Gene Endress IP Research Seminar Professor Gervais 11.26.


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,


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




MEDIA & ENT. 4 De G. THOMAS MCCARTHY. reprinted in J. Hargrave 123. Rep. 1 MCCARTHY. THE HISTORICAL FOUNDATIONS OF THE LAW RELATING TO TRADE-MARKS (1925). (1742) 26 Eng. (1863) 46 Eng.7 However. English courts of law and equity both routinely recognized a cause of action for what amounts to trademark infringement (that is. fo. 3 1 J. 8 FORDHAM INTELL.5 Nevertheless. Sandforth's Case. and that the Court interferes by injunction.B. In courts of equity. decided in 1584. Howe one of five original reports of the case.J. ). would seem to be. 150 ( The true principle. 1996 ) (citing Abraham S. Am. at 5 1 (3d ed. 8 Leather Cloth Co. MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 5:1. at 5 2. How Early Did Anglo-American Trademark Law Begin? An Answer to Schechter s Conundrum. because that is the only mode by which property of this description can be effectually protected.C. Rep. That distinction goes to Sandforth s Case. 1243 (K. L. Robert G. e. 33 J. McKenna. Hill. see also McKenna..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. 2 2 . and courts in the seventeenth and eighteenth century relied upon it as they incrementally developed the law of trademarks. 86 B.). 1839 (2007). supra note 2 § 5:1. 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.Recent scholarship suggests that trademark law has a complex. SOURCES OF ENGLISH LEGAL HISTORY PRIVATE LAW TO 1750. and the treatment of trademarks in courts of law and equity is difficult to reconcile. 5 See. Stolte. at 1851. convoluted developmental history. 168 (1584). SCHECHTER. Howe. PROP.). v. at 615 18 (1986). 692. see also Keith M. & TRADEMARK OFF.. supra note 1. 7 The first English decision from a court of equity to recognize a cause of action for trademark infringement was Blanchard v. 505 (1998) (providing an in-depth discussion of Sandforth s Case).). making the normative underpinnings of trademark law difficult to define neatly. 6 McKenna. REV. 2 Atk. 4 Southern v. PAT. BAKER & S. Popham s report of the case proved influential.2 While trademarks have existed in some form for literally millennia. Cory's Entries.J. but the only one currently accessible does not provide a reliable account of the case. Rep.F. Pop. the courts of equity explicitly were not See generally Mark P. In fact Southern v. MILSOM. 82 NOTRE DAME L. the doctrine developed differently in each respective court system. at 1851. 873 (Ch. Bone. The Ancient Lineage of Trade-Marks. Greenberg. Howe to have set in motion the development of AngloAmerican trademark law.6 By the early nineteenth century. L. affixing the mark of one s competitor to one s own goods so as to attract the competitor s customers). Hunting Goodwill: A History of the Concept of Goodwill in Trademark Law.H. supra note 3. 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.g. Leather Cloth Co. therefore. & S. Howe was not the first English case to enforce a cause of action for trademark infringement. SOC Y 876 (1951)).U. (1618) 79 Eng. FRANK I.4 Several scholars have argued that Popham s report of Southern v. REV. 143.3 scholars and commentators widely consider the 1618 English case Southern v. 547 (2006). that the jurisdiction of the Court in the protection given to trade marks rests upon property. BL MS. The Normative Foundations of Trademark Law. 484 (Ch. supra note 1. Rep. Stolte.

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. the courts of equity would apply the standard at law by requiring that the plaintiff demonstrate the defendant s 9 Levy v.g. In such a case.9 True to the principles of property law. a defendant s use of the plaintiff s mark was legally actionable even where the defendant did not possess fraudulent intent. then the court could not be sure that another s use of the same mark was necessarily illegitimate. the element of direct force and violence. the plaintiff could not demonstrate substantially exclusive use. the evidence in that particular case showed that the defendant sought to deceive the plaintiff s customers.D. 13 McKenna. BRYANT. 46 Eng. (1878) 10 Ch. Fox. negligence. unlike trespass. ). supra note 1. Rep.. If. 1899) (defining trespass on the case. deceit. 11 Leather Cloth Co. at 1856 57. 338 (Ch. and the court would declare that the plaintiff lacked exclusive rights. 2009) (quoting EDWIN E. defamation oral or written. and a plaintiff was required to provide evidence of harm in order to prevail on a claim of passing off.10 But.13 That is. trademarks were treated as property in the courts of equity. and all other injurious acts or omissions resulting in harm to person or property. the precise nature of trademark actions in courts of law is somewhat ambiguous. Rep. Where a plaintiff could make such a showing. & Cr. THE LAW OF PLEADING UNDER THE CODES OF CIVIL PROCEDURE 7 (2d ed. 873.11 By contrast. It does not interfere to prevent the world outside from being misled into anything. but wanting the vi et armis. and on the grounds that it caused consumer confusion. 3 . 10 E. A plaintiff proved its right at law by showing that. the defendant had no legitimate reason to use the same mark.12 Given this vague characterization. Millington v. as in courts of equity. though it is clear that in courts of law. or had no knowledge of the plaintiff s use of the mark. want of skill. as a writ that gave a form of action in which the court was enabled to render judgment of damages in cases of fraud. despite its lack of exclusive rights. where a the plaintiff could not establish a property right in a mark with a showing of substantially exclusive use. to constitute trespass.). passing off was not a strict liability offense. English courts of law recognized palming off claims as actions on the case sounding in fraud or deceit. Professor McKenna thus argues that: [The] apparent ambiguity regarding the real basis of trademark law ultimately was more semantic than substantive. Walker. ). the action was justified because of palming off s harmful effects on the plaintiff/mark-holder.concerned with protecting the customers themselves from confusion. (1838) 40 Eng. the plaintiff was forced to prove its right to relief at law before it could earn the right to an injunction. 3 Myl. and. 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. 12 See generally BLACK S LAW DICTIONARY (9th ed. which is alternatively referred to as action on the case. 956. on the other hand.

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. 551 52. 138 U. failing that. and obtain for himself. 18 Id. but. Tennessee Manufacturing Co. however. American Trademark Law from the Early Twentieth Century to 1946 Even as recently as the late nineteenth century. See id.. Knott v.17 It sued Tennessee Manufacturing. See.18 The U. and some early trademark cases do indeed express some concern for the welfare of consumers deceived in a passing off scheme. Lawrence Manufacturing claimed ownership of a trademark in the term LL as attached to fabric sheeting. In truth early English conceptions of trademark are not entirely uniform.g.16 In that case. at the expense of the plaintiff. Supreme Court affirmed the dismissal of Lawrence Manufacturing s trademark infringement claim on technical grounds. at 549. early English conceptions of the trademark tend to square better with view of trademarks as instilling (relatively) absolute property rights. Rep.19 but. 20 Id. e. The 1891 case of Lawrence Manufacturing Co.S. 610 ( Plaintiff must prevent him from using [trademark] in such a way as to deceive and defraud the public. rather than with the economic conception of trademarks as devices for promoting market efficiency.S. at 548 49.S. 21 See supra notes 12 14 and accompanying text. at 537.22 Obviously a defendant s intent to palm off is irrelevant in an economic analysis of trademark law. importantly. 22 See Lawrence Manufacturing. Thus. Usually that characterization of the wrong was also accompanied by concern for the welfare of the rightful mark-holder. Id. 19 Id.20 In other words. which had also begun to attach an LL label to its own fabric sheeting. making it difficult to determine the extent to which consumer welfare bore on the outcome of cases. Morgan. 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. v.fraudulent intent. 17 Id. 16 138 U. ). (1836) 2 Keen 213. One must accept this conclusion with appropriate respect for the vagaries of the historical record.14 In short. LL was descriptive and not subject to the protections of trademark law. 537 (1891). 15 14 4 . at 547 49. a plaintiff could still prevail by presenting evidence of the defendant s deceitful or perfidious intent. at 551. is illustrative of just how little had changed in AngloAmerican trademark law s first two or three centuries of existence. 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. an undue and improper advantage. American conceptions of the fundamental nature of trademarks differed little from their early English predecessors. however. 48 Eng.15 B.

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

S. 2d Sess. in passing the Lanham Act..S. 15 U. by the mid-twentieth century. Ives Labs.S.. 456 U. Congress sought to codify and unify the common law of unfair competition and trademark protection. Code is alternatively referred to as Lanham Act § 43.only as a mask. trademark law was to serve two masters. 1333. 973 74 (2d Cir. Now. ). legislation to provide an array of comprehensive substantive and procedural rights to trademark owners. 29 Inwood Labs. ambiguously provides that no person shall use a mark in Yale Elec. it is unlawful.2 (1982) (White.28 It has been amended several times since its initial enactment. The Act provides causes of action for trademark infringement and unfair competition. from the beginning of the Lanham Act era. By applying a trademark to goods produced by one other than the trademark s owner. Importantly.C. And so it has come to be recognized that. Broadly considered a legislative triumph. 26 F.27 Thus.S. Section forty-three. Consumer welfare protection was an important justification of the Act. unless the borrower s use is so foreign to the owner s as to insure against any identification of the two.2d 972.. § 1125(a) (LexisNexis 2010). 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. more than sixty years after its passage. Inc. and with apparently little attention toward a conceptually cohesive superstructure. and the product of twenty-six years of painstaking development. the infringer deprives consumers of their ability to distinguish among the goods of competing manufacturers. but evolving quickly. but apparently no more so than protection of goodwill inuring to trademark owners. the basis of both trademark infringement and unfair competition actions under the Lanham Act. at 855 n. v. Corp. 79th Cong. the Lanham Act became the first U. REP. Within this context was passed the Lanham Act of 1946. Inc. and money to obtain. Section 1125 of Title 15 of the U. 861 n. v. 1928). it remains the fundamental source of federal trademark law in the U. all toward the end of preventing trademark infringement. Robertson.S.14 (1982) ( [B]latant trademark infringement inhibits competition and subverts both goals of the Lanham Act. trademark law was in flux apparently still heavily influenced by the conceptual framework of the early English trademark cases.. or stronger rights for trademark owners.30 Thus. the infringer deprives the owner of the goodwill which he spent energy. and (2) the interests of consumers in being able being able to accurately identify goods by with reference to the marks affixed to them. 3 (1946)). 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. 29 To that end.. J. 844. 28 27 6 . 30 Id. Nor are the terms of the Lanham Act itself helpful in creating a hierarchy of values. usually with the aim of providing broader trademark protection. . concurring) (citing S. . NO. .S. At the same time. time.

trademarks incentivize firms to maintain consistent brand quality. they convey valuable information to consumers at lower costs. 772 F. or approval of his or her goods. at 270.) ( Trademarks help consumers to select goods. supra note 32. By identifying the source of the goods. supra note 32.35 Second. McKenna. ). 1985) (Easterbrook. 265 66 (1987). Easily identified trademarks reduce the costs consumers incur in searching for what they desire. Landes & Posner. or to cause mistake. and market efficiency is substantially increased. and the lower the costs of search. 33 Barton Beebe.37 15 U. . L. at 269 70.S. services. leaving the courts to wonder which purpose should be prioritized. First.S. . drawing the allegiance of courts and scholars alike. J. 772 F. It does so primarily in two ways. 1147 (1986).C. or association of such person with another person. The Semiotic Analysis of Trademark Law. REV. but there is no denying economic theory s intractable hold on trademark law. . supra note 32.S. 51 U.33 The economic account of trademarks teaches that trademark law is justified on the grounds that it promotes economic efficiency. & ECON. ).34 Purchasing decisions are thus informed at the speed of sight. EVALUATION OF THE ROLE OF LAW AND ECONOMICS IN MODERN TRADEMARK LAW A. 31 This formulation obviously advances both stated purposes of the Act. supra note 32. knowing that such a decline will correspond with a capital loss in the value of its trademark. 34 Scandia Down Corp. . 32 31 7 .L. Landes & Richard A. can best be explained on the hypothesis that the law is trying to promote economic efficiency. 35 Landes & Posner. § 1125(a)(1)(A) (LexisNexis 2010). supra note 2. sponsorship. Inc. III. the more competitive the market. . Landes & Posner. Trademark Law: An Economic Perspective. trademark law reduces search costs for consumers by enabling consumers to rely on established marks quickly to communicate product information. v. at 269.L. It is the dominant descriptive and normative force in the discipline. at 270. ). for many. or as to the origin..2d at ___. 30 J. increasing the quality of goods available in the market place. quite definitive theory of American trademark law.C. William M. 265.2d 1423. connection. PINCITE (7th Cir. 37 Landes & Posner. 621. 623 (2004) ( The Chicago School of law and economics has long offered a totalizing and. consumers can safely base their purchasing decisions on brand name. 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. Rather than having to conduct product research.A.36 A firm with a valuable trademark will be hesitant to oversee a decline in the quality of its goods. cert. Euroquilt. denied. Posner. 475 U.commerce in such a manner as is likely to cause confusion.32 Many commentators would decline to endorse such an absolutist tact. or commercial activities by another person . The Basic Tenets of the Law and Economics Approach In an influential 1987 paper. 36 Scandia Down. or to deceive as to the affiliation. William Landes and Richard Posner proclaimed that [T]rademark law .

and that perceived objectivity gives economic theory the patina of correctness. would destroy the information value of trademarks to consumers. more time consuming methods. including the Seventh Circuit. 40 See Qualitex case. 8 . For example.39 B. to a lesser extent. Firm B. The Benefits of the Law and Economics Approach 1.S. would undermine firms incentives to maintain consistent product quality by producing low-quality goods and selling them under high-quality marks. the U. as a co-user of the mark. in turn. Quite simply. with impunity. This. markets would become vastly more inefficient. Firm B s incentive to 38 39 Id. will bear a share of that loss.S. Nor will Firm A fully bear the capital loss to its trademark. See id. Supreme Court. 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. but the idea is that economic theory gives people normative guidance in a way that appears to be objective. Also. economic arguments have gained sway in several influential U. and thereby raising consumer search costs. Further.38 Free-riders. Firm A can no longer fully capitalize on its investments in product quality. The Detriments of the Law and Economics Approach 1. courts.These benefits would be lost in a regime that did not afford legal protection to trademarks. 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. suppose Firm B infringes Firm A s trademark by selling its own inferior product under the mark. C. 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 2. who would be forced to (attempt to) determine product quality by other. General criticisms of applying economic theory to tort law Cite to Leff and Goldberg articles. 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. 2. Firm B has reduced both firms incentives to make quality products. and. Economic Theory Provides Clear Conceptual Guidance to Courts I need to do some research in heuristics here.

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

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

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