Contributed by James Singer

Trademarks are one of the most essential building blocks to a franchise brand. We all immediately recognize what the Golden Arches, the block red “GNC”, or the Sheraton “S” surrounded by a sprig of mountain laurel represent. So, we took great interest in a number of recent trademark decisions involving the spirits industry.

Alcohol packaging and trademark/trade dress law have intersected quite a few times in the news this month.  First, as Daniel Corbett recently reported, the maker’s of Daily’s cocktails sued Captain Morgan producer Diageo North America Inc. in a suit alleging that Diageo’s single-serve cocktail pouches infringed the plaintiff’s design patents and trade dress.

Then, the U.S. Court of Appeals for the Sixth Circuit ruled in favor of Maker’s Mark Distillery, Inc. in its complaint alleging that the makers of Jose Cuervo tequila infringed Maker’s Mark’s trademark and trade dress rights by featuring a bottle having a dripping red wax seal.  In an opinion that provides not only a discussion of trade dress law but also an entertaining history of American bourbon manufacturing, the Court considered whether the dripping wax seal was entitled to trademark protection and concluded that the answer was ‘yes".

In its defense, Cuervo argued that the seal could not be protected because it was "aesthetically functional."  The Court noted that "a trademark is functional ‘if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.’"  Although the Court did not affirmatively state whether or not it even recognized the doctrine of aesthetic functionality, it upheld Makers’ Mark’s rights because others could easily sell their products without using the dripping red wax seal:

The district court was not convinced “that it would be difficult or costly for competitors to design around” the mark and we do not disagree. There is more than one way to seal a bottle with wax to make it look appealing, and so Cuervo fails the comparable alternatives test. As to the effective competition test, the district court found that “red wax is not the only pleasing color of wax . . . nor does it put competitors at a significant non-reputation related disadvantage to be prevented from using red dripping wax.

Noting that the USPTO awarded Maker’s Mark a trademark registration for a non-color-specific version of the seal in connection with other food products, the court then turned to the question of infringement.  Makers’ Mark argued that Cuervo’s use of the red dripping wax seal on tequila created "confusion of sponsorship" as to the source of the goods.  Although there was no evidence of actual consumer confusion, the Court found that Makers’ Mark’s trade dress rights were strong due to over 50 years’ use of the dripping red wax seal.  The Court also found similarity between the accused and original marks, as well as relatedness in the goods, although the Court gave these factors less weight than it gave to the strength of the mark.  On this basis, the Court ruled in favor of Makers’ Mark.

The opinion provides some guidance for companies who offer products that may appear to be similar to competing products.  First, although Markers’ Mark held a USPTO trademark registration for the dripping bottle seal, the registration was color-agnostic and only listed steak sauce (not alcohol)  as the relevant goods.  Thus, the opinion indicates the absence of a USPTO registration  covering the goods in question does not necessarily mean that a party is not entitled to trademark or trade dress rights if the mark is sufficiently strong.

Second, the Court’s focus on strength of the mark shows that consistent use of a trademark over time, along with extensive marketing efforts, can provide a trademark owner with substantial leverage when others use similar marks. These cases reinforce what we’ve always believed: franchisors, suppliers and others who own trademarks should adopt and enforce strict and consistent trademark usage policies before allowing others to use those marks.  Otherwise, the trademark owner may end up with little or no trademark rights — and no ability to keep infringers out of the market.