Smiley Face Is Serious to Company

PARIS — In the battle of the smiley face, it's not just who smiled first that counts, but also where and how.

Frown-inducing accusations have been flying in a trademark dispute between Wal-Mart Stores and a company owned by a French family over American commercial rights to the ubiquitous yellow symbol for happiness. Both parties say they expect victory when the United States Patent and Trademark Office rules on the case this summer.

Wal-Mart, the world's largest retailer, says the yellow face has long personified its price-reducing policy, while SmileyWorld, the London-based company that first registered rights to the symbol decades ago, says its globally established business stands at risk.

"A prehistoric man probably invented the smiley face in some cave, but I certainly was the first to register it as a trademark," said Franklin Loufrani, 63, who says he initially registered the design with the French trademark authorities in October 1971. "When it comes to commercial use, registration is what counts."

Unlike most countries in Europe and Asia, however, the United States operates under a system in which being the first to register a trademark bears less weight than being the first to exploit a symbol commercially, said Burkhart Goebel, the global head of the intellectual property practice at the law firm Lovells.

"We may live in the era of globalization, but trademarks are still rooted in territoriality," Mr. Goebel said. "A trademark filed in one country has almost no impact in another."

Marc E. Ackerman, a New York-based partner at the White & Case law firm and a specialist in United States trademark law, said, "Here in the U.S., we consider how heavily a trademark is used, and that would give SmileyWorld a big uphill battle."

The most widely credited claim for inventing the smiley face goes to Harvey R. Ball, for the smiley yellow button he made for the State Mutual Life Assurance Company of America, a Massachusetts-based company, in 1963. Mr. Ball, a graphic artist, was paid $45 for creating a button intended to cheer employees during a rocky merger with an out-of-town company, according to his 2001 obituary in The Worcester Telegram & Gazette in Massachusetts.

Although irked by reports that Mr. Loufrani claimed to invent the smiley, Mr. Ball never attempted to trademark the symbol or commercially exploit it.

Mr. Loufrani, however, built a business from royalties collected on a symbol he claimed to have trademarked in 98 countries, for use over a wide range of product categories.

He makes no monetary claim over the :-) sent in e-mail messages ("That's just punctuation"). But Mr. Loufrani said SmileyWorld did win a case last June against the use of a smiley face on the home page of AOL France.

The battle with Wal-Mart was touched off when SmileyWorld filed for a United States trademark in 1997 for the exclusive right to commercial use and licensing of the term "smiley" in conjunction with the face logo. SmileyWorld's original application, which tried to trademark the smiley face itself, was rejected by the Patent and Trademark Office because of the design's common widespread use, according to the company's lawyer, Steven Baron.

To Wal-Mart, which has photographs of smiley faces in its stores dating back to 1996, Mr. Loufrani is a trademark troll registering the symbol in as many product categories as possible.

"They are applying for rights over the smiley face in product categories that include animal semen," John Simley, a Wal-Mart spokesman, said. "It shows they are trying to trademark everything they possibly can."

Wal-Mart lodged a notice of opposition to SmileyWorld's trademark application and then filed a separate application to trademark the smiley face in relation to retail services.

In response, SmileyWorld filed a notice of opposition to Wal-Mart's application on the grounds that its own attempt to trademark the face had been rejected. To overcome objections that the smiley face is within the public domain, Wal-Mart asserts a long history of "prior use" in retail services, Mr. Simley said.

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That a happy face can cause such rancor should be no surprise, said Tom Blackett, the group deputy chairman of Interbrand, a branding consulting firm based in London.

"This dispute shows how much value companies put in symbols," Mr. Blackett said. "In the era of distinctive trademarks like the Nike swoosh, companies will go a long way to defend their perceived territory."

With legal fees topping half a million dollars, the Wal-Mart dispute is the most costly ever faced by SmileyWorld, said Mr. Loufrani's son, Nicolas, 35, who now runs the company. In addition to the case against AOL France, SmileyWorld was awarded 2,500 euros, or $3,125, this March in a case in a French court against the French retailer Pier Import for sales of balls and balloons with a smiley face.

While the company deals with about half a dozen infringement cases around the world at any one time, most involve sending simple cease-and-desist letters to those selling unlicensed smiley faces, Nicolas Loufrani said.

To protect its licensees from infringement, the company occasionally hires consultants to scour Hong Kong trade fairs and the European gateway port of Rotterdam for illicit trademarking, he added.

The Loufranis date their association with the smiley face to 1971, when Franklin Loufrani headed a campaign by a newspaper to combat French moroseness.

"The owner of France Soir newspaper wanted to show French people that there was good news," said Franklin Loufrani, a former journalist who was then working as a freelance business consultant at the paper. "So I came up with the idea of putting a smiley face next to happier stories." Several months before the campaign began, Mr. Loufrani registered his hand-drawn version of the smiley face at the French trademark office.

The campaign, which started with a smiley face in the "o" of France Soir, was more infectious than a smile, Mr. Loufrani said. Newspapers outside France joined in, then manufacturers from across Europe started getting in touch to license the image.

Within two years, Mr. Loufrani licensed smiley-face jeans to Levi Strauss; Mars printed the faces on Bonitos — as M&M's were then called in Europe — and the German company Agfa sold film with smiley-face packaging licensed from Mr. Loufrani.

"I hit the casino jackpot," Mr. Loufrani said. "I could never have imagined it would take off like this."

In 1997, Mr. Loufrani decided to hand the smiley to Nicolas, who was 26 at the time. Since taking over, the younger Loufrani has consolidated SmileyWorld's licensees down to 40 from 400, while total sales of products with a SmileyWorld license has stayed at roughly $100 million a year.

Licensees pay royalties that can range as high as 10 percent of the item's retail value, Nicolas Loufrani said. He declined to disclose earnings or revenue of the private company. Large-scale licensees within the last year include the Bic pen company in France and 7-Eleven stores in Asia, he said.

Nicolas Loufrani also began the effort in the United States to assert the company's trademark that led to the showdown with Wal-Mart. He said he now intended to inject new vigor into a face formerly associated with the 1970's and acid-rock music by linking the smiley face to high-end products sold in a series of exclusive smiley shops in Paris, Los Angeles and New York opening within the next two years.

The merchandising model to which he aspires is the Hello Kitty franchise, which along with other brands earned 7.6 billion yen, or $65 million, in the financial year that ended in March for the Japanese company Sanrio.

"Unlike Hello Kitty, we have a clear mission," Nicolas Loufrani said. "Smiley is the brand of happiness."

That happiness could be curtailed should Wal-Mart succeed. The retailer warned that its action in the United States was the first step to defend and register its right to use the smiley face around the world.

"We don't want to be precluded from using the smiley face anywhere we do business," Mr. Simley, the Wal-Mart spokesman, said. "We feel an obligation to defend the smiley face."

For his part, Nicolas Loufrani said that if SmileyWorld won, he would not license the face back to Wal-Mart. "We want to aim our brand more upmarket."