Trademark’s Judicial De-Evolution: Why Courts Get Trademark Cases Wrong Repeatedly

Trademark law has de-evolved. It has transitioned from an efficient mechanism for ensuring competition into an inefficient regime for capturing economic rents. In this Article, I focus on the role that party self-interest has played in biasing the evolution of trademark law. This self-interest tends to lead parties to (1) challenge efficient legal rules and seek to replace them with inefficient, anticompetitive rules, and (2) accede to inefficient, anticompetitive rules once they are in place. Almost by definition, when a rule of trademark law promotes competition, it reduces the market surplus or rents that current producers capture. As a result, parties will seldom spend resources either to defend an efficient trademark rule or to challenge an inefficient trademark rule in the hope of replacing it with a more efficient rule. Instead, inefficient trademark rules offer a party, usually the trademark owner, the opportunity to capture rents. As a result, at least one party will have a correspondingly strong interest in defending such inefficient trademark rules or, if necessary, challenging efficient trademark rules in the hope of replacing them with inefficient trademark rules. DOI: https://doi.org/10.15779/Z38BR8MG5J Copyright © 2018 California Law Review, Inc. California Law Review, Inc. (CLR) is a California nonprofit corporation. CLR and the authors are solely responsible for the content of their publications. * Professor of Law, Texas A&M University School of Law. I would like to thank Mark Lemley, Lydia Loren, Mark McKenna, and Rebecca Tushnet, as well as the participants at Intellectual Property in the Trees, held at Lewis & Clark in 2016, the 2015 Works-in-Progress Intellectual Property Colloquium, held at the United States Patent and Trademark Office, and the 2017 Scholarship Symposium at INTA’s Annual Meeting in Barcelona for helpful comments and suggestions. 1196 CALIFORNIA LAW REVIEW [Vol. 106:1195 The net result has been something of a perfect storm for trademark law. Efficient legal rules are repeatedly challenged until they are replaced with inefficient legal rules, at which point no one challenges them. The entirely predictable result of this process is exactly what scholars have observed: courts have re-written trademark law so that it protects far too much and far too broadly. Rather than ensure competition, it serves to restrict competition and to maximize the profits of trademark owners. Rather than promote consumer welfare, it has become a form of corporate welfare. We cannot, however, fix the problems with trademark law through substantive trademark doctrine. Substantive reform, even radical substantive reform, would simply provide a new starting point from which inefficient common law evolution would again proceed. To fix the ongoing de-evolution of trademark law, we need to change the process of trademark litigation to ensure, first, that parties have an adequate incentive to defend and fight for efficient legal rules, and second, that courts have the information they need to recognize the efficient legal rule and render judgment accordingly. In this Article, I identify and evaluate several possible mechanisms for solving trademark’s ongoing common law de-evolution. Abstract ......................................................................................................... 1195 Introduction ................................................................................................... 1197 I. Trademark Law’s Evolution: From Consumer Welfare to Corporate........................................................................................................ 1195 Introduction ................................................................................................... 1197 I. Trademark Law’s Evolution: From Consumer Welfare to Corporate Welfare............................................................................................... 1207 A. Judicial Expansion of Trademark Protection: A Tale of Two Examples .................................................................................... 1208 1. Expanding the Infringement Standard .................................. 1208 2. Expanding Trademark Subject Matter: The Rise of Trade Dress Protection ................................................................... 1213 B. Separating the Wheat from the Chaff: When Expansive Trademark Protection Hurts Consumers .................................... 1222 C. Judicial Decision Making: A Dysfunctional Process ................. 1226 D. Exceptions for Exceptional Cases .............................................. 1234 II. The Reasons Why: How Process Controls Substance .............................. 1236 A. How Self-Interest Can Lead to Inefficient Legal Rules ............. 1237 B. The Biases in Action: A Case Study of the Merchandising Right ........................................................................................... 1248 III. Changing the Process to Change the Substance of Trademark Law ....... 1256 A. Reform Within Existing Law ..................................................... 1258 1. Enhanced Attorneys’ Fees .................................................... 1259 2. Antitrust Counterclaims ....................................................... 1263 3. Court-Appointed Expert Witnesses ...................................... 1268 B. Anti-SLAC Legislation .............................................................. 1269 2018] TRADEMARK’S JUDICIAL DE-EVOLUTION 1197 IV. Charting a Path Forward ......................................................................... 1273