Marks, Morals, and Markets

By Sheff, Jeremy N. | Stanford Law Review, April 2013 | Go to article overview

Marks, Morals, and Markets

Sheff, Jeremy N., Stanford Law Review

A. Trademark as Promise (144)

The contractualist theory of producer-consumer relationships in trademark law offers a highly attractive justification of core trademark doctrine that is at least as convincing as that of consequentialist theory, if not more so. Consider the classic case of infringement by passing off (145) (or what one might refer to today as point-of-sale confusion as to source). (146) What would a contractualist consider wrongful about one producer using a trademark on his goods that confuses consumers into thinking the goods actually originated with another producer, and how might the contractualist view differ from the consequentialist view on this point?

The consequentialist, as noted above, explains this problem in terms of search costs. (147) If passing off were permitted--that is, if a mark used as a source identifier by one producer could be used by that producer's competitors on the competitors' goods--then consumers could be misled about the unobservable qualities of the products to which the mark is affixed. (148) A consumer might buy a shoddy widget from Producer A thinking he was buying a quality widget from Producer B, suffering injury in the amount of the value attributable to the difference in quality. Moreover, because producers know more about the unobservable qualities of their products than consumers do, a world in which passing off is permitted is one in which consumers would have to undertake their own search for relevant information to avoid the kind of injury that would result in the widget example, raising the transaction costs associated with gathering and disseminating that information and lowering aggregate welfare as a result.

The problem with this analysis is that it fails to account for an important aspect of infringement doctrine: the relevance of product quality. Under the Lanham Act, infringement includes a use of a trademark that is likely to cause confusion. (149) The Second Circuit--one of the most active (150) and authoritative courts in trademark law--has thoroughly explored the relevance of comparative product quality to the question of likely confusion, and its conclusion is difficult to square with a search costs theory. In the Second Circuit, the more similar the quality of the defendant's goods to that of the plaintiff's goods, the more likely the defendant will be held liable for infringement. (151) Several other circuits have adopted the Second Circuit's approach, with similar disregard for search costs. (152) While these courts recognize that divergent quality may suggest an injury of greater magnitude where confusion exists despite that divergence, they (understandably) consider such an inference relevant only to the availability of particular remedies, not to the determination of liability. (153)

This treatment of product quality is precisely the opposite of what we would expect if we believed that trademark infringement liability was designed to reduce consumers' search costs. Obviously, not all uses of a trademark by a competitor of the mark's owner will mislead as to the unobservable qualities of the competitor's products that are relevant to the consumer's search. If trademarks really are about efficiently conveying information about such qualities to consumers, we should encourage, or at least excuse, the use of a well-known trademark by someone other than its first user where such use will efficiently convey accurate information about the user's goods to consumers. (154) Thus, the more similar the products are with respect to their unobservable qualities, the weaker the case for liability under a search costs theory. To hold otherwise--as some circuits do--merely encourages wasteful duplication of search costs. On the one hand, it might require competitors of the owner of an established trademark to undertake their own investments to create a redundant source of information capital. On the other hand, it might require consumers to undertake an additional costly search themselves to identify attractive substitutes for the mark owner's products. …

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