Trademarks and the Boundaries of the Firm

By Burk, Dan L.; McDonnell, Brett H. | William and Mary Law Review, November 2009 | Go to article overview

Trademarks and the Boundaries of the Firm


Burk, Dan L., McDonnell, Brett H., William and Mary Law Review


ABSTRACT

Coase's theory of the firm has become a familiar tool to analyze the structure and organization of businesses. Such analyses have increasingly focused on property-based theories of the firm, including intellectual property. In previous work we have discussed the application of this model to patents, copyrights, and trade secrets. Here we take up the theory of the firm with regard to trademarks, which act as signals of firm reputation, and so have application and effects that differ substantially from other forms of intellectual property. Using the framework from our previous analyses, we examine the propensity of trademarks to lower transaction costs between firms, as well as within firms, suggesting that such doctrines will have significant effects on the size and structure of the firm.

INTRODUCTION

Modern commerce functions in a sea of trademarks. Consumers depend upon such marks to identify goods and services and increasingly adopt the marks to communicate loyalty or allegiance to preferred brands of goods. (1) Consequently, firms spend billions of dollars each year in developing, establishing, promoting, and maintaining their trademarks in the marketplace. (2) A recognized trademark is frequently the most valuable asset held by the modern firm. (3)

In this paper we consider certain aspects of this latter dimension of trademarks: their value as assets and their place in the firm. Although trademark law traditionally contemplates the welfare and perceptions of consumers, (4) we will be largely unconcerned about the benefits or effects of trademark law on consumers, except as an indirect factor in our primary analysis. Instead, we will focus on the manner in which the legal existence of such assets, and by which the legal regime for control of such assets, may affect the size and structure of economic firms. We will argue that the law allocating the use of trademarks has an important effect, and sometimes a profound effect, on the contours and organization of firms.

In previous work we have considered how other forms of intellectual property, particularly patents, copyrights, and trade secrets, might influence the size and structure of firms, and ultimately of entire industrial sectors. (5) Our earlier analysis assessed these types of intellectual property using the theory of the firm, particularly property-based theories of the firm. (6) However, we purposely set aside trademark law due to its differences from other forms of intellectual property, intending to take trademarks up separately. We take up that delayed inquiry here, applying to trademarks the analytical framework that we previously developed, while taking into account the unusual aspects of trademark law that differentiate them from other forms of intellectual property. We suggest here that trademarks may have purposes, and certainly have effects, not only as a signal to consumers, but also as a set of exclusive rights around which organizations will be structured. Our discussion in this Article is primarily directed to the standard law of trademark confusion, while recognizing that trademark has in the last decade begun to incorporate other theories of infringement. (7)

In following the framework we have previously employed for considering the effects that exclusive rights have upon the size and structure of firms, we consider the differential between transaction costs inside and outside the firm, recognizing that it is possible to have exclusive rights that are too strong or too weak in either dimension. (8) We briefly review this approach, as well as some salient features of trademarks, in the first section. Using this background, we then look at trademarks, first as an asset allocation mechanism that may lower the transaction costs within a firm, and then as an asset allocation mechanism that may lower transaction costs between firms. We emphasize that the asset being allocated in the case of trademarks is the reputational capital of the firm, more than the trademark itself.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Trademarks and the Boundaries of the Firm
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.