Fifth Circuit Rules for Viacom in ‘Krusty Krab’ Restaurant Case

(CN) – Viacom has established trademark rights to the fictional restaurant The Krusty Krab where animated chef SpongeBob SquarePants is known for dishing out tasty burgers, the Fifth Circuit affirmed Tuesday, so an aspiring restaurateur cannot use the name for seafood diners.

Viacom executives could never have imagined how successful its “SpongeBob SquarePants” series would become when it debuted on its Nickelodeon network in 1999.

Featuring a hyperactive sponge who lives in a pineapple in the seafloor town of Bikini Bottom with his pet snail Gary, the show has been the most-watched animated TV series for 15 consecutive years, spawned two movies that grossed $470 million at the box office, and inspired an eponymous musical that premiered on Broadway last December.

The Krusty Krab restaurant is central to the show. It appears in more than 80 percent of the episodes and Viacom has made millions of dollars on licensed products that bear the name, mainly aquarium figurines and children’s play sets.

Viacom sued IJR Capital Investment LLC for trademark infringement in Houston federal court in January 2016 when it learned that IJR’s owner Javier Ramos Jr. was planning to open seafood restaurants in Los Angeles and Houston called The Krusty Krab, and the U.S. Patent and Trademark Office had approved his application to use the name.

Ramos’ attorney Christopher Schaefer, with the Houston firm Knobloch and Tripp, told the Fifth Circuit in February that Ramos got the name from the crust that sticks to crabs when they are put in a seafood boil.

Ramos’ friend Ivan Murillo suggested calling the restaurant Crusted Crab, which evolved into The Krusty Krab, though Ramos testified in a deposition that he saw The Krusty Krab on “SpongeBob SquarePants” during an online search before filing his trademark application.

Ramos assumed he was in the clear because Viacom had not registered the mark, and his research did not locate an actual restaurant that used the mark.

But U.S. District Judge Gray Miller sided with Viacom in January 2017. He cited Fifth Circuit precedent that “ownership of a trademark is established by use, not by registration,” and found IJR’s use of the name “creates a likelihood of confusion” that consumers would believe Viacom had licensed it to IJR.

To win a federal trademark infringement claim, a company must prove it has a protectable ownership interest in the mark and that a defendant’s use of the mark is likely to confuse consumers that there is an affiliation.

IJR appealed to the Fifth Circuit. Schaefer, its attorney, argued at the February appeal hearing that Viacom cannot trademark an ornamental backdrop in a cartoon show.

The litigation stalled Ramos’ business plans, so he had not yet chosen a theme and décor for his restaurants before the February hearing.

Schaefer played up this point. He claimed it would have a chilling effect on business owners if they could be held liable for infringement for doing nothing more than filing an intent-to-use trademark application.

The attorney also lobbied for a jury trial. He said if IJR’s restaurants did not have the same color scheme, or anything at all relating to SpongeBob, nobody would presume that a Krusty Krab restaurant was connected to the TV show.

But the Fifth Circuit on Tuesday affirmed the lower court’s finding of trademark infringement on summary judgment pleadings, precluding the need for a jury trial.

The three-judge panel compared the dispute to Warner Bros. v. Gay Toys Inc., a 1981 ruling in which the Second Circuit held that trademark protection can extend to elements of a successful TV show.

The Second Circuit in that case barred a company from selling toy models of the General Lee, an orange 1969 Dodge Charger with a Confederate flag painted on its roof that was featured in the TV series “Dukes of Hazzard,” which ran on CBS from 1979 to 1985.

Just like the General Lee, The Krusty Krab deserves trademark protection, U.S. Circuit Judge Priscilla Owen wrote for the panel in a unanimous 28-page opinion.

“The mark is integral to ‘SpongeBob SquarePants,’ as it appears in over 80% of episodes, plays a prominent role in the SpongeBob films and musical, and is featured online, in video games and on licensed merchandise,” Owen wrote.

She added, “The Krusty Krab’s central role in the multi-billion dollar SpongeBob franchise is strong evidence that it is recognized in itself an indication of Viacom’s licensed goods and television services.”

Asked if Ramos had chosen another name for his restaurant chain, and how close he is to launching the business, Schaefer said his client is reviewing his legal and business options to decide the best course of action.

“Ramos deserved a chance to defend his unique use of the words ‘Krusty Krab’ as distinct from the fictional cartoon backdrop. However, he could not because he never got the chance to conceive its use,” Schaefer said in a statement.

Viacom praised the order as affirmation of the strength of its trademark.

“We are pleased with the decision to affirm the lower court’s ruling that Viacom’s rights in The Krusty Krab mark are strong and deserve protection from infringement,” its spokesman Alex Rindler said.

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