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Misappropriation

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					                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

Misappropriation
Taking and use of another‟s property for sole purpose of capitalizing unfairly on goodwill and
reputation of property owner. Palming/passing off one‟s goods as your own.

Elements of Misappropriation Doctrine (INS v. AP):
 Public goods aspect (nonrivalrous) for good/product in question – nonexclusive use, which
   means that multiple parties can use good simultaneously.
          o Marginal cost of add‟l user = 0
          o Nonrivalrous quality creates problems with enforcement and administrative costs.
 Private enforcement is not feasible – high cost to exclude freeriders.
          o Defendant freerides off work/money/effort that Plaintiff invests in good/product
              and there is no private mechanism for Plaintiff to stop Defendant.
          o Freeriding ruins incentives for firm to be innovate.

Ways to limit doctrine:
 Limit to cases where you an identify party that did the “misappropriating” – who takes what
  from whom. Hard to do in health club hypo where we don‟t know who was first person to
  come up with idea of mixing gym + health food bar/meeting place – this is an administrative
  cost, evidentiary burden.
 Limit to cases where means are unlawful (J. Brandeis in INS – rejects J. Holmes which
  argues that it‟s ok to misappropriate as long as you give credit). This would gut doctrine, it‟s
  tort of conversion.
 Apply doctrine to cases where you have similar facts to INS (J. Hand).
 Cost-benefit case-by-case approach (Landes‟ favorite). Find misappropriation where
  incentive benefits are likely to be undermined by allowing Defendant to misappropriate. For
  instance:
           o Find misappropriation when freeriding by Defendant is substantial – high costs.
           o No misappropriation for industry standards. See Hubbell v. GE. You don‟t want
               to over-reward firm by allowing it to establish property rights in industry standard
               (e.g. keyboard, plugs, HDTV). Efficiency value in one standard, helps consumer.
           o Not likely to find misappropriation if party is first in market (first-mover
               advantage) and has been compensated (protection costs v. societal benefit).
           o Case for misappropriation is stronger where there is direct competitor in primary
               market. See Motorola v. NBA. NBA‟s primary purpose is basketball broadcast,
               not reporting scores. Stopping Motorola from reporting scores creates harm to
               consumer (not able to get info) and doesn‟t encourage innovation/novel use.

Benefits of doctrine:
 Saves on private enforcement costs.
 Fairness – person who creates it, should get to reap reward.

Criticisms of doctrine:
 Monopoly costs – remember that cost to supply add‟l user is almost zero.
 Social loss – it‟s a public good, loss may come through exclusive use
 What are the limits? Is doctor placing magazines in waiting room misappropriation?



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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

Unfair Competition
Draws line between tortious conduct and “good competition” between firms, although ultimate
injury may fall on consumer (uneconomical for consumer to sue because each one is only injured
in small amount and firms in commerce have best information about products. But, the
disadvantage is over-deterrence – there may be a lot of hateration so a competitor may sue).

Elements:
 Plaintiff has to show injury or likely injury by Defendant‟s conduct (injury means false,
   deceptive, or misleading claims about attributes of product). For instance:
          o Quality and/or nature of product. See Ely Norris.
          o Source/manufacturer (e.g. passing off).
          o Origin (geographic).
          o Product disparagement
 That injury was “caused by” something that law forbids.

Economics of Advertising – views:
 Modern view – Advertising/commercial speech informs public. Ads promote efficiency by
   reducing consumer search costs.
 Conventional view - Advertising persuades and manipulates tastes, doesn‟t inform. Allows
   firms to create artificial distinctions between similar products, which makes costs of goods
   higher. Ads waste resources and allow firms to puff up product so they can capture rents in
   the market (rent-seeking – inefficient behavior to capture value of winner-take-all resource).
   Product differentiation serves as barrier to entry (entrant has to lower price to compete with
   established brands or over-promote which increases entrants‟ costs). Problems with this
   view:
           o Not useful – doesn‟t tell us anything about firms/sectors of economy. How do ads
               change test? There is no accepted theory on this point. Discounts idea that ads
               provide information.
           o Empirically untrue – banning ads makes prices increase (e.g. cigarettes).
           o Legal doctrines on false advertising/TM law are best explained on information
               theory of ads. Ads improve workings of market. False and deceptive ads are
               socially harmful.

Categories of Goods – expect false claims more for experience/credence (not instantly verified)
and there is long lag time between initial purchase and repurchase. False claims anticipated
where there aren‟t likely to be repeat customers (e.g. tourist places).
 Search – attributes of good available to consumer before purchased (e.g. apple). Firm is self-
   deterred from making wrong statements because attributes are immediately verifiable.
 Experience – discover attributes after “experiencing” good (e.g. cigar)
 Credence – attributes not revealed by experience, can‟t be instantly verified (e.g. vitamins,
   medical services).

Ads that go to areas where people are particularly vulnerable (weight, financial instruments, etc.)
subject to scrutiny by FTC.




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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

Laws on false advertising good – paternalism argument that everybody ain‟t rationale and people
trust gov‟t will ferret out these cases.

Deterrence Mechanisms for False Advertising
 Repeat business – if firm makes false claim and consumer has bad experience with god, they
   wont repurchase (experience goods).
 Rational consumer – incentive not to believe firm‟s claims if not instantly verifiable.

False Designation of Geographic Origin
 Freeriding/misappropriation because firm makes representation about quality of goods by
   “calling” upon the consumer‟s presumed linkage of that good to geographic location.
 Location must have specific quality or good that is produced there (e.g. Cuban cigar,
   California wine, Wisconsin cheese).

Product Disparagement – false statements about competitors goods. Elements:
 Plaintiff must prove that Defendant made false statement about Plaintiff‟s good, and
 Defendant must have known statement to be false or acted with reckless disregard for the
   truth (actual malice), which
 Caused Plaintiff to be injured (e.g. lost sales). Direct loss necessary.

Defamation v. Disparagement – in disparagement, Plaintiff has burden to show statements were
false. Plaintiff has best information that Plaintiff‟s goods aren‟t shoddy. But in defamation,
Defendant is the cheapest cost avoider, otherwise there is inefficiency. Defendant, who makes
accusation about Plaintiff‟s character, must prove what s/he said is true – incentive for Defendant
to be careful.

Puffing – claim about your product (e.g. Nike is #1). Not comparative. Not actionable.

Lanham Act/False Advertising
Old view, under Ely Norris was that Defendant must divert sales from Plaintiff, however that is
amended under § 43(a).

Who has standing for false advertising suit under § 43(a)? § 45 read to mean that those engaged
in commerce (e.g. firms that compete) have standing. Degree of competition tenuous (but more
tenuous means more Plaintiff has to show). Consumer‟s direct remedy is to get a refund.

But, with respect to TM infringement, firm doesn‟t have to be competitor to sue.

Elements:
 Defendant‟s made claim/allegation in context of advertising and promotion
 Claim must be false/misleading
 Materiality (presumed because firm spent $)
          o False and misleading to a “not insubstantial” number of consumers (type of
             consumers in which ad was directed); that
          o Induced consumers to rely on false claim when making purchasing decision



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                         DP’s Trademarks/Unfair Competition Outline
                                   Prof. Landes – Fall 2002

   Likelihood of injury (for injunction) – proof of actual diversion of sales not required
    (Johnson & Johnson), likelihood of injury presumed. Unless you want damages, then proof
    of actual injury needed.

Preemption – federal and state laws coexist.

Types of false advertising:
 False on its face (e.g. claim of 100% fresh OJ when it‟s concentrated). Strict liability.
 Literally false but not misleading. If Defendant acts willfully, then cheap litigation costs.
   Plaintiff not have to produce surveys etc., in fact Defendant may have burden to produce
   info.
 Literally true but misleading – Plaintiff has to demonstrate that message ad conveys to
   consumers is misleading (usu. in form of surveys which cost $).

What about firms that make “test” claims? Statements should be truthful because they inform
consumers. It‟s hard to tell, however, if tests are reliable and the advertiser may refrain from
doing tests altogether (or do non-specific) test so they are less likely to be liable for false ad.

Calculating Damages:
 Common law (Uhaul) – projection of lost sales.
 Lanham Act § 35 (causation not required)
           o Damages sustained by Plaintiff
           o Costs for bringing suit
           o Multiple of damages or Defendant‟s profits (Plaintiff must prove sales, not
              profits). Any sum above actual damage is compensation, not penalty. If
              Defendant intended to deceive, argument in favor of profit-based award is that
              you extract from Defendant what it gained by unlawful act and divert it to
              Plaintiff. This runs risk of overdeterrence (Ralston).

FTC‟s Role:
 Regulate unfair competition and unfair/deceptive practices. Can issue injunctions for false
   advertising
 Statutory authority over food, drugs, cosmetics, medical devices and services but not for
   labels (packaging and info about quantity, not labels/content of product).
 Protect the public – fools standard/strict liability (sweeps in reasonable persons).

Trademarks
Word, symbol, or other signifier used to distinguish, or identify, producer of goods/services.
Also includes trade dress – packaging, design of product, etc. and trade name – name identifying
business or other enterprise (sometimes word serves as both TM and trade name – e.g Porsche).
Overview
 IP has public goods aspect, but it‟s expensive to protect (e.g. costs to prevent
   misappropriation and freeriding). Goal is to prevent consumer confusion and passing off.
 TMs have self-enforcing quality – denote consistent quality of good enjoyed earlier by
   consumer and a firm further develops the TM to see return on investment.



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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

   Assuming firms are price-takers (firm accepts price it can sell a good at in a competitive
    market, i.e., there are substitutes) the return from investing expenditures in developing a TM
    is that firm can charge higher price for good. Because firm provides information and reduces
    search costs and has established reputation (which will lead to repeat purchases), then it can
    raise price and consumers won‟t feel worse off. Full price of good = nominal costs + search
    costs. TMs economize on search costs and is value-added to consumer. Old view on ads
    (See Economics of Advertising section) is that TMs allow unnecessary product
    differentiation and monopoly rents/higher prices (deadweight loss).
   Freeriding competitor can capture some profits associated with strong TM because
    consumers will assume freeriding brand is identical. TMs only work if everyone can‟t
    appropriate the mark, otherwise, the economizing function of TMs isn‟t served – add to
    search and information costs.
   TMs last forever because a lapsing TM imposes search costs on consumer.

Economics of Language
 TMs enrich language by creating words/phrases that have information value
 TMs minimize sum of the costs of avoiding misunderstanding & costs of communicating –
   incentive to economize on communication costs if a word can convey or illustrate a
   product/good/service.

Standing
 § 43(a) read such that consumers don‟t have standing. Those being in competition with
   Plaintiff (level of competition can be weak).
           o § 45 – intent of Lanham Act is to regulate commerce and those engaged in
                commerce against unfair competition/unscrupulous conduct (Hailicki). However,
                economists argue that consumers are engaged in commerce as “purchasers.”
           o Allowing consumer suits floods federal courts with consumer suits and nothing in
                legislative history indicates that Congress intended for consumers to sue under
                Lanham Act.

Fear is over-deterrence – one firm may sue another alleging unscrupulous conduct and then firms
will be self-deterred from making claims about products for fear of being sued. This hurts
consumer because less information will be given. Also, administrative costs are high – more
litigation, which means those costs will be passed on to consumer.

TM law is about firms engaged in commerce – it‟s irrelevant that at point-of-sale, consumer is
able to tell a knock-off good from the real thing (Ferrari). Remember prestige value argument.

Acquisition/Ownership
Systems:
 Registration system – think up mark and register it. Provides constructive notice and gives
   registrants federal juris as well as statutory rights. No good faith defense for mark listed in
   federal registry for same product.
 Use system (common law) – use mark in commerce (by attaching to intended goods).
   Protection in natural zone of expansion (service or areas where registration applies, e.g. if a



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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

    band used STP for song recordings, that‟s ok, but they can‟t use it for motor oil. That goes
    outside zone of expansion).
   Lanham Act “combined” system – register, only after mark used in commerce. So, what
    constitutes “use”?
            o Secret, undisclosed, internal shipments inadequate (Blue Bell).
            o Sales must be made to public, not personnel within corporation.
            o Feigned marketing efforts don‟t count.
            o Intent-to-use provision (Warnervision) – bonafide intent to use per §1(b) which
                has to be followed by use in commerce within 6 months (extensions available).

Benefits of ownership:
 Mark becomes incontestable – owners of registered TM have incontestable right to use mark
   except to extent that it infringes what valid right the Defendant has acquired through
   continuous use of same mark prior to Plaintiff‟s federal registration (Burger King).
 Owner can prevent importation of gray goods (goods imported bearing the same mark).

Banking TMs not allowed:
 Banking TMs leads to system where the market is in creating brand names instead of using
   the names to identify a supplier. TMs should be “tied” to the good and not appropriated in
   gross.
 Banking leads to rent-seeking behavior – costs involved in racing to register TMs/domain
   names and selling them back to the would-be owner (or even litigating them) has no social
   value (e.g. cybersquatting).
 First possession rule limits rent-seeking and reduces administrative costs of figuring who
   invented the mark – mark has to be used in commerce (junior users will be put on notice and
   should be self-deterred) from investing in identical or confusingly similar mark. Pure use
   system risks wasteful duplication.

Rights of TM Holders
 § 14 – cancellation of registered mark. Once mark registered for 5 years, it‟s presumed to be
   distinctive. Perhaps you can argue that it was generic, secured fraudulently, abandoned
   (discontinued use for 3 or more years without intent to resume).
 § 15 – incontestability. Requires 5 years of continuous use after registration. Procedural tool
   for foreclosing Defendant‟s defenses except those listed in § 15(b). Substitutes for secondary
   meaning if used for 5 years, that is, Defendant has to prove actual genericness.
 § 33 – defenses Defendant can assert when accused of infringing mark.
           o § 33(a) – Defendant can raise any defense if mark isn‟t registered (e.g. not
               distinctive, no secondary meaning, procured by fraud, geographically deceptively
               misdescriptive, functional, etc.).
           o § 33(b) – defenses limited once mark becomes incontestable. You can always
               raise a § 32 (no likelihood of confusion) defense. Or, that mark was abandoned,
               used with permission, functionality, and fair use.
                Junior user who used mark in good faith, prior to registration by senior user,
                   has rights to continued use within limited area in which it was established,
                   even if mark is incontestable (see Burger King).



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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002


Hypo – A and B want to use same mark on similar product in same geographical area. A
registers mark whereas B claims common law right.
 If A registers before B‟s use, A‟s registration is constructive notice to B so even if B enteres
    in an unknown area before A, A can still dislodge B. Registration precedes B‟s use in
    commerce so it‟s good v. B (Dawn Donut).
 If A registers after B‟s use in common law, A wins in neutral areas but B wins in “home
    area” (Burger King). B cannot expand outside this area though.

Distinctiveness
 TMs have to be distinct (in minds of public, identifies a particular source). If TM isn‟t
   distinct, it doesn‟t decrease consumer search costs.
 TMs must be attached to goods/services. Cannot be appropriated in gross.
 Registration denied if mark closely resembles that of prior user.
 Immoral, scandalous, or offensive marks are barred, even with secondary meaning (§
   1052(a)).

Types
 Fanciful – made-up names/coined words invented for purpose of serving as TM (identifying
   producer) (e.g. Exxon, Kodak, Sanka). However, some words begin as fanciful and become
   generic (e.g. brassiere, escalator, thermos, aspirin, etc.).
          o Protection because provides info and presumption that competitor could develop a
               mark without impoverishing words of commerce. Inherently distinctive.
          o What if firm name and product name is the same (e.g. Coke, Xerox, Sanka)?
               Differentiate the firm name or you run risk of becoming generic.
          o If fanciful word becomes generic, loses protection because it fails to economize
               on search costs.
 Arbitrary – words or names in common usage, but arbitrarily apply to goods (e.g. Windows –
   MS, Apple Computer, Camel cigarettes).
          o See above.
 Suggestive – doesn‟t describe good directly, but requires some imagination (e.g. Wall Street
   Journal, Head „n Shoulders shampoo, Tide Detergent, People Magazine).
          o See above
 Descriptive – describes purpose, function, or attribute of product/good (e.g. TV Guide, 15
   Minute Oil Lube), but is not inherently distinct because doesn‟t identify producer. Must
   acquire secondary meaning (identify firm) to get TM protection.
          o Imposes access costs on competitors (and gives one firm ability to obtain rents) –
               competitor would have higher costs of entry because they‟ve got to spend more
               time describing their similar product in a different way (higher information costs)
               resulting in higher prices and less diversity which means consumers are worse off.
               Also means higher search costs because firm may fail to/provide less info.
          o Describing a product ok, so long as you‟re not trying to pass of another firm‟s
               goods as your own (Shaw v. Time Life)
          o Using mark in descriptive sense (e.g. shape of a tree) ok because it minimizes on
               access costs for competitors (Car-Freshner v. S.C. Johnson). Marketing



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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

               innovations that are of “competitive necessity” get no protection (Genesee
               Brewing v. Stroh Brewing), or else there would be higher information costs for
               competing firms and reduction in output – consumer worse off.
            o Initials/abbreviations are protectable so long as they fit in category of fanciful,
               arbitrary or suggestive (e.g. STP, A&W). But initials like CD, DVD, PC aren‟t
               protectable – no secondary meaning. Giving one firm exclusive rights over these
               initials would disadvantage other firms because they would have to spend more
               money to convey information.
            o Deceptively misdescriptive marks ineligible (§ 1052(e)(1)) – marks descriptive of
               something other than product or service which they are attached & left
               unexplained would deceive consumer – unless these marks acquire secondary
               meaning (Park ‘N Fly), i.e. mark develops quality that distinguishes goods of
               producer (presumed to be incontestable and distinct after 5 years of use).
   Generic – refers to category/class of good/service, not brand name (e.g. golfballs). No
    protection. If brand becomes generic, it no longer gets TM protection (undue consumer
    confusion, search costs). Suggestive and descriptive marks more likely to become generic.
    See above.

Geography – firms often use geography in TM because it‟s a way of passing on info to
consumer at low costs.

TM for geography allowed when:
 Arbitrary, fictitious, or suggestive (identified as coming from a manufacturer, not location)
  (e.g. Mars Bar, North Pole Ice Cream, Milky Way Bar); or
 Descriptive, but has secondary meaning (what you associate with brand name is the
  geographic area). No TM for geographically deceptively misdescriptive marks (§ 2(e)(1)).
 Elements for geographically descriptive marks:
          o Area has to be recognized for commercial activity
          o If firm is not located in area, no protection, unless firm can show secondary
              meaning (In re Nantucket)

Certification Marks – goods/services originated in particular location or have particular
characteristic – certifies goods/services that are significant to consumers (provides info about
experience or credence attributes) (e.g. Good Housekeeping Seal of Approval, Kosher, etc.)
 § 2(e)(2) – denotes that products adhere to a standard and anyone can use mark provided that
   good meets standards set by owner
 Collective marks (e.g. NCAA, UAW) – goods/services produced by members of a collective
   group or indicates membership in particular group

Personal Names
 No registration for marks that are primarily merely surnames, but if “purchasing public”
   associates name with product and not primarily its surname status, name has acquired
   secondary meaning and can be registered (§ 2(e)(4). See Levitt Corp. v. Levitt.
 If surname is same as “brand name,” then surname must sue disclaimer to avoid confusion.




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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

   Injury is that firm trying to pass off their goods as another‟s does so because there goods are
    shoddy, presumably. But since proving whether qualities are identical (administrative costs)
    is difficult, injury presumed.
   Protection of name exists for living and nonliving people – stops misappropriation and
    freeriding off name/likeness.

Trade Dress – appearance of product (e.g. packaging, design, shape, etc.). No protection should
be given for attributes of a product, or else you impose costs on competitors.

   Disincentivise freeriding (newer firms copy décor or trade dress, then the net effect is to
    reduce incentive for firms in market to develop distinctive forms of trade dress). Protect
    trade dress at outset or else other firms may freeride off décor because it takes time for
    original firm to get secondary meaning to attach, so in the meantime, competing firms have
    incentive to freeride and original firm has less incentive to be creative and come up with
    distinctive trade dress (Two Pesos).
            o Décor key for chain of restaurants (denotes consistent quality and reduces
                search/information costs). Info-economizing function (quality product at low
                price).
            o Brand name v. décor – if you allowed one firm to have similar décor but different
                brand name (e.g. Tuesdays and Fridays), then there is likelihood of confusion.
   Color alone can never be inherently distinctive (Qualitex). Color may be functional (e.g.
    color of tennis balls or peanut butter) and giving a firm exclusive right to it may disadvantage
    competitors.
            o Drugs/pills – color may be protected. Color provides info and deters
                unscrupulous druggist from substituting generic for original drug.
   Test for product design/trade dress (Ferrari). Plaintiff must show:
            o Trade dress/product design functions as a TM, i.e. it is distinctive (acquired
                secondary meaning). Fanciful, arbitrary, and suggestive marks are inherently
                distinctive (Two Pesos). If descriptive, needs secondary meaning (in minds of
                public, primary significance is source of product instead of product itself) to get
                protection.
                     Secondary meaning may be presumed if Defendant intends to replicate
                        design (Ferrari). Intent = evidence perhaps.
            o Even if the trade dress/product design has acquired secondary meaning, Plaintiff
                has to show that appropriated features of product design/trade dress are not
                functional, and
            o There must be some likelihood of confusion (§ 43).

Functionality Doctrine – to get protection, shape has to be non-functional (not essential to the use
or purpose of the article) and not have utility and have secondary meaning:
 Functional features can‟t be TM‟ed (if feature becomes functional, it no longer enjoys TM
    protection), or else that would promote an exclusive monopoly which increases competitor
    costs (Qualitex).
 Design serves some useful function – functional designs not protected (e.g. shape of football,
    stitching in jeans). Protection valid for ornamental, arbitrary features (Traffix).
    Nonfunctional (protectable) features have (near) perfect substitutes.


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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

Infringement
 § 32 covers infringement for registered mark, whereas § 45 covers infringement for non-
   registered marks.
 If mark used to distinguish origin of production, then there is infringement claim. But once
   mark acquires value in, and of itself, it stands as a reputational symbol of the firm, so there
   may be a dilution action (see below).
 Must prove likelihood of confusion to prevail. Consider these factors (Polaroid):
           o Strength of Plaintiff‟s mark
           o Degree of similarity with respect to the marks
           o Proximity of the products/overlap (e.g golf balls and golf clubs)
           o Likelihood that prior owner will enter market
           o Defendant‟s good faith in adopting the mark (is Defendant misappropriating/has
              intent to deceive?)
           o Quality of Defendant‟s products (if Defendant‟s products are lower quality,
              attempts to pass off are greater)
           o Whether goods are sold through same retail outlets
           o Sophistication of buyers

Dilution – lessening capacity of famous mark to identify and distinguish goods/services
regardless of presence or absence of competition between owner of mark or likelihood of
confusion. Goodwill of TM may suffer reputational damage.

Purpose of § 43(c) is to protect distinctive quality of famous mark against someone who uses a
substantially similar mark, where in the context, there is no confusion (consumers don‟t perceive
marks are from same producer) (e.g. KFC claiming it is the Rolls Royce of chicken wings). No
requirement of consumer confusion. Remedy is injunction, unless it‟s willful.

Elements:
 Mark has to be famous/well known – if you encounter mark in an unrelated market (outside
   of context where they are normally used). If mark is well known in a niche market, that‟ll
   suffice.
 Mark must be substantially similar – not necessarily the products – and,
 Motivated by bad faith (intent to profit)

Types of dilution:
 Blurring – time it takes for consumer to process TM and goods/services attached to mark.
   Although you associate famous mark with the firm that it‟s providing information about,
   you‟re doing it slightly less efficiently than before, which is costly ($ for ads).
 Tarnishment – fx image of product (usu. drug and porn cases).

Harms of dilution:
 Preference/reputation capital – image of the product (prestige, status) may be lessened
   because people flaunt that they buy certain brands and want the elitism. Protects reputation
   of firm from association with inferior goods.




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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

   Firm has invested in creating prestigious name and copier freerides (appropriates) off the
    goodwill of the firm without compensation. Creates lesser incentive to sink costs into
    developing mark which ultimately lessens information associated with mark and hurts
    consumer.
   Prior user of a mark may be deterred from entering related field (see Zone of Expansion
    Doctrine below).
   Costs of investing in prestigious name/mark increase if there is not protection. Cheap copies
    is a form of “passing” off and will lead to higher prices because of reduced competition.

Exceptions to Dilution (John Deere and § 43(c)(4)):
 Comparative advertising – you can compare but can‟t throw “salt” on competitors products
 News commentary/reporting (humor/parody ok so long as you‟re not using it to sell other
   goods – LL Bean)
 Non-commercial use
 Use of mark in a descriptive sense (Smith v. Chanel), protectable so long as there is no
   likelihood of confusion.
 Fair use in comparative commercial advertising to identify competing goods/services

Likelihood of Harm v. Actual Harm standard:
 Bright line rule may not help because it‟s difficult to prove actual harm.
 Higher administrative costs – if you have to show likelihood of harm, you‟re likely to have
   more litigation. But if you have to show actual harm, then there would be few lawsuits but
   those suits would be more costly to litigate. But if remedy is injunctive, not much costs to
   rule.
 Time – if every likelihood of injury case later turned into actual injury, you eliminate harm
   that occurs in interim.
 Proof problems – hard to show actual harm and chances are, the Plaintiff is larger, well-
   established firm and Defendant is smaller. It‟s not likely that first firm can show actual
   injury because many things effect sales.

Zone of Expansion Doctrine:
 Limits use of TM in areas not presently used by owner – shaped by consumer expectations of
   related products. If products and/or services are related, it‟s conceivable that owner of makr
   may expand into related areas (e.g. golfballs and golfclubs). But, burden is on Defendant to
   prove that its use of mark is foreign to anything expected of the owner and that consumers
   would not identify Defendant‟s product with the owner‟s goods.

Remedies
 Unjust enrichment – one firm benefits from use of another‟s mark. If there was actual
  infringement, Defendant gained sales at expense of Plaintiff which was caused by
  infringement.
          o But administrative and litigations costs are high because it may be hard to prove
             exactly what Plaintiff‟s damages were (e.g. loss of goodwill or reputation), so as a
             proxy, we use what Defendant has gained. Burden shifts to Defendant to prove



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                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

               damages to Plaintiff were less than Defendant‟s profits. Incentive to take care not
               to infringe, but risks over-deterrence
    Willfully deceptive – to deter Defendant, take profits gained.

Problems with royalty rate (Sands, Taylor & Wood v. Quaker Oats):
 It‟s not enough – fails to encourage licensing at outset but can avoid a market transaction and
   take risk that you‟ll pay damages if you get caught. Licensing a mark increases the rate
   because of quality stipulations, but if you get caught on the back-end, you avoid the higher
   rate.
 But rate may be good because we don‟t know how much the slogan contributed to
   Defendant‟s profits.

Contributory Infringement
To be a Contributory infringer, firm must be:
 Reasonable to monitor;
 Stop producing; or
 Modify what you‟re selling so that infringement isn‟t possible (e.g. Sony Betamax)

Assignment/Licensing
 TM holder has right to determine how mark is used.
 TMs may not be transferred in gross (e.g. you can‟t Coke TM without attaching secret
   formula). Remember the economic function of TMs.
 Franchising – stores that carry a TM or way of doing business.

Abandonment
 § 45 – owner discontinues use with intent not to resume use, or if owner does something to
  cause mark to lose distinctiveness.
          o Pressure to discontinue use as a result of economic consequences is excusable
            nonuse – no manifestation of intent to constitute abandonment.
          o Nonuse for 2 years = presumptive abandonment, but can be rebutted by proof to
            resume use.
          o Abandonment must be national in scope (Dawn Donut), even limited
            geographical use is enough to rebut presumption of abandonment. Defendant is
            put on constructive notice if mark is registered.
          o Legal abandonment may occur where Plaintiff fails to police TM and causes it to
            lose its distinctiveness.
 Subsequent use of abandoned mark may evoke a continuing ass‟n with the prior use, which
  may cause some residual confusion provided original holder is still operating under different
  mark and producing similar goods/services (Baltimore Colts).

Domain Names
 Controlled by ICANN. Mandatory arbitration if domain name registered in bad faith (intent
  to make profit) and mark is registered (§ 1125(d)).




                                               12
                        DP’s Trademarks/Unfair Competition Outline
                                  Prof. Landes – Fall 2002

   Difference between TM and Domain Name – you can slice up a TM over different products
    (Nike shoes, socks, etc. – public goods aspect) but you can‟t slice up a domain name. Only
    one party can have it.
   Pure registration won‟t work – creates a rent-seeking market in “banking” TMs so the firms
    will have to buy domain name to accompany the TM that represents the goods/services firm
    produces (transaction costs with no social productivity).
   Generic marks like stamps.com or sex.com can be registered. No protection.
   In rem jurisdiction – use of name is sufficient for juris under A-C Act.

Hurdles prior to Anti-Cybersquatting Act:
 Domain holder would have to use domain name in commerce – so they could just sit on the
   name without using it in commerce and could avoid Lanham Act violation. The A-C Act
   stretched this – if you held mark with intent to sell back to someone, that qualifies as use in
   commerce.
 Dilution applies only to famous mark before the A-C Act. But now, mark doesn‟t have to be
   famous, only distinctive. And, a famous mark in a niche market is sufficient (Sporty’s
   Farm).




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