In the case of Louboutin v. Yves Saint Laurent, the other shoe has dropped. The U.S. Court of Appeals for the Second Circuit ruled this week that French designer Christian Louboutin’s distinctive red-soled shoes are entitled to at least limited trademark protection, reversing a lower court holding that “a single color can never serve as a trademark in the fashion industry.” The decision also shed some light on the often-confounding “doctrine of aesthetic functionality.”

The court’s ruling made attorneys for the French designer very happy, with Harley Lewin of McCarter & English, who represented Louboutin, saying, “We got essentially what we wanted: We got affirmation that Louboutin’s mark is valid and enforceable, and we now have a clear statement of the methodology that needs to be followed in cases of this kind.”

Ironically, the appellate decision also pleased Yves Saint Laurent and its attorneys, as it allows the fashion house to continue to sell its monochromatic shoe with a red sole—the very shoe Louboutin alleged was infringing. The three-judge panel instructed the U.S. Patent and Trade Office to limit the registration of Louboutin’s “Red Sole Mark” to only those situations in which the red lacquered outsole contrasts in color with the adjoining “upper” of the shoe.

So while both parties profess to be satisfied with the outcome—and New York City’s Fashion Week can proceed with models, celebrities, and fashionistas knowing their high-priced, red-soled Louboutins will not be mistaken for another brand—the court’s decision also clarifies an aspect of trademark law that attorneys often found confusing and vague.

“The court found that the fashion industry could not be singled out as the one industry in which color could not be trademarked, and it clarified the doctrine of aesthetic functionality,” said Susan Scafidi, a professor of fashion law at Fordham University School of Law. “This doctrine is a somewhat obscure provision of the law.”

Michelle Mancino Marsh, an attorney at Kenyon & Kenyon who has written about the case, agreed. At first glance, she said, the court appears to have issued a narrow decision. But it actually does more: “It makes clear that the aesthetic functionality defense it is alive and well, and spells out the test that will be applied in the future when it’s used as a defense,” she said.

To understand aesthetic functionality, it helps to take a closer look at the Louboutin case. First filed in April 2011, Louboutin sued Yves Saint Laurent, alleging one of its shoe designs—a monochromatic red shoe that included a red outer sole—infringed its trademark on a shoe with a red outsole and violated the Lanham Act. In August 2011, Southern District Court Judge Victor Marrero denied Louboutin’s motion for a preliminary injunction, ruling that the law did not allow “recognition of a trademark for the use of a single color for fashion items.”

“This is where he went wrong,” according to Scafadi, who said she attended the appellate argument in January wearing a pair of Louboutins. “I think the court was offended that he was creating a per se rule that was industry specific.”

Marrero had cited the U.S. Supreme Court’s decision in Qualitex Co. v. Jacobson Products Co., a case that involved industrial products and found that a color could be trademarked if it had no significant function except to identify a product’s maker.

In a creatively written decision that quoted a Jennifer Lopez song, paraphrased Walt Whitman’s Leaves of Grass, and attempted to draw parallels to an art-history hypothetical situation (in which Pablo Picasso tries to stop Claude Monet from painting water lilies in a distinctive color of indigo that Picasso had used during his blue period), Marrero said that in fashion, color is always “functional,” as it is a useful aesthetic feature of design. He concluded, therefore, that in fashion, color could not be trademarked.

But the appellate panel, which included Judges Jose Cabranes, Chester Straub, and Debra Livingston, said the Qualitex decision cannot be read to sanction an industry-specific per se rule of functionality, but rather requires an individualized, fact-based inquiry into the nature of the trademark. If the mark passes the functionality test, it still must “be shown not to have a significant effect on competition in order to receive trademark protection,” the panel wrote.

The Second Circuit’s Louboutin decision will likely influence future cases involving the aesthetic functionally defense, but there is still widespread disagreement on the issue among the circuits, said Robert Zelnick, a partner at McDermott, Will & Emery who specializes in trademark law. Indeed, in a footnote, the panel noted that the Seventh Circuit has applied the doctrine of aesthetic functionality liberally, holding that “[f]ashion is a form of function,” while the Fifth Circuit “rejects the doctrine . . . entirely.”

“But the Second Circuit’s decision will help other courts,” Marsh noted. “They set out a test, and that will have an impact on how other courts apply the doctrine.”

Ultimately, the court ruled that Louboutin was eligible for limited trademark protection on its distinctive red-soles and found that YSL’s monochromatic shoes did not infringe Louboutin’s trademark.

“This was a win-win for fashion, in that a major player gets to keep and enforce its mark and another major player saves face by successfully defending against infringement,” said Marsh, adding that for Louboutin, which was looking for a flat-out affirmation of its mark, “this probably wasn’t the best test case.”

See also: “Second Circuit Revives Louboutin’s Red Sole Mark, but with Scuffs,” The AmLaw Ligitation Daily, September 2012.