Misappropriation of Trademark

• Publication year: 2007

David W. Barnes⁰

The dominant view of misappropriation doctrine fits trademark law poorly. It is at odds with contemporary theory and the reasons for protecting intellectual property. A more nuanced view of the Supreme Court's germinal misappropriation case leads to a misappropriation doctrine consistent with both externality theory and public goods theory. When viewed this way, IP theory and misappropriation doctrine then lead to rules reflecting a balance between incentive creation and free access. Applying this nuanced interpretation to the issue of Internet initial interest confusion suggests that keyword advertising promotes competition and reduces search costs more than it interferes with incentives to engage in trademarking activity.

Introduction

The state law doctrine of misappropriation is based on the idea that people should not reap where they have not sown, that they should not free-ride on the investments of others.¹ Trademark owners sow investments in their trademarks to reap the resulting goodwill: increased sales brought about by increased renown. If it is a "misnomer to talk of 'misappropriation' of trademarks,"² as the leading trademark authority suggests, reaping another's goodwill should not be enough to support a trademark infringement claim. Courts do, however, rely on this simple interpretation of the misappropriation doctrine in trademark cases. Reaping another's goodwill is sufficient justification in some jurisdictions for finding infringement in internet initial interest confusion cases.³

This Article argues that the "free-riding" view of misappropriation oversimplifies the Supreme Court's germinal misappropriation case, International News Service v. Associated Press.⁴ This simple view is consistent with enjoining Internet keyword advertising, an outcome supported by a recent paper in the North Carolina Journal of Law & Technology⁵ A more nuanced reading of the Supreme Court's opinion reveals a misappropriation doctrine that is consistent with the leading underlying theories of intellectual property and inconsistent with finding infringement based on initial interest confusion.

This Article compares the overly simple view of misappropriation theory that supports finding infringement in initial interest confusion cases to a more nuanced and accurate view. Internet initial interest confusion cases sometimes involve one supplier including another supplier's trademark in its website's domain name, part of a website's uniform resource locator ("URL")⁶ or hypertext markup language ("HTML"),⁷ or other buried code that is visible to search engines but not to computer users. Using another's trademark in this way may confuse a computer user, at least initially, by creating the false impression that the search results are associated with the trademark owner. In other cases, when a computer user enters a trademark as a search term, the search engine uses the mark as a keyword to prompt the display of an advertisement or a link to the website of an entity other than the mark owner.⁸ Because these practices threaten to divert trade from the trademark owner to others, trademark owners often sue the other supplier and/or the search engine provider, alleging trademark infringement. Contrary to basic intellectual property theory, reviewed herein, and the nuanced misappropriation theory, some courts grant relief.⁹ These courts rely more on the view that one ought not to reap where one has not sown than on proof of consumer confusion about the source of products.

A. Misappropriation Theory

The simple view of misappropriation theory rests on the premise that persons should not be able to appropriate the benefits of another's investment without a similar investment of their own. Three basic elements reflect this simple view:

(1) Plaintiff has made a substantial investment of time, effort and money into creating the thing misappropriated such that the court can characterize that "thing" as a kind of property right [the creation element].

(2) Defendant had appropriated the "thing" at little or no cost, such that the court can characterize defendant's action as "reaping where it has not sown" [the appropriation element].

(3) Defendant has injured plaintiff by the misappropriation [the injury element].¹⁰

Courts routinely cite the Supreme Court's opinion in International News Service v. Associated Press as the basis for what is now, post-Erie Railroad Co. v. Tompkins,¹¹ the state common law doctrine of misappropriation.¹²

Revisiting the Supreme Court's opinion, however, reveals a more complex misappropriation doctrine. The International News Service v. Associated Press opinion permitted many people, even competitors, to free-ride on the Associated Press' investment in gathering news. The Associated Press ("AP"), a news gathering organization, distributed news it had collected at great expense to its paying members, primarily newspaper publishers. International News Service ("INS"), through various devices,¹³ took news gathered by AP and distributed it to its own paying members, thereby enabling them to publish the news simultaneously with AP's members.¹⁴ By taking this news while it was still hot, INS was free-riding on AP's efforts, "endeavoring to reap where it ha[d] not sown."¹⁵ The ensuing injunction did not prevent all free-riding. It prevented only free-riding that "interfere[d] with the normal operation of complainant's legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not."¹⁶

The Supreme Court specifically recognized that many people, including competitors, could and should be allowed to free-ride on AP's efforts. For instance, the purchaser of a newspaper may spread his or her knowledge of the news gratuitously.¹⁷ This is an important and allowable free-riding function because society presumably benefits from an informed citizenry. Moreover, competing news organizations may obtain leads from the news gathered by AP and, upon verification, publish their own articles.¹⁸ Additionally, no one would suppose that AP had the right for all time to report a historic event.¹⁹

The Court determined that AP's right extended only so far as to encourage its newsgathering activity by preventing INS from interfering exactly where a profit was to be made. Accepting INS's argument that the news was abandoned to the public would "render publication profitless, or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return."²⁰ The Court balanced the need of the public and competitors to have access to the news with the need for incentives for media companies to invest in newsgathering activities²¹ and thus preserved only AP's lead time advantage.

There are two views of misappropriation. The simple view prohibits one actor from free-riding on the activity of the other. The nuanced view prohibits one actor from free-riding on the activity of the other if doing so would interfere with the incentive to engage in that particular creative activity to the detriment of society at large. Many courts' rulings in Internet initial interest confusion cases reflect the simple view.²² Intellectual property theory and trademark law generally reflect the more nuanced view.²³

B. Trademark and Nuanced Misappropriation

Trademark cases generally, and initial interest confusion cases in particular, present a conflict between the need to create incentive for innovation, on one hand, and provide free public access, on the other. The creative activity is trademarking activity, whereby symbols are endowed with information-carrying capacity. A trademark may indicate that the product to which it is affixed comes from a particular source or has certain quality or price characteristics. The Starbucks mark indicates not only that the coffee comes from Starbucks Corporation, but that the coffee is priced higher and brewed stronger than other major brands. At considerable cost, Starbucks provides this information to the public and then protects its investment by ensuring that other coffee shops do not confuse customers by using similar marks. Its trademarking activities include, among other things, signage and labeling, advertising, and discouraging infringers. Through these activities, Starbucks provides considerable benefit to consumers who can be certain that coffee sold with the Starbucks mark affixed will have those characteristics. If Starbucks could not provide that certainty by the exclusive use of the mark as a source indicator, its incentive to invest in trademarking activity would diminish.²⁴

Trademark laws reflect society's interest in permitting some others to use an owner's trademark freely. Consumers, for instance, must have access to these marks in order to locate products they desire and reject products they do not like. Consumers use the mark to refer to the products they seek. The Lanham Act also permits suppliers of goods and services to make fair use of another's mark to describe their own goods.²⁵ Courts agree that it is good public policy to permit competitors to engage in comparative advertising that identifies competing products by their marks²⁶ and to use the original manufacturer's marks on reconditioned or repackaged goods.²⁷ The First Amendment protects artists and social commentators who use others' trademarks while expressing their views.²⁸ These are all referential uses—uses by consumers, competitors, and artists to refer to the mark owners' goods—rather than proprietary uses—uses by sellers to indicate that the owner of the mark is supplying the goods.²⁹

When challenged, these referential uses invoke a balancing test. The potential for consumer confusion and accompanying diminution in incentive to engage in trademarking activity arises in situations where it is unclear whether the use is referential or proprietary. When a...