Viacom International, Inc. v. IJR Capital Investments, LLC

Fifth Circuit affirms district court ruling that defendant’s attempt to open proposed Krusty Krab restaurants in California and Texas infringed on Viacom’s trademark in fictional Krusty Krab restaurant from television series “SpongeBob SquarePants.”

Viacom International Inc. sued IJR Capital Investments LLC for infringing on Viacom’s trademark of The Krusty Krab, a fictional fast restaurant in the cartoon television series “SpongeBob SquarePants,” after IJR took steps to open seafood restaurants using the same name in California and Texas. IJR claimed that it did not consider “SpongeBob” in coming up with the concept for the restaurants, and became aware of the fictional restaurant only when it performed an internet search to determine if there were other restaurants with a similar name. The United States Patent and Trademark Office approved IJR’s subsequent intent to use trademark application for “THE KRUSTY KRAB.” Viacom, which had not previously registered the trademark, sent a cease-and-desist letter demanding that IJR withdraw the trademark application and the use of the mark. IJR refused, and Viacom sued for trademark infringement and unfair competition under the Lanham Act, among other claims.

The district court granted summary judgment in favor of Viacom on its trademark infringement and unfair competition claims, holding that Viacom had established ownership of the mark through sales and licensing in a variety of merchandise and had demonstrated that The Krusty Krab had acquired distinctiveness, and that every likelihood-of-confusion factor weighed in favor of finding that defendant’s proposed use of Krusty Krab would probably cause confusion. IJR appealed, arguing that Viacom does not have a valid trademark for The Krusty Krab, that its restaurants would not create a likelihood of confusion between the two marks and that Viacom’s The Krusty Krab was “just a cartoon restaurant.” The Fifth Circuit affirmed.

To prevail on the Lanham Act and Texas common-law trademark infringement claims, Viacom had to establish “(1) that it owns a legally protectable mark in The Krusty Krab and (2) that IJR’s use of the mark creates a likelihood of confusion as to source, affiliation, or sponsorship.”

A mark is legally protectable only where there is ownership, as demonstrated by the use of the mark by the company as a source identifier, and where the mark is distinctive. At the outset, the court addressed the threshold question of whether specific elements from within a television show (in contrast to the title of the show) can receive trademark protection. Citing to decisions by other courts and the Trademark Trial and Appeal Board, the court found that elements that play a more central role, like The Daily Planet and Kryptonite from the Superman franchise, the General Lee from “Dukes of Hazzard” and the comic book character Conan the Barbarian, can receive – and have received – trademark protection.

The court found The Krusty Krab “analogous to protected marks like the Daily Planet, General Lee, and Conan the Barbarian.” Noting that the mark is integral to the show – “it appears in over 80 [percent] of episodes, plays a prominent role in the SpongeBob films and musical, and is featured online, in video games, and on licensed merchandise” – the court concluded: “The Krusty Krab’s central role in the multibillion-dollar SpongeBob franchise is strong evidence that it is recognized in itself as an indication of origin for Viacom’s licensed goods and television services.” Based on Viacom’s consistent use of the mark on licensed products of all kinds and its key role in the SpongeBob series, the court found that Viacom had established ownership of The Krusty Krab because of the mark’s immediate recognition as the source for goods and services.

The court also found that the mark had acquired distinctiveness through secondary meaning, rejecting IJR’s argument that the public merely recognizes The Krusty Krab as a cartoon restaurant. “A mark develops secondary meaning ‘when, in the minds of the public, the primary significance of a [mark] is to identify the source of the product rather than the product itself.’” Evaluating the seven factors bearing on secondary meaning – “(1) length and manner of use of the mark or trade dress, (2) volume of sales, (3) amount and manner of advertising, (4) nature of use of the mark or trade dress in newspapers and magazines, (5) consumer-survey evidence, (6) direct consumer testimony, and (7) the defendant’s intent in copying the mark – the court found that, taken together, they established that “Viacom’s mark has acquired distinctiveness through secondary meaning as a matter of law.”

On the first two factors, the court noted The Krusty Krab’s appearance in the first “SpongeBob” episode in 1999 and in more than 80 percent of the episodes over more than 18 years of shows, as well as the hundreds of millions of dollars from sales of licensed products and from the two full-length “SpongeBob” movies prominently featuring The Krusty Krab.

Noting that the relevant question with regard to the amount and manner of advertising is not the extent but rather the effectiveness of the advertising in altering the meaning of the mark with the public, the court highlighted the “numerous print and Internet advertisements for The Krusty Krab-licensed products,” and the $197 million spent promoting the two “SpongeBob SquarePants” feature films, and concluded that “the effectiveness of this advertising is evident from the success of product sales and the films.” The court also noted that “[t]hough the effectiveness of the advertising as to The Krusty Krab mark, specifically, has not been directly proven, its depiction in advertisements is such that the public would recognize the mark as more than an artistic backdrop.” As to the nature and use of the mark in media, the court highlighted the regular reference of the mark by the press and on social media and internet platforms in connection with the “SpongeBob” series.

The record contained no consumer-survey evidence nor any direct consumer testimony – which the court did not consider fatal to the analysis. Nor did the “inconclusive” evidence of defendant’s intent in copying alter the inescapable conclusion “that in the minds of consumers, The Krusty Krab identifies the source of products, which is Viacom, the creator of the ‘SpongeBob SquarePants’ fictional universe and its inhabitants.”

The court likewise found that IJR’s use of The Krusty Krab created a likelihood of confusion as to source, affiliation or sponsorship. In doing so, the court considered the following factors: “(1) the type of mark allegedly infringed; (2) the similarity between the two marks; (3) the similarity of the products or services; (4) the identity of retail outlets and purchasers; (5) the identity of the advertising media used; (6) the defendant’s intent; and (7) any evidence of actual confusion.” As to the first factor, the court held the mark was strong because it acquired distinctiveness through secondary meaning. Second, as to the similarity of the marks, the court held that the marks are indistinguishable and would likely confuse consumers as to the source, affiliation or sponsorship of IJR’s The Krusty Krab restaurant. Third, the court also found that even though there is little evidence of thematic overlap between the restaurants, given the success of SpongeBob, there is a likelihood of confusion because of the similarity of the products or services. Moreover, as to the danger of affiliation or sponsorship confusion, the court found Viacom could naturally develop a real The Krusty Krab based on the fictional eatery as its subsidiary Paramount Pictures did with Bubba Gump Shrimp Co., a fictional eatery from the film “Forrest Gump.” Fourth, as to the identity of retail outlets and purchasers, the court found that Viacom and IJR would have different retail outlets even if there were some marginal overlap as Viacom targets television viewers, toy stores and online retailers whereas IJR’s services will be available only in brick-and-mortar restaurants. The court could not find an overlap in consumers from the record. Fifth, the court held that a likelihood of confusion could not be proven based on the similarity in the identity of advertising media without specific advertising content on the record. As to the sixth factor, whether IJR acted with bad intent, the court held there was a genuine issue of material fact as to bad faith because the evidence of IJR’s malevolence was circumstantial. Finally, as to actual confusion, the court held that there was anecdotal evidence of actual confusion based on a survey which revealed that 30 percent of respondents believed The Krusty Krab was “operated by, affiliated or connected with, or approved or sponsored by Viacom” and that “35 percent of respondents associated such a restaurant with Viacom.” Consequently, the court held that the “digits of confusion – particularly the strength of Viacom’s mark, the identical spelling and pronunciation of the marks, both marks’ identification of restaurants, and evidence of actual confusion – dictate that IJR’s use of the mark infringes on Viacom’s trademark.” The district court’s decision was affirmed.

Summary prepared by Jonathan Zavin and Ava Badiee