Is Blockbuster Decision a Blockbuster?

Here’s a Video Update on the case of trademarked logos and signs in Tempe, AZ

The following article originally appeared in the July 1998 issue of Signs of the Times magazine.

By Wade Swormstedt

A federal appellate court has upheld the Lanham Act and concurred with a lower-court ruling that the City of Tempe must allow two stores, Blockbuster Video and Video Update, to display signage that incorporates their federally registered logos. However, in its 2-1 ruling, the Ninth Circuit Court of Appeals stopped short of declaring that the city must permit such logos in signs. It only stated that the city could not require alterations of trademarks for aesthetic purposes. Thus, the court also reversed a district-court injunction to allow Blockbuster its blue awning service mark.

Fig. 1: This is Blockbuster’s original proposal to the City of Tempe. The city allowed the “torn ticket” signage, but not the blue awning, for which Blockbuster has a federally registered service mark.

Clearly a victory for the sign industry, the decision nonetheless leaves questions unanswered, and some industry observers wistfully lament missed opportunities for a more panoramic ruling. Attorney David K. Jones, who represented Video Update, termed the judgment a “major victory,” yet described the decision as “disturbing” due to “the suggestion that cities can prohibit the display of trademarks, or require them to be limited in size or illumination to an extent not required of non-trademarked signs.”

The court ruled that the Lanham Act, which was revised in 1982 to prevent cities and towns from altering federally registered trademarks, “does not require municipalities to allow businesses to display their registered marks . . . Section 1121(b) speaks only to alteration of a mark.” Thus, the court ruled that the Tempe zoning ordinance could not require Blockbuster to display its logo in the shopping center’s preferred pink and white, but the court upheld the Albertson’s Plaza Shopping Center stipulation for flat exterior signs and its right to prevent Blockbuster from displaying its blue awning service mark on the outside of its leased building.

However, Video Update’s federally registered red letters could not be forced to adhere to the Valley Fair Shopping Center’s requisite sign package of white letters on a turquoise background. (When the suits were originally filed against Tempe in 1996, Video Update’s service mark did not specify a color, although it had been applied for. By the time the appellate court ruled, however, red was an official characteristic of the Video Update federally registered logo.)

The court seemed to recognize the importance of color, but not any three-dimensional aspects, of federal trademarks. The court opinion stated, “For a trademark to be a symbol that customers will recognize, it must have a uniform appearance, not only in design, but also in color. Color is so important to customer recognition that the color itself can be registered as a trademark.” The court adds that a pink and white Blockbuster sign could make customers “think that the store was not a real Blockbuster store.”

The U.S. Patent and Trademark offices’ Register 1,962,792 for Blockbuster states, ‘The mark consists of a blue awning with an overall rectangular shape which is rounded at the top and divided into evenly spaced sections.” The accompanying sketch clearly indicates the awning’s dimension of depth (Fig. 1).

Yet the awning ban is justified. The court opinion stated, “Section 1121(b) speaks only to the alteration of a mark. Thus, Tempe could prevent Blockbuster from installing its service mark on the outside of the building it leased.”

This is the Valley Fair Shopping Center, where Video Update has a store. The shopping center’s “sign package,” which was approved by the Tempe Design Review Board, mandates white letters on a turquoise background.

The court recognized Tempe’s motivation; its attempted exercise of police powers is “to ensure compliance with aesthetic zoning” and that mandated colors “would give a uniform, aesthetically pleasing look to the shopping center.” The court concludes, “Although this language has some appeal, we must reject it.”

As it now stands, Video Update has the signage it wants. The Tempe Design Review Board had approved Blockbuster’s torn-ticket exterior sign, which represents a partial victory, but disallowed the awning service mark, instead approving a second sign with blue letters (Fig. 2). Blockbuster┬áchose not to appeal the “loss” of its awning.

No attorney fees were awarded to either party, although each requested them, which further suggests a judicial ambivalence. The court wrote, “Tempe could have reasonably thought that its zoning did not violate Section 1121(b).” Under the Lanham Act, attorney fees are only permitted in “exceptional” cases, which the court then explains to be “when the infringement is malicious, fraudulent, deliberate or willful. The court also recognizes that this case is one of “first impression,” meaning that the court had not heard a similar case; therefore, there were no clear precedents.

In the minority, dissenting opinion, Circuit Judge James R. Browning also wondered about the ambiguous ruling by questioning “the unsupportable distinction the majority draws between local aesthetic regulation of color, on the one hand, and architectural features on the other in the context of exterior signage.” He reasoned, “If Congress intended to leave localities free to prohibit the use of architectural features, surely localities can also control the use of color.”

Browning believes that the term “alter” in the Lanham Act only refers to “state-mandated changes” that would be reflected in every subsequent use of the affected marks within that jurisdiction. He doesn’t think the Lanham Act should prevent Tempe from “restricting the use of color in exterior signage in a particular shopping center.”

Browning also wrote, “It was the plaintiffs that elected to lease space in shopping centers where, from the terms of the particular shopping centers sign packages, they knew they would be prohibited from displaying their marks as registered.” Presumably, then, damaging standards are justified as long as they’re clearly stated ahead of time. Browning also suggests that the stores could “confine the display of their trademarks to interior signs,” which, or course, would replicate the effectiveness of labeling a box of cereal on the inside.

Fig. 4: The district court and the federal appeals court overruled the City of Tempe and said that Video Update must be allowed to have signage that includes its federally registered service mark of red letters.

As part of the appeal process, the Cleveland-based law firm of Hahn Loeser & Parks LLP filed a brief of amici curiae (“friend of the court”) based on its representation of the Intl. Franchise Assn., four hotel chains, three realtors and a car-rental company. The 30-page document explained to the court that registered marks “comprise the most valuable asset to franchisors and franchisees,” perhaps worth as much as $40 billion in the case of Coca-Cola.

The brief termed the registered mark as “the lifeblood of a small business franchise” and “a cornerstone in the success of franchising.” More than 8 million people currently work for franchises, including the “franchise owners, many of whom are local sole proprietors who have staked their livelihoods on the value of their franchisor’s registered marks.”

Franchises generated $803 billion in retail sales in 1992. One of every 12 businesses is a franchise. Filed before the appeal was heard, the brief cited this data to advise that “the Court’s decision would have a dramatic effect on our nation’s economy.”

The law firm explained that the Lanham Act strives to preserve “the twin goals of preventing customer confusion — and permitting businesses to capitalize on consumer goodwill.” Upholding the Lanham Act protects registered-mark uniformity, which has been identified as one of the most critical public policies supporting the entire body of intellectual property law in the United States.” The brief stated, “The popular literature on franchising supports the idea that the major advantage of investing in an established franchise system is the instant name recognition that arises from uniformly displayed brand names.”

Hahn Loeser & Parks also cited the 1982 testimony of Sen. Orrin Hatch (R-Utah), who sponsored the revised Lanham Act “to promote and encourage uniform trademark use and to discourage activities which could result in confusion among purchasers.” Clearly, Congress’ intent was not limited to preserving registered-mark integrity when they were used, but to facilitate their use. Just as clearly, the court’s support of trademark bans, such as the Blockbuster awning, is an anathema.

Dr. R. James Claus, executive director of the Signage Foundation for Communication Excellence, applauded the case’s upholding of the Lanham Act, but regretted that arguments were “too narrowly drawn and certainly too dependent for relief upon singular federal law. ” He termed the case “a missed opportunity of significant magnitude” because other problems with the Tempe code weren’t addressed: impermissible time-place-manner content control, unconstitutional interference with interstate commerce, and First Amendment violations. Ideally, with the appropriate time and money “necessary to deliver to the courts an all-inclusive and legally supportable argument,” this case possibly could have done for the sign industry “what Brown v. Topeka Board of Education accomplished for the civil-rights movement,” Claus said.

Here is Blockbuster’s federally registered blue and yellow awning in nearby Phoenix. Tenipe disallowed the awning because the Albertson’s Plaza Shopping Center only permits “flat” signage.

Additionally, if these other issues had been addressed initially, Hahn Loeser & Parks’ amici curiae could have provided more supported data, Claus said. As it was, those arguments “were procedurally limited to the Lanham Act alone because of the narrow scope of the original pleadings.”

Meg Russell, an attorney for Hahn Loeser & Park, concurred. “The First Amendment implications of Section 1 121(b) were not before the court in the Blockbuster case. The juxtaposition of the First Amendment and the Lanham Act is going to be an issue for future courts to examine and resolve.”

The First Amendment protects free speech, and signs have been documented as a protected form of that speech. Therefore, sign codes must be content neutral, which means that a community can’t censor a sign’s contents, except in terms of obscenity, libel or the like. (Unfortunately, the courts don’t seem to consider color part of content. Colors have been banned based on aesthetic judgments.) How then, could a government entity conceivably ban federally registered trademarks from signs? Unfortunately, the Blockbuster case suggests that the answer might be “legally.”

 

The Lanham Act
Section 1121(b) of the Lanham Act states: “No state or other jurisdiction of the United States or any political subdivision or any agency thereof may require alteration of a registered mark or require that additional trademarks, service marks, tradenames or corporate names that may be associated with or incorporated into the registered mark be displayed in the mark in a manner differing from the display of such additional trademarks, service marks, tradenames or corporate names contemplated by the registered mark as exhibited in the certificate of registration issued by the United States Patent and Trademark Office.”

 

Posted in Blog: Rhetorical, Content Neutrality (Reed v. Gilbert), Copyright Protection (Lanham Act), Sign Codes, Supreme Court.