Owning mark(et)s.

• Author: Lemley, Mark A.
• Position: Free-riding trademark claims

Trademark owners regularly rely on claims that the defendant is "free riding" on their mark by making money using that mark, money the trademark owners say should belong to them. We analyze those free-riding claims and find them wanting. The empirical data shows that defendants in unrelated markets can benefit from using a well-known mark, but that neither mark owners nor consumers suffer any injury from that use. A legal claim that a defendant is unjustly benefiting by using a plaintiff's mark is hollow unless it is accompanied by a theory of why that benefit should rightly belong to the plaintiff. And unlike real property, or even other types of intellectual property, trademark law has no such theory. The result is that free-riding claims fall back on empty circularity. Yet these arguments are--explicitly or implicitly--behind the most problematic expansions of trademark law in recent years. We suggest that trademark law needs a theory of trademark injury that distinguishes harm to legitimate interests the law should protect from a mere desire to capture a benefit enjoyed by another.

TABLE OF CONTENTS INTRODUCTION I. THE TRADITIONAL--AND THE IMPLICIT-CASE FOR TRADEMARK PROTECTION II. THE GROWING ROLE OF MARKET PREEMPTION AND FREE-RIDING ARGUMENTS III. EVALUATING CLAIMS TO OWN MARK(ET)S A. Traditional Quality Feedback Arguments Lack Empirical Support B. Empirical Evidence Supports the Existence of a Benefit to Junior Users C. Evidence of Market Preemption Through Restricted Expansion D. Summary IV. EVALUATING CLAIMS TO OWN MARK(ET)S A. Claims of Producer Harm B. Free Riding 1. Preventing Consumer Confusion 2. Incentive Theory 3. Accession and Default Ownership 4. Natural Rights and the Property Instinct C. Spillovers V. TOWARD A "TRADEMARK INJURY" DOCTRINE CONCLUSION: INSTINCTS AND EVIDENCE INTRODUCTION

Black & Decker recently focused its marketing efforts for its DEWALT line of power tools on Hispanic soccer fans, seeking to grow the DEWALT brand by "building and executing relevant cultural events and contests.'" In its El Tricolor Contest by DEWALT, for example, Black & Decker gave soccer fans a chance to win "a signed Adidas Mexico jersey, $1,000 dollars in Eurosport/SOCCER.COM gift cards, DEWALT Compact Lithium-Ion combo tool kits, DEWALT Worksite Radio Chargers and gear signed by Mexican Primera Division players." (2) Black & Decker also ran a variety of promotions linked to soccer matches, like the "Futbol con DeWalt" promotion in which Black & Decker gave two VIP tickets to the September 27, 2007, match between DC United and Chivas to anyone who purchased $1,500 worth of DEWALT products. The flyer Black & Decker distributed for this promotion referred to the match as the 2007 DEWALT CUP, though this was not an official name] For Black & Decker, these promotions were simply targeted marketing, using Hispanic soccer fans' interest in the sport to draw attention to the new DEWALT products.

Soccer United Marketing ("SUM"), owner of commercial and match promotion rights for Major League Soccer, the US Soccer Federation, the Mexican Men's national team, and other international teams such as Chivas and FCBarcelona, saw things differently. To SUM, Black & Decker was engaged in "ambush marketing," wrongly profiting from SUM's trademarks. SUM therefore filed suit. Though it nominally framed the issue as trademark infringement, SUM's complaint makes abundantly clear that its main objection to Black & Decker's promotions was that Black & Decker was interfering with SUM's ability to license its marks exclusively, in this case particularly because SUM had sold Makita an exclusive license to use the MLS and DC United marks on power tools. (4) Black & Decker, according to SUM, was confusing the public into believing that Black & Decker had a fight to utilize the names of the teams SUM represents, to depict the jerseys it was giving away, to promote and give away tickets to games in which SUM's teams participated, or to set up product displays outside the stadiums in which those teams were playing. (5) On SUM's account, only those who pay money to SUM should be able to do these things.

Given the expansiveness of modem trademark law, SUM's arguments are not obvious losers. SUM is arguing that consumers who encounter Black & Decker's promotions are likely to be confused about whether there is some type of sponsorship relationship between Black & Decker and SUM's soccer teams. If consumers are confused in this way, of course, it's only because courts have accepted that sports teams should have such exclusive licensing rights and have thereby created the very expectations they presume consumers have. (6) But even if consumers do wonder if Black & Decker had permission, what harm could possibly befall DC United if Black & Decker sells DEWALT tools in the parking lot outside one of its games? Consumers are extremely unlikely to attribute to the soccer team any disappointment they have with DEWALT tools--indeed, they would be very unlikely to do so even if they were explicitly told there was a sponsorship relationship between DC United and DEWALT. (7) It's possible consumers acquire some information about DEWALT tools from their misperception of a relationship with one of the soccer teams, but we find it hard to believe that information has anything to do with the quality of DEWALT tools. And if it doesn't, any confusion about sponsorship or affiliation is unlikely to affect consumers' decisions to purchase DEWALT tools and ought to be irrelevant to trademark law. (8)

Given the difficulty of articulating harm in conventional trademark terms, it is not surprising that SUM's complaint makes very little attempt to demonstrate that consumers will hold DC United responsible for the quality of DEWALT tools, or that Black & Decker's promotions will harm consumers. Instead, the complaint is filled with accusations that Black & Decker is free riding and wrongfully benefitting from the soccer teams' goodwill, and that Black & Decker's actions impair SUM's ability to reap the benefits of the soccer teams' investments in their brands because "MLS and SUM can no longer guarantee that, by entering into a licensing agreement, [licensees] would have the exclusive use of the SUM Marks." (9)

SUM's free-riding argument is based on the assertion that the owner of a mark in one context should have the right to control ancillary uses of that mark in other contexts because the later users are mere free riders, reaping what they have not sown. These claims are sometimes justified on the theory that failure to enforce rights against junior, noncompeting users would impede the senior user's ability to enter ancillary markets itself. In other words, trademark owners argue they should be able to preempt uses of a mark even in markets in which they do not currently participate, against the possibility that they will want to use the mark in that market in the future. (10) This claim is contrary to trademark law's long-held maxim that trademark rights are not rights in gross. (11) But ultimately, the free-riding claims are even more sweeping than ownership of marks: trademark owners sometimes are effectively asserting the right to own markets themselves because, as in SUM's case, the relevant market owes its origin to their brands.

Free-riding and market preemption arguments are not new in trademark law. But those arguments generally have been tacked on to primary arguments regarding the potential that a later, noncompetitive use might negatively impact the senior mark owner's reputation for quality. And because those primary arguments have been so widely accepted, neither courts nor scholars have expended any serious energy evaluating the market preemption or free-riding arguments. That has been a mistake. First, we believe the sentiments behind the market preemption and free-riding arguments have actually motivated courts to impose liability in a number of questionable cases. Second, as we demonstrated in our prior work, the empirical case for the reputational dilution claim is much weaker than one might expect, (12) and the claim that consumers are injured by the defendant's use of a mark in an unrelated market is implausible except under specialized circumstances, circumstances that trademark plaintiffs should have to prove. (13) By contrast, the empirical evidence confirms both that third parties can benefit from uses of known marks in markets ancillary to the senior mark owner's and that those third-party uses can impair the senior user's ability to expand its own product lines. (14) Put another way, the evidence suggests that third parties like Black & Decker might benefit from use of, or proximity to, SUM's trademarks, but not that SUM is harmed by such use. The result is a puzzle for the law: what, if anything, should trademark law do to prevent practices that benefit the defendant but do not harm the plaintiff?

In this Article, we confront the market preemption and free-tiding arguments directly. We believe these arguments actually depart fundamentally from the traditional bases of trademark law and theory, and in ways that could prove quite troubling in a competitive economy. The claim that trademark owners are injured by not being able to control use in a remote market is ultimately a circular claim--mark owners are injured if, but only if, we define their trademark rights ex ante to include control over that remote market. The arguments in favor of doing so, however, turn out to be remarkably weak, and we argue that they do not justify expanding trademark law. If that means that others free ride on the effort a trademark owner puts into building a brand or making a market, so be it. Free riding itself is bad only if we think there is some reason to prevent it. We have such a reason, generally, in the patent and copyright contexts: we affirmatively want to encourage the creation of new works or inventions, and we're concerned...