Retail Impact of Supreme Court Ruling on ‘Scandalous’ Trademarks

The U.S. Supreme Court has opened an especially wide door for what retailers and other companies can now register as trademarks. But as a practical matter, many retailers will likely decide that stepping through does not open the proverbial door to additional business opportunities.

The Ruling

In late June, the Supreme Court struck down the part of federal trademark law that prohibited the registration of “immoral or scandalous” trademarks. The case was called Iancu v. Brunetti, and it was a follow-up to the court’s Matal v. Tam ruling two years ago. In Tam, the justices unanimously ruled that the Lanham Act’s ban on disparaging trademarks was a violation of free speech rights under the First Amendment. In Brunetti, the justices used the First Amendment to strike down another ban: the one on "immoral or scandalous" trademarks.

This year’s Brunetti case involved a four-letter acronym that, suffice it to say, you wouldn’t use in front of your grandma. Erik Brunetti wanted the trademark for his clothing brand, but the U.S. Patent and Trademark Office (USPTO) rejected it for being “immoral or scandalous.” The Federal Circuit Court of Appeals sided with Brunetti, and the USPTO appealed to the Supreme Court.

The issue came down to a key part of First Amendment law: is the regulation in question viewpoint-neutral? The First Amendment protects speech despite the viewpoint it expresses, so the government (in this case, the USPTO) cannot pick winners and losers because it likes some views better than others.

Writing for a 6-3 majority, Justice Elena Kagan concluded that is exactly what the USPTO had been doing in applying the “immoral or scandalous” ban codified in the Lanham Act. Kagan examined the USPTO’s treatment of trademarks related to drugs: trademark examiners rejected “YOU CAN'T SPELL HEALTHCARE WITHOUT THC,” “MARIJUANA COLA,” and “KO KANE.” But they approved “D.A.R.E. TO RESIST DRUGS AND VIOLENCE” and “SAY NO TO DRUGS—REALITY IS THE BEST TRIP IN LIFE.” According to the Court, those decisions are clearly viewpoint-based and, therefore, unconstitutional, even if they are “understandable” because of the trademarks’ potential to offend.

Several dissenting justices showed concern for the practical implications of this ruling, and they attempted to lay out a way for Congress to pass legislation that would thread the needle for reinstating such a ban.

“The First Amendment protects the freedom of speech; it does not require the Government to give aid and comfort to those using obscene, vulgar, and profane modes of expression,” Chief Justice John Roberts wrote.

“It is hard to see how a statute prohibiting the registration of only highly vulgar or obscene words discriminates based on ‘viewpoint,’” Justice Stephen Breyer added.

The Business Implications

Short of Congressional action, retailers and other businesses now have a far broader catalog of colorful language that they can trademark. But choosing to register a trademark that many people will find “immoral or scandalous” should be a strategic business decision.

First, it’s useful to review the benefits of trademark protection. Although retailers don’t need a trademark to create a brand, it can be an extremely effective tool to protect one. In general, a registered trademark with the USPTO provides a retailer the exclusive right to use that trademark with the registered goods or services across the country, as well as a legal presumption of ownership of the trademark nationwide. Moreover, a trademark registered with USPTO provides notice to the public of ownership and additional statutory protections against infringement of the trademark. Further, ownership of one or more trademark registrations can significantly increase the value of a retail company.

Second, since the USPTO has not yet set forth guidance as to how trademark examiners are to interpret the ruling, there is still the potential for some inconsistency in how it is carried out. There will likely be follow-up cases that push the boundary of “immoral or scandalous” material or that test out the dissent’s proposed bar of “obscene, vulgar, and profane.”

If a colorful trademark is rejected, the retailer should consider whether the costs to challenge that decision are worth it, as well as whether the company and its leaders want to be spotlighted in the news fighting for what many people will find offensive. Although some retailers may take the approach that any publicity is good publicity, many will pass on that kind of notoriety. Thus, the smarter business play for registering such marks may be to refrain from registration for now while others risk bad publicity and spend time and money testing the bounds of the ruling.

Still, there are other reasons for a retailer to decide it does, in fact, make business sense to register a trademark that would have previously been rejected. Justice Kagan gave an example in her majority opinion: marijuana businesses. Retailers who operate in states where some form of cannabis is legal will now have an easier time gaining trademark protections for their brands. These businesses could range from medicinal and recreational marijuana dispensaries in Colorado to stores selling hemp products in the Carolinas.

There will be similar opportunities for other retailers focused on burgeoning, but controversial, markets. For any retailer considering how it can benefit from the ruling, the key is to approach this issue as a strategic business decision. It can also be valuable to partner with experienced trademark attorneys to work through the pros and cons of applying to register a mark that would fall within the purview of the Court’s ruling.

Tasneem Dharamsi and Amy Allen Hinson are attorneys at Parker Poe who counsel clients on developing broad protections for their trademarks and other intellectual property, both nationally and internationally. They can be reached at [email protected] and [email protected].