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Trademarks and Unfair Competition
Wayne State University Law School
Rothchild, John A.

Winter 2013
What is a trademark?
·         Any word, symbol, device that designates the source of goods or services and distinguishes them from others. Examples: brand name, color, shape or packaging, service mark
Why are trademarks important?
·         As an indicator of source, trademarks are important because a source carries a reputation
How are they acquired?
·         Through use in commerce
·         Formal registration with the PTO
What are the sources of trademark law?
·         The Constitution
o   Art I, Sec 8, clause 3 – commerce clause
·         The Lanham Act of 1946
·         Common Law
·         State Statues
The Competitive Market System and the Right to Compete
·         Unfair Trade Practices Law and the Competitive Market System
o   The problems inherent to a free market economy, which encourages competition (because of its benefits), is that competitors may try to eliminate rivalry (price fixing, buyouts, etc.), and also overzealousness causing unfair competition by misappropriation, passing off, false advertising, or product disparagement.
§  Note: We want competition to be fair, but that may not be easy to define.
·         The Right to Enter Markets and to Compete Fairly
o   Even though a new business entering the market will hurt competitors by taking their sales and customers, such harm is beneficial and the essence of competition.
o   If one enters the market with lower prices and does something that benefits people (such as teaching children), it cannot be punished by the law. 
Foundations of the idea of unfair competition
●        Competition: Fair and Unfair
○        General Rule: Copying and imitation are legal (fair), unless there is a specific common law or statutory exception (e.g. trademark, patent, copyright)
○        “Misappropriation” doctrine of unfair competition (incentives based) – cause of action described as “reaping where one has not sown”
INS v. The Associate Press (pg 1) – created “misappropriation” fed. CL, to prevent the threat that INS’s actions pose to the incentives for AP to engage in news gathering
·         Facts: Competing newsgathering services.
·         Issue: Whether the practice of acquiring newspapers on the open market to gather info for another news agency is unfair competition.
·         Holding: The court held that this is unfair competition. If AP cannot stop INS from freeriding on their efforts, then people will buy the cheaper paper and AP cannot make money. This is misappropriation – common law tort. The holding seems narrow.
·         The court by using the term property can bring around all the incidents of property that are associated with it.
·         By giving it a name like property and using a term misappropriation, the court makes it seem like its discovering a right that is already there, but in reality the court is inventing a right that did not exist before.
·         There is a quasi property right in the news
·         So this subtle use of language added justification to the court’s outcome
Holding: Broad view – is where someone reaps the benefits of another’s investment, that’s unfair competition.
·         Created new cause of action to prevent INS from bodily appropriating AP’s stories
Dissents: Brandeis- either you qualify for a traditional form of IP or you don’t get protection – legislature, only, can extend IP rights. View Followed
●        NOTE: No longer binding in federal or states since Eire
●        This case does not have any continuing precedential impact, what it has is persuasive value. Its state law now
●         As the notes said, there are a variety of states that have adopted misappropriation as a matter of state law, not because they had to, but because they chose to
●         The restatement is negative on this cause of action, but a restatement is not law, its an attempt to codify or synthesize state law on a subject
Modern View of Misappropriation
●        Restatement 3rd – rejects it
●        No longer federal cause of action (Erie got rid of Fed. CL)
○        Narrow View – limits misappropriation to “Hot News,” will not extend INS beyond its facts
●        Issue for States and they are in disagreement w/ regards to this doctrine (over 12 states have adopted it)
○        Illinois SC – recognized misappropriation beyond INS facts
○        2nd Circuit and 3d Circuit – emphasize direct competition b/w parties, reduce incentive, costs generated by D, and whether D free riding – as  prerequisite to misappropriation relief
NBA v. Motorola, Inc. – refused to enjoin, because Motorola did not compete with NBA’s primary business of producing BB games
●        “We hold that the surviving ‘hot-news’ INS-like claim is limited to cases where: (i) a plaintiff generates or gathers information at a cost; (ii) the information is time-sensitive; (iii) a defendant’s use of the information constitutes free riding on the plaintiff’s efforts; (iv) the defendant is in direct competition with a product or service offered by the plaintiffs; and (v) the ability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.”
Board of Trade v. Dow Jones (note) – there is misappropriation, even though they weren’t competitors and there was a chance of going out of business. post-INS courts all over the place
“Misrepresentation” More Traditional View of Unfair Competition (deception based justification)
●        Unfair Competition protects an individual P from an individual D, and relies on the “character and custom” of the business (INS, Brandeis dissenting) –
○        “Traditional Passing Off” – occurs when a party sells his own goods under a confusingly similar mark of another (as if the goods and services belonged to the other company)
■        The wrong lies in deceiving consumers into buying goods or services from B thinking they are from company A
○        “Reverse Passing Off” – occurs when a party sells someone else’s goods under his own trademark
■        injury – manufacturer is deprived of value of its name and goodwill that stems from public knowledge of true source being satisfactory; consumer is deprived of knowing the true source of product and may even be deceived into believing that it comes from another source
Unfair Competition and Copyright
Unfair competition cannot substitute for effectively perpetual copyright – which are available only for creativity/discovery/inventions – would have the practical effect of extending expired copyright protection (Dastar Corp)
Dastar Corp. v. Twentieth Century Fox (reverse passing off) (pg 17)
●        Facts: Fox made a series using footage from WWII, and copyrighted it.  However, the copyright lapsed.  Fox later reacquired the TV rights and started selling videos.  Dastar also sold WWII videos, in which they used some of the footage from the original Fox series that was now in the public domain because of lapsed copyright. 
●        Holding: Section 43(a) of the Lanham Act does not prevent the unaccredited copying of an uncopyrighted work.
o   Court held no false designation of origin was shown since the phrase “origin of goods,” did not connote the person or entity that originated the ideas contained in the video, but instead referred only to the producer’s tangible video product.
○        Thus Dastar was the “origin” of the products it sold as its own, without acknowledging the series, because it manufactured/produced a video that copied a public domain series. 
·         Reasoning:
o   Das

●        Today: It is not clear how broad the commerce power is
○        One thing is true – our economy has become more interstate and globalized, so great likelihood that almost everything will fall under the commerce clause power trademark issues.
○        However, wholly intrastate commerce is not under the power, but this is very rare
Perspectives on Trademark Policy
·         General Rule: Trademark protection arises not from creating something new, but from using a word or symbol in a manner that leads consumers to associate that word or symbol with the products or services of a particular individual
·         Trademark Act: 2 purposes
o   1) Protect the public so its confident its getting the product it asks for and wants to get. might want market segmentation and option
o   2) Protect the owner of the trademark – owner has spent energy, time, and money in presenting to the public the product, he is protected in his investment from its misappropriation by pirates and cheats. fakes could tarnish an otherwise good reputation
·         Inherent conflict: Deception-based vs. Property-based
o   Consumers want competition to drive down prices
o   TM owners do not like competition because they want to drive up prices
·         Unfair Trade Practices Law and the Competitive Market System
o   The problem inherent to a free market economy, which encourages competition (because of its benefits), is that competitors may try to eliminate rivalry (price fixing, buyouts, etc.), and also over zealousness causing unfair competition by misappropriation, passing off, false advertising, or product disparagement
§  Note: we want competition to be fair, but that may not be easy to define
Acquiring TM Rights Introduction
·         Introduction: the use of another’s TM is unfair competition because it takes the owner’s good will, and it deceives the public. TMs are an indicator of product quality. TM rights exist under both state common law, and under the Federal Lanham Act 15 USC 1051. Federal TM registration is not mandatory to receive federal protection.
o   Note: reason for the 2 systems (state and federal) is because of interstate commerce
·         Claim for TM infringement is a sanction against one who trades by confusion on the goodwill or reputation of another, whether by intention or not
Jurisdiction Over Trademark Suits
·         Almost all registered TM infringement suits are brought in federal court under §32 of the Lanham Act [15 U.S.C. § 1114]. 
·         An infringement of an unregistered mark may be brought in Federal court under § 43(a) [15 U.S.C. § 1125(a)], which forbids use of a false designation of origin. 
·         Any TM owner may sue in state court.  There is concurrent state and federal jurisdiction in federal TM cases.  The trouble is in ascertaining state law.
·         State or Federal Law: a P in federal ct may invoke either federal or state protections, or both.  There are distinct federal and state rights. 
o   Where state law conflicts with federal law, state law is preempted by federal law