Protecting Trade Identity

Vol. 1, No. 5

 

From Entertainment Law for the General Practitioner

Among the tips that follow:

 

  • Find out how trademarks protect businesses and consumers.
  • Learn how much a trademark can be worth.

Unlike copyright, which is exclusively a matter of federal law, registered and unregistered trademarks and trade dress have long been protected on both the federal and state levels by statutory and common law. The essence of harm sought to be prevented by the law of trademarks and unfair competition relates to the prevention of consumer confusion resulting in displaced sales of goods and services. In the classic trademark infringement scenario, a seller of goods and/or services (B) adopts and uses a name, logo, slogan, or even a product packaging scheme or configuration of goods that was first used by a competitor (A). Because of the confusingly similar appearance, sound, or meaning of the two marks, packaging scheme, or product configuration, an unwary consumer erroneously buys B’s product thinking it is A’s. This is known as “passing off.”

 

From this fact situation, it is clear that consumer confusion resulted not only in a displaced sale, but in the erosion of goodwill that comes from consumer dissatisfaction with buying a product that is either inferior to or different from the original. To combat passing off, trademark law confers private property rights to the first user of a distinctive mark, but only to the extent that it is actually used to sell specified goods or services. This differs from a copyright in that no absolute monopoly is granted to the first entity to use a mark. Consequently, the same or similar marks can be owned by more than one entity provided that they operate in different product or geographic markets so that no consumer would be confused. An example would be Delta Airlines and Delta Faucets, both of which own trademark rights to the same mark for noncompeting, dissimilar products. Consequently, no reasonable person would think that an airline would also be engaged in the plumbing fixture business.

 

Trademark law also performs a consumer protection function. By giving first users priority over second comers to use the same or confusingly similar marks, trademark law helps minimize consumer confusion in the marketplace. As a result, consumers are allowed to select the products they want to buy based on quality and reputation rather than mistake and deception.

 

The primary source of federal statutory protection of distinctive marks is the Lanham Act. This comprehensive federal trademark statute, first enacted in 1946, was significantly amended in 1988. More recently, the Lanham Act has been augmented by adding protection for famous marks against dilution or loss of distinctiveness even when there is no competition or product relatedness. The latest amendments, which will be discussed in some depth, specifically help trademark owners with abuses made possible by the Internet. Because of dual federal and state jurisdiction in protecting aspects of trade identity, not all marks are eligible for federal protection. Heightened standards of distinctiveness, federal registration, and use in interstate or foreign commerce are the primary prerequisites for maintaining a Lanham Act action for trademark infringement or dilution. State trademark statutes and the common law doctrine of unfair competition protect classes of less distinctive or unregistered marks and trade dress that are not used in interstate commerce or would otherwise not qualify for Lanham Act protection.

 

What Function Does a Trademark Perform?

 

Two of the best-known trademarks in the soft drink industry are Coke and Pepsi. These respective product names let the consumer know which company produced the respective soft drink product. In this case both competing soft drink products are carbonated colas. Beyond an indication of source, these well-known marks also perform valuable information and marketing functions for their respective companies. Based on the public’s long-standing association between the products and the trademarks under which they are sold, the parent companies enjoy a substantial marketing advantage. Rather than having to go into laborious detail to explain the specific qualities and attributes of their products, a shorthand reference to Coke or Pepsi instantly tells the public not only what the product is, but also what it will taste like. Based on years of strong public association, these marks act as an assurance of quality to consumers while also performing an advertising function that fosters brand loyalty.

 

People have preferences and expectations about the products they use. This is especially true of soft drinks. Seldom are soft drink users indifferent to what they buy at the store. Given a purchasing choice, people don’t go to the store and buy Coke one week and Pepsi the next. One is either a Coke person or a Pepsi person. Because of these preferences, we depend on trademarks or product brands to guide us to the goods we want to buy. Consequently, a trademark literally becomes a vehicle that can capture and store all of this accumulated, albeit intangible, goodwill in a product. Thus, the more advertising dollars spent on a product, the more sales and the greater the association between the product and the mark. This success is measured in goodwill that is generated in the product. Contrary to the belief that advertising is wasted once the television or radio spot runs, every time an ad runs, the goodwill increases. This goodwill is captured by the trademark, making it a stronger, more universally known brand. Thus, the more marketing succeeds, the stronger the mark gets and the more the law will protect the mark. This is why Coke, Google, McDonald’s, and Nike are so well known.

 

How Much Is a Trademark Worth?

 

Like copyrights, as the foregoing discussion suggests, trademarks are or can be very valuable business assets that companies will go to great lengths to protect. If there is any doubt as to the potential value of a trademark, we pose this simple question. How much do you think the Coca Cola Company’s registered mark Coke is worth? Put another way, what would the Atlanta, Georgia–based soft drink giant accept on the open market for a simple four-letter word that is, according to surveys, the most recognizable trademark in the world? The obvious answer is “nothing.” This suggests that the company would go to just about any lengths to protect its mark. The same is true of other famous marks that have become worldwide icons of popular culture such as Google, McDonald’s, or Nike. All of these companies have the will and the resources to protect what is arguably their most valuable corporate asset. Consequently, you must know the law if you want to avoid unwanted trouble. If your clients are fledgling artists, record companies, e-commerce entrepreneurs, and so on, you will want to know how to best select and develop a mark that may one day be their single most valuable business asset.

Entertainment Law for the General Practitioner book jacket

 

Entertainment Law for the General Practitioner

Did you find this article helpful? Do you think more information like this would help you? More information is available. This material is excerpted from Entertainment Law for the General Practitioner, 2011, by X.M. Frascogna, Jr., Shawnassey B. Howell, and H. Lee Hetherington, published by the American Bar Association General Practice, Solo and Small Firm Division and the Forum on the Entertainment and Sports Industries. It is available to members of the GP/Solo Division for a discounted price through the link provided at the end of this article. Copyright © 2011 by the American Bar Association. Reprinted with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. GP/Solo members can purchase this book at a discount.

 

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