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District court grants summary judgment for Viacom on claim that proposed restaurant named "The Krusty Krab" infringes Viacom's common-law trademark rights to fictional restaurant of same name featured in "SpongeBob SquarePants" cartoons and films.

Viacom International Inc.'s "SpongeBob SquarePants," an animated television show on Nickelodeon, features a fictional restaurant named "The Krusty Krab." The restaurant has been featured in 166 of the 203 television episodes since 1999, as well as two feature films. In 2014, IJR Capital Investments, LLC filed a federal trademark application for the mark "The Krusty Krab" for restaurant services, and began planning to open a restaurant with that name.

Viacom filed suit against IJR under the Lanham Act and Texas common law, asserting claims of false designation, unfair competition, and dilution under Texas common law and the Lanham Act; trademark infringement under Texas common law; and refusal of recognition under the Lanham Act. Viacom then moved for summary judgment on all but one claim. The district court granted in part, and denied in part, Viacom's motion.

First, the district court granted summary judgment in favor of Viacom on its claim for trademark infringement under the Lanham Act. To bring such a claim, a plaintiff must show: (1) it possesses a valid mark; and (2) the defendant's use of its mark creates a likelihood of confusion as to source, affiliation, or sponsorship. The district court found Viacom has valid common-law rights in the "The Krusty Krab" mark even though it was never registered, because it is a recurring element of the "SpongeBob" show and has been used in extensive advertising and consumer products. The district court rejected IJR's argument that the mark could not be eligible for trademark protection because it is the name of a fictional restaurant, noting that other made-up words, such as "Kryptonite" and the "Daily Planet" from the Superman comics, have been upheld as valid common law trademarks. In addition, for a mark to have trademark protection it must either be inherently distinctive or have acquired distinctiveness. The district court found Viacom presented "ample evidence "to show that "The Krusty Krab" has acquired distinctiveness, including through repeated appearances on television and film, extensive advertising efforts, and licensing on consumer products.

Next, the district court examined whether IJR's use of "The Krusty Krab" would create a likelihood of confusion with Viacom's use of the mark. The court considered the following factors: "(1) the strength of the plaintiff's mark; (2) the similarity of design between the two marks; (3) the similarity of the products or services; (4) the identity of the retail outlets and purchasers; (5) the similarity of advertising media used; (6) defendant's intent; (7) evidence of actual confusion; and (8) the degree of care exercised by potential purchasers."

The court concluded that there is a likelihood of confusion between Viacom's and IJR's marks, noting Viacom's continued use of the mark for seventeen years, the unusual spelling of the words "Krusty Krab," and that both parties use the mark to describe a restaurant. In addition, Viacom's sales and forms of advertising were likely to overlap with IJR's target geographic areas and customer base. Regarding IJR's intent in adopting "The Krusty Krab" as the name of its restaurant, the district court found IJR was aware of the use of the mark in "SpongeBob" before it filed its trademark application, which evidenced IJR's bad faith. The district court also relied on a national consumer survey performed by Viacom's expert, which found that thirty percent of restaurant-goers associated a restaurant named "The Krusty Krab" with Viacom.

The district court denied Viacom's motion for summary judgment on its federal and state trademark dilution claims. To prevail on the federal dilution claim, Viacom needed to establish: (1) ownership of a famous and distinctive mark; (2) use by IJR of the mark in a manner that dilutes plaintiff's marks; (3) association between the two marks due to similarity; and that (4) the association between the two marks is likely to impair the distinctiveness of the mark or harm the reputation of Viacom's mark. Under Texas state law, Viacom must show a distinctive mark and that use of the mark is likely to cause dilution. However, the district court held that imminent infringement is not enough to support a dilution claim, and denied Viacom's dilution claims as unripe, because IJR had not yet opened the restaurant and therefore had not used the mark in commerce.

Lastly, the district court refused to rule on Viacom's remaining claims, because they had not been fully briefed. The court noted in a footnote that "an appropriate reaction from SpongeBob SquarePants would be, 'Aw, tartar sauce!'"