Boop Oop a Yikes! Did the 9th Circuit Just Torpedo the Brand Licensing Industry?

The Ninth Circuit's slip is showing

In a recent case involving the saucer-eyed, short-skirted Betty Boop cartoon character, the federal Ninth Circuit Court of Appeals in Fleischer Studios, Inc. v. A.V.E.L.A., Inc. appears to have torpedoed the legal foundations of the brand licensing industry by ruling that there is no trademark infringement if a trademark is used for its commercial appeal rather than its source-identifying value.

If read broadly, the case would give a free pass to merchandisers to sell unlicensed New York Yankee caps or Mercedes-Benz medallions, as long as buyers were purchasing the goods for their brand appeal, and not under the mistaken belief that they were “official” goods.

The court’s Betty Boop “slip” was doubly surprising, considering that it had torpedoed a similar argument just five years ago.

The case involved both copyright and trademark infringement claims of Fleischer Studios against unlicensed sellers of vintage posters and other merchandise featuring the Betty Boop character.

The main focus of the court’s opinion was whether Fleischer had in fact purchased the copyrights to the Betty Boop character. The court concluded that Fleischer had not, because the party from which Fleischer had purportedly purchased its rights did not have an unbroken chain of title. Accordingly, Fleischer’s copyright infringement claims failed.

The court then focused on Fleischer’s alternate argument, that because it (along with Hearst Publications) owned the registered trademarks in the Betty Boop name and image, even if the defendants had not infringed its copyright, their unlicensed use of Betty Boop infringed Fleischer’s trademarks.

The court did not decide whether Fleischer in fact owned the trademarks, but ruled that in any case there was no trademark infringement because the defendants’ use of Betty Boop was not for the purpose of indicating that Fleischer or any other party was the source or origin of the products, but only for Betty’s commercial appeal to consumers. In other words, since the primary function of a trademark is to identify the source or origin of goods and services, the defendants’ use was not a trademark use, and therefore such use could not infringe Fleischer’s trademark rights, if any. Furthermore, added the court, Fleischer had not submitted evidence that the defendants’ use of Betty Boop had mislead consumers that Fleischer was the source of the goods. (But that was not surprising, given that the court raised the issue for the first time on appeal (below)).

As precedent, the court cited its 1980 opinion in International Order of Job’s Daughters v. Lindeburg & Co., which held that a maker of jewelry incorporating the trademarked insignia of the Job’s Daughters young women’s organization did not infringe because, “Trademark law does not prevent a person from copying so-called ‘functional’ features that constitute the actual benefit that the consumer wishes to purchase, as distinguished from an assurance that a particular entity made, sponsored or endorsed a product.” In a nutshell, this is the doctrine of “aesthetic functionality,” which starts from the long-accepted premise that a functional feature of a product cannot qualify as a trademark, because to do so usurps the domain of patent law, but then extends that an extra layer by holding that features that contribute to consumer appeal, including trademarks themselves, are automatically “functional” in the same way as an attention-grabbing mechanical feature of a product.

There was just one problem. Neither the parties in their briefs nor the trial court in its opinion had cited Job’s Daughters, probably because the Ninth Circuit itself had put the case in a very narrow box in its 2006 opinion in Au-Tomotive Gold Inc. v. Volkswagen of America, Inc. In Auto Gold, a dealer in automobile accessories tried to sell keychains and other paraphernalia featuring Volkswagen and Audi logos, arguing that under Job’s Daughters, it was using the marks for their consumer appeal, not their source-identifying function, and had attached disclaimers stating that the goods were not produced or endorsed by Volkswagen or Audi.

The Auto Gold court flatly rejected that argument on the grounds that in Job’s Daughters and similar cases, the “aesthetic functionality” doctrine had only exempted aesthetic or ornamental features, like product color or shape, and only when they had some function “wholly independent of any source-identifying function.” The court contrasted those cases with the Volkswagen and Audi branded goods sold by Auto Gold, for which the “alleged aesthetic function is indistinguishable from and identical to the marks’ source identifying nature… The demand for Auto Gold’s products is inextricably tied to the trademarks themselves,” and not to independent economic or performance benefits of the designs. In other words, it is nonsensical to say that because a source-identifying symbol that is designed to have consumer appeal in fact has such appeal, that makes it per se “functional,” and therefore ineligible to receive trademark protection.

And in a footnote, the Auto Gold court marginalized Job’s Daughters directly by saying that the case only applied to “collective marks,” that is, a category of trademarks used by members of a collective group or organization, which typically have less of a source-identifying function than commercial trademarks, according to the court.

But the Fleischer opinion did not even mention Auto Gold, much less attempt to distinguish it from the Betty Boop facts. Making it extremely likely that another merchandiser will try to free-ride another famous brand, and the Ninth Circuit will have to hide its Betty Boop slip all over again.

Takeaway: brand owners selling products in the federal Ninth Circuit (California, Oregon, Washington, Nevada, Arizona, Idaho, Montana, Alaska, Hawaii, and Guam) should be vigilant to stop companies from selling unlicensed merchandise featuring their trademarks which claim that the marks are not used for their source identifying purposes, but rather for their consumer appeal. It will be especially helpful to gather evidence that consumers believe the unlicensed goods are “official” goods manufactured, sponsored, or endorsed by the brand owner.

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