Gene Endress IP Research Seminar Professor Gervais 11.26.

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I. INTRODUCTION In this paper I want to argue that economic theory has been overemphasized by courts and scholars as they have crafted and explained modern trademark law. While economic theory is an important descriptive and normative force in trademark law, deontological theory should play a larger role in the formation, application, and explanation of trademark law. By deontological I merely mean a rules-based system grounded in what has been referred to as the morality of the marketplace,
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opposed to the current dominant approach, the law and economics approach, which attaches value solely to the consequentialist pursuit of economic efficiency. Part II of the Article provides a brief history of Anglo-American trademark law, focusing on the ways in which early courts characterized the wrong perpetrated by a trademark infringer. It concludes that throughout most of the history of trademark law, up to and including the passage of the Lanham Act, trademark law was considered to have two animating purposes: consumer protection and protection of the property rights of trademark holders. In Part III, the Article recounts the rise of economic theory as a force in trademark law in the 1980s and 90s, and explains the basic premises of the economic theory of trademarks. It also details some of the benefits and detriments of the economic theory of trademark. Part IV argues that courts should place reduced emphasis on the economic theory of trademarks and greater emphasis on the historical understanding of trademark, as stated in the legislative history of the Lanham Act. II. HISTORICAL CONCEPTIONS OF THE NORMATIVE JUSTIFICATIONS OF TRADEMARK LAW In order to analyze modern trademark law, it is important to understand where it came from. An understanding of the historical foundations of trademark law not only informs a normative analysis of modern ambiguities in the law, but, as we will see, provide powerful legal arguments in favor of augmenting the role of rules-based approaches to modern trademark analysis. To that end, this section will provide a brief history of the development of trademark law in England, and then the U.S. A. The Genesis of Trademark Law in the English Courts of Law and Equity

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See MCCARTHY.

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484 (Ch. PROP. Leather Cloth Co. Howe to have set in motion the development of AngloAmerican trademark law. 150 ( The true principle. (1863) 46 Eng. reprinted in J. supra note 1. SCHECHTER. Bone. 873 (Ch. & TRADEMARK OFF. but the only one currently accessible does not provide a reliable account of the case.B. 692. That distinction goes to Sandforth s Case. supra note 3. would seem to be. THOMAS MCCARTHY. Cory's Entries. 3 1 J. v..J. decided in 1584. and courts in the seventeenth and eighteenth century relied upon it as they incrementally developed the law of trademarks. that the jurisdiction of the Court in the protection given to trade marks rests upon property. convoluted developmental history. Rep. Rep. L. REV. e.). SOURCES OF ENGLISH LEGAL HISTORY PRIVATE LAW TO 1750. 82 NOTRE DAME L. Howe one of five original reports of the case. 4 De G. FRANK I. SOC Y 876 (1951)). (1618) 79 Eng.3 scholars and commentators widely consider the 1618 English case Southern v. at 1851. 1 MCCARTHY. fo. Popham s report of the case proved influential. in which the court held that a maker of cloth had a cause of action against a competitor who had copied the mark and attached it to his own cloth. at 615 18 (1986). 86 B.g. BL MS. supra note 2 § 5:1. Hargrave 123. Am. Robert G. & S. Rep. 8 Leather Cloth Co. 5 See. see also Keith M.C. 7 The first English decision from a court of equity to recognize a cause of action for trademark infringement was Blanchard v. Hill.J. 33 J. (1742) 26 Eng. 143. see also McKenna. The Ancient Lineage of Trade-Marks. at 5 1 (3d ed. 2 2 . the courts of equity explicitly were not See generally Mark P. therefore. 168 (1584). English courts of law and equity both routinely recognized a cause of action for what amounts to trademark infringement (that is. 4 Southern v. MILSOM. because that is the only mode by which property of this description can be effectually protected. REV. 2 Atk. Stolte. Howe was not the first English case to enforce a cause of action for trademark infringement. MEDIA & ENT.). MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 5:1. ). THE HISTORICAL FOUNDATIONS OF THE LAW RELATING TO TRADE-MARKS (1925).2 While trademarks have existed in some form for literally millennia. 547 (2006). 6 McKenna. 1243 (K. at 1851. How Early Did Anglo-American Trademark Law Begin? An Answer to Schechter s Conundrum. Sandforth's Case. affixing the mark of one s competitor to one s own goods so as to attract the competitor s customers).U. 505 (1998) (providing an in-depth discussion of Sandforth s Case).7 However. supra note 1. at 5 2. The Normative Foundations of Trademark Law.). and the treatment of trademarks in courts of law and equity is difficult to reconcile. Hunting Goodwill: A History of the Concept of Goodwill in Trademark Law. Rep.Recent scholarship suggests that trademark law has a complex. McKenna. 8 FORDHAM INTELL. Pop. In courts of equity.. Stolte.6 By the early nineteenth century.8 The courts would entertain a trademark action in order to protect the rightful mark-holder from the fraudulent use of his mark to divert customers. 1839 (2007). L. and that the Court interferes by injunction. relief for trademark infringement (typically referred to at the time as passing off or palming off ) was premised on the notion that trademarks were to be treated as property. making the normative underpinnings of trademark law difficult to define neatly.F. the doctrine developed differently in each respective court system.4 Several scholars have argued that Popham s report of Southern v. 1996 ) (citing Abraham S. Howe. Greenberg.5 Nevertheless.H. In fact Southern v. BAKER & S. PAT.

supra note 1. to constitute trespass. want of skill. 10 E. Walker. It does not interfere to prevent the world outside from being misled into anything. the precise nature of trademark actions in courts of law is somewhat ambiguous. the plaintiff could not demonstrate substantially exclusive use. trademarks were treated as property in the courts of equity. but wanting the vi et armis. a defendant s use of the plaintiff s mark was legally actionable even where the defendant did not possess fraudulent intent. In such a case. Millington v. 13 McKenna.. defamation oral or written. 12 See generally BLACK S LAW DICTIONARY (9th ed. English courts of law recognized palming off claims as actions on the case sounding in fraud or deceit. Fox. & Cr. at 1856 57. then the court could not be sure that another s use of the same mark was necessarily illegitimate. and. A plaintiff proved its right at law by showing that. 46 Eng. THE LAW OF PLEADING UNDER THE CODES OF CIVIL PROCEDURE 7 (2d ed. the action was justified because of palming off s harmful effects on the plaintiff/mark-holder.13 That is. though it is clear that in courts of law. Rep. Where a plaintiff could make such a showing.D. and all other injurious acts or omissions resulting in harm to person or property.9 True to the principles of property law. Professor McKenna thus argues that: [The] apparent ambiguity regarding the real basis of trademark law ultimately was more semantic than substantive. as a writ that gave a form of action in which the court was enabled to render judgment of damages in cases of fraud. where a the plaintiff could not establish a property right in a mark with a showing of substantially exclusive use.g. The availability of equity in these cases turned on the plaintiff s ability to establish title to a mark by showing substantially exclusive use of the mark. the courts of equity would apply the standard at law by requiring that the plaintiff demonstrate the defendant s 9 Levy v.11 By contrast. Rep. the element of direct force and violence. passing off was not a strict liability offense.10 But. or had no knowledge of the plaintiff s use of the mark. 436 ( The Court interferes solely for the purpose of protecting the owner of a trade or business from a fraudulent invasion of that business by somebody else. and the court would declare that the plaintiff lacked exclusive rights. unlike trespass.). (1878) 10 Ch. ). and a plaintiff was required to provide evidence of harm in order to prevail on a claim of passing off. BRYANT. 3 Myl. and on the grounds that it caused consumer confusion. (1838) 40 Eng. which is alternatively referred to as action on the case. 873. 338 (Ch. despite its lack of exclusive rights.12 Given this vague characterization. ). 3 . on the other hand.concerned with protecting the customers themselves from confusion. 11 Leather Cloth Co. negligence. the defendant had no legitimate reason to use the same mark. as in courts of equity. the evidence in that particular case showed that the defendant sought to deceive the plaintiff s customers. 1899) (defining trespass on the case. deceit. If. 956. 2009) (quoting EDWIN E. the plaintiff was forced to prove its right to relief at law before it could earn the right to an injunction.

16 In that case. Morgan.g.22 Obviously a defendant s intent to palm off is irrelevant in an economic analysis of trademark law. a plaintiff could still prevail by presenting evidence of the defendant s deceitful or perfidious intent. v. however. 16 138 U. 537 (1891).S.S. at 549. 20 Id. Thus. See. See id. the Court confirmed a conception of trademark protection remarkably similar to that utilized by the English common law courts in the early part of the nineteenth century21: A plaintiff could prevail by demonstrating a property right in a particular designator. which had also begun to attach an LL label to its own fabric sheeting. at the expense of the plaintiff.fraudulent intent.15 B. rather than with the economic conception of trademarks as devices for promoting market efficiency. at 551. however. 22 See Lawrence Manufacturing. 551 52. Supreme Court affirmed the dismissal of Lawrence Manufacturing s trademark infringement claim on technical grounds. Tennessee Manufacturing Co. 17 Id. 19 Id. One must accept this conclusion with appropriate respect for the vagaries of the historical record. making it difficult to determine the extent to which consumer welfare bore on the outcome of cases. The 1891 case of Lawrence Manufacturing Co. 610 ( Plaintiff must prevent him from using [trademark] in such a way as to deceive and defraud the public. In truth early English conceptions of trademark are not entirely uniform.17 It sued Tennessee Manufacturing.19 but. Id. Rep. an undue and improper advantage. e. at 548 49. The Court affirmed the dismissal of the trademark infringement cause of action on the grounds that the designation LL indicated a grade or quality of sheeting rather than being an identifier of the manufacturer of the product. at 547 49. LL was descriptive and not subject to the protections of trademark law. 48 Eng. American conceptions of the fundamental nature of trademarks differed little from their early English predecessors. 21 See supra notes 12 14 and accompanying text. and some early trademark cases do indeed express some concern for the welfare of consumers deceived in a passing off scheme.20 In other words. Lawrence Manufacturing claimed ownership of a trademark in the term LL as attached to fabric sheeting. failing that. 15 14 4 . importantly. ).S.18 The U. 138 U. at 537. Usually that characterization of the wrong was also accompanied by concern for the welfare of the rightful mark-holder.. is illustrative of just how little had changed in AngloAmerican trademark law s first two or three centuries of existence. early English conceptions of the trademark tend to square better with view of trademarks as instilling (relatively) absolute property rights. Knott v. (1836) 2 Keen 213. and obtain for himself. American Trademark Law from the Early Twentieth Century to 1946 Even as recently as the late nineteenth century. 18 Id. it recognized that Lawrence Manufacturing still had an unfair competition cause of action against Tennessee Manufacturing if the latter was found to have palmed off to have intentionally diverted the plaintiff s customers by misleading them as to the origin of their goods.14 In short. but.

even as recently as the late nineteenth century. though certainly not the only justification. they were redefining the term. 26 Id. . and another can use it It should be noted. he borrows the owner s reputation. 24 At the same time. 130 (1947) ( There was here no showing of fraud or palming off. of course. for a reputation. Id. the Court s discussion of consumer welfare was confusingly intermingled with its discussion the welfare of the producer/mark-holder. If another uses it.23 Then. Thus. 125. . to expand. thereby broadening the scope of the palming off cause of action. case: [I]t has of recent years been recognized that a merchant may have a sufficient economic interest in the use of his mark outside the field of his own exploitation to justify interposition by a court. as in the early English decisions. at 546. Thus the custom and advantages to which the enterprise and skill of the first appropriator had given him a just right are abstracted for another s use. supra note 2. However. and this is done by deceiving the public. by it he vouches for the goods which bear it. Their absence. at ___. or divert any sales by its uses. Sanders. courts were broadening the definition of consumer confusion to include not only mistaken beliefs by consumers as to the source of products. is injured whenever another adopts the same name or device for similar articles.market efficiency is impacted negatively regardless of the intent of an infringer. that Lawrence Manufacturing did express some concern for consumer welfare. v. 26 Perhaps the most famous endorsement of this view is offered by Judge Hand in the Yale Electric Corp. ). making it difficult to discern the Court s true understanding of the nature of trademark law: [I]t is invariably held that the essence of the wrong consists in the sale of the goods of one manufacturer or vendor as those of another . because such adoption is in effect representing falsely that the productions of the latter are those of the former. 24 See Champion Spark Plug Co. however. whose quality no longer lies within his own control. 331 U. is the symbol of its possessor and creator. in the early twentieth century. . does not undermine the finding of unfair competition. Specifically. 25 1 MCCARTHY.25 But even as courts gave increased lip service to consumer confusion. but also vague uncertainty on the part of consumers as to affiliations or connections between a mark and a product not going to source. courts began to emphasize consumer confusion as an important justification for trademark protection. 23 5 .S. His mark is his authentic seal. Courts ceased to require that the plaintiff prove the defendant s intent to infringe as an element of an unfair competition claim. See id. The first appropriator of a name or device pointing to his ownership . this nation s highest court characterized the wrong of trademark in wholly non-economic and decidedly deontological terms. even though the borrower does not tarnish it. . trademark law began to morph. like a face. it carries his name for good or ill. at ___. by inducing the public to purchase the goods and manufactures of one person supposing them to be those of another. This is an injury. .

§ 1125(a) (LexisNexis 2010). Corp.. v. more than sixty years after its passage. unless the borrower s use is so foreign to the owner s as to insure against any identification of the two. J. concurring) (citing S. legislation to provide an array of comprehensive substantive and procedural rights to trademark owners.27 Thus.S. Broadly considered a legislative triumph.. The Act provides causes of action for trademark infringement and unfair competition. it remains the fundamental source of federal trademark law in the U. by the mid-twentieth century. . v. . 30 Id. Robertson. Inc. and (2) the interests of consumers in being able being able to accurately identify goods by with reference to the marks affixed to them. Ives Labs. And so it has come to be recognized that. Inc. 29 Inwood Labs. The legislative history of the Act gave no guidance as to how to mediate between these two animating purposes when they suggested disparate or even contradictory resolutions to statutory gaps. ). in passing the Lanham Act.S. time. 1928). Now. the Lanham Act became the first U. . Section forty-three.30 Thus. 456 U. 79th Cong.. ambiguously provides that no person shall use a mark in Yale Elec. 1333. the basis of both trademark infringement and unfair competition actions under the Lanham Act. REP. Nor are the terms of the Lanham Act itself helpful in creating a hierarchy of values. 26 F. 844.2 (1982) (White.S. 3 (1946)). 973 74 (2d Cir.S.S.C. Consumer welfare protection was an important justification of the Act. and the product of twenty-six years of painstaking development.S.. and with apparently little attention toward a conceptually cohesive superstructure. By applying a trademark to goods produced by one other than the trademark s owner. 28 27 6 . from the beginning of the Lanham Act era. all toward the end of preventing trademark infringement.. or stronger rights for trademark owners. usually with the aim of providing broader trademark protection. NO. at 855 n. 2d Sess. 861 n. 29 To that end. trademark law was in flux apparently still heavily influenced by the conceptual framework of the early English trademark cases. the infringer deprives the owner of the goodwill which he spent energy. Congress sought to codify and unify the common law of unfair competition and trademark protection. Code is alternatively referred to as Lanham Act § 43. 15 U. but apparently no more so than protection of goodwill inuring to trademark owners. and money to obtain. Section 1125 of Title 15 of the U. the infringer deprives consumers of their ability to distinguish among the goods of competing manufacturers. Within this context was passed the Lanham Act of 1946.28 It has been amended several times since its initial enactment. there is broad consensus that Congress sought simultaneously to advance two interests by providing a federal cause of action for trademark infringement: (1) the interests of producers in protecting the goodwill associated with their marks. Importantly. it is unlawful.14 (1982) ( [B]latant trademark infringement inhibits competition and subverts both goals of the Lanham Act.2d 972. trademark law was to serve two masters. At the same time. but evolving quickly.only as a mask.

772 F. First. ). L.A. 33 Barton Beebe. at 269 70. . 475 U. and market efficiency is substantially increased. at 270. consumers can safely base their purchasing decisions on brand name.2d at ___.C. or as to the origin. . cert. 37 Landes & Posner. 623 (2004) ( The Chicago School of law and economics has long offered a totalizing and. supra note 2. ). trademark law reduces search costs for consumers by enabling consumers to rely on established marks quickly to communicate product information. Inc. It does so primarily in two ways. Euroquilt. EVALUATION OF THE ROLE OF LAW AND ECONOMICS IN MODERN TRADEMARK LAW A.S. § 1125(a)(1)(A) (LexisNexis 2010). and the lower the costs of search. By identifying the source of the goods. The Semiotic Analysis of Trademark Law. 32 31 7 . McKenna. Landes & Posner. Landes & Posner.S. William Landes and Richard Posner proclaimed that [T]rademark law . supra note 32.35 Second. or approval of his or her goods. William M. Posner. supra note 32. J. connection. PINCITE (7th Cir. 265. at 270. Landes & Richard A. but there is no denying economic theory s intractable hold on trademark law. services. 265 66 (1987). can best be explained on the hypothesis that the law is trying to promote economic efficiency. . v. supra note 32. leaving the courts to wonder which purpose should be prioritized. 1147 (1986). 34 Scandia Down Corp. 1985) (Easterbrook.34 Purchasing decisions are thus informed at the speed of sight. It is the dominant descriptive and normative force in the discipline. supra note 32. REV. denied. & ECON. for many.C. or association of such person with another person. Rather than having to conduct product research. 51 U. Trademark Law: An Economic Perspective. The Basic Tenets of the Law and Economics Approach In an influential 1987 paper.37 15 U. at 1841 ( It would be difficult to overstate the level of consensus among commentators that the goal of trademark law is and always has been to improve the quality of information in the marketplace and thereby reduce consumer search costs.32 Many commentators would decline to endorse such an absolutist tact. or commercial activities by another person .commerce in such a manner as is likely to cause confusion. at 269.L. drawing the allegiance of courts and scholars alike. or to deceive as to the affiliation. 31 This formulation obviously advances both stated purposes of the Act. Easily identified trademarks reduce the costs consumers incur in searching for what they desire.) ( Trademarks help consumers to select goods. .2d 1423. 772 F. knowing that such a decline will correspond with a capital loss in the value of its trademark. 30 J. the more competitive the market. sponsorship.33 The economic account of trademarks teaches that trademark law is justified on the grounds that it promotes economic efficiency. 621.S. III. .. quite definitive theory of American trademark law. increasing the quality of goods available in the market place. ). 35 Landes & Posner.L.36 A firm with a valuable trademark will be hesitant to oversee a decline in the quality of its goods. or to cause mistake. trademarks incentivize firms to maintain consistent brand quality. 36 Scandia Down. they convey valuable information to consumers at lower costs.

to a lesser extent. The Benefits of the Law and Economics Approach 1. courts. the U. but the idea is that economic theory gives people normative guidance in a way that appears to be objective. would destroy the information value of trademarks to consumers. 8 . markets would become vastly more inefficient. For example.S. more time consuming methods. Firm A s incentive is reduced because since some consumers seeking to purchase Firm A s high-quality product will mistakenly purchase Firm B s lower quality product. Firm B. would undermine firms incentives to maintain consistent product quality by producing low-quality goods and selling them under high-quality marks. Further. Sheer implausibility of law and economics as an explanatory theory The law and economics movement s claim to trademark law is further weakened by the fact that nearly all economic explanations of trademark law can be recast in deontological terms.These benefits would be lost in a regime that did not afford legal protection to trademarks.38 Free-riders. Economic Theory Provides Clear Conceptual Guidance to Courts I need to do some research in heuristics here. We certainly can characterize the wrongness of Firm B s action in economic terms: Firm B has made the market less efficient by rendering less certain the connection between A s trademark and a particular product. 40 See Qualitex case. C. Also. in turn. See id. General criticisms of applying economic theory to tort law Cite to Leff and Goldberg articles. as a co-user of the mark. Quite simply.39 B. and that perceived objectivity gives economic theory the patina of correctness. including the Seventh Circuit. Firm B s incentive to 38 39 Id. will bear a share of that loss. Firm B has reduced both firms incentives to make quality products.40 2. This. Economic Theory Has Historically Been an Important Normative Underpinning Here I can cite to a variety of old and new trademark cases since courts have sometimes rationalized the consumer protection aim of trademark law using proto-economic reasoning. The Detriments of the Law and Economics Approach 1. suppose Firm B infringes Firm A s trademark by selling its own inferior product under the mark. and thereby raising consumer search costs. and. 2.S. Supreme Court. with impunity. Firm A can no longer fully capitalize on its investments in product quality. Nor will Firm A fully bear the capital loss to its trademark. economic arguments have gained sway in several influential U. who would be forced to (attempt to) determine product quality by other.

265. Firm B has not improved the mark with its labor. is deprived of a benefit that it did earn. supra note 2. . 4. SOLUTION See Landes & Posner. Conversely. TWO TREATISES. a piece of property owned by Firm A by virtue of Firm A s investment of labor in the mark. To press the point. Landes & Richard A. and thus. Economic theory is manipulable (also because of the lack of empirical data) 5. Purely economic analysis ignores Congress stated endorsement of the two-goal approach to trademark law IV. It can be condemned under a consumer protection rationale. because of Firm B s dishonesty. because Firm B s infringement has duped consumers into purchasing a product they did not want. For instance. & ECON. Trademark Law: An Economic Perspective. need not invest in improving quality. Congress) lack empirical data as a policy-crafting reference Cite to Tushnet article. THE GROUNDWORK OF THE METAPHYSICS OF MORALS (DATE) PINCITE. Firm B (or at least its managers) has violated the Categorical Imperative by treating the consumers merely as means to an end. supra note 32. Even if one does not wish to adopt Locke s rather arcane and cumbersome normative framework. IMMANUEL KANT. Firm B. at 269 70. similar conceptions of desert and fairness would counsel condemnation of Firm B s infringement. Posner. See Bone. frankly. under a Lockean approach. An Aristotelian approach would also condemn Firm B (or. any number of ethical theories and economics is an ethical theory. so the mere fact that trademark law can be explained in terms of economic theory does counsel that economic theory should drive the development of trademark law. Firm A. though it assumes without argument what is the good (market efficiency) would condemn infringement. 30 J. its managers) for its demonstration of treachery. has reaped a benefit it did not earn. 42 41 9 . can best be explained on the hypothesis that the law is trying to promote economic efficiency. 265 66 (1987) ( [T]rademark law . at least in the short term. Simply put. for they can be justified as easily in terms of property protection and consumer protection.43 3. again. And it can be condemned under the a property theory of trademark as well. ). and therefore has no natural right to use it.41 But Firm B s infringement can be condemned using any number of other normative frameworks aside from the economic one.create a quality product is also weaker in the absence of trademark protection because it can free-ride off of Firm A s established brand equity. other more exotic rationales for trademark law which have absolutely no historical connection to trademark law s historical development would also condemn condemn the practice of trademark infringement. .L. Id. antithetical to the Good.42 It is therefore inadequate to claim that trademark law can best be explained as an attempt to promote economic efficiency solely on the rationale that many trademark doctrines can be justified in economic terms. Real economic analysis is usually impossible because courts (and. 43 See William M. A Kantian analysis would condemn Firm B s approach because. in lying to consumers for pecuniary gain. Firm B has violated Firm A s natural right to its trademark. Firm A suffers property damage a reduction in the value of its goodwill as a result of Firm B s infringement. by an act of dishonesty.

it should address its concerns to Congress. for its normative agenda is not encompassed in the current version of the Lanham Act. V. is intellectually honest. at least to those wishing to preserve the currently expansive scope of trademark protection. further weakening the economic theory of trademark law. though perhaps as manipulable as an economic/consequentialist approach. Even then the economic theory of trademark was but a partial explanation of the structure of trademark protection. To the extent the law and economics approach wishes to reform the structure of trademark law.It has been twenty-three years since William Landes and Richard Posner changed the direction of trademark law by proclaiming that it could best be explained as an attempt to promote economic efficiency. Those seeking to curb the scope of trademark by advancing economic arguments should be honest about advancing an alternative normative rationale. A deontological approach. and the scope of that protection has continued to expand since. 10 . and therefore preferable that is. This would be more faithful to the history of trademark and the text of the Lanham Act. The question is: Where do we go from here? Solution is to adopt a much more deontological approach to trademark law. CONCLUSION Briefly outline paper here.

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