Academic journal article
By Strouse, Jeffrey W.
Vanderbilt Law Review , Vol. 53, No. 2
In 1978, a Nevada Federal District Court permitted the Nevada Real Estate Advisory Commission to regulate the registered service mark1 of Century 21, a national franchisor of real estate brokerage firms.2 Prior to this state regulation, Century 21's mark occupied approximately 80 percent of the surface area of any given display, while the name of the local franchisee covered the remaining 20 percent.3 To prevent consumer confusion,4 the Commission required that the 80:20 ratio be changed to a 50:50 ratio, effectively making the franchisee's logo as large as its counterpart.5 Century 21 objected to this mandate, arguing in part that such a regulation would dilute its registered mark and thereby violate the Lanham Act.6 The Court rejected this argument by holding that the regulation fell squarely within the purposes of the Lanham Act.7
After the Nevada decision, other states adopted similar regulations.8 Ultimately, however, courts found these rules burdensome on the franchisor-franchisee relationship and invalidated the regulation.9 In addition, some states "considered and rejected such rules as being anticompetitive, arbitrary, and onerous."10
Subsequently, Congress amended the Lanham Act with the passage of sec1121(b).11 Section 1121(b) consists of two clauses: the first prohibits any state or political subdivision from "altering" a registered mark and the second forbids states from requiring additional marks from being incorporated into the original mark.12 While Congress's solution to the aftereffects of Century 21 apparently embodies both clauses of sec1121(b), the Ninth Circuit in Blockbuster Videos, Inc. v. City of Tempe described only the second clause as the remedy and thus rendered the first clause a rider.13 Effectively, the court not only expanded sec1121(b) beyond the facts of Century 21, but it left unclear the extent to which the Lanham Act preempts municipal zoning ordinances.
This issue is especially poignant when municipalities enact aesthetic-based" zoning ordinances that deny exterior sign permits to vendors who desire to display their federally registered trademarks on their storefront signs.15 Invariably, such ordinances create a conflict between the federal government's interest in regulating trademarks and the states' traditional police powers in governing the use of property. As discussed in Part II, constitutional law generally recognizes "that a town, pursuant to its police power, may impose sign restrictions in order to regulate aesthetics."16 On the other hand, case law also weighs heavily in favor of protecting the value of registered trademarks.17 Whether the latter preempts the former depends, in part, on whether the clauses of sec1121(b) are read separately or together.18
Since judicial opinion remains divided over the answer to this question and until Congress acts to clarify this two-clause structure,19 this Note articulates a narrow interpretation of sec1121(b) and encourages that its application be restricted to situations that are substantially similar to Century 21. To that end, Part II of this Note explores the validity of municipal zoning power, and, in particular, discusses two overlapping constitutional issues within which this police power has evolved. Against this backdrop, Part III argues that sec1121(b) and its legislative history support limited preemption of aesthetic-based zoning laws.20 In addition, this section explains the shortcomings of the Ninth Circuit's statutory interpretation in Blockbuster Videos, Inc. u. City of Tempe. Finally, Part IV sets forth a definition of alteration that effectively prevents the application of sec1121(b) to marks that are incidentally affected by aesthetic-based zoning regulations.21
II. THE POWER TO ZONE: AN EVOLVING LICENSE
In Blockbuster, although the Ninth Circuit never explicitly examined the evolution of municipal zoning power, its ultimate rejection of aesthetic-based zoning regulations reflected a traditional view. …