Robert Bone on dilution law

Anti-Dilution: The Theory and the Reality of Extended Trade Mark Protection in the US and EU, NYU Law, Dec. 8, 2006

First session: Beyond confusion: The evolution and establishment of a recognised right to protection.

Robert Bone, Boston University School of Law: Various courts and commentators have asked what dilution is, finding it hard to define. A second issue is the questionable social benefits of a right against dilution – is it worthwhile to protect against dilution’s harms, whatever they may be? The question is urgent because of the costs of giving trademark owners such control, particularly costs in expression and costs when dilution is applied to trade dress and thus may threaten competition.

In the late 19th century, TM law focused on consumer deception, protecting against distortions in information received by consumers. At first TM was limited to direct competition and harms to sellers that were diversion of customers and loss of trade. The goodwill being protected was the goodwill attached to the particular brand of a specific product, rather than the goodwill of the firm as a whole. In the early 20th century, nationalized markets and advertising supported horizontal integration, raising the issue of using TM against noncompeting goods. In the 1920s, the question was how far the law should go in such cases, moving beyond brand goodwill to firm goodwill. The chief concern was that the seller wasn’t losing any customers with noncompeting goods, and relatedly that the defendant’s goods might not be low-quality and thus might not cause any real harm. Frank Schechter proposed in 1927 that TM should protect the “distinctiveness” of strong (in his argument, inherently distinctive) marks. At the time, the dominant theory of goodwill was a property theory – the property was that which the firm now possesses. Schechter argued that marks were most valuable for generating new goodwill and that their capacity to do so should receive legal protection.

Courts that were eager to expand TM law seized on Schechter’s article and cited his theory in support of expansions, but didn’t rely simply on a dilution theory (loss of distinctiveness) alone or on free riding. Mostly they combined those arguments along with confusion-based harms – lost future sales from potential entry into the market, etc. Courts and commentators were rather skittish about adopting dilution theory wholesale. After the Lanham Act was adopted in 1946 without a dilution provision, states began to enact anti-dilution provisions. Judges continued to resist pure dilution theory, reading confusion requirements into the statutes, until the 1980s. At that point, courts read the statutes more aggressively, but it was still rocky, until 1995, when the FTDA gave dilution a better name.

Schechter wrote at a time when psychological advertising was increasing rapidly – a time of psychological theories about how marks can affect consumer choice. It was natural for him to focus on how TMs can be “magnetic” and to appeal for legal protection. Why should we protect magnetism? What is magnetism, exactly? If it’s gripping the consumer, do we want consumers to be gripped? If it’s irrational brand loyalty, as people worried in the 1940s, then we have some problems. Why would the law protect the ability of sellers to generate and exploit irrationality? But if consumers are making rational choices based on emotional factors, the emotion is just another component of the product and perhaps we should protect it.

Big problem: dilution appears to protect sellers and not consumers. So people have thought very hard about how to explain dilution as a protection for consumers, now conceived of as a protection against mental search costs. Identical nonconfusing marks still force consumers to take time to figure out which product is being referenced, and thus cause consumer harm. There are multiple problems with this theory – the amount of time it takes for consumers to sort out uncertainty is a few hundred milliseconds, and it’s not clear that really matters. But we do have some empirical research on the subject.

A separate issue: status goods/Veblen goods, which are diminished by copying. But that theory is also troubling and doesn’t look like TM law.

What about free riding theory? What is the goodwill we’re trying to protect? It’s not brand goodwill or even firm goodwill, if there’s no confusion. It’s really goodwill as part of the product itself – there are emotional attributes to a product, and some are transferable to other products.

If they are transferable, why is that bad? If consumers can have a good experience drinking Rolls Royce beer, then it’s hard to see why that increase in consumer surplus is a bad thing. We don’t generally condemn free riding.

Final observation: much goodwill is generated by advertising itself. Most of the value of perfume (he says, though he says he doesn’t use it) is not the scent but the experience you have when you’re wearing it, lots of which is generated by the ads with beautiful people running towards one another. (Why not use cars as an example? The emotional value of a car is a big component of its overall worth, and it’s a value felt strongly by men as well as women.)