In the recent decision of Diamond State Tire, Inc. v. Diamond Tire Pro & Auto Care, LLC, C.A. No. 11550-VCS (Del. Ch. Aug. 15, 2016), the Court of Chancery considered Diamond State Tire, Inc.’s (“Diamond State”) claim that Diamond Town Tire Pros & Auto Care LLC (“Diamond Town”) violated Delaware’s Deceptive Trade Practices Act (“the Act”) by operating under a business name that creates a “likelihood of confusion” between the two businesses among vendors, customers and potential customers. Diamond State sought a permanent injunction banning Diamond Town from continuing to operate under that trade name.
When it first started in business in 1989, Diamond State worked only on commercial vehicles performing vehicle repairs and selling and installing tires. Eventually it expanded its business to include retail tire sales and retail auto repairs. Over time, its focus shifted from commercial vehicles to passenger (retail) vehicles. Founded in 2015, Diamond Town sells and installs retail tires and performs automotive service on passenger vehicles of a nature similar if not identical to the work performed at Diamond State. The two entities are located 12.3 miles away from each other.
The owners of Diamond State testified that they both had received reports from customers and vendors that the names Diamond State and Diamond Town were confusing. In addition, a particular vendor would confuse Diamond State and Diamond Town and would deliver parts intended for one to the other.
The Act, at 6 Del. C. § 2532(a)(2), provides that a “person engages in a deceptive trade practice when, in the course of a business …, that person … [c]auses likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services.” “Likelihood of confusion exists when consumers viewing a mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a similar mark.”
The Court found that Diamond State failed to meet the elements under the Act. When determining whether a trade name or mark creates a likelihood of confusion for purposes of the Act, Delaware courts consider “(i) the degree of similarity between the marks, (ii) the similarity of products for which the name is used, (iii) the area and manner of concurrent use, (iv) the degree of care likely to be exercised by consumers, (v) the strength of the plaintiffs’ mark, (vi) whether there has been actual confusion, and (vii) the intent of the alleged infringer to palm off his products as those of another.” (Slip op. at 8).
Here, Vice Chancellor Slights found that Diamond State could not establish factors 4 (degree of care likely to be exercised by customers), 5 (strength of the mark), 6 (actual confusion), and 7 (the intent of the alleged infringer).
In ruling against Diamond State on factor 5 (strength of the mark), the Court opined that the word “Diamond” was geographic in nature, and thus not particularly strong as recognized by the Restatement (Third) of Unfair Competition § 14 (1995). In this regard, Diamond State has chosen “to incorporate one of Delaware’s most well-known nicknames into its business name.” Moreover, the Court found the mark to be “weak” because it is “used in connection with a number of different products.”
Accordingly, Vice Chancellor Slights determined that Diamond State did not demonstrate a violation of Delaware’s Deceptive Trade Practices Act by Diamond Town. As such, the Court declined to issue an order compelling Diamond Town to change its name.