Saturday, December 09, 2006

Graeme Dinwoodie and discussion on dilution law

Graeme Dinwoodie, Chicago-Kent School of Law: His comments focus on the 1995 US law, which contained an inappropriate interpretation/assimilation of international law, specifically the Paris Convention's article 6bis. This partially explains what happened in 1995. The law was enacted with no theory of dilution.

There are product-based limits on TM rights and geographic limits (rights are national in nature). Both sets of limits have been loosened in recent years and discussion about them has converged, though the EU has kept them more separate.

National rights reflect the political realities of sovereignity, trumping the real geographic borders of consumer understanding. Article 6bis creates an exception to territoriality by requiring protection for well-known marks if a junior use would create confusion as to similar goods. This was more important in registration-based systems than in the US, which recognized common-law marks.

Product-based limits on TM have been dissolved by the expansion of actionable types of confusion as well as by the rise of dilution. Dinwoodie has argued that TM law should proactively work to shape consumer expectations and refuse to recognize certain types of confusion, but it’s plain that TM confusion law has expanded according to concepts of consumer understanding. 1995’s dilution law, by contrast, was not generated by a change in consumer concepts but a change in the volume of brand value.

TM owners claimed, and Congress wrongly accepted, that dilution protection was required by articles in the 1994 TRIPs agreement, which require protection against uses of well-known marks on “dissimilar goods.” But these articles are explicitly stated to be extensions of 6bis – they are not dilution provisions, but an extension of protection to new types of confusion – confusion regarding services (6bis covers only goods) and confusion regarding dissimilar goods.

Why did Congress make this mistake? Strategically, it helped TM owners get what they wanted. And the language was slippery, letting “well-known” be confused with “famous.” This sort of adding by interpreting is common: 6bis doesn’t require protection of well-known marks without regard to use, whereas WIPO’s interpretation of 6bis says that use is irrelevant. And the US has put similar requirements into a bunch of trade agreements, making it a new part of actual law.

Advocates of dilution have simply piggybacked on a doctrine with similar terminology but a standard confusion rationale. Thus they didn’t have to offer a rationale for dilution protection, just an argument that we should fulfill our international obligations. There was no need for a theoretical construct of dilution. And in 2005 again, all we were doing is trying to interpret Congress’s intent in 1995 rather than creating a coherent intellectual defense of dilution. There still is no connection between the theory of dilution and the statute we now have.

One consequence: in the absence of a theory, courts will still be able to show hostility to dilution. Scholars have offered theories of dilution, but the law is only barely congruent with, e.g., Schechter’s theory. For example, Schechter’s theory of uniqueness would only protect fanciful or coined marks, but the TDRA takes the law in the opposite direction.

Or, if you buy the search costs theory (which he doesn’t, since the theory skips over the question of whether the benefits outweigh the costs), it’s not clear that famous marks are extra vulnerable to interference with search costs. In fact, they may be less vulnerable than medium-strong marks. In the EU, the threshold is “reputation,” which is a much lower hurdle than famousness or 6bis “well-known”ness, and that’s more consistent with a search costs theory. But the TDRA takes the law in the opposite direction again, restricting protection to famous marks.

Likewise, the search costs theory can explain blurring, but not tarnishment, which is now enshrined in the statute.

This incoherence will allow courts to narrow the law to avoid creating rights in gross. V’s Secret offered some easy tools to do so, but others remain.

There are some cases where dilution has worked, revealing its true character – dilution law is a protection against unfair competition and dishonest commercial practices. Dilution worked really well as a substitute for ACPA until that law was enacted, prohibiting cybersquatting. The Paris Convention’s Article 10bis, on unfair competition, is a better source for an international obligation. “Taking unfair advantage of the distinctive character or repute of a mark,” as the EU version goes, is more honest. We should do something like that rather than put a grab-bag of actions within the trademark system, which inevitably distorts what is actually unfair competition. (For example, it creates weird problems of what counts as “use” as a mark for dilution purposes, which has spillovers into confusion analysis.)

But yet again the TDRA goes in the opposite direction by shutting off new forms of dilution, such as an independent cause of action against free riding.

A cautionary note: the US system of regulating competition less heavily may make unfair competition-based dilution less appropriate than it is in the EU, where free riding generally is more disfavored.

In sum: whatever good the TDRA does still leaves it open to a very uncertain future.

Rochelle Dreyfuss: What is the political economy of dilution? Why aren’t TM owners more resistant, given that dilution can be used against them?

Dinwoodie: There is a strategic calculation that mostly the big companies are going to win, and can buy off small companies. The 2006 amendment preempts state and federal dilution actions against federally registered marks, which also helps big TM owners. (Though note that INTA opposed any preemption at all.)

Mühlendahl: TM owners have been supportive of the EU approach, because unfair competition law isn’t harmonized as TM law is. The academic community was also supportive.

Dreyfuss: Was that for harmonization/unification reasons or a normative assessment of the merits?

Mühlendahl: The German influence was very high. And all countries voluntarily adopted the dilution provision, which was optional.

Bone: He’s dubious about letting judges rove around figuring out what’s unfair. By eliminating the TDRA, it might have value, but unfair competition begs the normative question of what’s unfair, and judges tend to think they know it when they see it. But judges don’t always agree. Judgments of unfair competition are often primitive kneejerk intuitions rather than well-thought-out – and the question becomes one of institutional competence; should judges be figuring this out piecemeal? Public choice problems with legislation mean that we’re choosing between two evils, but he’s still skeptical of judges.

Barton Beebe: What is Dinwoodie’s idea of unfair competition? We don’t have the “unfair advantage” language, meaning that judges are limited to dilution and tarnishment, or perhaps even to §43(a).

Dinwoodie: He agrees that descriptively unfair competition is unavailable under the TDRA. It shouldn’t be, though. Judges are better than legislatures because they make fact-specific interpretations that don’t turn into broad property rights. Even with bad decisions like PETA, which took eight years to dissipate, you don’t get the same stare decisis effect that legislation inevitably has.

Sheldon Halpern: It’s Kafkaesque to try to make an irrational statute rational. He doubts that the drafters intended to limit the scope of dilution to prevent a tertium quid like free riding, but that’s what happened when they were trying to define blurring and tarnishment. The task is to find ways to prevent this emerging right in gross from being unfairly applied. Halpern trusts judges more to prevent egregious results, especially since Congress isn’t about to repeal §43(c).

Bone: Initial interest confusion was created by judges, not Congress. Post-sale confusion was created by judges, not Congress. He can go on. The most egregious forms of unfairness are ones to which Congress will respond, as with ACPA. Would we live with cybersquatting until Congress acts? He thinks that’s a reasonable price, especially since Congress might act faster if courts say they can’t. Clearly there are areas in which one must give discretion to judges, but a broad unfair competition action risks substantial costs, not because judges are bad but because the problems are difficult and specific rules have broad and unintended consequences. Thus, though he likes judges, he doesn’t like a general unfair competition right.

Dreyfuss: A court at least has to look at the facts of a particular case, which Congress doesn’t.

Annette Kur: Americans wonder more about the rationale for dilution than Europeans, perhaps in part because of the pressure on Europeans to harmonize. Schechter was of course citing a German decision, so we started from similar places. We’ve both moved away from uniqueness to fame/reputation. Also, Schechter emphasized that protection must be granted against use on dissimilar goods and in the absence of confusion, but these are two different things. In Europe we’ve always been extremely concerned about the dissimilar goods part, whereas in America the nonconfusion part has been more problematic. It’s easier to grant protection against dissimilar goods because it’s easier to identify harm in some circumstances. Another difference: Europe is more ready to protect against a pure taking advantage of the mark even in the absence of damage. In the Rolls Royce case, for example, Rolls Royce didn’t suffer harm from being used as a symbol of luxury, but it was an unfair free ride anyway.

David Bruce Wolf: Before the Lanham Act, there was a national law of unfair competition. Section 44 of the Act does talk about unfair competition (and Dinwoodie says was to some extent inspired by the Paris Convention), but for some reason all our energy has gone into §43.

Dinwoodie: If that sleeping giant awoke, it could change things a lot.

Tony Reese: We’re selling federal judges short if we think statutory definitions of blurring and tarnishment are going to stop them from adding new things – judges were happy to use the old definition against cybersquatting and free riding. Since we don’t have a good theory of what blurring or “impairing distinctiveness” is, we can shovel a lot of things into blurring that might otherwise have been called tertium quid/free riding.

Dinwoodie: Read textually, it seems that courts can ignore the statutory blurring factors. Courts can surely do this, though it’s likely to create an apparatus of multiple factors.

Mühlendahl: German law is full of general clauses given content by courts, such as businesses having an obligation to conduct business in “good faith.” But it depends on the experience of the judges, which differs across jurisdictions. Given these differences, it’s a good idea to spell out the rights in the European context and have the ECJ around to resolve persistent conflicts.

Rights in gross: This has never been a problem in Europe, where many countries don’t care about a use requirement, much less assignment in gross. There’s no international exhaustion, allowing an infringement action against an unfaithful licensee where there is no confusion.

Geoffrey Hobbs: Avoiding rights in gross was part of English law, and getting rid of the doctrine was a big deal. But the idea that there are no rights in TMs as such is a quirk of history having to do with long-ago theories of court jurisdiction. Sooner or later it will disappear in the US too.

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