Trade dress rights as instruments of monopolistic competition: towards a rejuvenation of the misappropriation doctrine in unfair competition law and a property theory of trademarks.

• Author: Chronopoulos, Apostolos
• Position: Emerging Scholars Series

1. INTRODUCTION II. TRADEMARKS AND COMPETITION A. Trademark Law as Part of a Broader Unfair Competition Law B. Seeking the Limits of the Trademark Monopoly C. Trade Dress Rights, Product Differentiation, and Protection from Imitative Competition III. FUNDAMENTAL INTUITIONS OF THE ECONOMICS OF PRODUCT DIFFERENTIATION A. The Theory of Monopolistic Competition B. Product Variety and Social Welfare C. Locational Competition 1. Asymmetrical Preferences and Market Power 2. Hotelling's Linear Market 3. The Principle of Maximum Product Differentiation 4. Locational Competition in Product Space 5. Spatial Models with a Circular Market 6. Cluster Effects 7. Summary of the Emerging Economic Principles D. Implications for Unfair Competition Theory: The Revival of the Misappropriation Doctrine IV. IMPLICATIONS FOR TRADEMARK DOCTRINE A. The Inherent Distinctiveness of Trade Dress 1. The Requirement of Inherent Distinctiveness as a Balance of Interests 2. Case Law on the Protectability of Trade Dress a. The Approach of the United States Court of Appeals for the Fifth Circuit in Chevron b. The Seabrook-Test c. The Supreme Court Ruling in Two Pesos d. The Qualification of Two Pesos: A Secondary Meaning Requirement for Product Design Trade Dress e. Critical Analysis of the Wal-Mart Ruling: Inherent Distinctiveness of Trade Dress and Dynamic Competition with Differentiated Products B. The Scope of Protection: Confusion or Association? C. Limits to Trade Dress Protection: New Ground for the Functionality Doctrine 1. The Constitutional Right to Copy a. The Relevant Case Law b. The Quest for a Dogmatic Foundation of the Constitutional Right to Copy c. Evaluation of the Constitutional Right to Copy as a Legal Doctrine 2. The Federal Preemption Doctrine: Establishing a Peaceful Coexistence Between Patent, Copyright, and Trade Dress Protection 3. An Introduction to the Functionality Doctrine 4. Defining de jure Functionality in Terms of Competitive Need 5. The Distinction Between Utilitarian and Aesthetic Functionality 6. The Ruling of the Tenth Circuit in Vornado Air Circulation Systems, Inc. v. Duracraft Corporation 7. Functionality and Trademark Genericity 8. The Competition Theory of Functionality and Its Economic Analysis a. Defining Submarkets b. The Relevance of Submarkets for Trademark Law c. Trade Dress Cases Invoking the Submarket Concept V. CONCLUSION: A PROPERTY THEORETIC APPROACH OF TRADEMARK LAW I. INTRODUCTION

   This paper examines the dogmatic implications of the well-established principle that trademark rights are nothing but a part of unfair competition law. It begins by studying the historical development of trademark protection, which reveals that the grant of an exclusive right was not only directed at combating consumer deception, but also a means to protect goodwill as an intangible value of the trademark holder. In the course of legal development, the notion of protecting the public from various forms of consumer confusion became the dominant justification for recognizing and enforcing trademark rights, thereby suppressing trader interests viably protectable through a system of trademark protection based on the property concept. The interest of the trademark holder to exploit his goodwill, even in distant markets and in the absence of any likelihood of confusion, was the subject of dilution laws, which were often seen as both an undesirable propertization of trademark doctrine that unduly restricted freedom of competition and as an exception to traditional trademark theory. (1) Nowadays, trademarks are used in competition for an array of purposes irrelevant to source identification. Traders make use of the system of trademark protection not simply because they seek to avoid goodwill destruction arising from consumer confusion but in order to capture goodwill in and of itself as an intangible value that generates demand and gives the right-holder the possibility to exercise market power. Trade dress claims are the most obvious example of that phenomenon. For example, making a claim under section 43(a) of the Lanham Act against the imitation of a golf course hole design (2) cannot be said to be exclusively driven by concerns about source confusion. Rather, the claimant seeks to capture the customers who prefer that type of playing field. In reality, the trade dress plaintiff seeks to avoid competitive imitation. To the extent that this is legitimate in view of the postulate for an effective competition, the exclusive right has to give effect to this valuation of the competitive order. Part II elaborates upon these introductory remarks.

   Part III conducts an economic analysis of product imitation by applying the economic theory on product differentiation. The result is that, in principle, the effectiveness of competition relies on competition by substitution because it results in increased product variety leading to the satisfaction of diverse consumer needs. The protection of traders' interests therefore takes place primarily because it promotes a dynamic competition process and not solely in its own merit. (3) The implication for the unfair competition cause of action is the revival of the misappropriation doctrine in the case of product design imitation.

   Having established that the concept of effective competition justifies imitation bans, we proceed to Part IV assuming that this valuation of the unfair competition laws should have an effect on trademark doctrine because the trademark exclusivity is in fact, as its historical development also shows, a realization of mandates flowing out of the competitive order. This is the actual meaning of the statement that trademarks are nothing but a part of unfair competition laws. Such systematic interpretation can also be supported by the complementarity theory of intellectual property rights and competitive norms, which dictates that the promotion of effective competition should be an integral valuation of trademark rules.

   The recognition of a protectable interest of the trade dress claimant in avoiding imitative competition and of the public in a dynamic competition with differentiated products affects the interpretation of trademark doctrines such as distinctiveness, functionality, and the likelihood of confusion in a way that promotes such interests by infusing proprietary elements into trademark theory. The proprietary elements coexist with the traditional trademark policy against consumer confusion in a system that purports to balance all competitive interests involved in a trademark dispute. Accordingly, trade dress should be held inherently distinctive if it is indeed differentiated from that of competing products and if the existence of alternative designs guarantees that awarding protection would not hinder competition. Functionality should be determined in terms of competitive need in order to enable the protection of differentiation by product design. The economic theory of product differentiation suggests the limits of trade dress rights and the normative scope of the functionality doctrine as well: plaintiffs should be prevented from imposing harm on locational competition by monopolizing submarkets. This observation links the limits of trade dress protection to the normative valuations of the Sherman Act.

   At the same time, the point is made that the cumulative protection of product design by different IP rights can be explained if we consider that the market power conferred by trade dress rights has a different justification ground and different limits than the market power conferred by IP rights encouraging authorship and inventorship. If the promotion of product differentiation should indeed be a concern of trademark theory, then the scope of protection should extend beyond source confusion and include imitative action that misappropriates the differentiation value of the senior trade dress. Infringement should therefore be decided pursuant to the "subliminal confusion doctrine," which prevents the misappropriation of favorable associations of consumers with regard to the senior mark. After providing a summary of the conclusions reached on the scope of trade dress protection, Part IV ends with the proposition of expanding proprietary protection of trademarks independent of the policy against consumer confusion.

2. TRADEMARKS AND COMPETITION

   1. Trademark Law as Part of a Broader Unfair Competition Law

      In the 1800s, an English Chancery Court recognized a right of property on a sign used to distinguish products in trade for the first time. (4) The new property right sprang out of the tort of unfair competition, which protected traders from fraudulent diversion of their trade. (5) The prohibition of passing-off came about in turn as a modification of the nominate tort of deceit so as to regulate the competitive relationship. (6) This was necessary because the action at law for deceit was only available to the deceived consumer, who received the misrepresentation. (7) Under the new unfair competition cause of action, the competitor was able to sue at law for damages arising out of the deceitful trade diversion. The misrepresentation element of the tort was often found established in cases where the defendant had copied or imitated a sign that the plaintiff had used to distinguish his products and thereby deceived the consumer regarding the origin of the goods sold. (8)

      Later on, the Courts of Equity realized that such protection was not adequately protecting traders taking part in the competitive process. It was recognized that each trader has a legitimate interest of being protected in the probable expectancy that he will be able to trade undisturbed on the basis of the reputational merits acquired by his performance in the market. (9) In other words, traders should be able to acquire and exploit goodwill. For that purpose, it would be necessary to have a right of exclusivity with regard to a sign distinguishing his products according to their...