Good observations Mosaic User. My only comment is that the retailers probably will indeed be insulated from any liability either by the terms of their purchase orders (i.e., contract law) or by the reality that Wow Wee will need to cover their customers' legal fees and expenses if they ever want to do business with them again. From a legal perspective, Wow Wee would also probably WANT to agree to indemnify and defend the retailers so as to have control over a unified defense.
Ladies, for what it's worth, you're both pretty much correct in describing the purposes of trademark law. It is absolutely correct to state that the fundamental purpose of trademark law is to prevent marketplace confusion. Without proving a "likelihood of confusion" there can be no trademark infringement. That's just black letter law.
On the other hand, the federal trademark statute, the Lanham Act (from which the prior poster quoted some legislative history), has been amended to protect trade rights that are not traditionally trademark rights. The best example is the anti-dilution provisions that were added several years ago which allow the owners of "famous" marks to prevent activity that might dilute the distinctiveness of their marks. It is not necessary to prove a likelihood of confusion in a dilution case, but only "famous" marks are entitled to anti-dilution protection.
With regard to the Gibson/Wow Wee case, I've actually read some of the pleadings (they are available through the PACER system, which anyone who cares to create an account and pay 4 cents per page may access). Gibson's lawyer's were definitely kind of sloppy and seem to have attributed to Wow Wee a number of web sites that did not belong to Wow Wee. There is nothing in the papers I read to indicate that Wow Wee had ever used either the Gibson name or the names of any of Gibson's guitars. The claims seem to be exclusively that Wow Wee used SHAPES (guitar shapes, headstock shapes, and a truss cover shape) that Gibson claims as its trademarks. It's helpful that Gibson actually has federal trademark registrations for these shapes. WowWee's defense is that, even though Gibson has the registrations, the shapes cannot function as trademarks because they are either generic or functional.
I have no idea which side is right from a factual standpoint, but for whatever reason the court, by granting the preliminary injunction, impliedly and necessarily found that Gibson was likely to succeed in proving, at trial, that there was a "likelihood of confusion" among consumers when Wow Wee used the Gibson shapes on its toy guitars. There were no claims of dilution raised in the suit, so the "likelihood of confusion" standard is the only relevant standard for this case.
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