Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc.

Rule of Law:

The doctrine of aesthetic functionality does not prevent trademark protection for an unauthorized accessory maker's use of a famous brand's logo, even if consumers desire the logo for its aesthetic appeal, where the logo's primary function remains source identification and its protection does not create a significant non-reputation-related competitive disadvantage.

Facts:

• Volkswagen and Audi are well-known automobile manufacturers with registered trademarks, including their names and distinctive logos (e.g., the encircled VW logo, the interlocking Audi circles), which have been in use since the 1950s.
• Au-Tomotive Gold, Inc. (Auto Gold) produces and sells automobile accessories such as license plates, license plate frames, and key chains.
• In 1994, Auto Gold began selling accessories bearing Volkswagen's trademarks, and in 1997, began selling similar products with Audi's trademarks.
• Auto Gold uses exact replicas of the registered trademarks or, in some cases, genuine trademark medallions purchased from Volkswagen dealers, stating it "applies authentic [Volkswagen and Audi] logos to its marquee license plates."
• Consumers purchase Auto Gold's products because they want the specific car brand's logo (e.g., an Audi-logo plate) to match their cars or to fill an empty space on their car.
• Volkswagen and Audi, through a licensed independent marketing firm, also sell license plates, covers, and key chains directly to consumers, competing in the same market as Auto Gold.
• Auto Gold made several unsuccessful attempts to secure licensing arrangements with Volkswagen and Audi for the use of their trademarks on its products.
• Auto Gold's products are accompanied by disclaimers, but these are inconsistent, sometimes contradictory (e.g., "may or may not be dealer approved" vs. "Factory authorized licensed products" on website), and are not visible once the product is removed from its packaging and in use.

Procedural Posture:

• In the mid-1990s, another car manufacturer successfully sued Au-Tomotive Gold, Inc. (Auto Gold) for trademark infringement and obtained an injunction prohibiting Auto Gold from selling products incorporating replicas of its marks.
• In 2001, Auto Gold filed a declaratory judgment action against Volkswagen of America, Inc. and Audi of America, Inc. (Volkswagen and Audi) in the United States District Court for the District of Arizona (trial court), seeking a ruling that its activities did not constitute trademark infringement, counterfeiting, or unfair competition under the Lanham Act.
• Volkswagen and Audi filed counterclaims against Auto Gold for trademark infringement, false designation of origin, trademark dilution, consumer fraud, and tortious interference.
• After discovery, Auto Gold moved for partial summary judgment, arguing its products were lawful under the "first sale" doctrine.
• Volkswagen and Audi filed a cross-motion for summary judgment on their trademark infringement, trademark dilution, and unfair competition claims.
• The district court granted Auto Gold's motion for partial summary judgment, denied Volkswagen and Audi's cross-motion for summary judgment, and declared that Auto Gold's "license plates, license plate frames and key chains displaying Volkswagen and Audi trademarks . . . are not trademark infringements and/or trademark counterfeiting," finding the marks aesthetically functional.
• The district court then enjoined Volkswagen and Audi from enforcing their trademarks against Auto Gold or its customers.
• The district court later denied Volkswagen and Audi's motion for leave to amend their complaint to include a dilution claim, holding that such an amendment would be futile because they could not prevail on the merits.
• Volkswagen and Audi (appellants) appealed these rulings to the United States Court of Appeals for the Ninth Circuit.