Trademarks Outline
TRADEMARKS
Landes
I.The INS Case & Misappropriation
A.The Rule
1.Misappropriation where
a)Public Good
(1)Two people can use at same time
(2)MC of additional person = 0
(3)Ability to enjoy or benefit not affected by others use
(4)No benefit to exclude others
(5)Economies of scale ex post
(6)Ignores incentive problems ex ante
b)High cost to excluding free riders
c)Competitive injury in primary market – Parties direct competitors
(1)Causing significant market injury
(2)Landes says NOT limited to hot news
d)Consider: Transformative v. Reproductive Use (NBA)
e)Cost - Benefit Analysis (case by case)
(1)Free Riding really significant – ruins incentives for party creating information (product threatened)
f)Limitations On INS
(1)Means were unlawful (Brandeis)
(a)BUT this would gut the doctrine. This is conversion
(2)Essentially similar facts to INS (Hand)
(3)Cost Benefit. Case by case analysis (incentives v. transaction / access costs
(4)Restricted to competitive injury
B.Benefits of the Misappropriation doctrine
1.Saving on private enforcement costs
2.Protect specific incentives of the firm stolen from
3.Protect general incentives so that others want to do it.
4.Fairness Argument (he who creates it, should get it)
C.Costs of the Misappropriation doctrine
1.Duplication costs
a)BUT there will be an incentive to contract
2.Access costs (because public good)
3.Monopoly costs (cost of supplying add’l users is almost zero)
4.Social Loss
a)Cost = 0 to extend access but there are people that wouldn’t pay the full price but would pay some of the price.
5.Public Goods (no limited quantity – only loss is exclusive use)
D.The Regulation of Public Goods
1.Could not use wire service news items during period information constitutes hot news & has commercial value. INS.
a)Postpones D’s participation
2.Limiting of INS’s effect
a)Restatement: No general rule of law prohibits appropriation of competitor’s ideas, innovations, or other intangibles once publicly known
b)NBA v. Motorola: Elements central to an INS claim (for hot news)
(1)P collects information at some cost or expense
(2)Value of information is time sensitive (hot news)
(3)D’s use of information constitutes free riding on P’s costly efforts to generate or collect it (no free riding in this case)
(4)D’s use of the information is in direct competition with a product or service offered by P
(5)The ability of other parties to free ride on the efforts of the P would reduce incentive to produce & its existence would be threatened.
c)Potential Problem: Multiple sources (many potential Ps)
3.Standards
a)No monopoly over the use of standards. Hubbbell v. GE. (incentives small, costs high)
(1)INS limited to fraud & bribery
4.Fads
a)If you are first in mkt, you reap advantage from being first. (incentives enough)
II.Unfair Competition
A.Advertising
1.Economics of Advertising
a)Good
(1)Provides consumer with information to make mkt decisions
(2)Retain control over kind & quality of products
(3)Minimizes search costs
(a)Search Goods. Information relevant to purchasing decision can be acquired by examining product prior to purchase
(i)Advertising not as useful
(b)Experience Goods. Relevant qualities not observable until you actually use product (post-purchase)
(i)Repeat purchases made
(ii)Long lag between purchase and subsequent purchase / Infrequent
(c)Credence Goods. Important characteristic costly to discover even after purchase.
(4)Pays to advertise winners rather than losers
(5)Advertising a good guide to the mean because advertising pays only to the extent that it results in sales
(6)Because search costs lower, consumers search more & make competition more effective.
b)Bad
(1)Not trying to inform, trying to persuade / Manipulate demand
(2)Advertiser has psychological power
(3)Resource Waste = changing tastes of consumers
(4)Monopoly creating = Advertiser given control over price
(5)Barrier to Entry = entrant has to incur larger marketing costs unless can produce far cheaply
c)Reasons for Advertising
(1)Get new customers
(2)Remind you; Encourage repeat purchase
(3)Most likely to advertise goods you have had a good experience with.
d)Where does false advertising happen?
(1)Search Goods?
(2)Experience Goods?
(a)Repeat purchase made
(b)BUT where long lag time between purchases?
(3)Credence Goods
(a)Might not profit from false advertising because
(i)Rational consumers will disbelieve false adv & discount product value (Market Sanction)
(ii)Pooling Equilibrium (if everyone said misleading thing) = Social loss because eventually nobody makes claim even though consumers would pay a premium
e)Disincentives to advertise falsely
(1)Firm does not want to have bad reputation
(2)May deter socially beneficial advertising if P can win too easily
(3)Ads may become excessively complicated & costly to produce
f)Since trying to protect consumer, why Should Competitor Sue?
(1)Competitor is lowest cost enforcer
(a)BUT established firms may try to harass new firms
(2)Difficult to figure out if claim is false or misleading
(3)Sometimes a claim contains useful information to one group of consumers BUT another group interprets it differently.
2.False Advertising [See also C. Below]
a)At Common Law
(1)FRAUD necessary in all tests.
(2)Mosler Safe
(a)Single Source Rule. Has the P lost customers because of D’s actions?
(i)NO loss shown because others sell a similar product. [tough standard] [SCt]
(b)Has the P lost them by means which the law forbids?
(c)OLD TEST: Required passing off
(i)No passing off required in this analysis
(3)ALI (1939)
(a)D intends or knows that deception is likely to divert trade from P
(b)P is not also committing fraud
(4)Modern approach
(a)Falsity Has Likely Commercial Detriment
(i)Material
(ii)Reasonable basis for believing that representation has caused or is likely to cause a diversion of trade or harm to reputation / good will.
b)False Designation of Geographic Origin
(1)Social Harm
(a)Consumer probably paying a premium for a product from this location
(b)Misappropriation
(c)Free riding
(d)Destruction of reputation – if copiers produce low quality, people will begin to assume low quality from that region
(2)To pass single source problem, must get all manufacturers in region to sue as parties
c)Passing Off
(1)American Washboard: B claims that his product is made by A
(a)Satisfies single source rule because you would have bought A’s product
B.Disparagement
1.Defined: Attack by D on goods of P.
2.Social Harm
a)Firm damaged – lose sales, sell at lower price
b)Information public receiving is incorrect
c)Firm may have to spend resources to rehabilitate reputation
3.At Common Law
a)Hurlbut Test for disparagement
(1)Publication by D of disparaging words
(2)Falsity (P has to show it is false)
(a)Must be a false FACT (not an opinion). Bose.
(b)Why should P have prove falsity?
(i)P is in better position to prove falsity
(ii)Likelihood of errors may chill accurate information gathering
(3)Malice OR Intention to deceive (or willful or reckless)
(4)Lack of privilege
(5)Special damages
(a)Modern cases have relaxed proof necessary, with use of expert
(i)General decline of business OK if other causes eliminated
b)Standard of Liability
(1)Usually Intent or Reckless intent
(2)Sometimes strict liability
4.Lanham Act (§ 43(a)(1)(B)) (post-1989)
a)False or Misleading description or representation of fact
b)In (interstate) commerce
(1)In connection with goods, services, containers, or packaging
(2)D’s must use the statement in commerce (not enough that P’s product is in commerce) [Usually met by (c)]. NAMCO.
c)Commercial Advertising or Promotion
(1)Excludes statements in consumer reports or news story
(2)Product needn’t yet be sold, BUT need “sufficient steps”. NAMCO.
(3)Look at context of speech: commercial = ultimately business purpose (can include social / informational purpose). NAMCO.
(a)By a D who is in commercial competition with P
(b)For purpose of influencing consumers to buy from D
(c)Disseminated sufficiently to relevant purchasing public
d)Likely to be damaged
e)Standard of Liability: STRICT LIABILITY
5.Puffing
a)Competitor can make unfavorable comparisons if no false assertions of specific unfavorable facts
6.Disparagement by Consumers (Free Speech)
7.Disparagement by Independent Testing Agencies
a)(CL). No disparagement liability for an opinion. Bose. (no malice shown)
(1)Not a strict liability standard (Intent or Recklessness)
b)(LA). Not advertising, so no liability
c)Consumer Reports not gaining from claim
8.Disparagement by Governmental Agencies (Can’t prohibit)
C.Lanham Act § 43(a) (False Advertising / Unfair Competition)
1.Common Law [See above]
a)Usually deceit = palming off
b)Req’t of proof of actual damages caused by false claims
(1)Impossible in open market
2.§ 43(a) (1946 - 1989)
a)Only applied to goods or services made by D.
3.The Current ACT (Amended 1988)
a)§ 43(a)(1). Uses, in connection with any goods or services, in commerce
(1)Any Word, term, name, symbol, or device =
(2)False designation of origin
(3)False or misleading representation or description of fact:
b)§ 43(a)(1)(A). Likely to cause confusion, mistake, deceive as to affiliation, connection, or association as to
(1)Origin, Sponsorship, or Approval of his goods, services, or commercial activities by another
c)§ 43(a)(1)(B). (Disparagement). In commercial advertising or promotion misrepresents nature, characteristics, qualities or geographic origin
(1)Commercial Advertising or promotion. (Amer. Inst. Physics)
(a)Commercial speech
(b)By a D who is in commercial competition with P
(c)For purpose of influencing consumers to buy from D
(d)Disseminated sufficiently to relevant purchasing public
d)Differences from Common Law
(1)Proof of Intent to deceive not necessary
(2)Broad range of P’s entitled to relief (“Any person likely to be damaged”)
4.Elements
a)Falsity
(1)Is it false?
(a)Must consider ad in its entirety. Avis.
(b)Opinions do not count. Groden.
(c)Prohibition only on false statements made about one’s own or another’s goods (not all false statements). Groden.
(d)Puffing that is merely general & not detailed or specific is NOT actionable.
(2)False on its face
(a)ONLY NEED TO SHOW FALSITY. If false on face, no need of public confusion. King (possessory credit)
(i)No need for survey
(3)Literally true but deceptive
(a)P must demonstrate by extrinsic evidence tendency to mislead or confuse statistically significant portion of consumers. Tums Case. (aluminum)
(i)What does the person to whom the ad is addressed find to be the message?
(ii)Survey evidence
(iii)BUT if P shows D INTENTIONALLY tried to mislead, burden shifts to D to show no confusion. Tums.
(b)Where claim is superiority, P must prove D’s product is equal or inferior BUT
(i)Where D represents tests establish D’s product is superior, P can show tests did not establish this or tests unreliable. Castrol.
(c)SOLUTION: Avoid confusion by using a disclaimer (Size of disclaimer has to be same size of prominent part of ad itself)
(4)Literally false but NOT deceptive
(a)Consumers understand what is said. Avis. (Ex. “Old Crow Bourbon”)
b)Materiality
(1)Substantial # of customers deceived
(2)Reliance on deceptive claims by consumers.
(a)Likely to affect choice or conduct. Kraft.
(3)(FTC) Presumption of materiality where
(a)Express claims
(b)Implied claims where there is evidence that seller intended to make the claim
(c)Claims that significantly involve health, safety, or other areas of consumer concern. Kraft.
c)Likelihood of Injury
(1)Only need reasonable basis for belief that P is likely to be damaged (logical connection). J&J.
(a)Whether it is LIKELY that D has caused or will cause a loss to P’s sales
(2)Need not prove existence of some injury caused by D. J&J.
(a)REASON: P gains no more than market free of false advertising.
(3)Competitors
(a)Competition between parties in relevant mkt – injury will be presumed (McCarty)
(b)Injury component satisfied once a competitor is singled out (ex. comparative ad). Avis.
(c)Harm: P suffers direct harm from being singled out.
(d)Free Riding: D linking itself to P & free riding on advertising & good will of P
(i)BUT it is free advertising for P
d)For presumption of harm, Competition need not be direct (indirect competitors protected). J&J.
(1)BUT need a “reasonable interest to be protected”. Cosprophar.
(2)Advertising linkage [without direct competition] does not establish sufficient proof of injury. Cosprophar.
(a)BUT better case where direct reference to P’s product. Cosprophar.
5.Standard of Proof = Strict Liability
a)Advantages
(1)Proof easier (administratively less costly)
(2)Deters people from making false claims
(3)Cheaper to bring a suit
b)Disadvantages
(1)Excessively expensive precautions
(2)Victim does not have an incentive to take care (competitors have best information)
(a)BUT victim (consumer) is not collecting. Still has incentives not to be mislead
(3)Same ad may convey Diff’t messages to diff’t groups
6.Remedies
a)Injunctions § 34(a)
b)Money Damages § 35(a)
c)Destruction of infringing articles § 36
7.Money Damages (See § 35)
a)§ 35(a)
(1)D’s profits +
(a)P only has to prove sales, D has to prove elements of cost
(2)Damages sustained by P +
(a)Treble damages allowed = compensation, not penalty
(3)Costs of Action
b)Advertising Expenditures = U-Haul Method (comparative adv. only?)
(1)D’s advertising expenditures on the false advertising (to prove D’s profits) +
(a)Represents Minimum amount of what D’s profits would have been (in comparative advertising case)
(b)PROBLEMS:
(i)If profits are net (not gross) profits, this method collapses
(ii)Difficult to measure expenditures on false portion (only get profits from the false portion)
(iii)Moral Hazard problem. Biggest awards where P = lg. Firm & D = small firm.
(iv)In UHAUL, price was a search characteristic.
(a)BUT transaction costs
(2)P’s advertising expenditures to rebut false claims (P’s damages)
(a)BUT FOR causation
c)Unintentional False Advertising Damages (NO PROFITS - ONLY P’s Damages) (Ralston)
(1)If willful or intentional
(a)Take D’s profits +
(b)P’s damages
(2)If mistake (NO PROFITS). P’s Damages =
(a)P’s advertising expenditures to rebut false claims +
(i)Needn’t specifically refer to false claims. Alpo II.
(ii)May recover more in responsive advertising than what was spent on the false advertising. Alpo II.
(b)Goodwill loss +
(c)Lost profits from lost sales & price reduction +
(d)Any other relevant damages. Alpo II.
(i)Delay in receipt of stream of income
(3)Why distinguish between Willful & Mistake?
(a)With a mistake, want due care, BUT don’t want them to be too careful (socially inefficient)
8.Consumer Remedies
a)“Any Person”
(1)§ 45: Purpose of act is to “protect persons engaged in commerce against unfair competition”
(a)Congress deliberately excluded consumers. Colligan.
(i)Avoids flood of claims
(2)The interest MUST BE direct.
(a)BUT non-competitors who have been injured commercially may be able to sue
(i)Ex. voice used as imitation (commercial interest exists)
(3)Trade assn can sue (efficiency enhancing device)
b)State law remedies exist for consumers
9.Economic Analysis
a)Effects of false claim could be trivial because success depends on repeat purchases (Experience goods).
(1)BUT may be deterred from buying other person’s products
D.State Statutes
1.Uniform Deceptive Trade Practices Act = Codifies law of false adv between competitors - “deceptive”
2.Unfair Trade Practices & Consumer Protection Law = Prohibits acts that are “unfair” or “deceptive”
3.Private Remedies = Any injured person to bring suit
E.The Federal Trade Commission
1.Jurisdiction
a)Authority over “unfair & deceptive” practices in commerce
b)Private P does not have standing to enforce rule or decision of FTC
c)Courts have deferential standard of review
2.Deceptive Acts or Practices [no competitor necessary]
a)FTC can rely on its own analysis [expertise] to determine if claims are misleading
(1)As long as claims are reasonably clear from face of ad. Kraft.
(2)Distinguish from L.A., where consumer survey needs to be done.
(3)PROBLEMS: (Kraft concurrence)
(a)Advertisers unable to predict what FTC will think
(b)FTC can ignore extrinsic evidence (though sometimes necessary)
b)Representations with a capacity to deceive are unlawful. Charles of the Ritz. (fool’s test – now gone)
(1)FTC needn’t produce proof of deception.
c)Fraud not necessary, deception enough. Algoma.
(1)Use of props may be deceptive in some circumstances. Colgate.
(2)Marketing gimmick called “free” is deceptive. Mary Carter.
d)FTC Policy Statement on Deception
(1)Representation, omission or practice likely to mislead
(a)False oral or written reps
(b)Misleading price claims
(c)Hazardous or defective products without warnings
(d)Pyramid sales
(e)Bait & switch
(f)Failure to provide promised services or meet warranties
(2)From perspective of consumer acting reasonably in circumstances
(a)Look at particular group, if targeted
(3)Material = likely to affect consumer conduct or decision
e)Puffing OK
3.Unfair Acts or Practices [need a competitor]
a)Cannot make an affirmative product claim without reasonable basis for making that claim. [must substantiate] Pfizer.
(1)Type & specificity of claim
(2)Type of product
(3)Possible consequences of false claim
(4)Degree of reliance
(5)Type & accessibility of evidence to prove
b)Two controlled studies standard for specific superiority claims
4.Rule Making (somewhat limited)
F.First Amendment Arguments
1.Free Speech
2.Unnecessary regulations chills some truthful speech
a)BUT Commercial speech less susceptible to chilling than other
3.No 1st Amendment concerns when facially apparent implied claims are found without resort to extrinsic evidence. Kraft.
a)Surveys unnecessary
4.Restrictions on POTENTIALLY MISLEADING speech can’t be broader than reasonably necessary to prevent deception. Kraft.
a)Can’t categorically prohibit if less restrictive alternatives available
b)ACTUALLY misleading advertising can be prohibited entirely.
III.Trademarks
A.The Fundamentals
1.Purposes of trademark [THINK: Search, experience, or credence?]
a)Consumer benefits
(1)Used by purchaser to identify goods intending to buy
(2)Guaranteeing quality of goods because consistent level of quality = Good experience
(3)Protect consumers from being confused as to source of goods
(4)Consumer get information from advertising & identification of source
(5)Minimizes information costs
(6) as source of utility (ex. prestige, etc.)
b)Producer Benefits
(1)Firm’s need to identify its good or services
(2)Creates incentives for firm to develop good products
(3)Makes advertising more efficient
(4)Creates demand for goods
(5)Minimizes search costs – clear rule on what you can & can’t copy
2.Arguments against Trademark
a)Results in monopoly power over price
b)Access costs: want more competition
3.Common Law Protection v. Statutory Protection
a)Can choose between CL & LA protection (No preemption)
b)Common Law Trademark v. Tradename
(1)Trademark
(a)Marks or devices arbitrary & distinctive enough to used to identify goods
(b)Affixed to good
(c)Not a common or generic name for goods, or a geographical, personal, or other name, or descriptive of goods
(d)Must USE in commerce
(2)Trade name (Descriptive, geographic, or surname)
(a)Marks or devices which had primary meaning other than identifying goods (like surname or descriptive word)
(b)SECONDARY MEANING: To protect, had to show mark had come to distinguish goods in minds of public
c)Lanham Act § 1051 et seq.
(1)Trademarks [Trade names included] § 1127
(a)Any mark used to identify goods regardless of whether arbitrary or descriptive [Trade names included]