What Ifs? Trademark Law I

Irene Calboli, Marquette University Law School, What if trademarks were, after all, protected as property?

Practitioners see TMs as property already. Yet this isn’t the theory in the US (though it is in Europe). Protection is based on confusion, and to a certain extent on avoiding free riding.

We might be better off under a property regime. We can cabin TM law more and better using property tools, along with getting clearer laws and fewer lawsuits. Historically, TMs have been treated as property sometimes, though the characterization has waxed and waned. The objection: trademarks are language and symbols that shouldn’t be propertized. The result: property theory shifted to “goodwill,” not the symbol itself. State dilution laws gave property-like protection, augmented by federal law in 1995. At least for famous marks, we have a form of propertization now.

Effects on establishment of TM rights: Propertization need have no effect – distinctiveness plus use/intent to use are the two pillars of establishing rights. (Would you deserve compensation from the government if your mark became generic, like eminent domain?)

Effects on enforcement of TM rights: Consumer confusion is important in the European system as well. Infringement is a trespass – but that still requires confusion, except for well-known marks that have dilution protection. Stronger TM rights can of course be abused, but there are still defenses – nominative use, descriptive use, parodies/other First Amendment defenses – the same as property defenses of easements, necessity, etc. Maybe we could even convince courts or legislatures to expand TM fair use doctrines.

Transfer of rights: Would enable assignment in gross and naked licensing. But marks can still be cancelled if they are misleading or generic. So if assignment or licensing harms consumers, the mark could be declared invalid. (My thought: could we draw an analogy to nuisance? You could even get a disparagement/scandalousness defense out of that.)

Property is not an evil word!

Mark P. McKenna, St. Louis University School of Law, What if trademark law really focused on consumer decision-making? (with Dan Hunter)

Framing the issues: TM not as unfair competition law, but part of law of consumer decision-making, a broader concept than search costs. Consumers don’t go into the marketplace with fixed, exogenous preferences and then search for a good fit, which is another reason to reject the standard search costs rhetoric. Still, his project focuses on the ability to make decisions, not on preference formation.

The contours of this problem differ from the standard concept of confusion in TM law. Lots of non-TM TM uses can interfere with decision-making. There isn’t a decision-making reason to distinguish between TM and non-TM uses, though there may be other reasons. “Source” confusion is different from other types of confusion, such as confusion about product attributes, but they’re all relevant. So he will make a case for a materiality requirement – there are cases when consumers use information, but it’s not clear that it hampers decision-making in any way. Thus, there should be a general requirement that information matters to consumers.

There are also many cases in which plaintiffs try to obscure ownership. That ought to be governed by the same law – it’s just as problematic as anything a defendant might do.

If this is a decision-making problem, we should take into account other things we know about the decision-making process. For example, some segment of consumers experiences a “tyranny of choice” – information/choice overload stymies the ability to choose.

A brand (consumers experience brands, not marks) activates a series of associations. Apple® = computers, iPods, innovative, underdog, cool, high tech, quality, secure, artistic, etc. Brand associations are multidimensional – there is brand image, brand attitude (do I like it?), and perceived quality, which are not necessarily dependent on one another. Consumers use context to distinguish Apple computer from apples at the supermarket.

Moreover, consumers are inveterate categorizers. Dell has some associations that overlap with Apple, because consumers lump product categories together.

The question when consumers see a new product: which associations will be activated, and will they matter? Often similar trade dress will activate similar product features – signalling an intention to compete. This is only a problem if it’s not clear that the source is different or if the products don’t actually have the shared attributes being signalled. Consumers can understand differences easily in things that are overall similar – the differences stand out versus the similarities.

The other possibility is Microsoft shoes – what do you get out of seeing Microsoft on shoes? This would only be a problem if consumers thought that Microsoft had some ability to make good shoes. The shoemaker could be borrowing a lot of recognition value, but the decision-making impediment would only arise if the recognition included a perception of expertise. Consumers are unlikely to care that the shoes could be from Microsoft, which is why McKenna thinks materiality is an important requirement.

Sufficiently broad protection for brand values harms consumers, even when it’s good for Microsoft. Debate in the literature: is advertising valuable? It creates differentiation (call it artificial if you want), multiplying dimensions of choice for consumers, amplifying the tyranny of choice problem. Thus, even if it’s true that TMs allow us to make choices, the net effect might be too much choice, making broad TM protection bad. (The missing idea is that broad protection generates more TMs. Is this true?)

Lars S. Smith, University of Louisville, What if eBay Inc. v. MercExchange, L.L.C. had been a trademark case?

eBay is a patent case about a type of marketing. The Supreme Court holds that whether an injunction should issue depends on the traditional equitable factors – irreparable injury; availability of adequate remedies at law; balance of hardships; and public interest. The history of equity involves case-by-case determinations, not automatic injunctions.

The problem was that the Federal Circuit had a different rule, requiring permanent injunctions in almost all circumstances in order to preserve the right to exclude as the essence of a property right. The district court did do the 4-factor analysis and initially declined to issue an injunction. But the district court focused on some facts the Supreme Court didn’t like – MercExchange’s willingness to license and lack of practicing its patent. So it would suffer no harm from a pure damages remedy. The Court pointed out that many inventors, like university professors, can’t make their inventions but can only license them. Moreover, the court’s skepticism about business method patents can’t justify denying an injunction if the patent is valid.

Both the patent and TM acts speak of equity in authorizing injunctions. As with the Federal Circuit’s rule, we have doctrines saying that damages are inadequate in TM cases because of the inability to control the quality of the goods sold under the mark – these damages are irreparable and unmeasurable by their very nature. Courts don’t even balance the harms between the parties. Harm to consumers should fit into the public benefit factor, and is sometimes mentioned.

Where are we now? Audi AG v. D’Amato, against a cybersquatter. The court of appeals applies eBay and the four-factor test for the district court, which hadn’t done so. Audi wins because it’s shown irreparable harm – the risk to Audi existed along as the website was operational. After eBay, the court should have sent the case back to the district court.

In most cases, you can show irreparable injury in infringement, because of the public interest. So why go through the formality of stating the test? Prior cases were lax in requiring district courts to do that. Dilution, though, causes particular problems. §43(c) has its own equity provision authorizing injunctions – but where is the irreparable harm? Where is the public interest? It might be on the side of denying an injunction – but you can’t ordinarily get damages under the dilution statute, which may mean that there’s ordinarily no adequate remedy at law. A puzzlement!

Gibson for McKenna: Didn’t we have a materiality requirement in the old cases about sports insignia as “functional” of signalling loyalty rather than source?

McKenna: The early trade dress cases had a materiality requirement. In a lot of cases consumers don’t need the name and the package and the dress to distinguish products – diminishing returns.

Gibson for Smith: Why not look only at the public interest in granting injunctions?

Smith: Contrast that to justifications in patent area – we want to support the integrity of the patent system, which itself serves the public interest. That’s more tenuous than protection against confusion. Access to technology is more attractive than access to misleading representations.

Ramsey for Calboli: What about property in descriptive terms? Would classification as property strengthen descriptive marks?

Calboli: If it has secondary meaning, it’s a mark. It need be no stronger in scope of protection against confusing use.

Q for McKenna: You’re trying to distinguish the informational content of brands, but brands like Virgin have “hip” and “cool” associational qualities. Why not think that some Microsoft associations will transfer to the shoes?

McKenna: The question is whether quality associations transfer. Hip and cool are producer problems (for competing shoemakers?), but not consumer problems – that doesn’t make consumer decisions worse.

Q: So are we talking about quality as a spectrum of good and bad, or attributes?

McKenna: They are different dimensions of the analysis. What do you expect from this product? If you think Microsoft can make shoes, that might add information.

My question: Does TM protection produce more marks?

McKenna: The expansion of TM rights has led to different levels of branding, so there is an expansion. They are trying to differentiate across non-product attributes, and TM law is partially responsible for that. (I want more on this argument.)

Beebe for McKenna: How does the shift towards a decision-making model reflect on preference formation?

McKenna: He doesn’t care whether someone wants a product or not, just about whether someone can get what s/he wants.

Beebe: But isn’t that just search? Search seems like a way of thinking about preference too, as you add information through your search. Also, the 1962 amendment removed the reference to consumer confusion, so it’s going the other way than you want.

McKenna: He’s willing to change the statute. Back to the basic problem: if we lump preference and search, we have difficulty analyzing the law – it helps to distinguish how we decide from what we decide.

Seltzer for McKenna: Might a brand (like Virgin) that covers many things give consumers less information?

McKenna: He’s not persuaded given that consumers use product categories so extensively, so they probably evaluate the products by category anyway, but he needs to think about it.

Lemley for Smith: In dilution, plaintiff will always win (1) and (2) – damages are unavailable and thus the legal remedy is inadequate. Can the public interest factor ever outweigh that? If not, what’s it doing in the test? Relatedly, do we ask the public interest question in general or specific? Most cases say “enforcing patents is in the public interest.” If you asked about the effects of a particular injunction, you’d have a powerful tool for TM cases.

Smith: The weird thing is that the dilution statute refers to equity – and you have to add in the harm to the defendant, whose use of the mark isn’t causing confusion. Could consumers ever benefit from that? Future developments in the courts might provide more guidance.

Lemley: So if we said (1) and (2) always favor the plaintiff, and the public interest favors enforcing dilution, then what does it mean to have “equity” in the statute?

Smith: Congress wasn’t thinking about eBay. (My comment: There are other types of equitable doctrines. The ones of most relevance, I would think, are laches, acquiescence, and unclean hands.)

Q for McKenna: There are multi-product-category brands. There’s a reason they’ve branded multiple services – there’s got to be a connection to the “how” of consumer preference formation.

McKenna: The question for me is how a consumer decides whether a product encountered in the market is something s/he wants to purchase. Do product characteristics or perceptions of quality transfer? The literature: they don’t always. This is why lots of brand extensions fail. He can’t tell you ahead of time when that will be true, but it won’t always be true that an association affects consumers, and we should make plaintiffs prove that.

Q for Calboli: The UK TM statute calls TM a property right. But we don’t have any examples of suits against TMs as a nuisance.

Calboli: The European system is a lot like ours.