Trademarks Okediji Spring 2014
I. Trademarks Background
A. POLICY FRAMEWORK
1. Economic Arguments
a. Social benefits of preventing consumer confusion
i. Keep consumer search costs low
1. We want them to spend less time and money finding what they are looking for, resulting in a more efficient market
ii. Preserve incentives to maintain and improve quality
1. Search attributes- this is what the level of quality will be reduced to without protection- all the competition would be here
2. Experience attributes would be sacrificed without TM protection- these can be discovered only after purchase
3. Credence attributes- can never be verified (except by consumer reports and studies) so they will be ratcheted down if TM rights are not protected
iii. Preserve incentives to advertise
1. If firms cannot reap all the goodwill benefits from advertising, they will not put as much money into it
iv. Preserve incentives to innovate (be careful with this one)
1. Increase in incentives will be marginal
2. Other laws –copyright and patent– protect incentives to innovate so we may not want to extend TM law this far
b. Social costs of TM protection
i. Administrative costs of enforcing legal rights and maintaining a registration system
ii. Monopoly costs- TM protection confers more power and makes it harder for new entrants
1. This may not be such a great concern today, except with regard to trade dress
iii. Impairment of 1st Amendment interests
2. Non-economic arguments/Fairness
a. Protect seller goodwill
i. From Appropriation- But free-riding on goodwill is not always bad (so as a moral argument, this is probably not enough)
ii. From Injury- if the infringer is somehow tarnishing or diluting the goodwill of the TM owner
b. Prevent lying to consumers
i. Especially when it is intentional- a moral argument
c. Protect consumer autonomy
i. Consumers have a right to complete and truthful information about products (but does such a right really exist, and if so, how strong of a right is it?)
d. Protect commercial identity
i. Firms have a moral right to control their identities and how they are presented to the world (but is there really such a right)
B. HISTORY OF TRADEMARK LAW
1. Early period
a. Marks were not needed in small towns. Marks only become necessary with national markets.
i. So, trademark protection was based on the theory of fraud, a common law tort
b. Changes
i. But then Railroads are built and goods can be sold long distance
ii. Literacy increases and advertising becomes more worthwhile
iii. Mail order begins to develop
iv. Movements to urban areas; department stores develop
v. Preferences of rural population begin to change as well
c. Now, people need to rely on marks to determine source.
i. Two separate torts- based on very different theories
1. Tort of trademark infringement
a. Protected “technical trademarks”- words that were fanciful or arbitrary, and sometimes suggestive
i. Protected only when they were used on goods, and only against direct competition
b. Theory- property- the firm has a property right in the mark
i. Not based on consumer confusion
ii. This theory later transforms from having property in the mark to having property in the goodwill attached to it
iii. Personal names were not protected here
2. The tort of unfair competition protect trade names
a. Personal names were protected here, as well as descriptive marks, for services as well as goods
b. Much harder to prove
i. Had to show
1. Secondary meaning
2. Intent to deceive
c. Theory- fraud or deception
2. Unfair Competition law expands
a. International News Service v. Associated Press (1918)
i. Facts- D was not taking the literary text, just the news and the facts
ii. Holding- Supreme Court enjoined D from using P’s news for a period of time- “the hot news doctrine”
1. Reasoning- The court has to invent a new theory to do this- D had not taken any trade secret- no Copyright violation either
a. So the court invents misappropriation as a part of unfair competition law- “thou shall not reap where thou hath not sown”
b. In general, courts have been reluctant to apply this doctrine
2. Dissent says new law like this should be left for the legislature- this holding will affect how people in the west get important news. Rather than an injunction, maybe D should have to pay for the news they use
3. Modern law develops
a. 1905 Trademark Act-
i. Only technical trademarks protected
b. Legal realism-
2. § 3- same requirements apply to service marks
2. Secondary Meaning – “arises in the minds of the public, the primary significance of a [mark] is to identify the source of the product rather than the product itself”
· Question of fact
· Sufficient if public is aware that product comes from a single, though anonymous, source
· Primary significance of terms in the minds of consuming public is producer, not product
a. Zatarains v. Oak Grove Smokehouse
i. “Fish Fry”
1. Tests to determine whether suggestive or descriptive:
a. Imagination test: does it take a leap of imagination to connect the mark to the product?
b. Dictionary test
c. Competitive need test: if there are limited alternatives competition will suffer
d. Look at how the mark is used by competitors
2. The mark is descriptive, so, is there secondary meaning in the mark?
a. Do consumers associate the mark with a particular source?
i. Surveys (look at how the survey is designed)
ii. Circumstantial evidence
1. Length of use
2. Sales
3. Advertising expenditures
iii. Intent to deceive- secondary meaning can be inferred from this alone
3. Does the fair use doctrine apply? If so, any firm can use the descriptive mark in a descriptive way without liability
b. Policy- why require secondary meaning for descriptive marks but not inherently distinctive marks?
i. Error-cost analysis-
1. Inherently distinctive marks will most likely act as source identifiers from the start, and there will be no anticompetitive effects resulting from protection because many alternatives are available
a. This reasoning will not apply as strongly with regard to suggestive marks
2. Descriptive marks might be needed by others to describe their products, so there would be anticompetitive effects if they were protected without secondary meaning
