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Trademark victory for eBay important legal ruling for famous brand owners

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A federal appeals court in Pasadena recently issued an important ruling on how similar trademarks need to be to prove trademark dilution, in a win for eBay Inc. against Orange County online perfume seller PerfumeBay.com Inc.

"Dilution" occurs when consumers make an association between a trademark or name and a famous mark that renders the famous mark less distinctive, regardless of whether the products compete or consumers would be confused. Classic hypothetical examples of dilution are "Kodak bicycles" and "Buick aspirin." Federal and California law allow owners of famous trademarks to bring suit to stop uses of similar marks that are "likely" to dilute. Success breeds imitation, and at a 2005 trial in federal court in Los Angeles, eBay (Nasdaq: EBAY) had offered evidence of many online sellers that named themselves by taking the generic word for what they sold or did and adding "Bay." eBay's witnesses testified at trial that this was a problem, because if CarBay, JewelryBay, EventsBay, MoneyBay and the like were allowed to proliferate, eBay's name would lose its distinctiveness, and the "Bay" suffix could end up a synonym for "online marketplace."

To protect its valuable name from going the way of former trademarks such as aspirin, escalator and thermos, eBay follows a diligent program of brand protection, putting a stop to names such as FotoBay, AutoBay, RentBay, CoinBay, FoneBay, RaceBay and many others. (Incidentally, the "Bay" part of the eBay name has nothing to do with Internet sales. eBay founder Pierre Omidyar made up the name on the spot in 1995 when told his first choice of an Internet name -- echobay.com -- was taken.) PerfumeBay's founder got her start selling perfume on eBay, and four months later picked the name "PerfumeBay" for her own Web site. PerfumeBay operated five similar sites under names such as "ScentGuru" and "BeautifulPerfumes.com," but the PerfumeBay.com site accounted for over two-thirds of the company's sales. The founder admitted that "people were calling PerfumeBay asking if it was associated with eBay."

eBay asked PerfumeBay to change its name, but PerfumeBay brought suit asking the court to declare it was entitled to use the name, launching a nearly four-year legal battle.

Courts had previously held that marks must be "nearly identical" for the dilution law to apply. After the 2005 trial, the trial court held that while eBay was a famous mark, it was not "nearly identical" to "PerfumeBay," and denied eBay's trademark dilution claim (although it did find PerfumeBay liable for trademark infringement).

But in its November 2007 ruling reversing the lower court, the U.S. Court of Appeals for the Ninth Circuit held that the trial court applied the "nearly identical" standard too narrowly. It reiterated a holding of its 2002 opinion in a case involving OrbiTrek exercise bikes and Trek bicycles that "the similarity requirement may be less stringent in circumstances in which the senior mark is highly distinctive and the junior mark is used for a closely related product."

Thus, the appeals court found that because of the "distinctiveness and fame" of the eBay mark, the "strong recognition and association of eBay's mark with its services," the fact that the PerfumeBay marks "contain either the entire eBay trademark or the dominant suffix 'Bay,'" and the fact that the parties used the Internet to sell the same kinds of products, the PerfumeBay mark created a likelihood of dilution of the eBay mark.

For those reasons, the appeals court found that the trial court erred in not fully considering the "highly distinctive qualities of eBay's famous mark" in deciding whether the marks met the "nearly identical" test, and ruled in favor of eBay.

As the court noted, "With PerfumeBay's marks, consumers may no longer associate the usage of the 'Bay' suffix with eBay's unique services."

"The uniqueness of eBay's mark is diluted in direct proportion to the extent consumers, particularly Internet users, disassociate the eBay mark with eBay's services."

The court also indicated that PerfumeBay could not get around the ruling by putting a space between "Perfume" and "Bay," suggesting that "non-conjoined" versions of the PerfumeBay mark (i.e., separated by a space) would dilute the eBay mark just as well as "conjoined" versions.

Finally, the appeals court also affirmed the district court's finding that "conjoined" versions such as "PerfumeBay" and "Perfume-Bay.com" infringed the eBay mark, and upheld the lower court's injunction against use of those marks and associated Internet domain names and URL addresses.

This is an important victory for eBay in its ongoing efforts to halt those who seek to trade off of eBay's fame and reputation, as well as for other famous brands that likewise face the problem of unauthorized imitation.

Crittenden is a partner in the Intellectual Property Practice at Cooley Godward Kronish LLP.

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