A federal court has ruled that a man’s use of terms such as “Walocaust,” and "Wal-Queda” to sell anti-Wal-Mart merchandise were parodies that did not infringe on the retail giant’s trademarks.

Wal-Mart critic Charles Smith created a line of merchandise that featured the terms “WAL” and “OCAUST” separated by a star. Smith used the slogan in four designs. In one, the slogan was placed above a Nazi-style eagle, holding in its talons a smiley face similar to the yellow version used by Wal-Mart. Another design included an “I” and a heart before the “Walocaust” slogan, and added, “They have Family Values and their Alcohol, Tobacco and Firearms are 20 percent off.”

Smith had his designs printed on mugs, bumper stickers and other merchandise, which he sold through online retailer CafePress.

Wal-Mart learned of Smith’s activities and contacted him and CafePress in 2005, demanding an end to the marketing of the anti-Wal-Mart merchandise. In response, CafePress removed all of Smith’s Wal-Mart-related merchandise from his site. Smith in turn filed an action in federal district court seeking a declaratory judgment that he had the right to sell his Walocaust merchandise. Smith also added a series of “Wal-Qaeda” merchandise in protest of the perceived attack on his free speech.

Wal-Mart counterclaimed that Smith had infringed upon its trademark rights, and alleged that Smith’s actions amounted to unfair competition and trademark dilution by tarnishment.

‘Smiley’ Not Protected

At the outset, the U.S. District Court for the Northern District of Georgia determined that Wal-Mart did not prove that it held trademark rights to its use of a yellow smiley face. That determination may impact another pending smiley face suit. In 2006, Wal-Mart objected to a trademark application by former French journalist Franklin Loufrani, who claimed he invented the smiley face in 1971, and was seeking to profit from licensing the symbol. Loufrani also objected to Wal-Mart’s attempt to trademark its use of the smiley face, which the retailer places next to marked-down items.

“Wal-Mart has failed to establish that the smiley face has acquired secondary meaning or that it is otherwise a protectible trademark,” the court concluded.

Parody Analysis

The court then considered whether Smith’s use of terms such as “Walocaust” and “Wal-Qaeda” were parodies.

“To be considered successful, the alleged parody must both call to mind and differentiate itself from the original, and it must ‘communicate some articulable element of satire, ridicule, joking or amusement,’ ” the court stated, citing precedent.

The court concluded Smith’s designs were parodies. However, that determination was not enough to conclude there was no trademark infringement, the court cautioned. The court also must find that the parodies did not create “actual confusion” with Wal-Mart’s trademarked products in the marketplace.

Consumer Confusion Survey

Wal-Mart did not produce evidence of actual consumer confusion, but rather presented two consumer research studies that purported to measure consumer confusion and dilution by tarnishment. The retailer hired an expert, who conducted two studies: a “product” study, intended to test for post-purchase confusion and tarnishment; and a “website” study, designed to test for point-of-sale confusion and tarnishment.

For both studies, the expert tested two of Smith’s T-shirt designs, one with a “Walocaust” slogan and the other with a “Wal-Qaeda” slogan.

Smith challenged the studies on numerous grounds, seeking to have both thrown out.

The judge found numerous flaws with the studies, both of which relied upon the same survey approach. “[T]he survey [Wal-Mart’s expert] conducted … is of dubious value as proof of consumer confusion both because its survey universe was overinclusive and because its design failed to approximate real-world marketplace conditions,” he stated.

In addition, the questions were flawed because they were designed to elicit a response favorable to Wal-Mart, the judge concluded. Despite these flaws, the court ruled that the retailer could submit its evidence. “Courts in the Eleventh Circuit typically decline to exclude likelihood of confusion surveys and instead consider a survey’s technical flaws when determining the amount of evidentiary weight to accord the survey,” the court said.

The judge, however, was not swayed by the survey evidence to allow the case to go to a jury: “[T]he Court finds that the survey was so flawed that it does not create a genuine issue of material fact.”

Other Evidence of Confusion

Courts have moved away from relying on survey evidence to determine whether consumer confusion exists, the court noted. Therefore, the judge looked to other factors that could support a finding of confusion.

The court examined the strength of Wal-Mart’s trademark, noting that a mark that is distinctive reduces the likelihood of confusion. Wal-Mart’s mark was strong, the court concluded, which weighed against finding confusion. The judge also looked to the similarity of Wal-Mart’s and Smith’s marks, and determined that they were distinct enough that this factor weighed against a finding of likelihood of confusion.

Next, the court also examined the similarity of the products sold by Smith and Wal-Mart. While Smith’s designs were distinct from Wal-Mart’s marks, he sold products “drawn from like categories” to those sold by Wal-Mart, the court concluded. “[A] reasonable consumer could possibly attribute a Wal-Mart T-shirt and a Wal-Qaeda T-shirt … to the same source,” the court stated, and determined this factor to be neutral.

The court looked at the similarity of sales and advertising methods, and concluded that both of these factors weighted against finding consumer confusion. In addition, the court examined Smith’s intent. Because Smith acted to avoid consumer confusion (for example, he placed a disclaimer on his website noting that the site was unaffiliated with Wal-Mart and providing a link to Wal-Mart to redirect visitors seeking that site), he acted with good-faith intent, the court found.

“In sum, the Court is convinced that no fair-minded jury could find that a reasonable consumer is likely to be confused by the challenged marks.”

Dilution by Tarnishment

Finally, the court examined Wal-Mart’s claim that Smith’s uses diluted the retailer’s marks by tarnishment. The court concluded that Smith’s parodic work was noncommercial speech—even though he sought to market products with his designs—because his primary motive was to criticize Wal-Mart’s business practices.

Because his work was deemed to be noncommercial, Smith’s designs were not subject to the dilution claims, the court concluded.

The court issued a declaratory judgment that Smith could maintain domain names using the Walocaust and Wal-Qaeda names and resume selling his merchandise.

Why This Matters: The decision offers a strong defense for individuals and groups seeking to criticize companies by parodying their brands. While this case only is precedential in its district, companies attempting to protect their brands from derogatory uses should look for ways to distinguish the facts of this case. For example, the plaintiff did not try very hard to market his merchandise, and offered it primarily as an extension of his protest efforts. An organization or individual that actively sought to profit from its parodies may receive less protection.

Linked files...

Smith v. Walmart