IPSC Breakout 3: Trademark and Unfair Competition

Mary Catherine Amerine, Reasonably Careless Consumers in False Advertising and Trademark

Consumers can devote much more (or less) time to a decision than seems rational for the amount of risk/benefit in their lives. Court expects consumers to be reasonably prudent in both TM and false advertising. But courts apply this test very differently and in contradictory ways for inexpensive consumables. In TM, assumption is that consumers will be more careful with expensive goods and less careful, to downright careless, for cheap grocery items. This goes back to the 1930s. Consumers can’t be expected to examine labels carefully—they find confusion for marks that might not be very close, like BREW NUTS/BEER NUTS, POWERBAR/POWERSTICK energy bars, BULLS’ EYE/RAGINB BULL for BBQ sauce, HUGGIES/DOUGIES. Ann Bartow points out this also reflects assumptions about female shoppers, who do 80% of shopping. Class component as well. More importantly, the assumption may just be wrong. 2019 survey on “low involvement” and “high involvement” buyers; 53% of grocery shoppers were high involvement; under age 45 more likely to be high involvement; gender had weak association with high involvement, but yearly income = more likely high involvement. So courts might be wrong about half the time.

One question: how does this bear on store brands that mimic national brands.

Compare: false advertising in product packaging, where courts have very different expectations for the reasonable consumer, both Lanham Act and state law unfair competition cases, of which there are far more. Manuka honey case: court said that reasonable consumers would know rather a lot about Manuka honey. That’s a much higher standard than required in TM. Is this disparity justified? She doubts it, even based on history and tradition. Low cost should not equal low care across the board.

Mark McKenna: Is there any relationship between cost and care or differences in how that manifests in categories? That is, how should courts operationalize this? Deep tension b/t empiricism and normativity in both these areas. Is doctrine really trying to approximate empirical reality or making decisions about the kinds of consumers we’re willing to protect? [which would be an additional reason TM would be broader b/c we aren’t distinguishing among types of producers we’re willing to protect in the same way.]

A: sees false advertising cases as normative.

RT: Lowest common denominator reasoning: one response is that TM says that if consumers are heterogenous we protect the least sophisticated group regardless of whether there are costs to the nonconfused group. Consumer protection law doesn’t do that. If we said that out loud within our discussions of reasonability maybe there’d be less of a conflict.

Relatedly: probabilistic reasoning: a private plaintiff can win if a substantial number are likely to be deceived, which can be as low as 15%; in a class action, courts think it has to be presumed that 100% are deceived, and they don’t seem happy with numbers that low although they might be willing to go with 40% or 50%

Hughes: Surveys aren’t scrutinized for whether they selected reasonable consumers—which affects the “empirical” claim. [I love this point.]

TM law may also be contextless b/c they’re about registration. [That seems unlikely to me, given the number of TM infringement cases litigated about reasonable consumers.]

Courtney Cox, This is a Talk About Deception

Manipulation is a broader concept than deception. Existing laws and doctrines targeting fraud may also extend to manipulation that’s not deceptive. Courts might have more power than we think without additional laws. If we think of consumer protection law as being in part about manipulation, not deception—Joe Camel, where children are being manipulated—maybe those are not sui generis but part of a broader prohibition. There are other ways to muck with adults’ decisional processes. Methodological point: be careful about theoretical concepts because of anchoring bias (also a leading tool of fraudsters) which can lead us astray.

Evidence against this thesis: the name of the ancient tort, deceit. The name of the modern tort, fraudulent misrepresentation. Restatement Second of Torts also says misrepresentation. But we should get to ask whether deceit is about “misrepresentation” or about “deception” (the result).

Deception: A causes B to have a false belief (maybe intentionally). But a better definition includes A intending for B to conclude (or to communicate/imply) that P, acts so as to cause B to conclude that P, where P is false, and where A has the relevant beliefs. Mostly, at the very least, A can’t believe that P is true. If A doesn’t believe P is true, that may be misleading but it’s not deceptive.

Who cares? Start w/leading example of law of deception, the tort of deceit, the leading lies-based cause of action: fraudulently make misrepresentation for purpose of inducing another to act in reliance: subject to liability for pecuniary loss caused by justifiable reliance.

The centrality of reliance to this tort according to Goldberg & Zipursky matters: reliance is not about harmful lies; even if a misrepresentation harms a victim, there’s no deceit claim unless the victim relies on it. If a third party pays for a purchase by a second party that she’d already agreed to pay for (“whichever you pick”), and the misrepresentation affected what the second party chose and negotiated for, the third party can’t recover for deceit because she didn’t rely on the misrepresentation. The deception didn’t play into her decisionmaking process. Thus, it would seem that deceit is not about deception. But then what is it about? Her suggestion: manipulation. Covert or hidden influence—surreptitious mucking with the reasoning process. It’s common to confuse manipulation and deception—trick, dupe, cheat, cunning.

Once you see that deceit is about manipulation and not deception, you can choose two deceits: manipulating another to detriment or manipulating another to detriment by means of deception.

But, surprise! Restatement allows claims for deceit even if fraudster believes P is true.

RT: Perhaps if these distinctions are too difficult for philosophers they are definitely too difficult for courts and we should start looking for harm causation + falsity anywhere in the chain.

However: Joe Camel seems different from causing someone to have a false belief. “Neither true nor false”—bullshit/puffery. Saying that you “believe” Joe Camel doesn’t make much sense.

A: if we think about deceit as being about deception, you’d need a proposition, but if it’s about manipulation, there’s a potential for manipulation in ways other than a false proposition, including a surreptitious mucking with the decision process. Puffery can be false, but grownups are expected to know that “best” is not reliable.

McKenna: simple version of manipulation seems fundamentally incapable of being a rule that a court could apply; distinguishing between manipulation and persuasion is an impossible task (as is often whether they have been “harmed” by being persuaded). That suggests the narrow version—manipulating by deception—is the only way to make the legal standard manageable. [I will note that an interventionist state could decide to rely on what you were persuaded to do as a distinguishing fact, though that has a bad history.]

A: relevance to dark patterns/behavioral manipulation that we aren’t aware of and affect our decisions but don’t involve propositions. Philosophers might be able to learn from consumer protection law about how to break down the concept of manipulation [and distinguish it from persuasion?]

Barbara Lauriat, Two Nations Separated by a Common Trademark Law

In UK, goodwill is a different thing from TM protected by the tort of passing off. TM rights depend on registration, though not unaffected by use; registered TMs are property rights. UK is not “unfair competition” regime as such: protects the property right in goodwill through tort.

US: TM is use-based and protected through common law enhanced by statute; US courts identified goodwill as the property right protected by common law TM doctrines; blurred distinction between registered and unregistered marks—all protected by the same doctrine.

Christopher Wadlow identified three doctrinal strains by the 1870s: common law passing off, which required fraud and allowed only damages as a remedy. Passing off in equity, which could result in injunction without proving scienter. Statutory doctrine of property in TM, by which infringement was wrong whether there was knowledge or intent. TM law is messy and these blend; in the UK, those three strands resolved in early 20^th century into two strands: registered TM rights and tort of passing off which protects goodwill. In US they turned into one amorphous blob. 1903: Paul’s Law of TMs says in England “TM has become practically synonymous with registered TM.” 1878 treatise: recent authorities mean that TM is property insofar as an imitation will be infringement restrained by law even when there has been no fraud. What about things that couldn’t be registered? Was it supposed to take over from common law? Wasn’t clear. TMs became increasingly formalities-based: in 1905 Act, registration was source of title to exclusive right as opposed to evidence of common law right; use was not required for registration. But passing off required property to protect that wasn’t a TM. By 1915, they used “property in the business or goodwill likely to be injured by the misrepresentation.”

In the US, goodwill was the object of TM/unfair competition protection; goodwill is use-based.

Areas that highlight the challenges of combining formalities based statutory protection with use based common law protection in both jurisdictions: secondary meaning/acquired distinctiveness; incontestability; prior rights; assignment in gross; bad faith; dilution; relationship with privacy/personality.

McKenna: Periodization here is tricky b/c registration comes to UK earlier. Thinks by early 20^th century, distinction between technical TMs and unfair competition was pretty solid, though it then collapses. Trade names: now thought to be the category of things that need secondary meaning, but they used to be something different. Lanham Act drafters understood themselves as covering technical TMs and leaving unfair competition alone; courts just made up protection for unregistered marks, mostly because of Erie. There was a distinction in American law, but it got wiped out.

A: broadly agree to a great extent—not as linear as it was in the UK. US swerves at two and then gets one.

RT: [unjust enrichment: not required to show harm. Starting to create Article III problems in the US. What about the UK and lack of harm requirement?

A: there are some cases that definitely verge on harm-free. Depends on the judge. Unfair advantage—incorporated EU rules—is that unjust enrichment? Does unjust enrichment start to come naturally when you’re protecting goodwill? If there’s statutory provision, you just protect against what the statute says (though you may have to figure out what counts as “unfair advantage” from the statute).

Vidal v. Elster: Thomas claims that English law protected against use of name as fraud; no, that’s the opposite of the truth, 1848 Clark v. Freeman, where P was an eminent physician but not a competitor in the market for consumption pills; he lost because he had no claim (neither libel nor TM). English law protected against use of TMs/passing off by competitors, which could include names under appropriate circumstances.

Matthew Sipe, Trademasks

Ghost kitchens where you think you’re buying from a local but you’re getting Chili’s wings, which you might already know you hate. Rebranding after disasters, e.g. AirTran to Southwest. Makes it harder for consumers to exercise their preferences. New TMs hide from consumers. Companies also do the opposite: proliferate brands; buy small businesses and keep their names so the beer you think is local is made by ABInBev. Every beer band you’ve ever heard of is owned by two sellers. Conceals outsourcing; changes in labor practices; changes in product quality.

TM law tolerates this; it’s not misuse or abandonment. This is a problem for our ordinary conception of TM law as protecting consumers against deception, reducing consumer search costs; protecting producer investments, incentivizing producers to maintain their reputations. Masking creates deception and confusion, increases search costs, and reduces the incentive to maintain your reputation because you can bail at any moment. Even in the heartland—passing off—we are totally fine with deception and confusion aided and abetted by TMs.

Instead, the only justification for TM law is protecting producers; benefits to consumers are purely ancillary. TM owners allow producers to control search costs for consumers—raising and lowering are both permissible.

Makes TM law as competition story less plausible—not efficiency, not consumer welfare, so it’s competition law with a producer welfare standard.

Makes TM as property way more plausible: centered on preventing interference and free riding rather than public benefit; quasi-moralistic; right to destroy; lack of strong duties for owners; tolerant of inefficiencies.

Proposal: Supplementing trademarks with consumer protection—to make TMs more acceptable, control TM as vehicles of deception that are deceptive because of secondary meaning. Maybe InBev needs to put its logo on the beer brands it acquires, at least for a while. Maybe new formulas need to be clearly advertised.

Fromer: who would have standing? Competitors might be the appropriate targets in this story.

McKenna: this isn’t just about when there’s some change in the mark. Inherent in the fact that the modern source rule doesn’t mean anything like what “source” means—includes marks adopted in the first instance. The way they’re used obscures everything about the production process.

Theoretical claims about TM are grossly overbroad: TM has never been about search costs—only a very tiny range of search costs; there are millions of other sources of search costs about which TM has nothing to say. If you really cared about search costs writ large, you’d do cost benefit analysis. You’re talking about circumstances where the balance changes. But that just means the scope of TM’s concern for search costs is narrow; the assumption is that the market polices other aspects of search costs—if they change their product and it sucks, the best thing they can do is keep their TM because it allows us to punish them for that.

A: some are self-correcting and others aren’t.  A consumer might never discover that their favorite microbrewery was purchased by InBev.

Hughes: you’re against versioning? GM makes Cheerios and Trader Joe’s makes Honey O’s in the same facility. Is that also a problem because TJ’s sells what are in effect Cheerios? Thinks the deterioration problem is self-correcting. Ben & Jerry’s says Unilever on the back so it’s not deceptive.

Rosenblatt: We think of TM as being about deception, but maybe they should be about manipulation! Also, maybe this is not an acceptable regulation of interstate commerce any more!

RT: Take a look at treatment of omissions under consumer protection law/scienter requirements are relevant. Scienter and materiality are often partners: if it’s material and unexpected, we can often infer that you intended people to rely on the omission. When you have to read the back of a package as a reasonable consumer is a question presently setting district and circuit courts on fire!

A: expects that the lowest likelihood of reading the back of the box is when you’ve bought it before and already have defined expectations.