HARVARD SCHOOL AND CHICAGO SCHOOL (SOCIAL VALUE OF TRADEMARK)

Asstated above trademarks possess in itself the power to appeal consumer’sbehaviour, influencing them to purchase the marked products. This marketingpower of the trademarks has been criticised for a really long time. Thequestion “whether the marketing power of the trademark which gives “benefitthat are illusory” or creates an economic benefit which serves some usefulpurpose in marketing the product. The two major schools debating on this topicare, the Harvard school criticising the marketing power of the trademark andthe Chicago school favouring it.

HARVARD SCHOOL

Trademarkas a means of providing information through advertising gains recognition inthe minds of the consumers. The marketing power of the trademark acquired bythis recognition gives some advantages to the brand owner including some whichare not in favour of the consumer. For example, as recognized trademark appealto the consumer at emotional and psychological level, which makes the consumerto re-purchase the product and finally makes addicted to that product.“Addicted” here mean “brand insistence” where the consumer refuse to switch toany other brand. This process of inducing the consumer to buy a particularproduct is highly criticised but “Harvard school”. According to Harvard school,the firms induce consumers to buy product by “persuasive advertising”, as ‘mostadvertising, however, is designed not to inform, but to persuade andinfluence’.[1]

Itgoes further than this; Firms could use trade marks to achieve a form ofmonopoly power or at least to engage in price discrimination.^[2]The tendency of marked products to demand high prices on the market compared toalternatives or to enjoy a relatively large market share appears to favourHarvard school. Similarly, ECJ has ruled in many cases that, “the image or theaura of the recognised trademark does add value to the price of the product aswell as plays an important in conferring intangible characteristics upon theproduct, as it appeals to the mind of the consumers[3]”.According to Harvard school, it is also arguable that this is merely a form ofprice discrimination and does not add genuine value to the marked products[4].

Inconclusion, economists supporting Harvard school of thought insists on thestatement that “Firms may differentiate their product from competitor’sproducts and achieve consumers brand insistence through persuasive advertising,and insulate his market share from price competition and create high barriersto entry”. Edward Chamberlain go further that this when stating that “thepublic interest would be best served by permitting unlimited confusion throughimitation, so that it would be almost impossible to accomplish advertisingdifferentiation” ^[5],supporting no trademark at all which in my view he suggested “the world ofconfusion” where there is no way to distinguish between the products.

 

CHICAGOSCHOOL

Chicagoschool’s theory on trademark aimed to disprove the Harvard School’s theory ontrademarks and argued that, trademarks facilitate competitiveness, by reducingthe search and communication costs that may result from there being significantdifferences in the quality of products and provides mechanism for combating theproblem that consumers may lack the information and expertise they need tocompare the products available to them on the market[6].Further, Chicago School’s theory has been elaborated to take account of the cognitive impact of such trade marksonthe basis that this capacity reduces consumers’ mental or “internal search costs”.Even ECJ’s has stated that trademarks are consistent with the economic theoryof trademarks, which is associated in particular with the ‘Chicago School’ ofeconomics.^[7]

Furthermore,it can be said that the recognised brand do offer premium price, but that brandpremium cannot, over time, exceed the informational and economic value of thebrand itself. So for example, if a consumer is paying more prise for a productit is because of the highly quality and low search cost which is inferred onthe product, so it not correct to say “justbecause consumer have paid more for some products did not mean there had beenany actual increase in the quality of the product rather, they themselves havetalked into paying premium price for the same product”

Favouringthe Chicago school, in United Kingdom, the system of certification markssignifies that a firm or its products have been certified as complying withspecific standards on such matters as safety, performance or geographicalorigin.^[8]This practice gives consumers an assurance that the products they are buyinghave a certain level of quality standard and other attributes, which it haspassed to claim that mark.

Under Chicago School of thought, trademarks promotethe product rather than distort competition, they facilitate communication andreduce search, they increase the flow of information to consumers, and theyenable consumers to rely on prior experience.

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[1] Kenner ParkerToys, Inc. v. Rose Art Industries, Inc. - Confusing Play on Words Costs Doughfor Rose Art http://heinonline.org/HOL/Page?handle=hein.journals/utol25&div=14&g_sent=1&collection=journals accessed on21/7/2011

[2] Pricediscrimination occurs when a seller of products that are identical or closelysimilar to each other is able to charge different purchasers a different priceaccording to their individual willingness to pay rather than having to sell ata uniform market price.

[3] L’Oréal v.Bellure [2009] ETMR 987] and Copad v Christian Dior [2009] ETMR 683.

[4] Van den Berghand Camasasca, 2006

[5] Ralph brown,Advertising and the Public Interest, http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=3707&context=fss_papers&sei-redir=1#search="Ralph+brown,+Advertising+and+the+Public+Interest" accessed on09/5/2011

[6] An Economic Perspective onTrade Mark Law (Edward Elgar Publishing, 2011)

[7] McClure, 1996

[8] The 1994 Act,s. 50. (as amended).

LEGAL BASIS OF TRADEMARK’S MARKETING POWER (EU)

Atrademark is a symbol that signifies the products exclusivity as a means ofidentifying and referring to product of the kind for which it is registered.Only the proprietor of the trademark is entitles to authorize the marketing of markedproducts and therefore it establishes that the goods have the same trade originthat the trademark signifies. Further, in EEA, at least, the right to firstmarketing of the goods is given to the proprietor under article 7, this meansthe proprietor of the trademark has the right to first market the goods withinEEA. “In relation to trademarks, the specific subject-matter of the industrialproperty is the guarantee that the owner of the trademark has the exclusiveright to use that trademark, for the purpose of putting products protected bythe trademark into circulation for the first time, and is therefore intended toprotect him against competitor wishing to take advantage of the status andreputation of the trademark by selling products illegally bearing thattrademark”[1]

 As noted above the trademark signifies that thereis one undertaking (owner of the trademark) which controls the quality and allthe other characteristic of the marked products. It gives a guarantee ofconsistency in the quality and condition of the product to the consumers.Thought this guarantee is not legal guarantee about the quality or any othercharacteristic of the marked products it’s just the guarantee of the tradeorigin. This means that trademark only provides the likelihood that the markedproduct will remain in certain a consistent standard as to the quality andcondition is concerned. Thus guarantee provided by the trademark gives theconsumer a reference point that enables the consumer to identify the productsthat meet their requirement.  Lord Nicholls has also included to thislimitation in Scandecor Development v.Scandecor Marketing:

“Inrelying on a trade mark consumers rely, not on any legal guarantee of quality,but on the proprietor of a trade mark having an economic interest inmaintaining the value of his mark. It is normally contrary to a proprietor’sself-interest to allow the quality of goods sold under his banner to decline”[2].

Astrademark gains recognition, it undergoes two stages.

First,consumers awake themselves of the existence and availability of marked productswhen searching for products and connect these products with their ownexperience

Secondly,the trademark gains a reputation in the minds of consumers relating to thelikely quality marked products, which the consumers remembers as it meets theirexpectations of these products based on their collective experience.[3]

The Directive recognizes how these stages canincrease the marketing power of a trade mark through expanding the owner’sexclusive rights in line with its level of recognition on the market. Article5.1 of the directive, states that, the trademark provides the means to identifyproducts on the basis of trade origin; it gives the owner of the trademark theright to prohibit any unauthorized use of the trademark.^[4]Article 5.1 extends this core right to the extent that it include signs thatare similar to the trade mark may not be registered or used as it may give riseto a “likelihood of confusion” on the part of the public, which ensures thetrade mark’s quality of distinguishing marked products from others. ‘Likelihoodof confusion’ means that consumers are likely to assume incorrectly that thethird party’s products come from the same undertaking as marked products orhave a trade origin that is economically or organizationally linked to theowner of the trade mark.

Article5.1, therefore, strengthens the legal protection of a trade mark’s capacity toperform its essential function, which is ‘to guarantee the identity of the origin of the marked product tothe consumer or end user by enabling him, without any possible confusion, to distinguish the product or service fromothers which have a different origin’.^[5] ECJhas indicated that greater recognition would make the trade mark more‘distinctive’ and that this would increase the likelihood of confusion.^[6]In Canon v. MGM, the ECJ concluded:

Sinceprotection of a trade mark depends … on there being a likelihood of confusion,marks with a highly distinctive character, either per se or because of thereputation they possess on the market, enjoy broader protection than marks withless distinctive character.^[7]

 The Directive also gives the owner of a trademark other exclusive rights to control its use in advertising and otherpromotional material, which further increases its value as a marketingresource.^[8]L’Oréal v. Bellure, the ECJ ruledthat a trade mark can perform several functions in addition to its essentialfunction of guaranteeing trade origin, including ones it termed the‘communication, investment or advertising’ functions, and that the Directiveshould protect all of these functions.^[9] Asregards the legal protection of these additional functions, Article 5.2 appears to be designed toprotect them. This provision extends the exclusive rights of an owner whosetrade mark has ‘a reputation’ so that the owner is entitled to prohibit a thirdparty’s use of an identical or similar sign ‘where use of that sign without duecause takes unfair advantage of, or is detrimental to, the distinctivecharacter or the repute of the trade mark’. In General Motors v. Yplon,^[10] the ECJ ruled that thetrade mark must have achieved a minimum level of recognition to satisfy theprerequisite of having ‘a reputation’.

Inlight of the above said we can say that the trademarks legally performs twoessential function in marketing

1.      Itprovides face or identity to the products, which further provides the consumersa reference point to form their express choice.

2.      Itcan be used in advertisement and other promotional activity of the markedproducts, for connecting the consumers to source information of the product andthe consumer’s prior experience. 

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[1]Centrafarm/Winthrop, Rec. ECJ,  p. 1183

[2] : [2001] ETMR 800 at [19]

[3] A. Griffiths, An Economic Perspective onTrade Mark Law (Edward Elgar Publishing, 2011) (Blackboard)

[4] Article 5.1provides that the owner of a trade mark ‘shall be entitled to prevent all thirdparties not having his consent from using in the course of trade: (a) any signwhich is identical with the trade mark in relation to goods or services whichare identical with those for which the trade mark is registered’

[5] Hag II [1990] 3CMLR 571 at [13].

[6] Sabel v. Puma[1998] ETMR 1

[7] Canon v. MGM[1999] ETMR 1 at [18]

[8] L’Oréal v.Bellure [2009] ETMR 987 at[51]-[58].

[9] Google Francev. Louis Vuitton Malletier [2010] ETMR 503

[10] General Motorsv. Yplon [1999] ETMR 950.

INTRODUCTION (TRADEMARKS)

In broader terms, trademark is a sign, mark, word or other signifier used to distinguish a good or service produced by one undertaking from the good or service of other firm. But in business terms, it can be a marketing tool, which can provide information to the consumer in many levels, for example, it can reduce the search cost or can provide quality guaranty as well as a reference point to the consumer while making their purchase decision, trade mark can even communicate with the consumer.

Traditionally, trademarks were in the form of letters, numerals, words, logos, pictures, symbols, or combinations of one or more of these elements (conventional trademark) but now shape, sound, smell, taste and texture even 3D animation can be a trademark. This development in the field of trademark has changed some aspects relating to the function of trademark. The traditional view regarding the function of the trademark was that it gave the owner of the trademark an exclusive right to exploit the marked goods, which gave the consumer a sense of quality guaranty relating to the trademark as they can assume that the goods has the same trade origin. So the traditional functions of the trademark was it provides a common trade origin, which helps the consumer to relate the different marked goods as of same undertaking. But with the development, this function of the trademark has extended to the level where it attracts the consumer at emotionally and psychologically.

Thus, trademark play an important role in the field of marketing, as it can attract consumers or can induce consumers to buy the marked product.  Keeping this in mind, there can be the following function of the trademark in context to law and marketing.

 

Function of Trademarks

One of the core functions of the trademark is the Origin Function, where trade mark helps to identify the source and the undertaking responsible for the products sold in the market. Keeping in mind the origin function, another important function performed by the trademark is the Quality Function, which means that consumers choose a particular trade mark for its known quality products. Further, the trademark performs Marketing Function, which means that trademarks play an important role in advertising and communication with the consumers. Its normal for consumers to make purchases based on continuous influence of advertising and other promotional activities. And finally trademark performs an Economic Function, that is to say, for a firm its established trade mark is a valuable asset as it may be licensed or franchised. 

Furthermore, a trade mark provides the legal basis for establishing an exclusively-controlled distinctive identity or “brand” that can be used for marketing goods or services of the kind for which it is registered. In simple word, brand does not have legal protection, trademark gives legal identity to a brand and helps it do develop. This identity or brand is based on the fact that marked products have a common trade origin which the trade mark signifies. Products with such an identity are likely to be consistent with each other in terms of their quality and other characteristics and to remain consistent over time. This likelihood of consistency is due to the fact that one undertaking has the exclusive right to confer the marketing identity that the trade mark signifies on products of the kind for which it is registered and the fact that this undertaking is in a position to determine the quality and other characteristics of the marked products and thereby to ensure their consistency.

This ability to show the likelihood of consistency, give a trademarks its marketing power, which   can attract consumers to the products that they identify. Though these products to command premium prices on the market or to sell in much greater quantities than they would do otherwise or leads to some combination of these effects. The capacity of trade marks to attract consumers to marked products and gain marketing power suggests either that consumers recognize that trade origin is a good basis for rational decision-making or that signs can gain some irrational hold on the minds of consumers and tilt their decision-making. In law, this attractive power is known as “goodwill”. In marketing, it is termed as “brand equity”.

“If a firm is to attract customers to it, it must draw those buyers to some ‘name’ that is unique and known. Without the distinctive trade mark, brand name, trade name, or company name … it would be impossible to pull customers to the particular goods or services of an enterprise and the firm would be unable to take advantage of the increasing returns to scale and scope. A company’s advertising is pointless with no name to promote. Indeed, the very endurance of the firm seems linked with a name or names that over long periods continue to bring in customers.”[1]

So, every business must persuade their potential customers to move from brand awareness to brand preference and ultimately to brand insistence, where consumer refuses to accept alternatives. This can be done only with the help of a trademark. For the trademark to perform its additional function, it is prerequisite for the trademark to have recognition and only the recognised trademark have been given legal right to perform its additional function .i.e. the marketing function.

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