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Draft July 28, 2006 Please do not circulate or cite without permission The Normative Foundations of Trademark Law

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Draft July 28, 2006 – Please do not circulate or cite without permission

The Normative Foundations of Trademark Law
Mark P. McKenna
This paper challenges the conventional wisdom that trademark law traditionally sought to protect consumers and enhance marketplace efficiency. Contrary to widespread contemporary understanding, early trademark cases were decidedly producer-centered. Trademark claims, like all unfair competition claims, sought to protect producers from illegitimate attempts to divert their trade. Consumer deception was relevant in these cases only to the extent it was the method by which trade was diverted. Moreover, American courts from the very beginning protected a party against improperly diverted trade in part by recognizing a narrow form of property rights in trademarks that was derived from the natural rights theory of property that predominated in the nineteenth century.

This reframing of traditional trademark law leads to two important conclusions. First, although the broad forms of protection trademark law now provides deserve sustained scrutiny, any criticisms leveled against modern doctrines must stand on their own merits and fairly confront the policy goals of modern trademark law. The criticisms cannot draw their normative force by pointing to information transmission principles that did not animate traditional trademark law. Second, and somewhat counterintuitively, expansion of trademark law in the twentieth century was more a consequence of the focus on consumer protection than a deviation from that goal. Traditional trademark law contained very specific and workable restrictions on the scope of trademark protection that were weakened or rejected in the twentieth century as courts and commentators embraced the information transmission model. The limitations suggested by the new model have proven almost infinitely pliable and have failed to halt trademark law’s growth.

The Normative Foundations of Trademark Law
Mark P. McKenna1
Table of Contents

The Conventional Wisdom About Trademark Law 10

A Second Look at Early Trademark Protection 17

Medieval Marks as Liabilities 17

English Trademark Cases 19

Early American Trademark Jurisprudence 27

Trademark Law Targets Trade Diversion 27

Trademarks and Unfair Competition 29

Benefits to Consumers an Added Bonus 33

Evidence of Confusion was Not Sufficient 36

The Cases Involving Expired Patents Are Consistent With the Trade Diversion Conception 42

The Nature of the Property 54

Trademarks as Incident to Physical Property Rights 54

Property Rights in a Trademark Itself 55

Property Rights in Honestly Acquired Customer Flows 59

The Natural Right in One’s Business Conception Explains a Variety of Long-Standing Doctrines 61

Trademark Use as a Proxy for Labor 61

Unfair Competition Requires Competition 63

Evidence of Fraud Not Required 64

Abandonment Rules Reflect Trade Diversion Theory 69

Assignment and Licensing Rules Reflect Primacy of Labor 70

Expansion of American Trademark Law 71

Modern Doctrinal Expansions 76

Unfair Competition No Longer Presupposes Competition 77

Expansion of Actionable Forms of Confusion 82

Initial Interest Confusion 82

Relevant Confusion Includes Non-Purchasers 85

Licensing of Trademarks Has Been Liberalized 87

Dilution Does Note Even Require Evidence of Confusion 89

Trademarks as Domain Names 91

The Cumulative Effect of Modern Doctrinal Changes 92

Trademark law has come unhinged from its traditional consumer protection moorings. That is the clear message of modern scholarship. Doctrinal innovations like dilution and initial interest confusion are illegitimate, many commentators suggest, because they reflect a property-based conception of trademarks that is inconsistent with trademark law’s core policies of protecting consumers and improving the quality of information in the marketplace.

These critics are only half right. Trademark law now covers much more ground than it did at the beginning of the twentieth century, and it has expanded in ways fundamentally inconsistent with the traditional goals of trademark protection. But the critics have mischaracterized traditional trademark law and therefore misunderstand the nature of this shift in trademark law’s normative foundation. As this paper demonstrates, trademark law traditionally was not intended primarily to protect consumers. Instead, trademark law, like all unfair competition law, sought to protect producers from illegitimate diversions of their trade by competitors. Courts did focus on consumer deception in these cases, but only because deception was what distinguished unfair competition, which was actionable, from mere competition, which was not. In fact, courts denied relief in many early trademark cases despite evidence consumers were likely to be confused by the defendant’s use. Invariably they did so because the circumstances did not permit the inference that the defendant was using confusion to divert the plaintiff’s customers.

Moreover, American courts based trademark protection from the very beginning on property rights. This property-based system of trademark protection was largely consistent with the natural rights theory of property that predominated in the nineteenth century, when American trademark law developed. Significantly, this approach did not generate broad and absolute rights in a trademark. Instead, traditional trademark rights protected the exclusive right to use a trademark only within a particular field of trade, and courts imposed a variety of reasonable limits on the scope of those rights.

Reexamination of traditional trademark principles teaches several important lessons. First, it reveals as inaccurate the popular contention that trademark law recently departed from its traditional focus on consumers to embrace a property-based form of protection. Consequently, it steals the normative force of many of the modern criticisms of trademark law, which focus on trademark law’s deviation from its supposed sole purpose - improving the quality of information in the marketplace. Consequently, while modern trademark law deserves sustained scrutiny, any criticisms must stand on their own merits and fairly confront the policy goals of modern trademark law. The criticisms cannot draw their normative force by pointing to “traditional” principles that did not exist.

This lesson hints at a broader methodological flaw in some applications of the law and economics approach. Law and economics scholars gained prominence in trademark discourse, as they did in many other contexts, in part by making purportedly descriptive claims about various legal doctrines. Underneath the formal doctrinal means through which courts reached their results, they argued, many legal doctrines could be explained as attempts to promote economic efficiency.2 Courts simply lacked sufficient background in economics to explicate the true bases of their decisions.3 These types of descriptive claims then are used to lend legitimacy to a normative agenda.4

This form of intellectual bootstrapping cannot be sustained, however, when the descriptive claims prove erroneous. And even if the efficiency hypothesis has some purchase in other areas, courts were not motivated by economic efficiency when they developed trademark doctrine. Courts deciding trademark cases did sometimes reach outcomes that improved the quality of information in the marketplace.5 But they also tolerated substantial confusion in many cases. Rather than criticizing or explaining away results that do not fit the efficiency hypothesis, it makes much more sense to consider the possibility that courts in all these cases acted according to a different normative framework.

The second lesson that this reexamination of traditional trademark law teaches is that the doctrinal expansions critics widely decry are more a consequence of the consumer protection approach than a deviation from it. Traditional trademark rights were intended only to prevent competitors from dishonestly diverting customers who otherwise would have gone to the mark owner. Thus, courts created a number of important restrictions on the scope of those rights. In the twentieth century courts rejected trademark law’s traditional theoretical construct in favor of the information transmission model and, in the process, greatly expanded its reach. This expansion cannot be described as a “propertization,” however, or as a shift from a consumer-centered system to one that is producer-centered. Trademark law has always protected producer interests, and it has done so by recognizing property rights. Instead, the expansion of modern trademark law resulted from courts rejection of a particular property theory and their countenance of a much broader range of producer interests.

Trademark law traditionally saw a trademark as little more than a window to the mark owner’s underlying business. Marks were necessary so that customers who were satisfied with a producer’s product could continue to patronize that producer. But, on this view, value lay in the business, and the business of the producer was the ultimate object of protection. By contrast, modern law sees a mark in much more Shechterian terms: it treats the mark itself as a repository for value and meaning, which may be deployed across a wide range of products and services.6 Modern trademark law, in other words, amounts to little more than industrial policy intended to increase brand value.

This article proceeds in four parts. First, it sets out the common objection in modern trademark scholarship that trademark law has lost its consumer focus and reveals as historically inaccurate the premise on which the objection is based. Second, the article revisits “traditional” trademark principles and identifies trade diversion as the ultimate evil pursued by trademark law. Third, the article situates traditional trademark protection within the natural property rights tradition that nineteenth century judges generally operated. Fourth, and finally, it describes the modern doctrinal developments and identifies more accurately trademark law’s fundamental shift from customer-centered to mark-centered protection. It argues that these modern doctrinal expansions deserve sustained analysis, but that the analysis must accurately assess trademark law’s modern goals and evaluate modern law on its own terms.

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