Sunday, March 01, 2009

Drake IP Scholars, Panel 4

Panel 4: Trademarks

Jasmine Abdel-khalik, UMKC School of Law ―The Mythology of Dilution

Interested in market niche fame versus general fame, and the relationship between market and geographic fame. This ties into the broader stories we tell about dilution. Here are some myths starting to circulate about dilution and perhaps unfairly narrowing it.

First, that the authority for dilution is statutory only. SCt has said that dilution is not a development of the common law. The effect is to say that if it’s not in the statute no claim is possible. At least five states recognize a common-law dilution claim: Ohio, Michigan, New Jersey, Minnesota, Illinois (though they didn’t always explain what the authority was). To the extent the states implemented statutes, they stopped relying on the common law, but Ohio didn’t get a statute. The federal district courts in Ohio, though, indicated that dilution in purely statutory. This myth is reinforced by the legislative history of the FTDA.

There are common-law antecedents: protecting TMs in noncompetitive settings. If that’s the essence of dilution, which is up for debate, then common law cases have recognized it. But Texas has rejected allowing a common law dilution claim, artificially narrowing the scope of state protection. We may not like or understand dilution, but to artificially narrow its applicability seems inappropriate. It should be under the umbrella of unfair competition under the common law—people fixate on the word “competition” when it’s really about dirty tricks or unethical behavior. §43(a) has always been recognized to be more limited than the full scope of unfair competition.

Second myth: If we have state dilution claims, do they have to be circumscribed by the same limitations as the federal law? Niche fame is not the same thing as geographic strength in a sub-US market. Congress wanted to avoid the problem of “niche market fame,” which undercuts the purpose of dilution (dealing with noncompeting uses). If my reference to a mark requires you to know what class of goods we’re dealing with, the mark doesn’t have a strength that goes beyond its class and thus doesn’t trigger the justification for dilution. But geographic strength doesn’t cause that problem. TM has always been territorial. In-n-Out Burger as an example.
States are already starting to limit their state statutes by applying federal fame standards. She thinks this is not doctrinally required.

J. Shahar Dillbary, University of Alabama School of Law ―The Role of Trademarks

Economics of TM: TM provides two types of info, info about the source and the product. The law focuses on the first type of info—helps the consumer choose among (possibly partial) substitutes by reducing search costs. But even when search costs are zero, a TM is still valuable because it reduces consumer uncertainty about product qualities. Consumers can decide how many units to purchase more easily.

A brand provides information about product attributes/ingredients. If you know that coffee generally has 266 mg of caffeine and that the daily limit recommended is 300, you won’t buy more than one coffee, but if you know Starbucks vanilla grande only has 150 mg, then you can buy two. Subway, similarly, is trying to create a mental association with its products and low calories. A TM may be the only means of communication a seller has about its own product.

At least two types of fraud: interbrand fraud, interfering with information about the source and ability to choose the right product. Intrabrand fraud occurs when a producer passes off his product as having a quality it doesn’t have. That’s the part that interferes with consumers’ attempts to buy the right quantity of units. Splenda: “made from sugar, so it tastes like sugar.” Suppose J&J changes the product so it’s not made from sugar, but continue to affix the mark Splenda. Consumers will be defrauded. TM law doesn’t protect consumers against this deception, but it should.

Yvette Joy Liebesman, St. Louis University School of Law ―When Your Trademark Is Also Your Name

Rights in names being sold now are going beyond traditional assignments, into indefinite noncompetition clauses, prohibitions on any public use of one’s name, and so on. Should contract doctrine allow complete alienation of one’s name?

Assume the contract was voluntarily and fairly made. What then?

Early on, courts were willing to enforce name transfers even when there was no confusion—1888 (Mass.) case upheld an injunction against truthful use of one’s own name. This trend has only grown as contracts increased restrictions on seller’s ability to transact under his/her own name, even in different markets and even without likely confusion. JA Apparel v. Abboud. Liz Claiborne has sold her rights to use in any sale of apparel. There are other contracts where the seller can’t endorse or promote or draw attention to any other business.

Suppose the agreements start specifying personal behavior because of the potential effect on the value of the mark? Should people be able to negotiate these? What remedies should be available for breach? Is it distinct from slavery/indentured servitude?
Suppose we bar limits on behavior—can we accept a clause that bars the seller from disrupting the buyer’s business? How will that be determined? Considerations of vagueness and breadth.

Does the purchase price matter? Abboud got $65 million: does that justify the contract?

Jeremy Sheff, St. John’s University School of Law ―Search Costs and Brand Equity in Trademark Law

Is the search costs model descriptively accurate? It is at least incomplete, largely for reasons that most law and econ models are incomplete, for relying too heavily on simplifying assumptions of rational behavior. Perhaps we can salvage it, but then does our revised model lead to the same normative conclusion that TM protection is welfare-increasing.

Marketing research: brand equity—the value to a firm of a brand. Two approaches to measurement. First, at the firm level, have to value it as an asset; back out the value of other assets from the total assessed value of the firm. This gives a snapshot, but doesn’t tell us about the effect of brand strategies on individual consumers and thus doesn’t help with search cost theory. Second, studies looking at how consumers react to branded products v. nonbranded—typically qualitative, but some attempts to quantify.

“Brand premium”: incremental increase in price, market share, sales volume enjoyed by the branded product that wouldn’t be enjoyed by an identical product without the brand. If the traditional law & econ model is correct, the brand premium would approach the cost of the consumer to searching for information. Any economic surplus created by the differential would be captured by the producer. Producers have incentive to provide whatever info will maximize the premium. Assuming (perfect) competition, consumers should have the optimal amount of information.

But what’s the content of the info? The model assumes that doesn’t matter. Brand equity literature identifies various types of info: brand awareness—recognition or unaided recall. Brand associations—concepts associated with the brand in memory: attributes, features, fitness for use, affective response, status signalling, etc. Brand loyalty: tendency to stick with brand.

Brand associations: There’s a debate over whether emotional associations are efficient/normatively desireable as a basis for purchase. Standard economic argument: as long as quality is objectively ascertainable from use, the market will correct for any distortions, and more generally, if people are willing to pay more, that subjective utility is an unarguable economic value.

But the other categories are not amenable to that dismissal: awareness and loyalty influence decisions because we prefer familiar to unfamiliar even if there is no other basis for decision. This is why it’s almost impossible to displace a market leading brand from its dominance. Thus, rather than giving consumers information, producers expend resources to get a foothold in the consumer’s mind, and they can still get a reward. Mere familiarity lasts longer than specific associations, even good/bad quality, so it’s more useful to marketers. Brand awareness is the most significant contributor to brand equity.

Protection of brand equity therefore looks less like a shift to the lowest-cost information provider, and more like rent-seeking. TM owners are seeking the rent of familiarity.
What can TM do? Perhaps take ads out of the equation when assessing secondary meaning. Maybe look more at consumer sophistication. Or maybe courts are not capable of doing the needed work.

Discussants: John T. Cross, University of Louisville School of Law

Love to go on about the good points, but Peter Yu is controlling time carefully!

For Abdel-khalik: Federal statute doesn’t preempt state law, true, but state dilution statutes still set the standards. Even without statute, is the proper home “unfair competition” or is it misappropriation a la INS v. AP? The problem of INS is that it’s extremely limited.

For Dillbary: Likes the idea of different bits of information conveyed by one mark. But does the law really think the only legally relevant function of TM is to indicate source? That TMs have value, which is what your point addresses, is not the same thing as saying that TMs should generate exclusive rights.

TM as possible instruments for fraud: Ann Bartow has a really good article about this, and about when a company with a bad reputation changes its name. Also, using TM to create a false market subdivision: Coors and Coors Light were initially the same product sold under two names. (I’m pretty sure there’s a false advertising case about dog food with the same issue.)

For Liebsman: Radical in bucking the trend on assignment; we’ve relaxed the idea of assigning the goodwill along with the mark. If there are good reasons to keep the link with persons, that fits into a larger issue. Finally, ask what the effects on consumers are.

Mark D. Janis, University of Iowa College of Law

Focus on Abdel-khalik: Title provoked a number of thoughts—another myth of dilution is that there is such a thing, that it even happens. We keep trying to use this label, but it’s significant that we can’t figure out what it is. Myth #2: famous marks are the ones that need protection; in fact, they’re the ones who probably need it least, whatever “it” is.

In valuing unfair competition, you’re moving against the grain: statutory work in the US is in the other direction, attempting to confine dilution through bright-line rules. If you’re talking about unfair competition, let’s talk about it really as an alternative, and stop talking about the useless label of dilution. Then you have a lot of problems and ambiguities, but it’s a useful exercise.

On Dillbary: The courts say they only protect source identification, but Janis doesn’t think that’s descriptively true. Questions: does the model apply across all types of goods? Examples are from low-cost experience goods. Are you just talking about TM as a guarantee of quality?

In attacking search costs, do we end up taking them too seriously? Janis doesn’t think so, but he wonders whether we are venerating search costs too much.

Rebecca Tushnet, Georgetown University Law Center

Let me echo the others: Overall, TM scholarship has a richness and depth right now that makes me very excited, as demonstrated by this panel.

On Jasmine Abdel-khalik: Myths of dilution: I hate dilution, so I’m happy with narratives that close off opportunities for expansion. Note the relationship between the idea that the statute sets out the metes and bounds of dilution and First Amendment constraints feared by the drafters of the FTDA and TDRA—common law causes of action that are broader than federal dilution may be unconstitutional. “Artificial” narrowing—well, the common law is supposed to develop according to sense and experience, and if sense and experience tell us dilution is stupid, then we shouldn’t recognize it in the common law. (Note also that there isn’t some perfect past of common law: TM, and dilution, are being used to protect very different things than they were forty years ago.) Compare: INS v. AP. Learned Hand thought there was no difference between INS and Cheney Bros. v. Doris Silk, but he thought INS had to be limited to its facts or copying would be killed, and copying is generally good. Learned Hand won that battle in the common law, which meant we have to go to the legislature to derogate from the principle of free copying.

See also Mark Lemley’s observation about TM owners who think “unfair competition” means “competition.” Abdel-Khalik thinks “unfair competition” means “unfair.” But, detached even from competition, what on earth does unfair mean?

Shahar Dillbary on what TM does: Illustrates that search costs are only one component of an economic analysis of TM law. Something the paper probably deals with in detail: For Starbucks, the TM doesn’t say anything about caffeine content! You have to commit additional resources, and then you can attach that information to your mental model of the TM and follow the standard search costs model. Also, as Dillbary notes, this feature is highly subject to manipulation: not only is Splenda already in several lawsuits over whether “made from sugar” is deceptive, Subway has high-calorie entrees.

This is from a recent study of people who were eating an entrée, a side dish, and a drink at McDonald’s and Subway:
The Subway diners thought their meal had 151 calories less than it actually had -- a 21% underestimation.
Chandon and Wansink also offered 46 undergraduates a coupon for a Subway 12-inch Italian BMT sandwich or a McDonald's Big Mac.
When asked what they wanted with their sandwich, the Subway diners were more likely to pick high-calorie side orders. Perhaps they thought their sandwich was a caloric bargain (even though it actually had 900 calories, compared with the 600-calorie Big Mac), the researchers suggest.

Yvette: Fascinating story—I wouldn’t have thought courts enforced such restrictions so early on! But I want to hear more about enforcement of these agreements against noncompeting uses—these examples of enforcement all seem to involve at least related markets. Have the broader agreements been tested? (What are the sellers supposed to do with themselves?)

Sheff on search costs: I love the project. But what can TM do is the big question: distinguishing the effects of familiarity from the actually useful quality guaranteeing functions may be difficult. Consumer protection law might be one place to look for a model; or even producer protection law—consider a European model of quality protection, where regulators don’t think that minimizing price or even maximizing individual consumer choice is the greatest good.

Abdel-khalik responds to comments about what the common law actually was: She doesn’t think the common law caselaw is significantly developed before Schechter. He focuses on a German case, not US law. But the early cases can be hard to sort out: they’d often say something about consumer protection/confusion, but it was a dilution type justification: protecting consumers’ automatic recognition of a mark is a benefit to consumers as well as producers. Reference to consumers was a way to change the law without being too obvious. It’s hard to reconstruct how the common law would have developed without statutes, but Ohio at least provides an example of that.

She thinks dilution stinks as it is, but still wants to reform it.

Dillbary: Loves the Coors/Coors Light example. When is it ok to change the product? The paper goes into this in detail—when it’s not material to consumers. (Though if we’re looking at emotional connections now, materiality will be harder to figure out.)

Sandeen: Unfair competititon lawyers were really worried about Erie’s effect on the common law, and there were multiple repeated attempts midcentury to amend the Lanham Act to include unfair competition principles, but in her recollection dilution was never considered part of that.

Madison: for Yvette: Example of Steve Herrell, who sold Steve’s Ice Cream and decided he wanted back into the ice cream business: Herrell’s, now in Harvard Square. What would happen to him now? (Comment: Yum. Bought two jars of hot fudge there on my last trip; they were nearly seized at security on the way home until I convinced the screeners that Herrell’s hot fudge was, at room temperature, a solid.)

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