HARVARD SCHOOL AND CHICAGO SCHOOL (SOCIAL VALUE OF TRADEMARK)

As stated above trademarks possess in itself the power to appeal consumer’s behaviour, influencing them to purchase the marked products. This marketing power of the trademarks has been criticised for a really long time. The question “whether the marketing power of the trademark which gives “benefit that are illusory” or creates an economic benefit which serves some useful purpose in marketing the product. The two major schools debating on this topic are, the Harvard school criticising the marketing power of the trademark and the Chicago school favouring it.

HARVARD SCHOOL

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

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

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

 

CHICAGO SCHOOL

Chicago school’s theory on trademark aimed to disprove the Harvard School’s theory on trademarks and argued that, trademarks facilitate competitiveness, by reducing the search and communication costs that may result from there being significant differences in the quality of products and provides mechanism for combating the problem that consumers may lack the information and expertise they need to compare 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 marks on the basis that this capacity reduces consumers’ mental or “internal search costs”. Even ECJ’s has stated that trademarks are consistent with the economic theory of trademarks, which is associated in particular with the ‘Chicago School’ of economics.^[7]

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

Favouring the Chicago school, in United Kingdom, the system of certification marks signifies that a firm or its products have been certified as complying with specific standards on such matters as safety, performance or geographical origin.^[8] This practice gives consumers an assurance that the products they are buying have a certain level of quality standard and other attributes, which it has passed to claim that mark.

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

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[1] Kenner Parker Toys, Inc. v. Rose Art Industries, Inc. - Confusing Play on Words Costs Dough for Rose Art http://heinonline.org/HOL/Page?handle=hein.journals/utol25&div=14&g_sent=1&collection=journals accessed on 21/7/2011

[2] Price discrimination occurs when a seller of products that are identical or closely similar to each other is able to charge different purchasers a different price according to their individual willingness to pay rather than having to sell at a uniform market price.

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

[4] Van den Bergh and 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 on 09/5/2011

[6] An Economic Perspective on Trade 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)

A trademark is a symbol that signifies the products exclusivity as a means of identifying 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 marked products and therefore it establishes that the goods have the same trade origin that the trademark signifies. Further, in EEA, at least, the right to first marketing of the goods is given to the proprietor under article 7, this means the proprietor of the trademark has the right to first market the goods within EEA. “In relation to trademarks, the specific subject-matter of the industrial property is the guarantee that the owner of the trademark has the exclusive right to use that trademark, for the purpose of putting products protected by the trademark into circulation for the first time, and is therefore intended to protect him against competitor wishing to take advantage of the status and reputation of the trademark by selling products illegally bearing that trademark”[1]

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

“In relying 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 in maintaining the value of his mark. It is normally contrary to a proprietor’s self-interest to allow the quality of goods sold under his banner to decline”[2].

As trademark gains recognition, it undergoes two stages.

First, consumers awake themselves of the existence and availability of marked products when searching for products and connect these products with their own experience

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

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

Article 5.1, therefore, strengthens the legal protection of a trade mark’s capacity to perform its essential function, which is ‘to guarantee the identity of the origin of the marked product to the consumer or end user by enabling him, without any possible confusion, to distinguish the product or service from others which have a different origin’.^[5] ECJ has 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:

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

 The Directive also gives the owner of a trade mark other exclusive rights to control its use in advertising and other promotional material, which further increases its value as a marketing resource.^[8] L’Oréal v. Bellure, the ECJ ruled that a trade mark can perform several functions in addition to its essential function of guaranteeing trade origin, including ones it termed the ‘communication, investment or advertising’ functions, and that the Directive should protect all of these functions.^[9] As regards the legal protection of these additional functions, Article 5.2 appears to be designed to protect them. This provision extends the exclusive rights of an owner whose trade mark has ‘a reputation’ so that the owner is entitled to prohibit a third party’s use of an identical or similar sign ‘where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark’. In General Motors v. Yplon,^[10] the ECJ ruled that the trade mark must have achieved a minimum level of recognition to satisfy the prerequisite of having ‘a reputation’.

In light of the above said we can say that the trademarks legally performs two essential function in marketing

1.      It provides face or identity to the products, which further provides the consumers a reference point to form their express choice.

2.      It can be used in advertisement and other promotional activity of the marked products, for connecting the consumers to source information of the product and the 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 on Trade Mark Law (Edward Elgar Publishing, 2011) (Blackboard)

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

[5] Hag II [1990] 3 CMLR 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 France v. Louis Vuitton Malletier [2010] ETMR 503

[10] General Motors v. 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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