Dah-ling, those shoes are just divine.

Just in time for New York Fashion Week, a three judge panel of the Second Circuit court resolved a two-year long fight between French Fashion Houses Christian Louboutin and Yves Saint Laurent (YSL) last week, overturning a decision and order out of the United States District Court for the Southern District of New York in Christian Louboutin S.A. v. Yves Saint Laurent Am., Inc., 778 F. Supp. 2d 445 (S.D.N.Y. 2011) finding a trademark granted by the United States Patent and Trademark office (USPTO) for Louboutin’s red soled shoes was likely invalid. At both levels, the court examined whether a single color may serve as a legally protected trademark in the fashion industry, particularly as a mark of a style of high-fashion women’s footwear. At the appellate level, the circuit court judges unanimously held Louboutin’s color trademark was valid; however, they limited the mark to use of the protected color on the bottom of women’s shoes in a way that contrasted with the color applied to the rest of the shoe.

The suit between the two fashion gurus who specialize in high-end leather goods and accessories, began in 2011, when Louboutin discovered YSL’s plans to release red monochromatic women’s shoes, among other colors, in an upcoming collection. YSL had released a similar series of shoes with a single color covering the entire shoe in a 1970s collection.

Unlike YSL, Louboutin began painting the bottom of its women’s shoes (the upper or sole of the shoe) a high-gloss red lacquer in 1992. The red sole was designed to contrast with the color on the rest of the shoe, and was granted a trademark in the use of this color on its shoes by the USPTO in January 2008. The trademark grant showed “the colour(s) red is/are claimed as a feature of the mark. The mark consists of a lacquered red sole on footwear” (registration number 3361597). Upon discovering YSL’s plans, Louboutin requested the competing designer remove his shoes from the market.  YSL declined and Louboutin filed suit April 7, 2011 after a brief round of negotiations failed.

Louboutin requested injunctive relief and enforcement of its trademark, making three claims under the Lanham Act, 15 U.S.C. §1051 et seq. (trademark infringement and counterfeiting; false designation of origin and unfair competition; and trademark dilution) as well as four claims under state law (trademark infringement; trademark dilution; unfair competition; and unlawful deceptive acts and practices). YSL counterclaimed arguing Louboutin’s mark should be cancelled (and thus lose its protection) because the red shoe was not distinctive, but rather merely ornamental; or functional. YSL also requested damages for tortuous interference with business relations and unfair competition.

Judge Victor Marrero denied Louboutin’s motion for preliminary injunction at the district court level in August 2011, finding that the Lanham Act did not extend to protect the use of a single color “as an expressive and defining quality of an article of wear produced in the fashion industry,” since in the specific context of the fashion industry, color is functional. As such, the court held that even if a color trademark could be protected in other industries, Louboutin was not likely to succeed on the merits of his case since it held an invalid color trademark in the fashion context. Thus, YSL’s shoe likely was not infringing, and Louboutin was not eligible for preliminary injunctive action.

The Second Circuit reversed in part and affirmed in part. Judge José A. Cabranes’ decision for the three judge panel that included Senior Judge Chester Straub and Judge Debra Livingston, examined three questions: (1) whether a single color can be protected as a trademark, both generally and in the specific context of the fashion industry; (2) whether when considering the doctrine of “aesthetic functionality,” a single-color mark is necessarily “functional” in the context of the fashion industry, and thus could never be trademarked in that industry; and (3) whether the Red Sole mark is a valid trademark under Lanham Act.

Trademark law protects the use in commerce of a word mark or design mark in conjunction with a good or service by providing the owner of that mark an exclusive right to use that mark with its goods and services. Moreover, trademarks serve a public interest function by protecting consumers against deceit as to the sources of its purchases, by “quickly and easily assur[ing] a potential customer that this item—the item with this mark—is made by the same producer as other similarly marked items that he or she liked (or disliked) in the past.” Qualitex Co v. Jacobson Products Co., 514 U.S. 159, 163–64 (1995). As such, trademarks secure “the businessman’s right to enjoy business earned through investment in the good will and reputation attached to a trade name.” Fabrication Enter., Inc. v. Hygenic Corp., 64 F.3d 53, 57 (2d Cir. 1995). Because trademarks are intended to protect the association between a mark, the product or service it is attached to, and the manufacturer or provider of the good or service, it does not provide the owner with a monopoly over a product feature.

Courts assess the validity of a trademark through two lines of inquiry. First, the court examines whether the mark itself merits protection because it is “distinctive” rather than “generic.” A mark may be distinctive either because it is “inherently distinctive”—i.e. it intrinsically identifies a particular source because it is unique or fanciful, like the name Exxon—or because it has attained “secondary meaning” in the public mind, and is thus popularly perceived to be distinctive—such as the name “Prince” for pasta.  A mark acquires secondary meaning when the primary significance of a product feature is seen by the public as identifying the source of the product, rather than the product itself. To establish acquired distinctiveness, court looks (a) advertising expenditures; (b) consumer studies linking the mark to a source; (c) unsolicited media coverage of the product; (d) sales success; (e) attempts to plagiarize the mark; and (f) length and exclusivity of the mark’s use. Second, once the court concludes the mark is distinctive, it examines whether the defendant’s mark is likely to create confusion in the marketplace. Defendants can rebut the need for this second inquiry by showing that the plaintiff’s mark is has either utilitarian or aesthetic functionality and is thus not distinctive, but is rather “merely functional.”

The premise of the functionality argument is that if the element the plaintiff seeks to protect with trademark is functional, that element would more suitably protected by a patent, and thus ineligible for trademark. To assess functionality, a court will first examine whether the element has “utilitarian functionality.” An element has utilitarian functionality if it is essential to the use or purpose of the article or affects the cost or quality of the article (i.e. it is necessary to make the article work, or produce it more cheaply). If the element does not have utilitarian functionality, the court next will examine whether it has “aesthetic functionality.” The inquiry into this second type of functionality is highly fact specific, since aesthetic functionality speaks to the aesthetic of the good itself or its ornamental design, and is thus difficult to distinguish from the product feature’s successful source indication. To ensure the mark’s success itself does not preclude the owner from obtaining protection, the court looks to see whether the element’s protection would significantly effect competition by placing competitors in the same market at a non-reputation-related disadvantage. An element is thus considered “aesthetically functional” if its protection would significantly limit the range of competitive designs available (i.e. it would significantly hinder competition in the relevant market). To prevent the invalidation of a trademark attacked for aesthetic functionality, courts weigh the competitive benefits of protecting the source-identifying aspects of a mark against the competitive costs of precluding competitors from using the feature, and then construes the element in a way that will not significantly hinder competition in the relevant market—although this does not guarantee the defendant the greatest range for his creative outlet.

The distinctiveness of a single-color mark has a “colored” history in U.S. law. The common law was inconsistent in its treatment of single-color marks until the creation of the Lanham Act, which provided an expansive definition of what could be a protected mark. After the implementation of the Lanham Act, courts began finding that in some cases, color alone could be subject to trademark protection. The turning point in the protection of single-color marks occurred in the mid-1980s and 1990s. First, in the Federal Court of Appeals held in In re Owens-Corning Fiberglas Corp., 774 F.2d 1116 (Fed. Cir. 1985) that a color mark could be registered so long as the use of the color served the classical trademark function of indicating the origin of the goods. The United States Supreme Court confirmed the registerability of color marks in the 1995 Qualitex decision, where it held that since it was “difficult to find, in basic trademark objectives, a reason to disqualify absolutely the use of a color as a mark,” the use of color alone could meet the basic legal requirements for use as a trademark, so long as it distinguished a firm’s good and identified their source without serving any other significant function. Qualitex thus prohibited lower courts from instituting per se rules stopping registration of a color as a trademark in a particular industry. As such, a color mark should be protectable if it is consistently and prominently used by a particular designer in such a way that its primary significance comes to identify the source of the product, rather than the product itself.

The Second Circuit in Louboutin thus found the red-sole mark valid for two reasons. First, they found Louboutin actually acquired a registered trademark from the USPTO, showing prima facie proof that the mark is registered and valid, that the registrant owns that mark, and that they have an exclusive right to use the mark in commerce. Second, the court confirmed the mark was distinctive and could thus be protected. Although the court found that single-colors could not be inherently distinctive, they held that Louboutin’s use of the high-gloss lacquer red in conjunction with a contrasting color on the rest of the shoe allowed the red to acquire secondary meaning. Using the secondary meaning factors, the court found extensive evidence showing the red sole is a “symbol” of Louboutin, that he originated it about 20 years ago, and has invested substantial amounts in promoting it as his signature in high-end women’s footwear. Specifically, the judge pointed to an admission from the CEO of YSL’s parent company that “in the fashion or luxury world, it is absolutely clear that we recognize the notoriety of the distinctive signature constituted by the red sole of Louboutin models” as well as the district court’s finding that “in the high-stakes commercial markets and social circles in which these things matter a great deal, the red outsole became closely associated with Louboutin.”

Using the district court’s own words to overturn that decision, the Second Court held that as the district court judge stated, “By placing the color red in a context that seems unusual … and deliberately tying that color to his product, Louboutin has created an identifying mark firmly associated with his brand.” However, because the circuit court wanted to ensure that granting the color-mark would not significantly hinder competition in the fashion market, it held the mark invalid to the extent it precluded competitors use of a red outsole in all situations. As such, the court limited the Louboutin trademark to those situations in which the use of high-gloss lacquer red had actually acquired distinctiveness: use in conjunction with a contrasting color on the rest of the shoe. Because the trademark claim was thus narrowed, the court held that the YSL shoe, which contained the same color all over the shoe, could not infringe on the limited, but valid Louboutin mark. Thus, the court did not need to reach questions of consumer confusion or functionality.

Because the Louboutin trademark did not extent to all red lacquered outsoles, the Second Circuit affirmed the district court’s decision declining to enjoin use of all red lacquered outsoles, but reversed that part of the order denying trademark to Louboutin’s use of contrasting red lacquered outsoles. The court remanded the remainder of YSL’s counterclaims for determination in accordance with its decision.

By holding that Louboutin’s mark was narrow, but valid, the Second Circuit managed to construct the rare type of decision that resulted on wins for both the plaintiff and the defendant. As such, the parties reactions to the holding has been positive. Louboutin is “very, very pleased” with the outcome since it validates the designer’s trademark and affirms the ability to trademark colors in conjunction with fashion. Likewise, YSL saw the decision as “a total victory” since it allows the designer to continue selling its monochromatic shoe. This positive reaction cased Michelle Mancino Marsh, an attorney at Kenyon & Kenyon, to comment that the decision “was a win-win for fashion, in that a major player gets to keep and enforce its mark and another major player saves face by successfully defending against infringement.”

On a broader scale, the holding importantly confirms that in the fashion industry “color can serve as a tool in the palette of a designer, rather than as mere ornamentation” and thus, when used with consistency and prominence by a particular designer, a color may attain a secondary meaning denoting source that can be protected by a trademark.

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