In a recent case, the Ninth Circuit rejected the aesthetic functionality defense to trademark infringement as applied to those who sell products with popular logos of other companies on them, like Volkswagen’s and Audi’s logos and other marks, the Nike Swoosh, the Playboy bunny ears, and the Mercedes tri-point star.  Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc. et al., 457 F.3d 1062 (9th Cir. 2006). In that case, Au-Tomotive Gold sold key chains and license plate covers bearing Volkswagen’s and Audi’s logos and word marks. A trademark infringement lawsuit arose, and the district court concluded that Au-Tomotive Gold did not infringe Audi’s and Volkswagen’s trademarks because of aesthetic functionality.

Purely aesthetic product features can be protected as trademarks if they are source-identifying and non-functional. However, where an aesthetic product feature serves a "significant non-trademark function," the feature might not be protected as a trademark where it would "stifle legitimate competition" to do so. To determine whether a feature is aesthetically functional (and not protectable), courts consider whether the feature’s "significant non-trademark function" is essential to the use or purpose of the article or affects the cost or quality of the article. An alternative test is whether trademark protection for the feature would impose a significant non-reputation-related competitive disadvantage.

In the district court, Au-Tomotive Gold successfully argued that it used Volkswagen’s and Audi’s logos and other marks not because they signify that the license plates and key chains are manufactured or sold by Audi or Volkswagen, but because there is an aesthetic value to the marks that customers want, i.e., "the trademark is the feature of the product which constitutes the actual benefit the consumer wishes to purchase."

The Ninth Circuit rejected this argument as it would sound "the death knell for trademark protection" – a trademark being desirable to consumers does not render it unprotectable. The Ninth Circuit cited a litany of examples of consumers buying products for the appeal of the mark allegedly without regard to its source-identifying function, like "the Nike Swoosh, the Playboy bunny ears, the Mercedes tri-point star, [and] the Ferrari stallion," which the court does not view as aesthetically functional.

The Ninth Circuit concluded that the "essential to the use" test for aesthetic functionality failed because, without use of the marks, Au-Tomotive Gold’s license plate covers and key chains would still frame license plates and hold keys, and the cost or quality would be unaffected. The "significant non-reputation-related competitive disadvantage" test failed as well because aesthetic function, in practice, "has been limited to product features that serve an aesthetic purpose wholly independent of any source-identifying function," such as coloring dry cleaning pads to avoid visible stains, coloring edges of cookbook pages to avoid color bleeding between pages, and using color the black to reduce apparent size of an engine. Because the "demand for [Au-Tomotive Gold’s] products is inextricably tied to the trademarks themselves," the Ninth Circuit held that Au-Tomotive Gold could not satisfy this test either. Thus, Au-Tomotive Gold’s aesthetic functionality defense failed.