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For the past three years, Dallas coffeehouse Standard & Pours has built a cult following on the strength of its ambiance, exotic coffee blends, and live music offerings. But in August 2006, it received a jolt stronger than any espresso in the form of a federal trademark infringement dilution suit by McGraw-Hill Companies, Inc., owners of the financial analysis company Standard & Poor’s. Perhaps you’ve heard (see “Poor Sports” in the September 2006 issue of DallasCEO). If not, a refresher:
In the lawsuit filed in the U.S. District Court for the Northern District of Texas (Dallas Division), McGraw-Hill claims that Standard & Pours has infringed upon its trademark, engaged in unfair competition, caused injury to the publisher’s business reputation, and diluted the value of the Standard & Poor’s mark. According to a statement released by McGraw-Hill, “Standard & Poor’s has built one of the most respected names in the financial world, and it is inappropriate for [Standard & Pours owner] Pascale Hall to profit from our well-established brand name, reputation, and goodwill.”
Standard & Poor’s attorneys at Dallas’ Carrington, Coleman, Sloman & Blumenthal and New York’s Darby & Darby claim that the coffee shop at Southside on Lamar—which features a stock market theme complete with bond and stock certificate décor, broadcasts of investment-related television and radio programs, and aptly named coffees like the “Opening Bell House Blend”—is trying to “appeal to investors and stock market enthusiasts and target the same as potential customers.” In doing so, they claim, the coffeehouse is appropriating McGraw-Hill’s trademark and confusing and misleading the public into believing that its goods and services “are sponsored, licensed, endorsed, approved, authorized, or somehow connected with McGraw-Hill or its Standard & Poor’s business division, when they are not.” Among other demands, McGraw-Hill wants the coffee shop to change its name, transfer its website address, and, in addition to attorneys’ fees, pay as damages all profits realized by Standard & Pours and up to three times the revenue allegedly lost by McGraw-Hill due to confusion over the names.
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| LEGAL GROUNDS: Pascale Hall thinks her coffee shop’s name is clever. McGraw-Hill isn’t laughing. photography by Allison V. Smith |
Standard & Pours’ owner Pascale Hall, a single mother with two children, wishes the financial giant had a sense of humor. “I think they’re going way overboard,” she says. “It’s just a clever play on words.” In response to cease-and-desist letters that preceded the lawsuit, Hall tried to “make nice,” even sending some coffee to McGraw-Hill’s Manhattan offices as a goodwill gesture and putting a disclaimer on her business’ website. Ultimately, Hall filed an answer denying the allegations. Although admittedly scared at the prospect of losing her business, Hall scoffs at the notion of consumer confusion. People come to Standard & Pours seeking coffee, not financial advice, she says, and no one walks into Standard & Poor’s in Manhattan to order a latte.
Hall’s lawyer, Chris Harris of McGregor, Texas’ Amsler & Amsler, agrees. “It was a silly lawsuit to file,” he says. The lawyer/musician (who has performed at Standard & Pours’ live music showcases along with his 16-year-old daughter) acknowledges that this David v. Goliath pairing of the $6-billion-a-year financial publisher and the tiny coffeehouse would appear to be a bit of a mismatch, on paper at least. Speaking of Andrew Baum, McGraw-Hill’s New York counsel, Harris says, “Toys ‘R’ Us and Nokia are typical clients of his, while I have the Smith v. Smith divorce.” Despite—or perhaps because of—this mismatch, the case has attracted national print and television media attention, and CNBC’s Power Lunch even did a remote broadcast from the Dallas coffeehouse.
Pascale Hall is not the only Dallas-area business owner to find herself on the wrong end of a big company’s trademark dilution lawsuit. In October, GEICO (the fourth-largest insurer in the U.S. and the seventh-largest auto carrier in Texas) filed their own trademark dilution and infringement lawsuit against Al Boenker and Al Boenker Insurance Agency, an independent insurance agency in Fort Worth. According to GEICO’s pleadings, Boenker’s commercials (which feature the tagline “Real savings. Real people. No lizards.”) depict the company’s popular gecko character “as an imbecilic, bumbling creature.” The allegedly objectionable ads also feature Boenker himself strangling the gecko (and no, that’s not a euphemism), kicking someone in a gecko suit, and of course comparing his auto insurance services with “the Gecko,” with Boenker coming out on top.
GEICO claims that it has invested hundreds of millions of dollars each year in its trademarks, and that Boenker’s actions “threaten to tarnish the image of the gecko and dilute its value as the principal ‘spokes-character’ of GEICO Advertising.” Boenker, whose commercials aired on Texas television stations as well as on the Internet, has characterized the ads as a way of standing up to an industry giant that advertises heavily. (Advertising Week named the gecko America’s favorite advertising icon in 2005, and the average U.S. consumer is expected to see more than 70 GEICO commercials this year starring the English-accented lizard.) GEICO claims that Boenker’s ads have done “irreparable harm,” and it is asking the court to bar Boenker from airing the commercials and from using the gecko in any advertising.
Despite having marked superiority in financial resources and numbers of attorneys, “brand-name bullies” like McGraw-Hill and GEICO don’t always find an advantage in the courtroom. Traditionally, while federal trademark law hasn’t required proof of actual confusion on the part of consumers, proving even the likelihood that people would confuse a coffee purveyor and the publisher of the stock market index would be a daunting task. Courts have looked at such factors as the similarity of marketing methods, the characteristics of prospective customers, and whether or not such customers would associate the established mark with the goods or services of the upstart mark.
In 2003, the U.S. Supreme Court interpreted the Federal Trademark Dilution Act (one of the statutes cited by McGraw-Hill) for the first time, examining lingerie conglomerate Victoria’s Secret’s claim that a Kentucky adult novelty store, Victor’s Secret, was diluting the distinctiveness of its trademark. The Supreme Court ruled against Victoria’s Secret, holding that a trademark owner must show actual harm and evidence that dilution—i.e., a lessening of the capacity of the trademark to identify and distinguish the goods or services of the owner—has actually occurred.
Applying the Supreme Court’s reasoning, one could assume that since a single Kentucky adult store (which did sell lingerie) wasn’t likely to cause confusion with the well-known Victoria’s Secret stores and merchandise, then a lone Dallas coffeehouse with a Wall Street theme wouldn’t likely be confused with a famous stock market index. After all, in 2005 Starbucks lost a trademark dilution suit against a Massachusetts company (Black Bear Micro Roastery) using the name “Charbucks”—and that outfit actually sold coffee. The court rejected Starbucks’ claim that their trademark had been diluted, noting that many consumers seemed to understand the name being meant as a joke and not as a way of misleading customers about a possible connection between Black Bear’s products and Starbucks.
But not so fast. In response to the Supreme Court’s holding that proof of actual trademark dilution was required, Congress went back to the drawing board and passed the Trademark Dilution Revision Act (“TDRA”), which President Bush signed into law on October 6, 2006. The TDRA clarified once and for all that a plaintiff like McGraw-Hill or GEICO simply needed to show a likelihood of dilution, whether that mark’s distinctiveness was being eroded by “blurring” (a party trading on the public’s recognition of a famous mark by using it to identify the source of unrelated goods or services), or by “tarnishment” (harming the reputation of a famous mark through an unsavory or unpleasant association; i.e., using McDonald’s golden arches with a pornographic website). Besides overruling the Supreme Court, the TDRA also gave new guidance on what exactly qualifies as a famous mark and the factors that are taken into consideration in earning that designation. These include such factors as the duration, extent, and geographic reach of sales and advertising for a mark.
Practically speaking, this change in the law means that previously questionable claims of trademark dilution might now be viable. Might Al Boenker have choked his last gecko? It’s difficult to predict, but the Standard & Pours tempest in a coffee cup may soon be over. At press time, the parties had arrived at a tentative settlement. While the terms are confidential, it appears that the Dallas coffeehouse will be changing its name, but will otherwise remain in business, right down to its stock-themed décor. In fact, Hall’s business appears to be thriving in the midst of controversy; she is poised to open additional locations in Las Colinas and in downtown Dallas at Akard and Pacific in the Fidelity Union Life Building. The case might even be a “win-win.” After all, intellectual property lawyers staying up late devising new ways to protect their clients’ trademarks are bound to need a lot of coffee.
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John G. Browning is a partner in the Dallas law firm of Browning & Fleishman, P.C., where his practice is devoted to civil litigation. He is also an author and award-winning legal journalist.
