Competition and Congestion in Trademark Law

Abstract

Trademark law exists to promote competition. If consumers know which companies make which products, they can more easily find the products they actually want to purchase. Trademark law has long treated “source significance”—the fact that a particular trademark is identified with a particular producer—as both necessary and sufficient for establishing a valid trademark. That is, trademark law has traditionally viewed source significance as the only necessary precondition for a trademark being pro-competitive. In this paper, we argue that this equation of source significance and pro-competitiveness is misguided. Some marks use words that are so closely connected with the product being branded that giving just one firm a monopoly over those words provides that firm with a meaningful competitive advantage—an artificial advantage granted by the state. This problem becomes worse as the number of firms producing (and branding) a type of product increases.

The more words cordoned off by trademark law, the more trouble a new entrant will have in describing or attracting attention to its product. Trademark law is thus being hijacked by strategic firms for anti-competitive purposes. Traditional doctrinal tools are inadequate to address this problem because the goal should be to limit the number of such trademarks rather than eliminate them completely. However, costly screens could be used to impose a form of congestion pricing on trademarks, eliminating them in all but the most worthwhile cases. In this paper, we develop a theory of the anti-competitive nature of certain trademark rules. We then propose a series of overlapping doctrinal rules and costly screens to address the problem of rampant anticompetitive trademarks.