Starbucks loses 'Charbucks' appeal

By Jonathan Stempel

NEW YORK (Reuters) - Starbucks Corp has failed to persuade a federal appeals court to stop a small, family-owned New Hampshire roaster from selling coffee known as "Charbucks."

Ruling in a case that began in 2001, the 2nd U.S. Circuit Court of Appeals said Black Bear Micro Roastery and its owner, Wolfe's Borough Coffee Inc, may keep selling "Charbucks Blend," "Mister Charbucks" and "Mr. Charbucks" coffee.

Circuit Judge Raymond Lohier wrote for a three-judge panel that Seattle-based Starbucks did not deserve an injunction to stop Charbucks sales, having failed to prove that consumers would be confused through a "blurring" of its brand.

The New York-based appeals court let stand a December 2011 finding by U.S. District Judge Laura Taylor Swain in Manhattan that Charbucks was "only weakly associated with the minimally similar" Starbucks trademark.

Many retailers, especially those selling luxury or premium products, file trademark lawsuits against large and small rivals they believe are misusing their brands, potentially reducing profit and revenue and damaging their reputation.

A centerpiece of Starbucks' case had been a phone survey of 600 people by the pollster Warren Mitofsky, which found that "the number one association of the name 'Charbucks' in the minds of consumers is with the brand 'Starbucks.'"

But the 2nd Circuit said the survey was "fundamentally flawed" and drew its conclusions from how consumers thought of "Charbucks" in isolation, not its real-world context.

It said that while 39.5 percent of participants thought of "Starbucks" or "coffee" when asked what came to mind upon hearing "Charbucks," just 4.4 percent said "Starbucks" or "coffee house" when asked who might sell a "Charbucks" product. "Grocery store" was the most popular answer to that question.

"Viewed in light of Starbucks' fame," Lohier wrote, "the fact that more survey participants did not think of 'Starbucks' upon hearing 'Charbucks' reinforces the district court's finding that the marks are only minimally similar."

Zack Hutson, a Starbucks spokesman, said, "We are respecting the court's decision."

Christopher Cole, a lawyer at Sheehan, Phinney, Bass & Green representing Black Bear, said in an interview, "This is a sound decision. It flows from the dramatic dissimilarity between how the different products actually appear in commerce and are seen by consumers."

Starbucks has grown since 1971 from a single store in Seattle's Pike Place Market into the world's largest coffee shop chain, with close to 18,000 stores in 60 countries and more than $14.8 billion of annual revenue.

Black Bear is based in Tuftonboro, New Hampshire. It created "Charbucks Blend" in 1997 and now sells dark-roast coffee as "Mister Charbucks" and "Mr. Charbucks."

The 2nd Circuit noted that one reason Black Bear used "Charbucks" was the public perception that Starbucks uses an unusually dark roast for its coffee.

The case is Starbucks Corp et al v. Wolfe's Borough Coffee Inc d/b/a Black Bear Micro Roastery, 2nd U.S. Circuit Court of Appeals, No. 12-364.

(Reporting by Jonathan Stempel; Editing by Dan Grebler and John Wallace)