Living with the Merchandising Right (or How I Learned to Stop Worrying and Love Free-Riding Stories).

AuthorGrynberg, Michael

TABLE OF CONTENTS INTRODUCTION I. MERCHANDISING AND ITS DISCONTENTS A. The disconnect between the merchandising and trademark law B. The judicial response--Two ways to look at the "merchandising right" II. UNDERSTANDING THE MERCHANDISING RIGHT A. Merchandising as morality 1. Moral foundations theory and trademark 2. Morality and the merchandising cases B. Merchandising as trademark doctrine 1. Merchandising and the Lanham Act 2. Merchandising as traditional consumer protection 3. Merchandising and the protection of "core" trademark meanings 4. Merchandising as salutary economic activity C. Merchandising as democracy III. MERCHANDISING FALLOUT A. Merchandising spillovers 1. Exacerbating the copyright/trademark tension 2. Deepening First Amendment tensions 3. Collapsing distinctions between markets 4. Incentiving trademark holder overreach 5. Distorting the likelihood of confusion inquiry B. Merchandising and free riding by trademark holders 1. Free riding and merchandising litigation 2. Free riding and registration exclusions IV. LIVING WITH THE MERCHANDISING RIGHT A. The Virtues of Offloading B. A more formal merchandising right 1. Purpose of the right 2. Scope and infringement 3. Allocation of merchandising rights 4. Market overlaps 5. Limitations 6. Formality spillovers? C. Reforming the merchandising right 1. Working with the multifactor test 2. Constructing "approval" 3. Summary V. CONCLUSION INTRODUCTION

Trademark scholars love to hate the "merchandising right," the ability of trademark holders to control the sale of promotional goods that feature the marks. The basic argument against the merchandising right is simple. When I buy an APPLE smartphone, it's fair to assume that I want to buy a product for which Apple, Inc. is the source. If so, there's an obvious problem if someone other than Apple can use the APPLE mark to sell me a smartphone. Things are different if I'm shopping for a baseball cap with the BOSTON RED SOX logo. I am not interested in the logo as a designation of source. I just want a Red Sox cap because I'm a fan, not because I think the team makes good caps. On this logic, letting multiple sellers sell caps with a "B" logo is good for me because the resulting price competition will make for a cheaper cap.

Yet numerous cases say otherwise, and these precedents give control of merchandising markets to the trademark owners. This causes me harm. If the Red Sox (1) get to use trademark law to control the cap market, the primary effect is an artificial supply constraint; the team enjoys a monopoly profit at my expense. On this view, common among trademark scholars, (2) the merchandising right harms consumers and is borderline incoherent. (3)

Nobody cares. (4) As Part I explains, the arguments against a merchandising right have been explained to judges again and again to little effect. Judges are generally smart people, so lack of understanding isn't the problem. It's just hard for them to accept a world in which trademark holders cannot control the market for marks as merchandise. Part II explores some of the reasons why, suggesting that deeper intuitions external to trademark doctrine may outweigh immediate appeals to trademark law and policy. This is bad news for consumers, but most of them likely hold similar intuitions. After all, judges buy stuff, too.

If that's all true, then there's little point in arguing about merchandising. Certainly another law review article won't make the difference. But the poor fit between the merchandising right and trademark doctrine creates problems. That is the focus of this article, which is primarily concerned with the consequences of the merchandising right, rather than its merits.

I have two sets of arguments, one that will likely be congenial to the views of my friends on the trade left, one that likely won't. First, I argue that the harms of the merchandising right go beyond higher prices. Because the merchandising right is a poor fit with trademark doctrine, its accommodation destabilizes trademark law at large, pressuring doctrines pertaining to use, registration, infringement, and defenses. Part III details these difficulties, offering another approach to critiquing the use of trademark law to protect merchandising markets.

Many of these problems are traceable to the conduct of trademark owners. The merchandising right can be seen as a manifestation of an anti-free riding intuition. While this is unsurprising to those familiar with the merchandising case law, it is important to appreciate that the anti-free riding impulse applies to trademark plaintiffs as well as defendants. While courts are willing to protect the merchandising interests of popular brands, they understandably balk when the would-be plaintiff has minimal goodwill with consumers, but is trying to cash in on a fad, event, or someone else's effort. But because the merchandising right is such a poor fit with trademark law in the first place, traditional trademark doctrines are ill-equipped to navigate between the two situations. In other words, stories about free riders are not just a justification for the merchandising right, they form the basis of a critique of its application.

Courts and the Patent and Trademark Office ("PTO" or "USPTO") do what they can to stop plaintiff free riders, but muddling along only feeds the doctrinal instability created by the merchandising right. A better approach would be for trademark doctrine to accommodate the right in a manner that reflects the intuitions of those applying it. Part IV explores this area. Trademark law should be able to isolate those situations in which the beneficiary of the right is a trademark holder who has "earned" it. Such a right would be allocated on a narrower basis than what trademark law permits today, for it would require substantial acquired distinctiveness on the part of the rights holder. Mere use would not suffice as it does for trademark rights generally.

All this would have the consequence of reifying the harm to consumers caused by merchandising, and an "if you can't beat 'em, join 'em" approach to doctrine is understandably unsatisfying. But given the strong moral intuitions behind the protection of merchandising, these costs may not be that high in practice. In return, fencing off the right from trademark law generally offers the potential benefit of limiting the adverse doctrinal spillovers of an unformalized merchandising right.


    Merchandise sales are lucrative. (5) They are a major revenue source for colleges (6) and sports teams. (7) Worldwide sales of licensed sports merchandise reportedly reached $25 billion in 2016, (8) and the International Licensing Industry Merchandisers Association placed the global trademark licensing business at $315.5 billion in 2021, with $17.4 billion in royalty revenue. (9)

    Merchandised products are generally inexpensive to produce, and high markups make them profitable. (10) A little competition might therefore be nice for consumers. To the industry, however, this is "counterfeiting." (11) But of course, the line between counterfeiting and competition depends on the law. Enter trademark. For decades, its precedents have allowed trademark holders to claim the right to license their brands for use on merchandise. (12)

    It is by no means obvious that they should have this right. This Part outlines the traditional (and by now familiar) case in opposition. It then examines the reasons courts have not followed this logic. This is well-covered ground, so I will seek to be brief. Those familiar with the terrain may want to skip ahead to Part II.

    1. The disconnect between the merchandising and trademark law

      If trademark law is to protect merchandising markets, there ought to be a reason rooted in trademark law to do so. Simply conferring monopoly profits on trademark holders should not cut it. (13) So why do it?

      The mystery is compounded by an apparent mismatch between trademark law and the merchandising right. By definition, a trademark exists "to identify and distinguish ... goods (14) ... from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown." 15 So the APPLE trademark protects the consumer expectation that they will receive a particular kind of computing device when they buy one bearing that trademark. Consumers may then use their experience, for good or ill, to form expectations regarding future purchases of APPLE products. This continuity of experience incentivizes the owner of the mark to make investments in quality in order to capture repeat business.

      None of that holds in the merchandising context. Here, the mark does not distinguish goods, it is the good. And to the extent purchase of the good is due to trademark meanings, they are not meanings associated with source (16) Nor does a trademark as product necessarily convey a message of sponsorship likely to be material to the consumer. If I want a Red Sox cap, I want the cap. If I want specifically to give money to the team, a disclaimer on unauthorized products would let me make the necessary distinction between caps, but the merchandising cases generally foreclose this option. (17) What then justifies the protection of these non-source meanings? And even if a justification exists, does it outweigh the costs? Modern trademark doctrine generally expresses concern for consumer welfare (along with that of sellers, who share an interest in competition). (18) Why then use it to inhibit price competition and promote monopoly pricing?

    2. The judicial response--Two ways to look at the "merchandising right"

      To understand the question, we must first be precise about what we mean by a "merchandising right." This article defines it as the ability of trademark holders to use trademark law to control the sale of their brands in merchandising markets. (19) A merchandising market, in turn, is one in which the trademark serves primarily as...

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