Tuesday, September 5, 2017

Adam Mossoff: Trademarks As Property

There are two dominant utilitarian frameworks for justifying trademark law. Some view trademark protection as necessary to shield consumers from confusion about the source of market offerings, and to reduce consumers' "search costs" in finding things they want. Others view trademark protection as necessary to secure producers' incentives to invest in "quality". I personally am comfortable with both justifications for this field of law. But I have always been unclear as to how trademarks work as propertyWith certain caveats, I do not find it difficult to conceive of the patented and copyrighted aspects of inventions and creative writings as "property" on the theory that we generally create property rights in subject matter that we want more of.  But surely Congress did not pass the Lanham Act in 1946 and codify common law trademark protection simply because Congress wanted companies to invest in catchy names and fancy logos?

In his new paper, Trademark As A Property Right, Adam Mossoff seeks to clarify this confusion and convince people that trademarks are property rights based on Locke's labor theory. In short, Mossoff's view is that trademarks are not a property right on their own; rather, trademarks are a property right derived from the underlying property right of goodwill. Read more at the jump.

"Goodwill" refers to consumers' positive associations with a business that keep them coming back to that business rather than others. For example, if I taste Coke and like it, I develop positive associations with The Coca-Cola Company, and am more likely to return to Coke versus other options.  The Coca-Cola Company's expenditures on making Coke delicious, as well as its marketing efforts, have resulted in enhanced goodwill for the company.

Mossoff argues that goodwill - the positive associations consumers have with a company that keep them coming back - is a property right. Mossoff bases this belief on two sources.

First, he applies (and apparently accepts) Locke's labor theory, under which people and firms develop property rights in land, objects, or ideas by productively altering them from their natural state.  Goodwill, Mossoff writes, "is the reputational value created by the productive labor of the commercial enterprise in the use of its physical resources, and this value is sometimes identified as a type of property itself." (10). The property right in goodwill, he explains, stems from the "productive labor" that businesses exercise in the course of operating a commercial enterprise in the marketplace, and from the use of "physical resources" to enhance their reputation. (9-10).

Second, Mossoff relies on the views of commentators, judges, and courts in the nineteenth century.  He cites Justice Story's view, expressed in an 1841 treatise on partnerships, that goodwill refers to "the advantage or benefit" that business establishments receive
beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessity, or even from ancient partialities or prejudices.
 (10, quoting Joseph Story, Partnerships § 99 (1841)). Mossoff then cites several nineteenth century cases proclaiming goodwill to be property, such as, for instance, Washburn v. Nat’l Wall-Paper Co., 81 F. 17, 20 (2d Cir. 1897) (“That [goodwill] is property is abundantly settled by authority, and, indeed, is not disputed. That in some cases it may be very valuable property is manifest.”)

So if goodwill is a property right derived from a business's investments in developing "celebrity" and a "reputation for skill" among its customers...what does this make trademarks? If The Coca-Cola Company has a Lockean property right in the positive associations consumers have with its business, what right does it have in its trademarks, such as Coke, Coca-Cola, and distinctive red-and-white packaging?

According to Mossoff, trademarks are property rights derived from and, in the property law sense, "appurtenant" to businesses' goodwill. "Unlike a fee simple in land or a title in a patent, a trademark is necessarily derived from and attached to another property interest (goodwill), and the trademark cannot be separate from it." (14) (citing, e.g., American Steel Foundries v. Robertson, 269 U.S. 372, 380 (1926) (“There is no property in a trademark apart from the business or trade in connection with which it is employed."); Power Test Petroleum Distr., Inc. v. Calcu Gas, Inc., 754 F.2d 91, 97 (2d Cir. 1985) (noting that “a trademark epitomizes the goodwill of a business”).

Mossoff makes the analogy to a real property easement. An easement (a right to use a servient estate) is a property right, but one that is derived from and appurtenant to the dominant estate. In Mossoff's framework, goodwill is like the dominant estate; trademarks are like the servient estate. (16) (noting that the easement example is an analogy used "for the purpose of making clear the conceptual content of the use-right property interest in a trademark."). Similar to an easement, a trademark is an intangible property right that stems from an underlying Lockean property right in goodwill. Like an easement, the trademark carries with it a right to exclude, enjoy, and control the trademark, but it cannot actually exist separately from the goodwill and business (the underlying estate) on which it is based.

Mossoff is not first, and does not claim to be first, to conceive of goodwill as a property right or to argue that goodwill's property status is justified by Locke's labor theory.  Both Robert Bone and Mark McKenna have major papers on the subject that it is worth discussing here.

In Hunting Goodwill: A History of the Concept of Goodwill in Trademark Law, Bone explains the history of the concept of goodwill in U.S. trademark law. American courts, following the English tradition, initially based legal protection for trademark infringement on the theory that the trademark itself (or at least some trademarks*) were property. However, according to Bone, this property conception of trademarks broke down, in part because "[t]here was a serious problem with identifying the mark itself as the property. No one actually believed that the purpose of trademark law was to protect words or symbols as things of value in themselves or to encourage the creation of original marks." As a result, some courts "shift[ed] the locus of the property right from the mark itself to the 'goodwill' represented by the mark." On this view, "goodwill was the property and the mark merely a device to reap its benefits." (Bone, 26, citing several cases and treatises, including Hilson Co. v. Foster, 80 Fed. 896, 897 (S.D.N.Y. 1897) and James L. Hopkins, The Law of Trademarks, Tradenames, and Unfair Competition § 21, at 45-46 (4th ed. 1924)). Bone goes on to argue that viewing goodwill as the touchstone for trademark protection is dangerous because of its tendency to lead to overly expansive trademark protections. (5) ("The proposition that trademark law protects a firm’s goodwill has sometimes been used to justify costly liability expansions that offer little in the way of trademark benefits. These expansions have even prompted some commentators to claim that judges are moving the law in a new and seriously wrongheaded direction, toward 'propertizing' trademark rights.").

In The Normative Foundations of Trademark Law, McKenna explains early courts' usage of natural rights theory to justify trademarks as property. According to McKenna, examination of nineteenth century cases reveals that "most judges of the traditional trademark law era...were relying on a natural rights theory of property. In this tradition, courts focused on protecting and encouraging productive labor[,]" and (although courts did not always "identify the property precisely") they often focused on protecting businesses' goodwill, or something like it. (McKenna, 1874) ("Whether the claimant’s property was its underlying physical assets, the mark itself, or a producer’s returning customers, courts could have constructed sensible rules to protect productive labor."). McKenna goes on to discuss three specific ways trademarks were viewed as property under the labor theory, including "(1) that the right to a mark was merely incidental to rights in physical property; (2) that trademarks themselves were protected as property; and (3) that trademarks merely symbolized underlying goodwill, which was the property. "(1891). Perhaps importantly, McKenna stresses that courts' use of the term "goodwill" to describe the protected property interest was spotty, both "because it was not particularly important to courts that they identify the property precisely" (1871) and because the "terminology was just developing in the nineteenth century." (1886).

But Mossoff argues that, among other things, these prior scholars missed the major conceptual hook that makes trademarks-as-property make any sense: the notion that the trademark is, in property terminology, a "use-right appurtenant to" the "underlying property interest in a commercial enterprise (goodwill)." (Mossoff, 5-6).  The major significance of recognizing this conceptual hook is that it gives more legitimacy than prior scholars have to the trademark as Lockean property in its own right. Just as both an estate and an easement right relating to that estate are property, both goodwill and trademarks relating to that goodwill are property rights. (16) ("No one denies that easements are property rights (or at least almost no one), and, mutatis mutandis, if easements are property, then trademarks are property as well."). An additional consequence brought to light by this viewpoint is that, in Mossoff's iteration, Locke's labor theory justifies more than the "exclusive right" with which we are familiar. Along with the usual right to exclude others, Locke's labor theory justifies a more complete set of rights, including "the exclusive rights of use, enjoyment and disposal" , as well as the right to exclude others.  (8) See also, eg., Adam Mossoff, The Use and Abuse of IP at the Birth of the Administrative State, 157 U. Pa. L. Rev. 2001, 2006 (2009).  So this could mean that, for instance, The Coca-Cola Company, which obviously has a lot of goodwill and a lot of trademarks appurtenant to the goodwill, has not only the right to exclude others from using its trademarks, but also the right to use, enjoy, and dispose of those marks as it chooses.

In other words, Mossoff's main contribution here is not actually the goodwill-to-trademark linkage. Rather, it is his extensive use of the historic case law and detailed application of Locke's labor theory to justify a trademark as property. This is a nice change of pace given that modern scholarship in trademark is heavily influenced by the law & economics school under which property, per se, is far less important than the utilitarian consequences of creating the property rights. In contrast, Mossoff provides a unique perspective because he is one of few scholars who seriously seek to normatively justify intellectual property rights using Locke's labor theory. (Eric Claeys is another).

This conceptual shift should stimulate signifiant thought for property theorists specializing in the property foundations of IP law. It will be interesting to explore what further policy implications this finding has. The general argument that trademark rights ultimately stem from goodwill does have significant policy ramifications, discussed to some degree by both Bone and McKenna. On the one hand, trademark's roots in goodwill serves as a limitation. It means there can be no trademark, at least under common law, without goodwill developed in an ongoing business. On the other hand, if trademarks stem from an underlying right in goodwill, this means there might be a much broader common law property right in goodwill. This could potentially even be protected via Lanham Act Section 43(a), to the extent we think 43(a) is intended to codify common law rights. I would be interested in learning more about what additional insights Mossoff's trademark-as-property concept yields.


* Bone explains that only trademarks that would today be called "fanciful (completely made up) or arbitrary (existing words without any meaning for the product)" qualified as property. These were called “technical trademarks", and were protected as literal property.  (Bone, 21-22). To get an injunction, the plaintiff merely had to prove s/he had control over the mark and priority of use, and that defendant had "used the same or very similar mark on the same type of goods." (22)  Meanwhile, marks that did not qualify as technical trademarks - that is, descriptive marks and product packaging - received some legal protection, "but not on a property theory." Rather, they were protected based on on a theory of fraud and required strict showings of consumer confusion.  (23)


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