Aesthetic Functionality Requires Non-Reputation-Related Competitive Disadvantage

In Au-tomotive Gold Inc. v. Volkswagon, No. 0416174p (08/11/2006), the Ninthe Circuit Court of Appeals court held that the doctrine of aesthetic functionality did not provide a defense against Auto Gold’s incorporation of Volkswagen and Audi marks in its key chains and license plates. "Accepting Auto Gold’s position," wrote Circuit Judge McKeown, would be the death knell for trademark protection. It would mean that simply because a consumer likes a trademark, or finds it aesthetically pleasing, a competitor could adopt and use the mark on its own products."

The opinion began by outlining the chronological development and refinement of the doctrine beginning with the 1938 Restatement of Torts:

When goods are bought largely for their aesthetic value, their features may be functional because they definitely contribute to that value and thus aid the performance of an object for which the goods are intended.

and ending with the Supreme Court's deciscions in Qualitex and TrafFix:

After Qualitex and TrafFix, the test for functionality proceeds in two steps. In the first step, courts inquire whether the alleged “significant non-trademark function” satisfies the Inwood Laboratories definition of functionality—“essential to the use or purpose of the article [or] affects [its] cost or quality.” TrafFix, 532 U.S. at 32-33 (citing Inwood Laboratories, 456 U.S. at 850, n.10). If this is the case, the inquiry is over —the feature is functional and not protected. TrafFix, 532 U.S. at 33. In the case of a claim of aesthetic functionality, an alternative test inquires whether protection of the feature as a trademark would impose a significant non-reputation-related competitive disadvantage. Id.; and see also Qualitex, 514 U.S. at 165.

. . . The concept of an “aesthetic” function that is non-trademark-related has enjoyed only limited application. In practice, aesthetic functionality has been limited to product features that serve an aesthetic purpose wholly independent of any source-identifying function. See Qualitex, 514 U.S. at 166 (coloring dry cleaning pads served nontrademark purpose by avoiding visible stains); Publications Int’l, Ltd. v. Landoll, Inc., 164 F.3d 337, 342 (7th Cir. 1998) (coloring edges of cookbook pages served nontrademark purpose by avoiding color “bleeding” between pages); Brunswick Corp. v. British Seagull Ltd., 35 F.3d 1527, 1532 (Fed. Cir. 1994) (color black served nontrademark purpose by reducing the apparent size of outboard boat engine); Pagliero, 198 F.2d at 343 (china patterns at issue were attractive and served nontrademark purpose because “one of the essential selling features of hotel china, if, indeed, not the primary, is the design”).

It is difficult to extrapolate from cases involving a true aesthetically functional feature, like a box shape or certain uses of color, to cases involving well-known registered logos and company names, which generally have no function apart from their association with the trademark holder. The present case illustrates the point well, as the use of Volkswagen and Audi’s marks is neither aesthetic nor independent of source identification. That is to say, there is no evidence that consumers buy Auto Gold’s products solely because of their “intrinsic” aesthetic appeal. Instead, the alleged aesthetic function is indistinguishable from and tied to the mark’s source-identifying nature.

By Auto Gold’s strident admission, consumers want “Audi” and “Volkswagen” accessories, not beautiful accessories. This consumer demand is difficult to quarantine from the source identification and reputation-enhancing value of the trademarks themselves. See Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020, 1030-31 (9th Cir. 2004) (“Nothing about the marks used to identify [the trademark holder’s] products is a functional part of the design of those products. . . . The fact that the marks make [the junior user’s product] more functional is irrelevant.”). The demand for Auto Gold’s products is inextricably tied to the trademarks themselves. See Qualitex, 514 U.S. at 170 (identifying “legitimate (nontrademark-related) competition” as the relevant focus in determining functionality) (emphasis added). Any disadvantage Auto Gold claims in not being able to sell Volkswagen or Audi marked goods is tied to the reputation and association with Volkswagen and Audi.

In the end, we take comfort that the doctrine of aesthetic functionality, as we apply it in this case, has simply returned from whence it came. The 1938 Restatement of Torts includes this reminder of the difference between an aesthetic function and a trademark function: "A feature which merely associates goods with a particular source may be, like a trade-mark or trade name, a substantial factor in increasing the marketability of the goods. But if that is the entire significance of the feature, it is non-functional; for its value then lies only in the demand for goods associated with a particular source rather than for goods of a particular design." Restatement of Torts § 742, comment a (1938).

Volkswagen and Audi’s trademarks undoubtedly increase the marketability of Auto Gold’s products. But their “entire significance” lies in the demand for goods bearing those non-functional marks. Today, as in 1938, such poaching is not countenanced by the trademark laws.

We hold that Volkswagen and Audi’s marks are not functional aspects of Auto Gold’s products. These marks, which are registered and have achieved incontestable status, are properly protected under the Lanham Act against infringement, dilution, false designation of source and other misappropriations.

The decision went on to conclude as a matter of law that likelihood of confusion is clear cut here and that Volkswagen and Audi have
made out a prima facie case of infringement:

In sum, Volkswagen and Audi do not present evidence of actual confusion. Neither, however, does Auto Gold present evidence that the disclaimers have any effect. At best, the confusion factor is in equipoise.

In the final analysis, we must consider the Sleekcraft factors as a whole to determine whether a likelihood of confusion results from Auto Gold’s use of the marks. Although we do not bean count, it is significant that six of the eight Sleekcraft factors support a likelihood of confusion; the remaining two are either neutral or irrelevant. Most importantly, the strength of Volkswagen and Audi’s marks, Auto Gold’s intentional and exact copying of the marks, and the direct competition for a specific and limited consumer group, all weigh heavily in favor of a likelihood of confusion. Our Sleekcraft analysis benefits from a record developed through lengthy discovery, and the key facts are undisputed. Volkswagen and Audi have established a prima facie “exclusive right to use the . . . mark in commerce.” 15 U.S.C. § 1115(b). Accordingly, we reverse the district court’s denial of summary judgment in favor of Volkswagen and Audi on the issue of infringement and remand for consideration of the “first sale” defense and any other related claims or defenses.