to be “substantial similarity” between the marks for dilution to be likely. The Second Circuit also observed that “degree of similarity” being only one of the six factors, even a low degree of similarity would not bar a dilution claim. The District Court also erred in requiring “bad faith” to find that the “intent to associate” factor favored Starbucks, and in requiring actual confusion to conclude that the actual association factor favored Black Bear. The Second Circuit held that the absence of actual or likely confusion did not bear directly on whether dilution is likely. Rather, the dilution analysis must focus on whether an association, arising from the similarity between the marks, impairs the distinctiveness of the famous mark.

The District Court then determined that factors 2-5 favored Starbucks but again found that the first factor (similarity of the marks) favored Black Bear because the marks were only minimally similar when Black Bear’s packaging was viewed in context. The District Court also discounted Starbucks’ survey evidence because consumers were asked only about the isolated word Charbucks, and did not see the packaging. Balancing all the factors, the District Court again found no likelihood of dilution and Starbucks appealed again.

In affirming the District Court, the Second Circuit reviewed the history of the dilution laws and concluded that the importance of the six factors could vary with the facts, so that some factors might be irrelevant and other factors could also be considered that were not in the statute. The Second Circuit held that the District Court did not err concerning the minimal degree of similarity between the marks and the weakness of the association between the marks. Moreover, Black Bear’s intent to create an association with Starbucks did not raise a presumption of actual association, as the two factors are distinct, although related. In addition, the survey evidence was weak and failed to demonstrate actual dilution because it did not present the mark as it was used in commerce, with a distinctive color scheme, font, and layout. In balancing the factors, the Second Circuit found that the finding of minimal similarity weighed heavily in Black Bear’s favor. Other factors being in Starbucks’favor did not overcome the weak evidence of an actual association between the marks.

Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., U.S. Court of Appeals for the Second Circuit, 12-364-cv, November 15, 2013