Court Finds Trademark Infringement against Fictional Restaurant

When IJR Capital Investments filed an intent-to-use trademark application for THE KRUSTY KRAB for restaurant services in December 2014, it never imagined that it was walking into a federal lawsuit. That’s because federal courts lack jurisdiction over trademark infringement matters until the defendant actually uses its trademark in commerce. WarnerVision Entertainment v. Empire of Carolina, 101 F. 3d 259 (2d Cir., 1996) (A trademark holder cannot prevent a party who has filed an intent-to-use application from using its mark “on the grounds that [the trademark holder] has used the mark subsequent to the filing of the ITU application.”)

Nevertheless, on November 23, 2015, Viacom sent IJR a cease and desist letter, demanding that IJR drop THE KRUSTY KRAB name and withdraw the pending trademark application. Not long after, Viacom filed suit in the United States District Court, Southern District of Texas.

“The Krusty Krab,” as any cartoon-watcher knows, is the name of a fictional under-the-sea restaurant in “SpongeBob SquarePants” that airs on Viacom’s Nickelodeon network. Since 1999, the façade of “The Krusty Krab” (shown here) has been shown in 166 of 203 aired episodes, was depicted in two SpongeBob SquarePants feature films, and was licensed for consumer products. However, while Viacom’s “The Krusty Krab” does not actually provide any restaurant services, it does offer a fictional “Krabby Patty” to cartoon characters.

On summary judgment, Judge Gray H. Miller held that although Viacom never registered THE KRUSTY KRAB, it was still entitled to trademark protection as a “specific ingredient of a successful TV series” that the “public directly associates with the plaintiff or its product.” (Previously, courts have held that “Kryptonite” and “Daily Planet” are protected by common law trademark rights because they have been a “staple of the Superman character and story” and “regularly appeared on licensed consumer merchandise over they years.” DC Comics v. Kryptonite Corp., 336 F. Supp. 2d 324, 332 (S.D.N.Y. 2004); DC Comics v. Powers, 465 F. Supp. 843, 845, 847 (S.D.N.Y. 1978).)

THE KRUSTY KRAB, Judge Miller ruled, merited trademark status because it acquired “distinctiveness,” or “secondary meaning,” by Viacom’s exclusive use of the name in numerous episodes over the course of 17 years; its expenditure of $197 million in advertising expenses and gross earnings of $470 million for the two SpongeBob SquarePants films; and by numerous print and Internet advertisements for “The Krusty Krab” licensed consumer merchandise.

In other words, because Viacom used THE KRUSTY KRAB widely (and with heavy advertising), the name is capable of being associated, in the minds of consumers, with a particular source of goods and services, here, Viacom.

From these facts, but ignoring the essential principle that to sue for trademark infringement the plaintiff must be able to show actual use by the defendant, Judge Miller ruled that there was a “likelihood of confusion” between Viacom’s “The Krusty Krab” and the same mark that IJR intended to use, and therefore IJR was guilty of trademark infringement. Judge Miller made a mistake of law, not fact: “The court finds that IJR has not used the mark in commerce,” he wrote.

Of course, the minute that IJR would use “The Krusty Krab,” Judge Miller’s decision would in all likelihood hold. Although Viacom’s restaurant is merely fictional, Judge Miller wrote, “Context here is critical, because a consumer seeing either Viacom’s or IJR’s marks will likely think of a restaurant. Consumers may mistakenly believe that IJR’s restaurant is an officially licensed or endorsed restaurant, similar to how Viacom’s parent company, Viacom, Inc., through its subsidiary Paramount Pictures Corporation, has licensed its marks for restaurants, including Bubba Gump Shrimp Co., a seafood restaurant chain inspired by the 1994 film “Forrest Gump.” Moreover, survey evidence submitted by Viacom showed that 30% of restaurant-going consumers nationwide believed that a restaurant called “The Krusty Krab” would be “operated, affiliated with, connected to, or approved or sponsored by Viacom.

What Judge Miller should have done is dismiss the case for lack of subject matter jurisdiction, and directed Viacom to bring its complaint to the United States Patent & Trademark Office (USPTO), where it could initiate an opposition proceeding against IJR’s trademark application at the appropriate time. Instead, Judge Miller, who was appointed by George W. Bush, bent the law and made an apparent bow to corporate power. However, further skirmishes, including an appeal from his decision, appear likely. A week after Judge Miller’s decision, Viacom filed three use-based trademark applications in the USPTO. A week after that, IJR asked the USPTO to extend its time to commence use of “The Krusty Krab,” which extension the USPTO is likely to grant. It appears to us that IJR could win the battle, but will lose the war.