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

CEarly American Trademark Jurisprudence

(1)Trademark Law Targets Dishonest Trade Diversion

As noted above, I read the decisions of the common law courts and courts of equity in England as reflecting the same fundamental concern. In both types of cases, courts were singularly focused on the harm to a producer from improper diversion of trade, and the courts worked with existing forms of action to remedy with that harm.⁷⁴ American courts continued that focus, repeatedly making clear that the purpose of trademark law was to protect a party from illegitimate attempts to divert its trade.⁷⁵

In Coats v. Holbrook,⁷⁶ for example, the court said that “a person is not allowed to imitate the product of another and ‘thereby attract to himself the patronage that without such use deceptive use of such names would have enured to the benefit of that other person.”⁷⁷ Likewise, in Partridge v. Mench,⁷⁸ the court

proceed[ed] upon the ground that the complainant ha[d] a valuable interest in the good will of his trade or business, and that having appropriated to himself a particular label, or sign, or trademark, … he [was] entitled to protection against any other person who attempt[ed] to pirate upon the goodwill of the complainant’s friends or customers, or of the patrons of his trade or business, by sailing under his flag without his authority or consent.⁷⁹

In Delaware & Hudson Canal Co. v. Clark,⁸¹ Justice Strong stated the premises of trademark law with certainty:

[i]n all cases where rights to the exclusive use of a trade-mark are invaded, it is invariably held that the essence of the wrong consists in the sale of the goods of one manufacturer or vendor as those of another, and thus it is only when this false representation is directly or indirectly made that the party who appeals to the court of equity can have relief. This is the doctrine of all the authorities.⁸²
Thus, traditional American trademark law sought to protect a producer’s interest against illegitimate trade diversion. Moreover, American courts concluded very early on that this protection in many cases was based on a property right,⁸³ following essentially the approach of English courts of equity.⁸⁴

(2)Trademarks and Unfair Competition

Because the purpose of trademark protection traditionally was to prevent trade diversion by competitors, it has long been regarded as a species of the broader law of unfair competition,⁸⁵ and even more broadly, as part of the law governing other fraudulent (and unfair) business practices.⁸⁶ This view of trademark protection as a species of unfair competition was not, as some have suggested, a post-hoc conflation of two branches of the law. From the very beginning, trademark cases and those only “analogous” to trademark cases have stated clearly the fundamental principle that no person has the right to pass off his goods as those of another. In his 1859 essay “The Morals of Trade”, Herbert Spencer wrote that:

It is not true, as many suppose that only the lower classes of the commercial world are guilty of fraudulent dealing. Those above them are to a great extent blameworthy. On the average, men who deal in bales and tons differ but little in morality from men who deal in yards and pounds. Illicit practices of every form and shade, from venial deception up to all but direct theft, may be brought home to the higher grades of our commercial world. Tricks innumerable, lies acted or uttered, elaborately-devised frauds, are prevalent; many of them established as ‘customs of the trade’’ nay, not only established, but defended … We cannot here enlarge on the not uncommon trick of using false trademarks, or of imitation another maker’s wrappers.⁸⁷
Similarly, James Love Hopkins wrote that “[u]nfair competition consists in passing off one’s goods as the goods of another, or in otherwise securing patronage that should go to another, by false representations that lead the patron to believe that he is patronizing another person.”⁸⁸ Trademark infringement was a form of unfair competition, as was apparent to Hopkins, because copying a producer’s marks was the simplest means of depriving another of the trade he had built up. “This is the easiest method of stealing his trade, and most universal because of the general use of marks or brands upon personal property.”⁸⁹ This language regarding improper diversion of trade runs throughout unfair competition cases as the “true principle” upon which the cases depend. Thus, courts perceived no conceptual distinction between trademark infringement and other forms of unfair competition.

At some point in the late nineteenth or early twentieth century, American courts began to use the term “unfair competition” slightly differently. Those courts divided the universe of distinguishing marks into “technical trademarks,” which were protected in actions for trademark infringement, and “trade names,” which were protected in actions for unfair competition.⁹⁰ In general courts denied technical trademark status to surnames and to descriptive terms.⁹¹ This distinction was a more formal version of a distinction some English courts made between cases where the plaintiff could prove exclusive title to a mark (in which case equity would act to enjoin others’ use of the mark immediately) and those cases in which the plaintiff could not demonstrate title (in which case equity would not act until the plaintiff had establish at law that the defendant nevertheless acted to divert his trade).⁹² The analogy is not perfect, however, because those older cases did not speak in terms of technical trademarks and trade names, even when the marks in question consisted of surnames, which later cases would have considered trade names.

In practice, cases of trademark infringement and those of unfair competition differed only in terms of what the plaintiff had to prove. Whereas unfair competition claimants had to prove that the defendant intended to pass off its products as those of the plaintiff, trademark infringement plaintiffs did not have to prove intent.⁹³ Use of another’s technical trademark was unlikely to have a legitimate explanation, whereas use of another’s trade name may have had a purpose other than deception. Here the analogy to English cases is close. In the English cases, parties who could establish exclusive rights did not need to produce evidence of fraud, whereas those parties forced to establish their legal right prior to equity taking jurisdiction had to show that the defendants intended to divert their trade.

Whether the American cases were based on trademark infringement or unfair competition, however, the underlying concern, just as it was in English cases, was trade diversion.⁹⁴ Indeed, many of the doctrinal limitations applied to both types of cases,⁹⁵ and courts often even made explicit reference to the close conceptual relationship between trademark infringement cases and other cases of unfair competition.⁹⁶ As a result, commentators were comfortable arguing that trademark infringement and unfair competition claims were based on the same principles.⁹⁷

(3)Benefits to Consumers an Added Bonus

Though trademark law as it developed in England and in America focused on protecting producers, the benefits to consumers were not entirely lost on courts. In fact, some courts even said that prevention of fraud on the public was one of the bases for protection. In Amoskeag Mfg. Co. v. Spear,⁹⁸ for example, Justice Duer wrote, “consider[ing] the nature of the wrong that is committed when the right of an owner of a trade-mark is invaded”⁹⁹ that

He who affixes to his own goods an imitation of an original trade-mark, by which those of another are distinguished and owned, seeks, by deceiving the public, to divert and appropriate to his own use, the profits to which the superior skill and enterprise of the other had given him a prior and exclusive title. He endeavors, by a false representation, to effect a dishonest purpose; he commits a fraud upon the public and upon the true owner of the trade-mark. The purchaser has imposed upon him an article that he never meant to buy, and the owner is robbed of the fruits of the reputation that he had successfully labored to earn.¹⁰⁰
Upton similarly claimed that the right of property in trademarks was of “immense and incalculable value to the manufacturer – the merchant – and the public.”¹⁰¹ Indeed, even in 1860 it was

the well established doctrine, that the exclusive property of the manufacturer, or merchant, in his trade marks, is of that nature and character, that its adequate security and protection, by the exercise of the highest power of the courts, is an imperative duty, as well as for the safety of the interests of the public, as for the promotion of individual justice.¹⁰²

When courts or commentators mentioned the benefit to the public, however, Upton’s formulation was typical - they generally made clear that the benefit to the public was a secondary benefit. As the court explained in Boardman v. Meriden Britania Co.¹⁰³

The object or purpose of the law in protecting trademarks is twofold: First, to secure to him who has been instrumental in bringing into market a superior article of merchandise, the fruit of his industry and skill; second to protect the community from imposition, and furnish some guaranty that an article purchased as the manufacture of one who has appropriated to his own use a certain name, symbol or device as a trademark is genuine. Consequently, the violation of property in trademarks works a twofold injury; the appropriator suffers, in failing to receive that remuneration to which he is justly entitled, and the public in being deceived and induced to purchase articles made by one man, under the belief that they are the production of another.¹⁰⁴

In most cases, the question of whether trademarks were protected for the benefit of producers or the public was not particularly important since both interests generally suggested the same outcome. The real animating force in these cases is most apparent in cases where interests of the public and those of the producer did not necessarily coincide. And in those cases, courts sided with producer interests and made clear that trademark protection was not, in fact, intended primarily for public benefit.

(a)Evidence of Confusion was Not Sufficient

These results are based on principles that go all the way back to English trademark decisions like The Leather Cloth Co. v. American Leather Cloth Co.¹⁰⁷ In that case, Lord Westbury explained that it was a prerequisite to relief, even in cases where the defendant held out his goods as those of the plaintiff, that the plaintiff “sustains, or is likely to sustain, from the wrongful act some pecuniary loss or damage.”¹⁰⁸ The right to a trademark, according to Lord Westbury, was a right in property, and

the mistake of buyers in the market under which they in fact take the Defendant’s goods as the goods of the Plaintiff, that is to say, imposition n the public, becomes the test of the property in the trade mark having been invaded and injured, and not the ground on which the Court rests its injunction.¹⁰⁹
The same view is evident in a number of American cases. In New York & Rosendale Cement Co. v. Coplay Cement Co.,¹¹⁰ for example, the court denied injunctive relief against the defendant’s use of the “Rosendale” designation for its cement, even though it was not, as plaintiff was, one of the fifteen to twenty cement manufacturers located in Rosendale, New York. The court denied relief despite its belief that consumers were likely to be confused and that confusion was regrettable: “no doubt the sale of spurious goods, or holding them out to be different from what they are, is a great evil, and an immoral, if not illegal, act.”¹¹¹ Nevertheless, the plaintiff was not entitled to a remedy. Because it was not the only manufacturer of Rosendale cement, the plaintiff could not say that the defendant was intending to palm its products off as those of the plaintiff, as opposed to one of the other many manufacturers who made their cement in Rosendale.¹¹² “[I]f a person seeks to restrain others from using a particular trade-mark, trade-name, or style of goods, he must show that he has an exclusive ownership or property therein. To show that he has a mere right, in common with others, to use it, is insufficient.”¹¹³

Similarly the Supreme Court held in Canal Co. v. Clark¹¹⁴ that the plaintiff had no exclusive right in the geographically descriptive term “Lackawanna” and therefore could not prevent the defendant from truthfully describing his coal as having originated from that place.¹¹⁵ The plaintiff lacked a remedy even though the court recognized that it may be true “that the use by a second producer, in describing truthfully his product, of a name or a combination of words already in use by another, may have the effect of causing the public to mistake as to the origin or ownership of the product.”¹¹⁶ It rejected the plaintiff’s claim despite this risk of consumer confusion because

if it is just as true in its application to his goods as it is to those of another who first applied it, and who therefore claims an exclusive right to use it, there is no legal or moral wrong. Purchasers may be mistaken, but they are not deceived by false representations and equity will not enjoin against telling the truth.¹¹⁷

American Washboard Co. v. Saginaw Mfg. Co.,¹¹⁸ reaches a similar result. There, the plaintiff manufactured washboards with aluminum-coated facings and sold the washboards under the “aluminum” trade name. The defendant also designated its products as “aluminum,” even though its products actually were made of zinc. While there was little dispute that the defendant had in fact misrepresented the nature of its goods, the court denied injunctive relief.

Since “aluminum” was merely the descriptive title of a kind of washboard, no single producer could claim the term as its own. Without something more than defendant’s use of the “aluminum” trade name, the plaintiff could not claim that the defendant was “passing off” its goods as those of the plaintiff; but only that the defendant was misrepresenting the nature of its goods.¹¹⁹ The court noted that the plaintiff had “los[t] sight of the thoroughly established principle that the private right of action in [these] cases is not based on fraud or imposition upon the public, but is maintained solely for the protection of the property rights of a complainant.”¹²⁰

These cases underscore the traditional producer-centered view of trademark law: trademark law was not intended to protect consumers, but rather to protect the producer against competitors fraudulently stealing their consumers by passing off their goods. As the American Washboard court said, “[a producer] has a right to complaint when another adopts this symbol or manner of marking his goods so as to mislead the public into purchasing the same as and for the goods of complainant.”¹²¹ The mark owner “comes into a court of equity in such cases for the protection of his property rights. The private action is given, not for the benefit of the public, although that may be its incidental effect, but because of the invasion by defendant of that which is the exclusive property of complainant.”¹²²

Perhaps the clearest expression of this understanding that trademark law protected a producer’s property interest came from the court in Borden Ice Cream Co. v. Borden’s Condensed Milk Co.¹²³ In that case, the court denied relief to the plaintiff, which sold milk under the Borden name, against a defendant which used the Borden name for ice cream. The court recognized the potential for consumer confusion but said, echoing Lord Westbury in The Leather Cloth case:

It has been said that the universal test question in cases of this class is whether the public is likely to be deceived as to the maker or seller of the goods. This, in our opinion, is not the fundamental question. The deception of the public naturally tends to injure the proprietor of a business by diverting his customers and depriving him of sales which otherwise he might have made. This, rather than the protection of the public against imposition, is the sound and true basis for the private remedy. That the public is deceived may be evidence of the fact that the original proprietor's rights are being invaded. If, however, the rights of the original proprietor are in no wise interfered with, the deception of the public is no concern of a court of chancery.¹²⁴
Notably, in these cases where the interests of producers and consumers diverged, including New York & Rosendale Cement Co. and American Washboard, the courts understood that their decisions would not protect consumers and anticipated that any relief for them would have to come from a lawsuit filed by a deceived member of the public or from a lawsuit filed by the state.¹²⁵ The notion that consumers might have their own claims was not a new development – courts had for many years suggested that consumers might have their claims for deception.¹²⁶ But that dichotomy reflects courts’ traditional understanding of the relevant interests in these cases.

(b)The Cases Involving Expired Patents Are Consistent With the Trade Diversion Conception

Commentators also have pointed to the cases involving trademark rights in the post-patent period as evidence of trademark law’s consumer focus. I do not dispute that concerns for consumers gave additional weight to the conclusions courts drew in those cases, but those decisions too can be seen careful applications of the historical underlying goal of trademark law – preventing competitors from stealing customers under false pretenses.

In Singer Mfg. Co. v. June Mfg. Co.,¹²⁷ the court refused to prevent competitors in the sewing machine trade, which had entered the market after Singer’s patent on the machine expired, from manufacturing and selling competing sewing machines of the same shape as the Singer machines or from using the term “Singer” to refer to those machines. The court said “[i]t follows, as a matter of course, that on the termination of the patent there passes to the public the right to make the machine in the form in which it was constructed during the patent.”¹²⁸ Having acquired the right to make the machine, the public must also acquire the “designated name which was essentially necessary to vest the public with the full enjoyment of that which had become theirs by the disappearance of the monopoly.”¹²⁹ Consequently, the court would not prevent the defendant from using the “Singer” mark altogether or from making machines in the same shape as Singer’s.

Despite rejecting the plaintiff’s claim of exclusive rights, however, the court believed that the defendant had attempted to divert the plaintiff’s trade illegitimately and ordered an accounting of the defendant’s wrongfully obtained profits. It found the defendant’s conduct punishable because “the defendant had not marked its machines with a sufficiently prominent disclosure of the actual source of manufacture, and … some of [the] defendant’s advertisements did not adequately disclose the true source of the goods.”¹³⁰

By distinguishing the use of the Singer name and the shape of the product from additional marking requirements, the court simply applied trademark law’s traditional principles to allow competition and yet prevent illegitimate trade diversion. If consumers had become accustomed to a calling the machines “Singer” machines and expected those machines to be made in a particular shape, then they did not likely attach any particular source significance to those elements. In that case, the defendant’s use of the Singer name to sell its similarly shaped machines did not illegitimately divert consumers from Singer. Certainly the defendant sought to capture some consumers who otherwise would have bought from Singer, which was the only manufacturer of these machines during the patent period. But that diversion was legitimate because it was precisely what the patent system anticipated after patent expiration.¹³¹ The marking requirement was intended to prevent competitors from stealing Singer’s customers by making them think they were buying a machine made by Singer.

The court’s order that the defendant pay to the plaintiff his wrongfully obtained profits further reinforces this interpretation. David Welkowitz suggests that the order was based on a desire to protect the public from deception,¹³² but the compensatory nature of the monetary relief is hard to square with that interpretation. Instead, the award of compensation reflects a belief that, but for the defendant’s trickery, those profits would have been Singer’s. If the court only was concerned about consumers, it could have just entered the injunctive relief.