I. INTRODUCTION

Maker’s Mark Distillery, Inc. (“Maker’s Mark”) brought suit against Tequila Cuervo La Rojena S.A. de C.V., Casa Cuervo S.A. de C.V., Jose Cuervo International, Inc. (“Cuervo”) and their U.S. distributor, Diageo North America, Inc. (“Diageo”) in the U.S. District Court, Western District of Kentucky, at Louisville, alleging that the Defendants violated federal trademark and common law, by producing and distributing a bottle of tequila capped with a red dripping wax seal similar to the seal Maker’s Mark had used for over 50 years. Maker’s Mark alleged (1) federal trademark infringement, (2) false designation of origin, (3) dilution, and (4) common law trademark infringement and unfair competition under the laws of Kentucky.

After a six-day bench trial, the court found (1) Maker’s Mark's dripping wax trademark was valid; and (2) Cuervo’s use of a similar red dripping wax infringed, but did not dilute, the mark. Based on these findings, the court issued an injunction prohibiting Cuervo from using the red dripping wax seal on its tequilas sold in the U.S., but did not award any damages.

II. BACKGROUND

Plaintiff Maker’s Mark has been producing bourbon whiskey, using a red dripping wax seal to cap its bottles since 1958. Today, Maker's Mark sells more than 800,000 cases of whiskey annually and most of the company’s $22 million advertising budget is used to promote it red wax seal. In 1985, Maker’s Mark registered its trademark (U.S. Trademark Registration No. 1,370,465) for a “wax-like coating covering the cap of the bottle and trickling down the side of the neck of the bottle in a freeform irregular pattern.” The registration does not specifically cover the color red, however.

Defendants Cuervo are the largest sellers of tequila in the U.S., selling more than 3.8 million cases each year in the U.S. alone. In addition, Cuervo spends $100 million per year in advertising. In the mid-1990s, Cuervo decided to create a high-end tequila to celebrate the company’s 200th anniversary of legally producing tequila products. Initially, the bottle was capped with a non-dripping wax seal, but in 1997, Juan Domingo Beckman (now CEO of Casa Cuervo) decided to change the seal so that it included dripping wax, after he saw a bottle in mid-production, before the drips were cut off. As of 2001, Cuervo was selling 3000-4000 bottles of this tequila (at approximately $100 per bottle), using a red dripping wax seal,.

III. INFRINGEMENT

In arriving at its decision that Cuervo infringed Maker's Mark's dripping wax seal, the court first addressed the scope of Marker’s Mark registration and whether it afforded protection for all dripping wax seals or only red dripping wax seals. Although Cuervo argued that it would be prejudiced by a focus on a red seal, the court agreed with Maker’s Mark and allowed it to assert its rights in a red seal, because the color was “such a fundamental, likely inseparable, element of the mark.” Moreover, even if Cuervo were correct and the focus on the color red expanded the protection afforded by the registration (rather than, narrowing it, as the court determined), the court found that the red dripping wax seal was inherently distinctive and had gained secondary meaning based on 50 years of continuous use.

Cuervo also argued that the seal was functional, because it protects the cork and preserves the contents in “some” bottles of alcohol. Here again, the court disagreed with Cuervo’s position, stating that it “completely failed to show that wax seals are functional.” Cuervo further argued that even if the seals were not functional in the traditional sense, they were “aesthetically” functional (i.e., when an aesthetic feature, such as a color, serves a significant function). The court also found this argument unpersuasive, as red is not the only color that could be used for the wax seal.

Cuervo also submitted that Maker’s Mark registered mark is generic, but again, the court was not convinced by the limited evidence Cuervo presented, and determined that the registration was valid. The court then turned to an analysis of whether there was a likelihood of confusion between the two marks, using the Sixth Circuit’s eight-factor Frisch test: (1) the strength of the senior mark, (2) relatedness of the goods and services, (3) similarity of the marks, (4) evidence of actual confusion, (5) marketing channels, (6) likely degree of purchaser care, (7) intent of defendant in selecting the mark, and (8) likelihood of expansion of the product lines, as follows:

Strength of Mark – The court found the mark inherently distinctive and, moreover, that Maker’s Mark’s marketing enhanced the distinctiveness of the mark (“Maker’s Mark red dripping wax seal is an extremely strong mark due to its unique design and the company’s singular marketing efforts.”).

Relatedness of Goods – The court determined that the parties’ products were part of the same broad class of high-end distilled spirits, and, as such, the products were “somewhat” related, but not directly competitive. Accordingly, this factor favored Maker’s Mark slightly.

Similarity of Marks – The court commented that this factor carried considerable weight and that based on the “obvious facial similarities,” this factor also favored Maker’s Mark slightly.

Evidence of Actual Confusion – The court found that neither party presented any meaningful evidence of actual confusion and determined that as a result, this factor was neutral.

Marketing Channels – Maker’s Mark sells it bourbon in liquor stores, bars and restaurants; Cuervo sells its high-end tequila primarily in liquor stores. In addition, the difference in the two parties advertising budgets also limits the overlap in the marketing channels. Accordingly, the court decided that the channels are similar in some ways, but dissimilar in others, and concluded that this factor also marginally favored Maker’s Mark.

Degree of Purchaser Care – The court determined that this factor favored Cuervo in that consumers would use a high degree of care in choosing Cuervo’s high-end tequila.

Intent in Selecting Mark – Again, the court found that Cuervo’s intention was benign and that there was not sufficient evidence to prove that its use of the red dripping wax seal was intentional. Accordingly, this factor was neutral.

Likelihood of Expansion of Product Lines – Maker’s Mark had no plans of expansion and Cuervo did not have any plans at the time of the trial. Accordingly, the court again found that this factor was neutral.

Ultimately, the court found in favor of the Plaintiff, Maker’s Mark, but commented that the “question of infringement was a close call.” Although the majority of the factors favored Maker’s Mark, only the strength of the mark strongly favored Maker’s Mark. However, two other factors – relatedness of the goods and similarity of the marks – marginally favored Maker’s Mark, so when all three factors are taken together, the court found there was a likelihood of confusion between the two marks.

IV. DILUTION

In considering whether Cuervo’s use of a red dripping wax seal constituted federal trademark dilution, pursuant to the Trademark Dilution Recovery Act (“TDRA”), the court used the Sixth Circuit’s five-part test for dilution: (1) the mark is famous, (2) the mark is distinctive, (3) the defendant used the mark in commerce, (4) after plaintiff’s mark became famous, and (5) defendant’s use is likely to cause dilution of plaintiff’s mark.

The court stated that the threshold issue is whether a mark is famous. Using the four-factor TDRA test, the court determined that Maker’s Mark trademark was a “terrifically strong and focused brand,” but it had “serious doubts” that is was in the same league with such famous brands as Nike, Pepsi, Nissan, Audi, Hershey or Victoria’s Secret. Based on the evidence presented, the court determined that the mark was not famous, and, accordingly, Maker’s Mark’s dilution claim failed.

V. STATUTORY REMEDIES

Having found that Cuervo infringed the Maker's Mark trademark, the court considered the two statutory remedies Maker's Mark requested: (1) a permanent injunction, and (2) money damages. With regard to a permanent injunction, Cuervo argued that it was inappropriate, as it had stopped using the dripping wax seal over five years before and there was no proof that it intended to resume use. Nonetheless, the court held that "equity supports injunctive relief," although it granted a narrow injunction, prohibiting Cuervo from using the red dripping seal wax on any tequila sold in the United States. With regard to damages, however, the court denied Maker's Mark's request for damages based on a reasonable royalty, finding that Maker's Mark did not offer any proof that it has lost actual sales or goodwill and there was no evidence of copying or bad faith. Moreover, Cuervo had voluntarily ceased its use of the mark. For these reasons, the court concluded that an injunction without an award of damages was the proper result.