Search Costs and Brand Equity in Trademark Law
Chicago School economics posit two justifications for TM: (1) by allowing owners to reap benefits of quality, provides incentive to invest in quality; (2) increase economic efficiency by providing information to consumers that consumers would otherwise have to expend resources acquiring, lowering consumer search costs and increasing social wealth overall.
First: is this true? Descriptively incomplete: oversimplified assumptions of rational consumer behavior. Second: what does it mean for law?
The model assumes consumers are looking to satisfy set preferences, matching options to preference set. Heart is a rational actor assumption, subject to standard behavioralist critiques of rational actor models. What are the actual decisionmaking processes of consumers? Literature on brand equity provides some evidence.
Marketing literature defines brand equity as the incremental value of a brand and the marketing efforts of the brand compared to an identical unbranded product.
This shares structural affinities with the law and economics model: the brand premium. Most branded products and services have a brand premium—Tylenol. (I wonder whether it makes a difference whether there’s brand premium v. other brands or only brand premium v. house brands—a lot of times Pepsi and Coke cost the same in the store/machine, suggesting no brand premium as between each other.) Brand premium includes physical and possibly psychological qualities, plus the value of the information conveyed by the brand. Law & econ: The more information the mark conveys, the less resources the consumer has to expend in searching, and the higher premium a consumer will be willing to pay. Importantly, the content of the information is irrelevant, as long as it’s info a consumer would use in search. The value of all types of information can be expressed in consistent units.
Marketers take a different approach. Two conceptual divisions: perspectives and methodologies. Brand equity is usually analyzed either from the perspective of the firm or from the perspective of the consumer (willingness to pay more). Methodologies: diverse approaches, but they divide generally into qualitative and quantitative. Qualitative approaches look at consumer psychology—what do consumers think? What associations do they have with the product, or not with the product but with the brand—value, luxury, social status, etc.? Perceived quality: a particular type of subjective evaluation. Brand loyalty: tendency to stick with previous brand, for whatever reason.
Some of these elements fit very well with search costs as a model, and some don’t fit at all. First, product attribute associations and perceived quality fit well. Relying on brand to provide product info. Non-product-based associations are harder, especially when the associations derive from advertising and not experience. Doesn’t want to get into advertising debate generally, but will engage with a couple of law & econ chestnuts: First, law & econ folks say that ads can’t deceive consumers for long, because consumers will react to experience. If ads get people to rely on emotion and intangible values, that’s just an expression of individual subjective utility, and we shouldn’t decide to discount subjective preferences. He might quibble with that as applied to status goods, but leave that aside.
What about brand awareness and brand loyalty? They influence purchase decisions because, all else being equal, we prefer the familiar over the unfamiliar. The market-leading brand in many categories is impossible to displace. Where familiarity is based on experience, we might not care much. But where familiarity is built primarily through ads, the costs of which are borne upfront by producers with the expectation of charging a brand premium, the search costs models have a problem. Producers have an incentive to get a foothold in consumers’ minds regardless of conveying any product information.
The degree of reliance on familiarity in purchasing isn’t consistent across product—low-involvement purchases are more likely to rely on familiarity; brand associations appear to be as important as familiarity in luxury hotel market; in cellphones, brand awareness seems to be key to decision to purchase branded over unbranded product.
Implications for trademark policy? First, insofar as TMs influence consumer decisionmaking as a result of marketing, the economic function of TMs isn’t a simple transfer of information provision from high-cost collectors (consumers) to low-cost providers (producers). Instead there’s also rent-seeking: familiarity has a payoff. Marketers are taking advantage of this feature of consumer psychology to obtain a higher brand premium without providing their part of their bargain: the information.
The variability across industries suggests we can’t base conclusions on purely theoretical foundations or a priori reasoning. Individual TM situations matter.
Mark Lemley: Can’t this be fit into search costs framework? True that ads drive
brand loyalty in nonrational ways dealing with a particular product. But is brand loyalty not rational in the long term, and information cost-forcing as well? I establish brand loyalty by buying the product and liking it, or people say good things, or I see it and it looks cool—all of which may have product/info-forcing incentives.
A: True perhaps of brand loyalty, but not of recognition/awareness, which is a separate driving factor. W/r/t whether those decisions line up in the long run with search costs, that may be true, but that’s an apology for the search costs model rather than an argument in favor—search costs model is wrong, but policy implications may be the same. Maybe, but given empirical variation across industries, that shouldn’t be enough.
Q: Rational if you want to minimize risk; following familiarity is a way to minimize risk.
A: This turns out to be signalling theory in ad theory: investment in ads is a signal. But does that justify TM protection? It may be that there’s a correlation to consumer decisionmaking, in which case that gets us close enough to a welfare-maximizing policy. But familiarity is sticky. Even if there is some discrepancy between familiarity and actual experience, the willingness to depart from the heuristic is inefficiently less—less than it would be if we were acting rationally.
My version of the reaction: I don’t think this paper can avoid engaging the debate about advertising generally. What if brand familiarity/awareness arises from quality/justified success? See in particular the law & econ defense of ad expenditures as reproductive fitness indicators: I can afford to advertise, thus I am a reliable brand. More broadly, you may have to engage with whether heuristics are efficient to hold the position taken by the paper.
Naming, Identity and Trademark Law
Part of larger focus on attribution. We want recognition as the source of our creative efforts, and thus attribution can function much like TM in providing consumers information about source. There are concerns with using TM to deal with attribution; broadening TM may further expand an already overexpansive doctrine. Also, we think of names as part of identity, and it feels a little unsavory to bring that into the commercial marketplace. We in the US ask “who are you?” not “what are you called?” as other languages often do—strong connection between name and identity.
The law, however, has treated the adoption and changing of personal names and the adoption and changing of TM very similarly, in a functional way. This provides reason to think of attribution in TM sense.
Instance of changing name to signal change in identity: When ValuJet flight crashed into the Florida everglades, and the company reemerged as AirTran. Breaking a negative connection; the law allows this. Or maintaining a name, but changing the characteristics—the law tolerates a fair amount of this as well. E.g., selling used/reconditioned goods.
Both regimes developed similarly. Personal names have both denotative and connotative functions—shorthand for a bundle of associations attached to a person. Likewise with trademarks. Names can also indicate gender, nationality, age (Agnes v. Britney), region. We’ve all seen studies where names make a difference in how resumes are evaluated. Names need not be unique—we can tolerate duplicates, like we tolerate multiple Deltas, as long as we can get the right person from the context.
Meaning is made by consumers: the associations are made by others, not by the named person.
The power of names: G.W. Bush liked to give nicknames to reporters; this was an exercise of power. Likewise over history various people have been forced to accept various new names.
Social agreement on meaning and functionality of names. Qualitex: Anything can be a TM, regardless of ontological category. What about personal names? Courts held that certain things cannot be names—requests to change names to 1069 or the roman numeral III or the letter R have been rejected. Fraught with potential for confusion. More recently, like TM doctrine, courts deciding personal name cases have allowed more changes--! and Zea (single name) have been allowed, so long as the name indicates a person.
Multiplicity of identities: fluidity. Even when surnames began to come into existence, they were functional and would change during life: John Williamson might become John Miller who might become John Westfield. We do change names fairly frequently to indicate certain things and to create certain multiplicity of identity: celebrities, individuals who undergo religious conversions, partners to a marriage (why the gender-neutral language, when the practice is decidedly not gender-neutral?), writers segregating scholarly from romance novel writing, registration for email accounts. Corporations do the same thing: Estee Lauder and Clinique; Philip Morris and Altria; Blackwater and Xe, etc. Is this deceptive? The law doesn’t have any problem with multiplicity so long as the name functions as an indicator of source at its particular moment in time. Courts have refused to set contracts aside just because contracting parties used to go by different names.
More TM analogies: People still get name changes rejected on deceptiveness grounds (Chief rejected as deceptive indicator of authority; names of other people adopted for misleading others into a belief in relationship or identity with a famous person—Peter Lorry) and scandalousness (Fuck Censorship). Santa Robert Claus was rejected because public has a proprietary right in Santa.
Flip side: change in characteristics, yet maintaining the same identity—reveals disjuncture between identity and meaning. A tiger has four legs, but a three-legged tiger is still a tiger. Champion Spark Plugs, Nitro Golf Balls cases—how many characteristics can you change and still use the same name? Possible insight from transgender cases.
Q: What about parents naming children? That would be more analogous to registration than adult name-change cases.
A: US doesn’t regulate initial naming choices, so we don’t get as many of those as legal controversies. Other countries do—is there a parallel between TM theories and naming theories across nations?
Q: Literature on psychology of naming—the importance to the namer, the parent who gets to bestow the name. Do those lessons tell us anything about all those clients who feel about their brand that it is their child? Maybe interesting parallels.
A: Yes, naming is aspirational in a lot of ways.
Brandjacking on Social Networks: Confusion About the Source of Information or Advertising
Unauthorized use of TM on social networks to impersonate brand owners. For a news provider like the NYT, might be an easy infringement case against a competing news provider using Twitter etc. But if the TM owner isn’t in the business of providing information, is there infringement? There’s no confusion about the source or quality of goods/services. So look at cases about sponsorship and free expression.
Someone registered Nine West Shoes on Facebook and claimed to hold model auditions—asked women to send pictures of their faces and their toes, along with personal information, for a chance to be a shoe model. Had a Nine West picture on the site and a link to the official site, though they used a gmail address.
Janet/ExxonMobilCorp on Twitter—started talking about Exxon’s plans, the Exxon Valdez, etc. Turned out she wasn’t an official source from Exxon, maybe an employee not authorized to talk; Exxon says some of the information was false. Could harm consumers—could turn them off from a product.
Malicious impersonation of people is a problem, as is impersonation of companies. Or a person might just think it’s funny to do.
Think about noncommercial speech cases. Impersonation v. using the mark in expression to talk about the markholder, satirically or otherwise. Impersonation: we might want courts to find infringement, whereas other situations should trigger speech protections. Clear parody: difficult to find infringement. Courts can draw the line between parody and impersonation. Disclaimers can help, but if it’s not clear to a reasonable number of consumers whether it’s really the mark holder, there’s a problem. Transparency and accuracy is important—people want to know who’s speaking.
Another consideration: should we require not only evidence of deception but also evidence of bad faith intent to harm the markholder? Texas passed a law making it a felony to impersonate someone else with intent to harm, defraud, intimidate or threaten any person. If someone’s impersonating you, maybe there should be a cause of action! But there is a tension with the First Amendment.
Social networks may overreact and prohibit all mention/use of TMs; an upside of more rules would be to make it clearer what social networks should do to avoid secondary liability. Companies themselves need to create rules for employees about blogging without authorization—which also has free speech implications; cf. Marines’ condemnation of Facebook and Twitter.
Registering domain name/username: shouldn’t be enough to trigger her rule. You’d need content suggesting that you are the markholder.
Elizabeth Rowe: Consider phishing in this context: a site that isn’t Bank of America—damages on both ends (consumer and TM owner).
A: That would be one subset.
Rowe: Often in TM we say you can use another’s mark as long as there’s a disclaimer. Would it be ok to use Oprah’s name on FB with a fine print disclaimer?
A: Research shows disclaimers don’t work. So maybe you need a consistent way of indicating official status on a social networking site: Twitter has an “official account” indicator. Disclaimers can help; it’s a factor.
Comment: I worry about replacing the law of the horse with the law of Twitter. What Ramsey identifies as a desire for transparency and accuracy may differ as between Facebook and MySpace or other social networks; consider identity on Livejournal, where most usernames do not resemble personal names at all, and to use a personal name as a username is actually to make a fairly significant statement about one’s use of the service. Consider also danah boyd’s work on teens’ use of aliases and fake info. Courts are likely to be really bad at parsing the social context.
Query: why not require defamation standards to be met for noncommercial uses rather than bringing TM law into it? Also, why assume that a twitter name is a claim of identity? Sometimes that won’t be believable—I would want to make plaintiffs prove this, but I fear that courts will too often make the leap to presumption.
A: She would have a context-dependent rule—signing up for a username should be okay, but using an alias is not the same thing as using a deceptive name. There’s a TM injury. (This is also a type of injury recognized by defamation, though! The harm suffered by listeners in believing a false thing, as well as the harm suffered by the target of the attack.)
Q: Why push for law instead of governance by intermediaries? Facebook made initial choices to require real names, and that shaped the community that grew up.
A: You could argue assumption of risk—people on certain sites shouldn’t believe usernames. But sites have their hands full in figuring out what the rules are: should they require official verification from every user? The markholders aren’t deciding to use MySpace or not; they can still be harmed. (Unless, as argued, the consumers aren’t fooled by a MySpace page.)
McKenna: Injury to company doesn’t mean TM is the solution. TM is not a general purpose solution to bad behavior. Maybe this is deceptive trade practices. But squeezing the boundaries has unintended consequences.
A: She struggles with whether this should be an independent cause of action, like the Texas law, or within TM law.
(I think part of the problem is that Ramsey isn’t fully grappling with the question of when something that looks like an identity claim, “I am X,” will not be understood as an identity claim even if the content associated with it is not disclaimed or otherwise apparently distinct from what the TM owner would “really” say.)
Barton Beebe: see the Yes Men, who do these kinds of things—apologizing for Exxon Valdez, announcing that the WTO is dissolving, as if they were the official representatives—culture jamming that teaches people a Dadaist lesson. A disclaimer normalizes everything and snaps you back into the “real” world. Concerned with disallowing those kinds of practices.
A: Yes, it’s complicated. Tina Fey’s fake twitter account grew more popular when it was revealed as not really Tina Fey tweeting.
Beebe: Raises question of value of fakeness in political culture.