The Supreme Court ruled against lingerie seller Victoria's Secret on Tuesday, finding no proof that a small sex toy and adult video shop that wanted to call itself Victor's Secret harmed the big company's trademark.
This is a huge victory for a little store, says CBSNews.com Legal Analyst Andrew Cohen, a case where the justices sided with David over Goliath in a trademark case that could have broad ramifications. The Court has now set up a standard where a company trying to protect its trademark against a competitor using a sound-alike name has to come to court with strong evidence of damage.
Victoria's Secret unquestionably has an interest in protecting its famous name, but federal trademark law requires more evidence that a competitor actually caused harm by using a sound-alike or knockoff name, a unanimous court ruled.
The ruling follows a 5-year-old fight over a Kentucky shop that advertised "everything for the romantic encounter," including lycra dresses and mood lighting.
Victoria's Secret asked the family-run store to change its name but sued when the store altered its sign only to read "Victor's Little Secret."
At issue for the Supreme Court was whether Victoria's Secret had to show that its trademark was "diluted," or whether there was merely the likelihood of economic harm if the store was allowed to keep its name.
"Use of the name 'Victor's Little Secret' neither confused any consumers or potential consumers, nor was likely to do so," Justice John Paul Stevens wrote for the court.
The fact that a consumer may make the mental association between a famous trademark and a knockoff is not the same thing as showing that the famous name was damaged, Stevens wrote.
In fact, the Army colonel who tipped off Victoria's Secret about the opening of Victor's Secret did not change his opinion of the big store, where his wife and daughter had shopped, Stevens wrote.
The officer thought that a newspaper advertisement promoting the smaller store was tacky and tawdry, but those impressions affected only that store, not the big one, Stevens wrote.
The decision is likely to make it harder for other big companies to go to court to successfully prevent smaller competitors from even remotely using the same sort of name or logo, said Cohen.
The court sent the case back to a lower federal appeals court, but it is not clear what will happen next.
The high court did not answer a central question in the case: How a famous company is supposed to show the dilution, or harm, that the 1995 Federal Trademark Dilution Act requires as proof of injury.
Victoria's Secret and business groups that backed it had argued that consumer surveys and other means of testing the public reaction to a trademark are expensive and can be difficult to arrange.
Stevens noted that circumstantial evidence may be enough to show economic harm, particularly if the disputed business uses the same name as the well-known one.
"Whatever difficulties of proof may be entailed, they are not an acceptable reason for dispensing with proof of an essential element," of the trademark law, Stevens wrote.
When Victor and Cathy Moseley opened their store in 1998, they said they picked the name because Victor Moseley wanted to keep his new store a secret from a previous employer.
The 750-store Victoria's Secret chain complained within weeks. The couple then tacked a small "little" to its sign.
Victoria's Secret Catalogue Inc., which has had a trademark on its name since 1981, sued the same year. The company won two rounds in federal court before Tuesday's loss.
The 6th U.S. Circuit Court of Appeals in Cincinnati said the chain proved that it had a famous name and that the similarly named store would likely tarnish its image.
The 1995 law added new protection for famous trademarks, akin to a property owner's right to put up a "no trespassing" sign. The idea was to allow big companies to put a quick stop to a business name or logo that "causes dilution" of the distinctive famous name.
Courts have divided over how far the law's protections extend. Some other courts have ruled that the law requires proof of injury.
The case is Moseley d/b/a Victor's Little Secret v. V Secret Catalogue Inc., 01-1015.
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