5th Circuit requires use as a mark, but finds Krusty Krab restaurant in SpongeBob qualifies

Viacom Int’l, Inc. v. IJR Capital Investments, L.L.C., No.
17-20334 (5th Cir. May 22, 2018)
The Fifth Circuit here adopts a “use as a mark” requirement,
though not a very vigorous one, indicating once again that the concept is too
useful to abandon, however much the Second Circuit might like us to think
otherwise (at least, when it’s not using the concept itself, as in the
Louboutin case).
Viacom sued IJR for infringing its common law trademark of
The Krusty Krab— a fictional restaurant in the popular “SpongeBob SquarePants”
animated television series—by taking steps to open seafood restaurants using
the same name. The court of appeals affirmed summary judgment for Viacom.
SpongeBob SquarePants is “a sea sponge that wears square
shorts, lives in an underwater pineapple, and works at the fictional [you don’t
say] The Krusty Krab restaurant as a fry cook.” His show has been the
most-watched animated television series for 15 consecutive years, with over 73
million viewers in the second quarter of 2016 alone. One-third of all viewers
are 18 or older.  The Krusty Krab “played
a prominent role in the pilot episode of the series and has appeared in 166 of
203 episodes,” as well as in two feature films, Viacom’s mobile app “SpongeBob
Moves In” (seven million global downloads), a play called The SpongeBob Musical,
and ads and online outreach (about seven million page views per week). The
press has also referenced The Krusty Krab many times when discussing the show.
The Krusty Krab is also licensed to third parties, including
for Krusty Krab playsets ($1.4 million in royalties since 2009), the video game
“SpongeBob SquarePants Creature from The Krusty Krab” (over one million units),
The Krusty Krab aquarium accessories (187,000 units), and The Krusty Krab
shirts sold at The SpongeBob Store at Universal Studios in Florida. Viacom has
never attempted to license The Krusty Krab mark to a restaurant, though its
subsidiary did license Bubba Gump Shrimp Co. for seafood restaurants based on
the fictional business from the 1994 movie “Forrest Gump.”
In 2014, IJR’s owner decided to open seafood restaurants in
California and Texas. He claimed that he was describing the crusted glaze
applied to cooked seafood when he chose The Krusty Krab. Nonetheless, an IJR investor
mentioned SpongeBob “out of the blue” while discussing the restaurant.  Though the owner became aware of the fictional
Krusty Krab, he didn’t find an actual restaurant using the mark, and IJR filed
an ITU trademark application, which was allowed.  IJR’s business plan makes no reference to the
SpongeBob franchise or the fictional restaurant The Krusty Krab. IJR postponed
its plans during this lawsuit.
Viacom’s survey found that 30% of respondents thought The
Krusty Krab was connected with Viacom and 35% of respondents associated the hypothetical
restaurant with Viacom.
Viacom, the court reasoned, would have a protectable mark “if
it establishes ownership by demonstrating that it uses The Krusty Krab as a
source identifier. Often this court has bypassed the use inquiry and conducted
only a distinctiveness analysis. However, the two issues are separate questions,”
since the Lanham Act requires that a symbol be used or intended to be used “to
identify and distinguish” goods and services; use as a mark is a question of fact.  It was clear that The Krusty Krab appeared on
goods in the market. The question was whether Viacom used The Krusty Krab “to
indicate origin.”
Elements from within a television show can be valid
marks.  The court pointed to an earlier
case affirming a judgment against the junior use of Conan the Barbarian—the
title character of a comic book series—in a restaurant concept, as well as to
the Second Circuit’s Warner Bros., Inc. v. GayToys, protecting the General
Lee—an orange muscle car with a Confederate flag emblem that was “prominently
featured” on the “The Dukes of Hazzard.” 
[Just some good ol’ boys, celebrating treason.]
If a TV show element serves as a source identifier, then
protecting it serves the purposes of trademark, which are to protect goodwill/producer
investment against free riding and “to protect consumers against confusion and
monopoly.”  Still, use within a popular
TV series isn’t necessarily use as a source identifier.
If the matter “creates a separate and distinct commercial
impression…[it] performs the trademark function of identifying the source.”
Thus, the role of the element in the show must be evaluated, not the overall
success or recognition of the show itself. “When an element only occasionally
appears in a successful television series, the indication-of-origin requirement
may not be met.” The court gave the example of Paramount Pictures Corp.v. Romulan
Invasions, which declined to protect “Romulan” for a fictional alien race in
the “Star Trek” series that was featured in episodes, movies, books, licensed
plastic spaceship models and dolls, puzzles, games, etc. The TTAB reasoned that
the term was “only” used “from time to time” and held that Paramount “failed to
establish any use of the term Romulan…as a mark to distinguish its services.”
The court here commented that “Star Trek fans may vehemently disagree with this
analysis as a factual matter.” [No, no we don’t!]
Elements playing a more central role can “ordinarily” get
trademark protection.  The example here
was “The Daily Planet,” which “has over the years become inextricably woven
into thefabric of the Superman story.” So too with Kryptonite, “a staple of the
Superman character and story,” which “is immediately recognized or associated
with the character Superman.”

The court found The Krusty Krab analogous to these protected marks, deeming it
“integral” and “central” to SpongeBob,
given its prominence in the material. This centrality was itself “strong
evidence” that “The Krusty Krab” was “recognized in itself as an indication of
origin for Viacom’s licensed goods and television services.” Viacom’s
licensing, which has generated millions of dollars, “provides further evidence
that Viacom uses The Krusty Krab as a source identifier and therefore owns the
mark.” Even though it typically appears alongside the SpongeBob mark, that
didn’t prevent it from being a mark too because it created a distinct
commercial impression, “signifying to consumers that products like Krusty Krab
playsets or aquarium ornaments originate from the famous fictional restaurant that
employs their beloved sea sponge character.” 
Nor did it matter that the term was used in varying styles, fonts, and
sizes on the licensed products, because the mark was a word mark, not a design
mark, “so the focus is whether the words themselves are consistently used as an
indicator of source.”
It’s interesting that this factual question seems in the
court’s view to be completely about what Viacom does, not what consumers
perceive in response.  This is perhaps
the only way to distinguish use as a mark from distinctiveness, but does it
make sense?
Speaking of distinctiveness, the evidence showed
distinctiveness, even without a survey or direct consumer testimony.
Confusion: given the standard for summary judgment, the
evidence of intent couldn’t be weighed against IJR, but there was still enough
to find confusion as a matter of law.  Strength
and similarity easily favored Viacom for any reasonable jury, as did
relatedness of goods/services.  For
relatedness, the court of appeals compared the fictional hamburger restaurant,
not a TV show/aquarium accessories/playsets, to the planned seafood restaurant.  This seems technically erroneous but
practically understandable. “While there is little evidence of thematic overlap
between the restaurants, IJR nevertheless plans to open a restaurant, and given
the success of SpongeBob, that indicates a likelihood of confusion.”  Plus, affiliation or sponsorship confusion are
more likely “when the junior user’s services are in a market that is one into
which the senior user would naturally expand.” The Conan case said that
“today’s consumers expect [cartoon character] endorsements and act favorably
toward them” in the restaurant setting, and “Viacom could naturally develop a
real The Krusty Krab restaurant based on the fictional eatery, as its
subsidiary did when it licensed Bubba Gump Shrimp Co.”
Identity of retail outlets and purchasers: IJR intended to
target “the general public,” particularly “families, singles, and students . .
. as well as the area’s work force.” “At this general level of abstraction,
Viacom also targets the general public,” but though the district court found
that this factor favored Viacom, there were “substantial differences in the
retail outlets and the predominant purchasers that mitigate the possibility of
confusion.”  Viacom “presumably” targeted
TV viewers, toy stores, and online retailers, versus brick-and-mortar
restaurants.  There was some overlap in
purchasers, since one third of SpongeBob viewers are “technically” adults
[ouch], but the core consumers were dissimilar. Though it was reasonable to
infer that some SpongeBob fan children would influence decisions to eat at a
Krusty Krab restaurant, and that adult fans “might well dine at a Krusty Krab restaurant,
at least once, due to the name,” the extent of the overlap wasn’t clear on the
record.  Likewise, similarity of
advertising media couldn’t be judged on this record.
The district court specifically erred in weighing intent
against IJR, even after acknowledging that it was “not clear” whether IJR intended
to derive benefits from Viacom’s reputation, because a principal “associated”
the phrase with SpongeBob and IJR’s owner was aware of Viacom’s use before he
applied to register the mark. Word association, without more (such as using
more elements of the show, rather than just one unregistered term), couldn’t
establish bad faith at summary judgment, and “‘mere awareness’ of the senior
user’s mark does not ‘establish[]…bad intent.’” There was enough to create a
genuine issue, but it didn’t matter.
Evidence of actual confusion: the survey plus anecdotal
evidence of association by principals/investors. The key question was whether
the survey was “substantially defective”; there was no problem of the
representativeness of the sample, but “parts of the survey resembled a word-association
test. … [T]he survey asked if ‘THE KRUSTY KRAB restaurant [is] affiliated or
connected with any other company or organization.’ This invites word
association, and ‘a mere word-association test is entitled to little weight.’”
But this went only to weight, so the district court didn’t err in admitting the
survey.  The bar on actual confusion is
low; the probative value of the survey plus the anecdotal evidence [of word
association] weighed in favor of finding confusion. [Interestingly, the court
of appeals doesn’t say that a reasonable jury would have to so find—and I would
think it wouldn’t have to.]
Overall, there was no genuine issue of material fact on likelihood
of confusion.

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