The bar for when product design can be distinctive trade dress was recently raised by the United States Supreme Court. In Wal-Mart Stores, Inc. v. Samara Brothers, Inc., the Supreme Court held that product designs that were unregistered trademarks could not be inherently distinctive trade dress. Instead, the Supreme Court said that it must be shown that the product design had acquired distinctiveness over time and in use to be protectable trade dress. This may present some significant challenges to businesses interested in protecting their products from "knockoff" artists, especially discount merchandisers.

In Samara Brothers, the plaintiff, Samara Brothers, designed and manufactured children's clothing, including a line of spring/summer one-piece seersucker outfits decorated with appliqués of hearts, flowers, fruits, and the like In 1995, Wal-Mart contracted with one of its suppliers to manufacture a line of children's outfits for sale in the 1996 spring/summer season and sent the supplier photographs of a number of garments from Samara Brothers' line. The supplier duly copied Samara Brothers' garments with only minor modifications In 1996, Wal-Mart sold these "knockoffs" for more than $1.15 million in profit.

In June 1996, a buyer from one of Samara Brothers' authorized distributors complained about seeing Samara Brothers' garments on sale at Wal-Mart for a lower price. Samara Brothers told the buyer that they did not supply their clothing line to Wal-Mart. Samara Brothers subsequently sent cease-and-desist letters to Wal-Mart and then sued Wal-Mart for selling these knockoffs

In federal district court (Southern District of New York), the jury found in favor of Samara Brothers on all of its claims, including infringement of Samara Brothers' clothing designs as unregistered trade dress under §743(a) of the Lanham Act. Wal-Mart moved that the trade dress infringement claim be set aside as a matter of law. The trial judge denied Wal-Mart's motion, and this denial was affirmed by the federal appeals court (Second Circuit).

In unanimously reversing the judgment of the federal appeals court, the Supreme Court acknowledged that product designs could be protectable as trade dress under federal law. However, the problem they saw was the circumstances under which unregistered trade dress, be it product designs or otherwise, could be protected.

One requirement that they quickly concluded was needed was "distinctiveness". Like a trademark, the unregistered trade dress must indicate the source of the goods or services that the trade dress was used with. Also like trademarks, the Supreme Court noted that trade dress could be "distinctive" in one of two ways: (1) by intrinsically identifying the source of the goods or services (inherent distinctiveness); or (2) by developing secondary meaning over time (acquired distinctiveness). With regard to one category of marks, color, the Supreme Court noted that it had held in Qualitex Co. v. Jacobson Products Co., 514 U.S. 159 (1995) that no mark based on color could be inherently distinctive. Instead, for marks based on color to be protectable, acquired distinctiveness would have to be shown. The Supreme Court then made a curious leap of logic in concluding that, "it seems to us that design, like color, is not inherently distinctive". They reasoned that product design "almost invariably serves purposes other than source identification" that made inherent distinctiveness "problematic" and "more harmful to other consumer interests."

The difficulties inherent in this reasoning were not lost on Samara Brothers Samara Brothers argued that the Supreme Court's position here was inconsistent with their prior decision in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992). In Two Pesos, the Supreme Court held the trade dress of a chain of Mexican restaurants, including the "interior dining and patio areas decorated with artifacts, bright colors, paintings and murals" to be protectable without showing acquired distinctiveness. In other words, the décor of the restaurant was found in Two Pesos to be "inherently distinctive" trade dress.

The Supreme Court agreed that Two Pesos "unquestionably establishes the legal principle that trade dress can be inherently distinctive". However, the Supreme Court then went on to say that the trade dress in Two Pesos (the décor of a restaurant) was more like product packaging, not product design. They were cognizant of the difficulty in differentiating product design from packaging, but decided to "err on the side of caution and classify ambiguous trade dress as product design, thereby requiring secondary meaning," i.e., acquired distinctiveness.

The effort to make life easier for consumers and the lower federal courts was laudable. Unfortunately, the Supreme Court has created a dividing line for trade dress that bears little resemblance to reality in general, and marketplace reality in particular. To say that packaging can be inherently distinctive trade dress, while product design cannot, is extremely artificial and focuses attention on the wrong issue (type of trade dress) rather than the right issue (is that trade dress by its nature inherently distinctive). The standard imposed by the Supreme Court's decision in Samara Brothers is also so rife with subjectivity that the lower federal courts may be inclined to "flip a coin" to determine the dividing line between packaging and product design.

This new standard will be especially troublesome for some products where the dividing line between product design and packaging becomes very murky. For example, the packaging used with many products is transparent and often assumes the shape of the product. Where does the packaging end and the product design begin? Or suppose this transparent packaging has its own additional design features such as label designs that meld with the design features of the product to form a composite distinctive design. What can be "inherently distinctive" trade dress in this situation? Should the courts, like in copyright, omit the design features of the product in making the assessment as to inherent distinctiveness? The lower federal courts will undoubtedly struggle with these situations since the holding in Samara Brothers provides few clues or guidance on how to apply this new standard.