FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

AU-TOMOTIVE GOLD, INC., 

Plaintiff-Appellee, No. 04-16174

v. D.C. Nos.

VOLKSWAGEN OF AMERICA, INC.;  CV-01-00162-WDB

AUDI OF AMERICA, INC; CV-01-00508-WDB

VOLKSWAGEN AKTIENGESELLSCHAFT;

OPINION AUDI AKTIENGESELLSCHAFT,

Defendants-Appellants. 

Appeal from the United States District Court

for the District of Arizona

William D. Browning, District Judge, Presiding

Argued and Submitted

February 14, 2006—San Francisco, California

Filed August 11, 2006

Before: Arthur L. Alarcón and M. Margaret McKeown,

Circuit Judges, and H. Russel Holland,*

Senior District Judge.

Opinion by Judge McKeown

*The Honorable H. Russel Holland, Senior District Judge for the District of Alaska, sitting by designation. 

9511
COUNSEL

Gregory D. Phillips, Howard, Phillips & Anderson, Salt Lake

City, Utah; Scott R. Ryther, Howard, Phillips & Anderson,

Salt Lake City, Utah, for the defendant-appellant. 

H. Kenneth Kudon, Kudon Law Firm, Potomac, Maryland,

for the plaintiff-appellee. 

9514 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
OPINION

McKEOWN, Circuit Judge: 

This case centers on the trademarks of two well-known

automobile manufacturers—Volkswagen and Audi.1 The

question is whether the Lanham Act prevents a maker of automobile accessories from selling, without a license or other

authorization, products bearing exact replicas of the trademarks of these famous car companies. Au-Tomotive Gold,

Inc. (“Auto Gold”) argues that, as used on its key chains and

license plate covers, the logos and marks of Volkswagen and

Audi are aesthetic functional elements of the product—that is,

they are “the actual benefit that the consumer wishes to

purchase”—and are thus unprotected by the trademark laws.

Accepting Auto Gold’s position would be the death knell

for trademark protection. It would mean that simply because

a consumer likes a trademark, or finds it aesthetically pleasing, a competitor could adopt and use the mark on its own

products. Thus, a competitor could adopt the distinctive Mercedes circle and tri-point star or the well-known golden arches

of McDonald’s, all under the rubric of aesthetic functionality.

The doctrine of aesthetic functionality has a somewhat

checkered history. In broad strokes, purely aesthetic product

features may be protected as a trademark where they are

source identifying and are not functional. On the other hand,

where an aesthetic product feature serves a “significant nontrademark function,” the doctrine may preclude protection as

a trademark where doing so would stifle legitimate competition. Qualitex Co. v. Jacobson Products Co., 514 U.S. 159,

170 (1995). Taken to its limits, as Auto Gold advocates, this

doctrine would permit a competitor to trade on any mark sim1The actual parties are Volkswagen of America, Inc., Audi of America,

Inc., Volkswagen Aktiengesellschaft, and Audi Aktiengesellschaft (collectively “Volkswagen and Audi”). 

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9515
ply because there is some “aesthetic” value to the mark that

consumers desire. This approach distorts both basic principles

of trademark law and the doctrine of functionality in particular. 

Auto Gold’s incorporation of Volkswagen and Audi marks

in its key chains and license plates appears to be nothing more

than naked appropriation of the marks. The doctrine of aesthetic functionality does not provide a defense against actions

to enforce the trademarks against such poaching. Consequently, we reverse the district court’s grant of summary

judgment in favor of Auto Gold on the basis of aesthetic functionality. We also reverse the denial of Volkswagen and

Audi’s motion for summary judgment with respect to

infringement and dilution and remand for further proceedings.

BACKGROUND

Volkswagen and Audi are manufacturers of automobiles,

parts and accessories that bear well-known trademarks,

including the names Volkswagen and Audi, the encircled VW

logo, the interlocking circles of the Audi logo, and the names

of individual car models. The marks are registered in the

United States and have been in use since the 1950s.2

2A registered mark is “prima facie evidence . . . of the registrant’s

exclusive right to use the registered mark in commerce on or in connection

with the goods or services specified in the registration.” 15 U.S.C. § 1115.

The Volkswagen marks were originally registered in the United States in

1965 for products ranging from automobiles and a host of automobile

accessories, to a long list of other goods such as medical spitoons, waterskis, credit card services, and teddy bears. Volkswagen recently secured

registration for its trademarks with respect to some of the specific product

lines at issue in this case. These registrations were pending during the proceedings below; we take judicial notice of their issuance. See, e.g., Registration No. 2,849,974 (June 8, 2006); Registration No. 2,835,662 (April

27, 2004); Registration No. 2,987,620 (Aug. 23, 2005). Audi registered its

trademarks for automobiles and a host of other products, including key

fobs, in 1986. See Registration No. 1,416,583 (Nov. 11, 1986). Other than

the recently registered marks, the marks are incontestable. 15 U.S.C.

§ 1065. 

9516 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
Auto Gold produces and sells automobile accessories to

complement specific makes of cars, including Cadillac, Ford,

Honda, Lexus, Jeep, Toyota, and others. In 1994, Auto Gold

began selling license plates, license plate frames and key

chains bearing Volkswagen’s distinctive trademarks and, in

1997, began selling similar products bearing Audi’s distinctive trademarks. The marks used are exact replicas of the registered trademarks or, in at least some cases, genuine

trademark medallions purchased from Volkswagen dealers;

Auto Gold states that it “applies authentic [Volkswagen and

Audi] logos to its marquee license plates.” 

According to Auto Gold, its goods serve a unique market.

Consumers want these accessories “to match the chrome on

their cars; to put something on the empty space where the

front license tag would otherwise go; or because the car is a

[Volkswagen or Audi], they want a [Volkswagen or Audi]-

logo plate.” Both Auto Gold and Volkswagen and Audi serve

this market. Auto Gold sells its license plates, license plate

covers, and key rings with Volkswagen and Audi trademarks

to the wholesale market, including car dealers, auto accessory

dealers and other merchants. Volkswagen and Audi, for their

operations in the United States, license an independent marketing firm to sell license plates, covers, and key chains

directly to consumers. 

Auto Gold has license and marketing agreements with several car manufacturers, authorizing sales of auto accessories

bearing those companies’ trademarks. Despite several

attempts to secure similar arrangements with Volkswagen and

Audi, Auto Gold is not authorized to sell products with their

trademarks. Instead, Auto Gold products are accompanied by

disclaimers that deny any connection to Volkswagen or Audi.

The disclaimers are not visible once the product is removed

from the packaging and in use, nor are the disclaimers always

clear. For example, some labels state that the product “may or

may not” be dealer approved, and Auto Gold’s website identifies its goods as “Factory authorized licensed products.” 

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9517
In the mid-1990s, another car maker aggrieved by unauthorized sales of trademarked accessories sued Auto Gold for

trademark infringement and obtained an injunction prohibiting Auto Gold from selling any products that incorporate replicas of its registered marks. See BMW of North America, Inc.

v. Au-Tomotive Gold, Inc., 1996 WL 1609124 (M.D. Fla.,

June 19, 1996). Fearful that the decision would invite further

trademark claims, Auto Gold filed suit against Volkswagen

and Audi in the District of Arizona in 2001. Auto Gold’s

complaint sought a declaratory judgment that its activities did

not constitute trademark infringement or trademark counterfeiting under 15 U.S.C. § 1114, unfair competition under 15

U.S.C. § 1125(a), or trademark dilution under 15 U.S.C.

§ 1125(c). Auto Gold also included claims for interference

with prospective economic advantage and trade libel. 

Volkswagen and Audi filed counterclaims for trademark

infringement under 15 U.S.C. § 1114(1)(a); false designation

of origin under 15 U.S.C. § 1125(a); trademark dilution under

15 U.S.C. § 1125(c); consumer fraud under the Arizona Consumer Fraud Act; tortious interference with contract; tortious

interference with business expectancy; trademark counterfeiting under the Arizona Consumer Fraud Act; and a request for

declaratory judgment as to all claims. 

From this point, the case became a maze of counterclaims,

stipulated dismissals, and new complaints. This procedural

morass was made all the more complicated when some of

Volkswagen and Audi’s complaints migrated from the original counterclaim to a separate complaint that was later consolidated with the original action. After discovery, Auto Gold

filed a motion for partial summary judgment seeking a declaratory judgment that its products do not infringe or counterfeit

the Volkswagen and Audi trademarks and do not unfairly

compete. Auto Gold’s primary argument was that its products

were lawful under the “first sale” doctrine. In response,

Volkswagen and Audi filed a motion for summary judgment

9518 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
on their trademark infringement, trademark dilution, and

unfair competition claims. 

In ruling for Auto Gold, the district court found that “[t]he

VW and Audi logos are used not because they signify that the

license plate or key ring was manufactured or sold (i.e., as a

designation of origin) by Volkswagen or Audi, but because

there is a[n] aesthetic quality to the marks that purchasers are

interested in having.” Concluding that the marks were “protected under the aesthetic functionality doctrine,” the district

court granted Auto Gold’s motion for partial summary judgment, denied the motion for summary judgment filed by

Volkswagen and Audi, and entered an order declaring 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.” 

After supplemental briefing identifying the remaining

claims, the district court held that the parties had stipulated to

dismiss the trademark dilution claim without prejudice.3

Volkswagen and Audi moved for leave to amend the complaint to include a dilution claim, which the district court construed as a request for leave to file a second amended

counterclaim. The district court denied the motion, holding

that amendment would be futile because Volkswagen and

Audi could not prevail on the merits of the claim. The court

declined to rule on Auto Gold’s “first sale” defense. All

remaining claims were dismissed with prejudice. On the basis

of its previous rulings, the district court enjoined Volkswagen

and Audi from enforcing their trademarks against Auto Gold

or its customers. 

3The record does not contain any record of a stipulation to dismiss the

dilution claim. Volkswagen and Audi argued to the district court that they

did not dismiss, but rather inadvertently forgot to include the claim in a

later pleading. 

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9519
On appeal, Volkswagen and Audi ask us to (1) reverse the

district court’s grant of summary judgment and declaratory

relief in favor of Auto Gold, (2) reverse the district court’s

dismissal of their counterclaims, (3) reverse the district

court’s denial of their motion for summary judgment, and

(4) remand for entry of summary judgment with respect to

trademark infringement and trademark dilution. 

ANALYSIS

The central question before us, discussed in Part I, is the

scope of the doctrine of the “aesthetic functionality” and its

application to the Volkswagen and Audi trademarks as they

appear on Auto Gold’s products. Part II discusses Volkswagen and Audi’s trademark infringement claims, and Part III

addresses the trademark dilution claim. 

I. AESTHETIC FUNCTIONALITY

A. TRADEMARK LAW AND AESTHETIC FUNCTIONALITY

[1] A trademark is a “word, name, symbol, or device” that

is intended “to identify and distinguish [the mark holder’s]

goods, including a unique product, from those manufactured

or sold by others and to indicate the source of the goods.” 15

U.S.C. § 1127. A valid, registered trademark entitles the

holder to prevent others from using the mark where (1) “such

use is likely to cause confusion, or to cause mistake or

deceive,” 15 U.S.C. § 1114(1)(a) (so-called “trademark

infringement”), or (2) “such use . . . causes dilution of the distinctive quality of the mark,” 15 U.S.C. § 1125(c)(1) (socalled “trademark dilution”). 

The principal role of trademark law is to ensure that consumers are able to identify the source of goods. Qualitex, 514

U.S. at 164. Protecting the source-identifying role of trademarks serves two goals. First, it quickly and easily assures a

potential customer that this item—the item with the mark—is

9520 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
made by the same producer as other similarly marked products. At the same time, the law helps “assure a producer that

it (and not an imitating competitor) will reap the financial,

reputation-related rewards associated with a desirable product.” Id.; see also Avery Dennison Corp. v. Sumpton, 189 F.3d

868, 873 (9th Cir. 1999). 

[2] A functional product feature does not, however, enjoy

protection under trademark law. See Qualitex, 514 U.S. at

164. The Supreme Court has instructed that a feature is functional if it is “essential to the use or purpose of the article [or]

affects [its] cost or quality.” Inwood Labs., Inc. v. Ives Labs.,

Inc., 456 U.S. 844, 851 n.10 (1982). The Inwood Laboratories

definition is often referred to as “utilitarian” functionality, as

it relates to the performance of the product in its intended purpose. Thus, “[t]he functionality doctrine prevents trademark

law, which seeks to promote competition by protecting a

firm’s reputation, from instead inhibiting legitimate competition by allowing a producer to control a useful product feature.” Qualitex, 514 U.S. at 164. 

Extending the functionality doctrine, which aims to protect

“useful” product features, to encompass unique logos and

insignia is not an easy transition. Famous trademarks have

assumed an exalted status of their own in today’s consumer

culture that cannot neatly be reduced to the historic function

of trademark to designate source. Consumers sometimes buy

products bearing marks such as the Nike Swoosh, the Playboy

bunny ears, the Mercedes tri-point star, the Ferrari stallion,

and countless sports franchise logos, for the appeal of the

mark itself, without regard to whether it signifies the origin or

sponsorship of the product. As demand for these marks has

risen, so has litigation over the rights to their use as claimed

“functional” aspects of products. See, e.g., Vuitton et Fils S.A.

v. J. Young Enters., Inc., 644 F.2d 769 (9th Cir. 1981) (reversing and remanding for trial a district court determination that

the Louis Vuitton logo and trademarked purse material were

functional); Boston Prof. Hockey Ass’n, Inc. v. Dallas Cap &

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9521
Emblem Mfg., Inc., 510 F.2d 1004 (5th Cir. 1975) (holding

that reproductions of professional hockey franchise’s logo

sold alone are not “functional” and can be protected); Ford

Motor Co. v. Lloyd Design Corp., 184 F. Supp. 2d 665 (E.D.

Mich. 2002) (holding that a car maker’s trademarks are not

functional aspects of defendant’s car accessories). 

The results reached in these various aesthetic functionality

cases do not easily weave together to produce a coherent

jurisprudence, although as a general matter courts have been

loathe to declare unique, identifying logos and names as functional. To understand how the concept of functionality applies

to the case before us, broad invocations of principle are not

particularly helpful. Instead, we find it useful to follow the

chronological development and refinement of the doctrine. 

The doctrine of aesthetic functionality is often traced to a

comment in the 1938 Restatement of Torts: 

When goods are bought largely for their aesthetic

value, their features may be functional because they

definitely contribute to that value and thus aid the

performance of an object for which the goods are

intended. 

Restatement of Torts § 742, comment a (1938) (see Restatement 3d of Unfair Competition, § 17 (1995)). Two examples

of products with aesthetic functional features were offered,

with very little comment—a heart-shaped candy box and a

distinctive printing typeface. 

Nearly fifteen years later, the doctrine blossomed in

Pagliero v. Wallace China Co., an action by Wallace China,

a manufacturer of vitrified china, to prohibit a competitor

from using a series of decorative patterns and a corresponding

list of names. See 198 F.2d 339 (9th Cir. 1952). Neither the

patterns nor the names were covered by registered trademarks

or patents; instead, Wallace claimed secondary meaning, pri9522 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
marily that customers associated the patterns with Wallace,

due to extensive advertising and a reputation for quality. Id.

at 342. In ruling on Wallace’s claim, we loosely echoed the

1938 Restatement in articulating the line between aesthetic

appeal and functionality:

[W]here the features are “functional” there is normally no right to relief. “Functional” in this sense

might be said to connote other than a trade-mark

purpose. If the particular feature is an important

ingredient in the commercial success of the product,

the interest in free competition permits its imitation

in the absence of a patent or copyright. On the other

hand, where the feature or, more aptly, design, is a

mere arbitrary embellishment, a form of dress for the

goods primarily adopted for purposes of identification and individuality and hence, unrelated to basic

consumer demands in connection with the product,

imitation may be forbidden where the requisite

showing of secondary meaning is made. Under such

circumstances, since effective competition may be

undertaken without imitation, the law grants protection. 

Id. at 343 (internal citations omitted). 

Applying that test, the china patterns were deemed “functional” because the “attractiveness and eye-appeal” of the

design is the primary benefit that consumers seek in purchasing china. Id. at 343-44. Thus, Wallace’s designs were not

“mere arbitrary embellishment,” but were at the heart of basic

consumer demand for the product and could not be protected

as trademarks. 

Almost thirty years later, Pagliero was revived in a Ninth

Circuit case involving an effort by the International Order of

Job’s Daughters to preclude a jewelry maker from selling

jewelry bearing the Job’s Daughters insignia. See InternaAU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9523
tional Order of Job’s Daughters v. Lindeburg & Co., 633

F.2d 912 (9th Cir. 1980). Because the defendant’s products

bearing the Job’s Daughters mark were sold “on the basis of

their intrinsic value, not as a designation of origin or sponsorship,” the defendant argued that they were functional under

Pagliero. Id. at 918. 

The court acknowledged that a “name or emblem” could,

in some cases, “serve simultaneously as a functional component of a product and a trademark,” and accordingly called for

a “close analysis of the way in which [the defendant] is using

the Job’s Daughters insignia.” Id. at 917-19. The court

observed that Job’s Daughters had submitted no evidence that

the defendant’s use of the mark either caused confusion as to

source or was likely to do so and suggested that the emblem

did not designate a source at all.4 Accordingly, the Job’s

Daughters insignia, as used by the defendant, was unprotected. Id. at 920. 

Job’s Daughters, with its collective mark, was a somewhat

unique case and its broad language was soon clarified and

narrowed. In Vuitton, we confronted bare counterfeiting of

Louis Vuitton handbags with minor alterations to the familiar

LV logo and fleur-de-lis insignia. 644 F.2d at 774. Not unlike

4The marks at issue in Job’s Daughters were “collective marks,” which

are trademarks “used by the members of a cooperative, an association, or

other collective group or organization, . . . and include[ ] marks indicating

membership in a union, an association, or other organization.” 15 U.S.C.

§ 1127. This explains, in part, why there was no likelihood of confusion.

Because the Job’s Daughters insignia was sold by numerous unlicensed

jewelers, the possibility that consumers might think that it denoted source

was insubstantial. Accord Supreme Assembly, Order of Rainbow for Girls

v. J.H. Ray Jewelry Co., 676 F.2d 1079, 1083 (5th Cir. 1982) (“[T]here

is no historical custom or practice—either as to fraternal jewelry or Rainbow jewelry—that would provide a reasonable basis for buyers of Rainbow jewelry to assume that such jewelry can only be manufactured with

Rainbow’s sponsorship or approval . . . [and] most fraternal associations

exercise little control over the manufacture of jewelry bearing their fraternal emblems.”). 

9524 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
Auto Gold here, the defendant argued that, under Pagliero

and Job’s Daughters, its use of the Vuitton marks was functional because the marks were “related to the reasons consumers purchase [the] product” and that without using the marks,

it could not compete with Vuitton in selling Louis Vuittonmarked purses. We rejected these arguments. Id. at 773. First,

the defendant’s use of the Vuitton marks was not functional

in a utilitarian sense. Id. at 776-77 (“Vuitton luggage without

the distinctive trademark would still be the same luggage. It

would carry the same number of items, last just as long, and

be just as serviceable.”). Significantly, in Vuitton, we emphatically rejected the notion that “any feature of a product which

contributes to the consumer appeal and saleability of the product is, as a matter of law, a functional element of that product.” Id. at 773. Indeed, “a trademark which identifies the

source of goods and incidentally services another function

may still be entitled to protection.” Id. at 775. Under Vuitton,

the mere fact that the mark is the “benefit that the consumer

wishes to purchase” will not override trademark protection if

the mark is source-identifying. Id. at 774. With Vuitton, aesthetic functionality was dealt a limiting but not fatal blow; the

case was remanded for trial. Id. at 776. 

Since Vuitton, the Ninth Circuit has not directly revisited

aesthetic functionality in the context of unique sourceidentifying trademarks. Several oft-quoted cases involving

trade dress claims have criticized the doctrine. See Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1260 (9th Cir.

2001) (“Nor has this circuit adopted the ‘aesthetic functionality’ theory, that is, the notion that a purely aesthetic feature

can be functional.”); First Brands Corp. v. Fred Meyer, Inc.,

809 F.2d 1378, 1382 n.3 (9th Cir. 1987) (“In this circuit, the

‘aesthetic’ functionality test has been limited, if not rejected,

in favor of the ‘utilitarian’ functionality test.”) (citations omitted).5

 Although a leading commentator described Clicks Bil5At least one earlier case explicitly excluded the application of Pagliero

in the trade dress context, without comment as to its application outside

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9525
liards as “appear[ing] to mark the final end of the Ninth

Circuit’s fifty year flirtation with the aesthetic functionality

theory,” 1 McCarthy on Trademarks and Unfair Competition

§ 7:80 (4th ed.), the doctrine, albeit restricted over the years,

retains some limited vitality. 

The Supreme Court has yet to address aesthetic functionality as it applies to logos and insignia, in contrast to product

features. The Court has, however, outlined the general contours of functionality and aesthetic functionality. As noted

earlier, in Inwood Laboratories, the Court offered a simple

definition of functionality: “a product feature is functional if

it is essential to the use or purpose of the article or if it affects

the cost or quality of the article.” 456 U.S. at 850 n. 10 (citing

Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 122

(1938)). 

More recently, in Qualitex, the Court considered whether a

color (a distinctive green-gold used on dry cleaning press

pads) could be protected as a trademark. Observing that color

alone can meet the basic legal requirement for a trademark,

namely that it acts “as a symbol that distinguishes a firm’s

goods and identifies their source,” the Court concluded that

the use of color as a trademark is not per se barred by the

functionality doctrine. Qualitex, 514 U.S. at 165-66 (“And,

this latter fact—the fact that sometimes color is not essential

to a product’s use or purpose and does not affect cost or

quality—indicates that the doctrine of ‘functionality’ does not

create an absolute bar to the use of color alone as a mark”).

The green-gold color of the dry cleaner pads served a trademark (i.e., source-identifying) function. Additionally, the use

of some color on the pads served a non-trademark function—

namely, to “avoid noticeable stains.” Id. at 166. The Court

of trade dress. See Fabrica Inc. v. El Dorado Corp., 697 F.2d 890, 895

(9th Cir. 1983) (noting “this court has specifically limited application of

the Pagliero functionality test to product features and has refused to apply

the test to cases involving trade dress and packaging”). 

9526 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
underscored, however, that functionality protects against a

competitive disadvantage “unrelated to recognition or reputation.” Id. at 169. Accordingly, because “the [district] court

found ‘no competitive need in the press pad industry for the

green-gold color, since other colors are equally usable,’ ”

functionality did not defeat protection. Id. at 166.6

The Court’s most recent explication of aesthetic functionality is found in a case surprisingly not cited by the parties—

TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23

(2001). In TrafFix, a company that held an expired patent for

a dual-spring road sign design argued that the visible appearance of the design constituted protectable trade dress. In considering whether the dual spring mechanism was a functional

aspect of the product, the Court clarified Qualitex’s emphasis

on competitive necessity and the overall test for functionality.

Rather than paraphrase the decision, and to be absolutely

clear, we quote extensively from the passages that set out the

appropriate inquiry for functionality. 

The Supreme Court emphasized that Qualitex did not displace the traditional Inwood Laboratories utilitarian definition

of functionality. “ ‘[I]n general terms, a product feature is

functional,’ and cannot serve as a trademark, ‘if it is essential

to the use or purpose of the article or if it affects the cost or

quality of the article.’ ” TrafFix, 532 U.S. at 32 (quoting

Qualitex, 514 U.S. at 165); see also Inwood Labs., 456 U.S.

at 850 n.10. The Court noted that Qualitex “expand[ed] upon”

the Inwood Laboratories definition, by observing that “a

functional feature is one the ‘exclusive use of [which] would

put competitors at a significant non-reputation-related disadvantage.’ ” TrafFix, 532 U.S. at 32 (quoting Qualitex, 514

U.S. at 165) (alteration in original). 

6

In contrast, an example of an aesthetic product feature the protection

of which would hinder legitimate competition is the use of color to signify

the type of medication in pills—the question addressed in Inwood Laboratories. See 456 U.S. at 853 (noting that “[s]ome patients commingle medications in a container and rely on color to differentiate one from another”).

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9527
The Court explained the interplay between these two statements of functionality. If a feature is functional under Inwood

Laboratories, the inquiry ends and the feature cannot be protected under trademark law. Id. As the Court elaborated,

“there is no need to proceed further to consider if there is a

competitive necessity for the feature.” Id. at 33. Thus, in TrafFix, once the dual-spring mechanism met the traditional functionality test by making the signs more wind resistant, “there

[was] no need to proceed further to consider if there is competitive necessity for the feature” and likewise no need “to

engage . . . in speculation about other design possibilities.” Id.

at 33. 

By contrast, the Court went on to suggest that “[i]t is proper

to inquire into a ‘significant non-reputation-related disadvantage’ in cases of aesthetic functionality, the question involved

in Qualitex.” Id. The Court described aesthetic functionality

as “the central question [in Qualitex], there having been no

indication that the green-gold color of the laundry press pad

had any bearing on the use or purpose of the product or its

cost or quality.” Id.7

As to functionality, we read the Court’s decision to mean

that consideration of competitive necessity may be an appropriate but not necessary element of the functionality analysis.

If a design is determined to be functional under the traditional

test of Inwood Laboratories there is no need to go further to

consider indicia of competitive necessity, such as the availability of alternative designs. Accord Valu Eng’g, Inc. v. Rex7The Court’s treatment of Qualitex in TrafFix has caused some consternation among commentators. See, e.g., 1 McCarthy on Trademark and

Unfair Competition § 7.80 (4th ed.) (describing as “amazing and incomprehensible” the statement in TrafFix “that in the 1995 Qualitex case, ‘aesthetic functionality was the central question.’ ”); Jerome Gilson,

Trademark Protection and Practice § 2A.04[5][b] (2006) (“The Supreme

Court was incorrect in TrafFix to declare that aesthetic functionality was

the ‘central question’ in the Qualitex case. The central question in Qualitex was whether color alone could serve as a valid trademark.”). 

9528 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
nord Corp., 278 F.3d 1268, 1275-76 (Fed. Cir. 2002).

However, in the context of aesthetic functionality, such considerations may come into play because a “functional feature

is one the ‘exclusive use of [which] would put competitors at

a significant non-reputation related disadvantage.’ ” TrafFix,

532 U.S. at 32 (quoting Qualitex, 514 U.S. at 165); see also

Dippin’ Dots, Inc. v. Frosty Bites Distrib., L.L.C., 369 F.3d

1197, 1203 (11th Cir. 2004); Eppendorf-Netheler-Hinz

GMBH v. Ritter GMBH, 289 F.3d 351, 356 (5th Cir. 2002).

B. AESTHETIC FUNCTIONALITY AND AUTO GOLD’S USE OF

VOLKSWAGEN AND AUDI’S PRODUCTS

[3] So where do we stand in the wake of forty years of

trademark law scattered with references to aesthetic functionality? After Qualitex and TrafFix, the test for functionality

proceeds in two steps. In the first step, courts inquire whether

the alleged “significant non-trademark function” satisfies the

Inwood Laboratories definition of functionality—“essential to

the use or purpose of the article [or] affects [its] cost or quality.” TrafFix, 532 U.S. at 32-33 (citing Inwood Laboratories,

456 U.S. at 850, n.10). If this is the case, the inquiry is over

—the feature is functional and not protected.8 TrafFix, 532

U.S. at 33. In the case of a claim of aesthetic functionality, an

8Our long-standing test for functionality largely excluded aesthetic considerations, instead asking: (1) whether the feature delivers any utilitarian

advantage, (2) whether alternative designs are possible, (3) whether advertising touts utilitarian benefits of the feature, and (4) whether the feature

results in economies in manufacture or use. See Disc Golf Ass’n v. Champion Discs, Inc., 158 F.3d 1002, 1006-09 (9th Cir. 1998) (applying the

four factors to conclude that the design of disc golf holes was utilitarian).

Following TrafFix, we reiterated the Disc Golf factors as legitimate considerations in determining whether a product feature is functional. Talking

Rain Beverage Co. v. South Beach Beverage Co., 349 F.3d 601, 603-04

(9th Cir. 2003) (applying the four factors to conclude that a bottle design

was utilitarian). We noted that “the existence of alternative designs cannot

negate a trademark’s functionality,” but “may indicate whether the trademark itself embodies functional or merely ornamental aspects of the product.” Id. at 603. 

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9529
alternative test inquires whether protection of the feature as a

trademark would impose a significant non-reputation-related

competitive disadvantage. Id.; and see also Qualitex, 514 U.S.

at 165. 

[4] We now address the marks at issue in this case. Volkswagen and Audi’s trademarks are registered and incontestable, and are thus presumed to be valid, distinctive and nonfunctional. Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863,

868-69 (8th Cir. 1994). Auto Gold, thus, must show that the

marks are functional under the test set forth above. To satisfy

this requirement, Auto Gold argues that Volkswagen and

Audi trademarks are functional features of its products

because “the trademark is the feature of the product which

constitutes the actual benefit the consumer wishes to purchase.” While that may be so, the fact that a trademark is

desirable does not, and should not, render it unprotectable.

Auto Gold has not shown that Volkswagen and Audi’s marks

are functional features of Auto Gold’s products. The marks

are thus entitled to trademark protection. 

[5] At the first step, there is no evidence on the record, and

Auto Gold does not argue, that Volkswagen and Audi’s trademarks are functional under the utilitarian definition in Inwood

Laboratories as applied in the Ninth Circuit in Talking Rain.

See 349 F.3d at 603-04. That is to say, Auto Gold’s products

would still frame license plates and hold keys just as well

without the famed marks. Similarly, use of the marks does not

alter the cost structure or add to the quality of the products.

[6] We next ask whether Volkswagen and Audi’s marks, as

they appear on Auto Gold’s products, perform some function

such that the “ ‘exclusive use of [the marks] would put competitors at a significant non-reputation-related disadvantage.’ ” TrafFix, 532 U.S. at 32 (quoting Qualitex, 532 U.S.

at 165). As an initial matter, Auto Gold’s proffered rational—

that the trademarks “constitute[ ] the actual benefit the consumer wishes to purchase”—flies in the face of existing

9530 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
caselaw. We have squarely rejected the notion that “any feature of a product which contributes to the consumer appeal

and saleability of the product is, as a matter of law, a functional element of that product.” Vuitton, 644 F.2d at 773. Such

a rule would eviscerate the very competitive policies that

functionality seeks to protect. This approach is consistent with

the view of our sister circuits. See e.g., Pebble Beach Co. v.

Tour 18 I Ltd., 155 F.3d 526, 539 (5th Cir. 1998) (“To define

functionality based upon commercial success . . . does not

promote innovation, nor does it promote competition.”)

superceded on other grounds as recognized in EppendorfNetheler-Hinz, 289 F.3d at 356; W.T. Rogers Co. v. Keene,

778 F.2d 334, 341-43 (7th Cir. 1985); Keene Corp. v. Paraflex Indus., Inc., 653 F.2d 822, 825 (3d Cir. 1981) (“The difficulty with accepting such a broad view of aesthetic

functionality, which relates the doctrine to the commercial

desirability of the feature at issue without consideration of its

utilitarian function, is that it provides a disincentive for development of imaginative and attractive design. The more

appealing the design, the less protection it would receive.”).

[7] Even viewing Auto Gold’s position generously, the rule

it advocates injects unwarranted breadth into our caselaw.

Pagliero, Job’s Daughters, and their progeny were careful to

prevent “the use of a trademark to monopolize a design feature which, in itself and apart from its identification of

source, improves the usefulness or appeal of the object it

adorns.” Vuitton, 644 F.2d at 774 (discussing Pagliero, 198

F.2d 339) (emphasis added). The concept of an “aesthetic”

function that is non-trademark-related has enjoyed only limited application. In practice, aesthetic functionality has been

limited to product features that serve an aesthetic purpose

wholly independent of any source-identifying function. See

Qualitex, 514 U.S. at 166 (coloring dry cleaning pads served

nontrademark purpose by avoiding visible stains); Publications Int’l, Ltd. v. Landoll, Inc., 164 F.3d 337, 342 (7th Cir.

1998) (coloring edges of cookbook pages served nontrademark purpose by avoiding color “bleeding” between pages);

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9531
Brunswick Corp. v. British Seagull Ltd., 35 F.3d 1527, 1532

(Fed. Cir. 1994) (color black served nontrademark purpose by

reducing the apparent size of outboard boat engine); Pagliero,

198 F.2d at 343 (china patterns at issue were attractive and

served nontrademark purpose because “one of the essential

selling features of hotel china, if, indeed, not the primary, is

the design”). 

It is difficult to extrapolate from cases involving a true aesthetically functional feature, like a box shape or certain uses

of color, to cases involving well-known registered logos and

company names, which generally have no function apart from

their association with the trademark holder. The present case

illustrates the point well, as the use of Volkswagen and

Audi’s marks is neither aesthetic nor independent of source

identification. That is to say, there is no evidence that consumers buy Auto Gold’s products solely because of their “intrinsic” aesthetic appeal. Instead, the alleged aesthetic

function is indistinguishable from and tied to the mark’s

source-identifying nature. 

By Auto Gold’s strident admission, consumers want

“Audi” and “Volkswagen” accessories, not beautiful accessories. This consumer demand is difficult to quarantine from the

source identification and reputation-enhancing value of the

trademarks themselves. See Playboy Enters., Inc. v. Netscape

Commc’ns Corp., 354 F.3d 1020, 1030-31 (9th Cir. 2004)

(“Nothing about the marks used to identify [the trademark

holder’s] products is a functional part of the design of those

products. . . . The fact that the marks make [the junior user’s

product] more functional is irrelevant.”). The demand for

Auto Gold’s products is inextricably tied to the trademarks

themselves. See Qualitex, 514 U.S. at 170 (identifying “legitimate (nontrademark-related) competition” as the relevant

focus in determining functionality) (emphasis added).9 Any

9Auto Gold complains that if precluded from using the famous marks,

it would be unable to compete in the market for auto accessories bearing

9532 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
disadvantage Auto Gold claims in not being able to sell

Volkswagen or Audi marked goods is tied to the reputation

and association with Volkswagen and Audi. 

In the end, we take comfort that the doctrine of aesthetic

functionality, as we apply it in this case, has simply returned

from whence it came. The 1938 Restatement of Torts includes

this reminder of the difference between an aesthetic function

and a trademark function: 

A feature which merely associates goods with a particular source may be, like a trade-mark or trade

name, a substantial factor in increasing the marketability of the goods. But if that is the entire significance of the feature, it is non-functional; for its value

then lies only in the demand for goods associated

with a particular source rather than for goods of a

particular design. 

Restatement of Torts § 742, comment a (1938). Volkswagen

and Audi’s trademarks undoubtedly increase the marketability

of Auto Gold’s products. But their “entire significance” lies

in the demand for goods bearing those non-functional marks.

Today, as in 1938, such poaching is not countenanced by the

trademark laws. 

[8] We hold that Volkswagen and Audi’s marks are not

functional aspects of Auto Gold’s products. These marks,

which are registered and have achieved incontestable status,

are properly protected under the Lanham Act against infringement, dilution, false designation of source and other misappropriations. 

Volkswagen and Audi’s marks. This argument is just another way of saying “If I can’t trade on your trademark, I can’t compete.” But this argument has no traction here because the mark is not a functional feature that

places a competitor at a “significant non-reputation-related advantage.”

TrafFix, 532 U.S. at 33. 

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9533
II. VOLKSWAGEN AND AUDI’S INFRINGEMENT CLAIM

Although we conclude that Volkswagen and Audi’s registered trademarks are not “functional,” and thus are protectable, it remains to be determined whether Auto Gold is

infringing those marks. Cf. KP Permanent Make-Up, Inc. v.

Lasting Impression I, Inc., 543 U.S. 111, 117 (2004)

(although mark was protected, “the [markholder]’s success is

still subject to ‘proof of infringement’ ”). The district court

concluded that “[w]hile [Volkswagen and Audi] have

attempted to make a prima facie case of trademark infringement and dilution of their mark, this situation does not rise to

that level.” Operating on the premise that the Volkswagen and

Audi marks were unprotectable under the doctrine of aesthetic

functionality, the district court erroneously concluded Volkswagen and Audi “offered insufficient evidence to show that

there is a question of material fact that might lead a factfinder to conclude that infringement of their trademarks

occurred.” In particular, the district court resolved that Volkswagen and Audi “failed to offer any evidence that would have

a tendency to show that there is a likelihood of or any actual

confusion in the minds of consumers.” 

The court then granted Auto Gold’s motion for partial summary judgment and denied Volkswagen and Audi’s motion

for summary judgment which included a claim for infringement. The court declared that Auto Gold’s use of the marks

on its products was neither trademark infringement nor trademark counterfeiting, and enjoined Volkswagen and Audi from

asserting any trademark rights against Auto Gold. In doing so,

the district court appeared to merge the aesthetic functionality

analysis and the likelihood of confusion analysis as to

infringement, but nonetheless based its judgment on both

issues. These are distinct inquiries and thus we consider

infringement on appeal. 

Volkswagen and Audi seek protection under § 1114(1)(a),

which provides civil penalties against: 

9534 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
Any person who shall, without consent of the [registered owner] . . . use in commerce any reproduction,

counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for

sale, distribution, or advertising of any goods or services on or in connection with which such use is

likely to cause confusion, or to cause mistake, or to

deceive. 

It is undisputed that Volkswagen and Audi own the registered

trademarks at issue, and that Auto Gold uses those trademarks

in commerce, without their consent, and in connection with

the sale of goods. Thus, as with many infringement claims,

the central issue is whether Auto Gold’s use of the marks is

“likely to cause confusion” within the meaning of the Lanham

Act. 

Before us on appeal are the parties’ cross-motions for summary judgment on the issue of trademark infringement, and in

particular, the district court’s determination that Volkswagen

and Audi had not offered any evidence showing a likelihood

of confusion. We review de novo the district court’s decision

on summary judgment. Clicks Billiards, 251 F.3d at 1257. 

Because the likelihood of confusion is often a fact-intensive

inquiry, courts are generally reluctant to decide this issue at

the summary judgment stage. Thane Int’l, Inc. v. Trek Bicycle

Corp., 305 F.3d 894, 901-02 (9th Cir. 2002). However, in

cases where the evidence is clear and tilts heavily in favor of

a likelihood of confusion, we have not hesitated to affirm

summary judgment on this point. See, e.g., Nissan Motor Co.

v. Nissan Computer Corp., 378 F.3d 1002, 1019 (9th Cir.

2004) (affirming summary judgment where the marks were

“legally identical,” the goods at issue were related, and the

marketing channels overlapped). As part of our de novo

review, we conclude as a matter of law that likelihood of confusion is clear cut here and that Volkswagen and Audi have

made out a prima facie case of infringement. We do not direct

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9535
judgment on this issue, however, because the district court

reserved judgment on Auto Gold’s defense of “first sale.” The

case must be remanded for consideration of Auto Gold’s

defenses. 

[9] A “[l]ikelihood of confusion ‘exists when customers

viewing [a] mark would probably assume that the product or

service it represents is associated with the source of a different product or service identified by a similar mark.’ ” Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 845

(9th Cir. 1987) (quoting Lindy Pen Co. v. Bic Pen Corp., 725

F.2d 1240, 1243 (9th Cir. 1984)). The Ninth Circuit employs

an eight-factor test (the “Sleekcraft” factors) to determine the

likelihood of confusion: (1) strength of the mark(s);

(2) relatedness of the goods; (3) similarity of the marks;

(4) evidence of actual confusion; (5) marketing channels;

(6) degree of consumer care; (7) defendant’s intent;

(8) likelihood of expansion. Surfvivor Media, Inc. v. Survivor

Productions, 406 F.3d 625, 631 (9th Cir. 2005); see also AMF

Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979).

These elements are not applied mechanically; courts may

examine some or all of the factors, depending on their relevance and importance. See Surfvivor, 406 F.3d at 631; Thane

Int’l, 305 F.3d at 901 (“The list of factors is not a score-card

—whether a party wins a majority of the factors is not the

point. Nor should the factors be rigidly weighed; we do not

count beans.”) (internal punctuation and citations omitted). 

This case presents an easy analysis in terms of likelihood

of confusion. The Volkswagen and Audi marks, which are

registered and have been in use for more than fifty years, are

strong, distinctive marks, the first factor in the Sleekcraft

analysis. Auto Gold’s products, which incorporate exact copies of those marks, compete with accessories sold by Volkswagen and Audi through their licensed marketers, and are

related10 to Volkswagen and Audi’s primary goods—cars.

10“Related goods are ‘products which would be reasonably thought by

the buying public to come from the same source if sold under the same

mark.’ ” Sleekcraft, 599 F.2d at 348 n.10 (quoting Standard Brands, Inc.

v. Smidler, 151 F.2d 34, 37 (2d Cir. 1945)). 

9536 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
Although Volkswagen and Audi license their marks to third

parties, and Auto Gold sells its products to the wholesale market, the ultimate consumers are the same. In fact, according

to Auto Gold, it is a very specific sub-group of consumers that

wants either Auto Gold’s or Volkswagen and Audi’s

accessories—Audi or Volkswagen car owners who want

accessories to match their cars. Thus, in addition to being

related products bearing identical marks, the products at issue

are destined for the same buyers. 

We turn next to the degree of consumer care. Confusion is

less likely where buyers exercise care and precision in their

purchases, such as for expensive or sophisticated items. In

evaluating this factor, we consider “the typical buyer exercising ordinary caution.” Sleekcraft, 599 F.2d at 353. The class

of products Auto Gold sells are relatively inexpensive and

unsophisticated, and do not require a great deal of precision

or care to fulfill their purpose. This factor favors Volkswagen

and Audi. 

Evaluation of Auto Gold’s intent in using the mark is the

seventh factor. “When the alleged infringer knowingly adopts

a mark similar to another’s, reviewing courts presume that the

defendant can accomplish his purpose: that is, that the public

will be deceived.” Id. at 354. Auto Gold knowingly and intentionally appropriated the exact trademarks of Volkswagen and

Audi. Auto Gold argues, however, that it does not “intend” to

deceive the public as to the source of the goods, but merely

sought to fill a market demand for auto accessories bearing

the marks. This argument is simply a recasting of aesthetic

functionality. Even if we credit Auto Gold’s proffered lack of

intent, the direct counterfeiting undermines this argument.

This factor tips against Auto Gold. 

Finally, we examine the factor that is hotly contested by the

parties—evidence of actual confusion. Despite the debate,

there is no material issue of fact. The district court correctly

noted that Volkswagen and Audi offered no evidence of

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9537
actual confusion. The question, then, is what is the legal significance of this uncontested fact? 

As we noted in Brookfield Communications, Inc. v. West

Coast Entertainment Corp., “[t]he failure to prove instances

of actual confusion is not dispositive against a trademark

plaintiff, because actual confusion is hard to prove; difficulties in gathering evidence of actual confusion make its

absence generally unnoteworthy.” 174 F.3d 1036, 1050 (9th

Cir. 1999). In this case, which involves a national market and

a low degree of consumer care, nothing suggests that the lack

of evidence of confusion should be particularly noteworthy.

Compare Cohn v. Petsmart, Inc., 281 F.3d 837, 842-43 (9th

Cir. 2002) (ascribing some significance to the lack of evidence of confusion where “the parties used the same trademark in the same city for six years,” and the product at issue,

veterinary services, was one for which consumers are “particularly attentive.”). 

Auto Gold suggests that the disclaimers on its packaging

dispel any potential for confusion. Courts have been justifiably skeptical of such devices—particularly when exact copying is involved. See, e.g., Pebble Beach, 155 F.3d at 543

(upholding lower court determination that disclaimers were

“inadequate where present and . . . absent from the majority

of advertisements and promotional materials”), superseded on

other grounds as recognized in Eppendorf-Netheler-Hinz, 289

F.3d at 356; Int’l Kennel Club of Chicago, Inc. v. Mighty Star,

Inc., 846 F.2d 1079, 1093 (7th Cir. 1988) (“[W]here the

infringement in issue is a verbatim copying . . . plaintiff’s reputation and goodwill should not be rendered forever dependent on the effectiveness of fineprint disclaimers often

ignored by consumers.”). 

Even if disclaimers may in some cases limit the potential

for confusion, here they do not. Auto Gold’s disclaimers were

neither consistent nor comprehensive. We note, preliminarily,

that the effectiveness of these disclaimers is undercut by their

9538 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
sometimes contradictory messages. For example, some labels

placed on the cardboard inner lining of the license plate covers state that the product “may or may not” be dealer

approved. Visible through the clear cellophane outer wrapping, these disclaimers are sometimes next to disclaimers stating “[t]his product is not endorsed, manufactured, or licensed

by the vehicle manufacturer.” There are also messages on

Auto Gold’s website that identify their products generally as

“Factory authorized licensed products.” 

More importantly, “[t]he law in the Ninth Circuit is clear

that ‘post-purchase confusion,’ i.e., confusion on the part of

someone other than the purchaser who, for example, simply

sees the item after it has been purchased, can establish the

required likelihood of confusion under the Lanham Act.” Karl

Storz Endoscopy-Am., Inc. v. Surgical Techs., Inc., 285 F.3d

848, 854 (9th Cir. 2002); Levi Strauss & Co. v. Blue Bell,

Inc., 632 F.2d 817, 822 (9th Cir. 1980) (affirming a finding

of infringement against a jeans maker, and noting that “point

of sale materials [such as disclaimers] are removed by the

purchaser and have no confusion-obviating effect when the

pants are worn”).11 Shorn of their disclaimer-covered packaging, Auto Gold’s products display no indication visible to the

general public that the items are not associated with Audi or

Volkswagen. The disclaimers do nothing to dispel postpurchase confusion. 

In sum, Volkswagen and Audi do not present evidence of

actual confusion. Neither, however, does Auto Gold present

evidence that the disclaimers have any effect. At best, the

confusion factor is in equipoise. 

11This definition of confusion reflects the 1962 amendments to § 1114

that broadened the definition of actionable confusion to include nonpurchasers (such as those seeing an item of clothing on the street), through

deletion of language that limited such confusion to “purchasers as to the

source or origin of such goods or services.” Pub. L. 87-772 (1962). See

Karl Storz, 285 F.3d at 854. 

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9539
[10] In the final analysis, we must consider the Sleekcraft

factors as a whole to determine whether a likelihood of confusion results from Auto Gold’s use of the marks. Although we

do not bean count, it is significant that six of the eight Sleekcraft factors support a likelihood of confusion; the remaining

two are either neutral or irrelevant.12 Most importantly, the

strength of Volkswagen and Audi’s marks, Auto Gold’s intentional and exact copying of the marks, and the direct competition for a specific and limited consumer group, all weigh

heavily in favor of a likelihood of confusion. Our Sleekcraft

analysis benefits from a record developed through lengthy

discovery, and the key facts are undisputed. Volkswagen and

Audi have established a prima facie “exclusive right to use the

. . . mark in commerce.” 15 U.S.C. § 1115(b). Accordingly,

we reverse the district court’s denial of summary judgment in

favor of Volkswagen and Audi on the issue of infringement

and remand for consideration of the “first sale” defense and

any other related claims or defenses. 

III. OTHER CLAIMS

[11] The district court dismissed various of Volkswagen

and Audi’s counterclaims with prejudice, some because the

parties stipulated to their dismissal. Among the counterclaims

dismissed was the dilution claim. The procedural history surrounding this claim is murky. The district court found that

Volkswagen and Audi had agreed not to litigate the claim

even though the parties briefed and argued the issue on summary judgment. Nonetheless, the court denied Volkswagen

and Audi’s motion for leave to amend because the amendment would be futile. Because the denial of this motion was

12The final factor, “[a] likelihood of expansion in product lines,” warrants no discussion as it is “relatively unimportant where two companies

already compete to a significant extent.” Brookfield Commc’ns, 174 F.3d

at 1060. The record reflects that Volkswagen and Audi compete through

their licensees with Auto Gold with respect to the products at issue in this

suit. 

9540 AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA
predicated in large part on the court’s misapprehension of the

application of aesthetic functionality, we reverse the dismissal

of the dilution claim. 

We reverse the district court’s April 7, 2003 order granting

Auto Gold’s Motion for Partial Summary Judgment and denying Volkswagen and Audi’s Motion for Summary Judgment,

vacate the May 17, 2003 Order Granting Declaratory and

Injunctive Relief, reverse the June 11, 2003 Order Denying

Volkswagen and Audi’s Motion for Clarification and for

Leave to Amend with respect to the dilution claim, vacate all

other aspects of the June 11, 2003 Order, and reverse judgment in favor of Auto Gold. 

REVERSED, VACATED and REMANDED for further

proceedings consistent with this opinion, including our determination that Volkswagen and Audi have established a prima

facie case with respect to infringement. 

AU-TOMOTIVE GOLD v. VOLKSWAGEN OF AMERICA 9541