The Strategic Effects of Trademark Protection

Abstract

We study the effects of trademark protection on firm profits and strategy using the 1996 Federal Trademark Dilution Act, which granted additional legal protection to selected trademarks. We find that the FTDA raised treated firms' operating profits and was followed by a spike in trademark lawsuits and lower entry and exit in affected product markets. Treated firms reduced R&D spending, produced fewer patents and new products, and had more recalls of unsafe products. Our results suggest that stronger trademark protection had negative effects on innovation and product quality.

Keywords: trademarks, intellectual property, product market strategy, product quality, innovation

JEL Classification: D22, K2, L43, O31, O34, O38