A Federal Appeals Court Upholds Louboutin’s Trademark for Red-Soled Shoes: Has the Law Granted Too Much Protection for Intellectual Property?

Posted in: IP Law

Last week, the U.S. Court of Appeals for the Second Circuit issued an important trademark ruling in a case pitting two high-fashion firms against one another: Christian Louboutin S.A. (“Louboutin”) v. Yves Saint Laurent Am. Holding, Inc. (“YSL”).  Louboutin sued YSL to block the sale of the latter’s red-soled shoes, on the ground that Louboutin held a trademark for such shoes.  The trial court ruled that a fashion designer cannot have a valid trademark in a color, but the appeals court reversed.  Finding that Louboutin’s red soles had acquired a distinctiveness that was now associated with the firm, the court upheld the trademark—at least, as applied to shoes with uppers made of a contrasting color.

Read against the backdrop of the Lanham Act (which authorizes federal trademark protection) and the prior case law, the Second Circuit ruling is defensible.  But taken in broader context, the Louboutin decision continues a disturbing trend in which Congress, the courts and even ordinary citizens appear to be granting too much protection to intellectual property.  After exploring the main issues in the Louboutin case in this column, I will place the decision in that larger context.

Can a Fashion Designer Trademark a Color? A Federal District Court Says No

U.S. law protects intellectual property through three main avenues:  Patent law protects useful inventions.  Copyright law protects original expressions (whether in print, music, video or other media).  And trademark law protects the ability of firms to reap the rewards of a reputation for quality by branding their products as distinctive.  The dispute between Louboutin and YSL was exclusively a contest over trademark law.

For twenty years, Louboutin has painted the soles of its high-heeled women’s shoes with red lacquer.  According to the findings of the district court, during that time, fashionistas have come to associate these high-gloss, red-bottomed shoes with Louboutin.  Accordingly, when YSL sought to sell its own high-heeled women’s shoes with a red sole, Louboutin accused YSL of trying to cash in on Louboutin’s brand recognition, thus diverting Louboutin’s profits and diluting its distinctive mark.

The federal district court recognized that the relevant public associated red-soled shoes with Louboutin, but it nonetheless denied relief to Louboutin.  Why?  Because even a distinctive mark will be deemed invalid under the so-called “functionality” doctrine.  That doctrine states that a product feature that serves a functional purpose—as opposed to the purpose of providing mere decoration or arbitrary identification—is not trademarkable.  If it were, then the holder of the trademark would be gaining more protection than the Lanham Act offers.  Patent law, not trademark law, protects innovative functional designs, and a product that does not qualify for patent protection should not receive the benefits of a patent through a trademark back door.

But in what sense is the color red functional?  The district judge said that in the special context of fashion design, aesthetics are function.  To give trademark protection to a color in the fashion context, the district judge thought, would be to give Louboutin an advantage over its competitors:  It would foreclose the sale of not only those shoes that consumers thought were sold by Louboutin, but also the sale of shoes that looked like Louboutin’s shoes but were clearly marked as being made by other designers.  Accordingly, the district judge found that in the fashion context, there could be no trademark in a single color.

The Appeals Court Reverses the District Court’s Holding Against Louboutin

The appeals court disagreed.  Citing the Supreme Court’s 1995 ruling in Qualitex Co. v. Jacobson Products Co., the appeals court began by noting that a single color can, indeed, be eligible for trademark protection.  But Qualitex involved trademark protection for the color of dry-cleaning pads.  And in the dry-cleaning industry, color is an arbitrary non-functional element, whereas in the fashion industry, color is usually a vital element of the aesthetic appeal of a product, which is at the core of its function.

Why did the appeals court reject the district court’s conclusion that color could not receive trademark protection in the fashion context?  The appeals court gave two answers.  First, even though the Qualitex case involved dry-cleaning pads, the court said that it established the general proposition that there can be no per se rule forbidding trademark protection for a color, regardless of the industry.

Second, the appeals court said that even if Qualitex could be read to permit an industry-specific bar on trademarking color, it should not be so read with respect to the fashion industry.  There may be circumstances in which color is used chiefly as a brand identifier, rather than as an aesthetic component of a fashion product, and so each case must be considered on its facts, the appeals court ruled.  The factual question is whether granting trademark protection to a color would permit the trademark holder to monopolize the relevant market.

But judged by that standard, it looks like Louboutin should lose.  After all, upholding Louboutin’s trademark permits Louboutin to monopolize the market in high-heeled red-bottom shoes.  So why did the appeals court rule for Louboutin?

Actually, it didn’t.  The appeals court sent the case back down to the district court to adjudicate the question of whether Louboutin’s trademark is invalid under the functionality doctrine—as a fact-specific inquiry, rather than under the per se rule the district judge had applied in the first instance.  In addition, the appeals court held that Louboutin was not entitled to trademark protection for red-soled shoes that also have a red upper, because the record showed that consumers did not strongly identify red-soled monochrome shoes with Louboutin.

In conducting the fact-specific functionality inquiry on remand, the district court will have to determine, among other things, whether the relevant market should be described in the way I have just described it—as the market for high-heeled red-soled shoes—or as something broader—such as the market for women’s fashion shoes.  That question is not especially interesting to people like me (who buy our footwear at the likes of Payless and Foot Locker), but the case nonetheless remains important for what it says about intellectual property more broadly.

Does the Law Over-Protect Intellectual Property?

As the foregoing analysis shows, the appeals court in Louboutin made a reasonable, good-faith effort to apply the existing statutory framework and prior precedent.  But that does not mean that the decision was correct.

In my view, the district court was right to propose a per se rule barring the trademarkability of a single color in the fashion industry.  There is enough difference between dry cleaning pads and high-fashion shoes to take the latter out of any general principle established by the Qualitex case.  And while the appeals court is correct that one can imagine circumstances in which color will not be part of the aesthetic functionality of a fashion item, such cases will be sufficiently rare that they do not justify the cost of litigating the fact-specific question whenever a firm claims a trademark in a color.

If there is any doubt that over-protection of intellectual property can be costly, one need only look to our patent system.  The ease of obtaining a patent from the federal Patent and Trademark Office has led to the emergence of “patent trolls”—firms that neither invent nor make anything but exist solely to buy up patents and then bring infringement suits against bona fide businesses so as to extract hefty settlements.

Nor is the problem limited to trolls.  Technology firms that do make things—including all of the leading players—view the assembly of a large cache of patents as vital both for going on the offensive against their competitors and to use to defend themselves if sued.  The ongoing litigation between Apple and Samsung is illustrative.

Among the claims brought by Apple that resulted in a federal jury in California finding of a billion dollars in damages were the claims that Samsung infringed Apple’s design patent and trade dress protection for the overall aesthetic of the iPhone and iPad.  Or, as more than a few observers wryly noted, according to the jury, Steve Jobs invented the rectangle.

Apple and its supporters argue that in protecting its intellectual property, the courts are simply rewarding the investment that Apple has made in innovation, just as Congress intended when it enacted the nation’s patent and trademark laws.  And to a point, Apple and its defenders are right.

But only to a point.  When courts give intellectual property protection to red-bottomed shoes or to rectangular-shaped mobile phones, they may actually retard innovation.  Over-protection of intellectual property rights diverts resources away from innovation, and towards the legal fees that lawsuits entail.  Meanwhile, firms that receive protection beyond what is needed to spur innovation can charge monopoly prices, rather than the lower prices that would exist in a competitive market.

Congress, the PTO, the courts, and even ordinary citizens who are called to sit on juries in intellectual property cases could learn a lesson from the framers of the Constitution.  They empowered Congress to enact legislation that would “promote the Progress of Science and useful Arts by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

The two provisions of that clause give rise to copyright and patent law, respectively, but they should also inform trademark law.  The clause shows that the law regarding intellectual property must balance incentives for creativity against the risk that the law itself might become an obstacle to just such creativity.  Our current legal regime appears to be neglecting the latter half of that balance.

Posted in: IP Law