Do We Need a Law of the Brand?

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16 Responses

  1. Mark McKenna says:

    Hi Spencer –

    Interesting stuff. You will not be surprised to know I’ve been thinking about a lot of this lately too. There’s one statement in this post I’m not sure is totally accurate, though:

    “This dramatic transformation took place with virtually no recognition of the significance of brands and branding. The overall effect was an important legal change without debate or recognition of the elevation of the brand to one of the most protected forms of legal property and one of the most valuable assets in the marketplace.”

    I think Schechter understood the rising importance of brands, and I think this is what Ralph Brown was criticizing. In some respect, we probably would have had a more honest discussion about this had Schechter’s approach won out more thoroughly. Instead we got rapid expansion by pretending to be fitting in the traditional framework while making looser and looser connections. So I think a better description is that the growing importance of brands was what was *actually* motivating most of the expansion, but it was shoehorned into an ill-fitting framework. So you have a mismatch between persistent rules and the economic reality.

    The problem is that, if we just said we’re going to protect brand value, it becomes very hard to discern any meaningful limits on the scope of trademark protection.

  2. Civ Pro King says:

    Nice post. I’m not an expert on Antitrust or Econs, but I’ve read articles from a purported Behavioral Economics viewpoint. Their reasoning sounds similar to yours. Question: the branding issue you raised, is it predicated on the same priciples in Behavioral Economics? Thx.

  3. Deven Desai says:

    Mark

    Nice catch. To clarify, as we note in the full paper to come “In 1926 Frank Schechter displayed an insightful understanding of brand theory as he criticized trademark law for being “predicated upon certain historical preconceptions as to the nature and function of a trademark and as to the necessities for its protection.”

    We agree that shoehorning was going on. We, however, go further. Schechter was not fully aware of what brands did or he may have been hiding the full power of brands. The business history and business literature is clearer than Shechter about brands and their power.

    As for protecting brand value, I think that a full understanding of what brands are and what brand theory says about how brands function, will offer a better way to cabin brands than current approaches within trademark theory.

    Civ Pro King

    Great question. I am not sure where exactly BE fits on brands. I think you are correct that some parallels exist. Our work so far has looked to the brand history and literature from the business/marketing world. It is not predicated on the BE literature. That being said if you have specific BE works you think apply, please share. We’d love to take a look.

    -Deven

  4. A.J. Sutter says:

    If you go down this road, there are some interesting philosophical questions about who really should own a brand. Some argue that the brand is partly constituted by psychological effects in the mind of the consumer — an effect made more evident when brands are decoupled from their original products, e.g. a Mercedes logo on a baseball cap — and that if so, why should the putative “brand owner” be the company? See the excellent essay by Dominic Scott, Alex Oliver and Miguel Ley-Pineda in the collection edited by Bently & al., Trade Marks and Brands: An Interdisciplinary Approach (CUP 2008), reviewed here.

    As for the “realities of the business world,” how are you going to ascertain those? I’m not saying that’s an impossible task, but from a quick look at your linked paper, I’d suggest that academic management literature or what’s taught in MBA programs is not on the right track. In many industries the MBA curriculum or world-view is not considered normative. E.g., when I worked at a company in the semiconductor industry that had a majority share of most of its numerous product markets, a science or engineering Ph.D., not an MBA, was the ticket to success, and the few who did spout Harvard Business Review fad-speak had short lifetimes. (Though one of the few guys I counselled who did have an MBA, a former Israeli paratrooper, had this response when I described some stuff we could and couldn’t do because of antitrust laws: he shouted at me, banging his fist on the table as a Hebrew ‘r’ rose from the deepest recesses of his throat, “I don’t understand — why can’t we just CRUSH our competition?”)

  5. This sounds pretty interesting to me, as a franchisee attorney.

    Mark’s point, “The problem is that, if we just said we’re going to protect brand value, it becomes very hard to discern any meaningful limits on the scope of trademark protection.” resonates with me.

    How do you propose to talk about brand law in a way that is not congruent with trademark law?

    Because if your talk about brand law is completely congruent with trademark law, who cares?

  6. Josh Wright says:

    Hi Spencer:

    Re: this:

    “Otherwise, the increasing emphasis on neo-classical price theory in the past thirty years robbed antitrust of any chance of understanding and responding to the rise of the brand as a tool for diminishing the role of price competition, segmenting market demand, facilitating price discrimination, and locking in consumers to a favored brand.”

    My first response to this is confusion.

    You mentioned merger law. Most of modern merger law is moving towards unilateral effects models that are based on game-theoretic differentiated products (read: branded) models rather than neoclassical price theory.

    Further, you claim that price theory is incapable of measuring consumer responsiveness to price changes in the presence of branding, which they view as substitutes (if any, etc.). Perhaps branding predictably renders product-specific demand more inelastic. Seems like we can still measure elasticities pretty darned well and that if you’re right, current antitrust merger law at least (which is based almost entirely on those elasticities and a couple of other things) reflects that.

    Are you talking about things other than merger law? Even if you are, what is the precise nature of your claim that there is something about neoclassical economics that means that measurement of cross-price (or other) elasticities cannot be measured?

    Lastly, in areas involving vertical restraints and single firm conduct, the work of folks like Williamson and Klein that have been influential are probably best not described as neoclassical in the way that you are using it. A central component of Klein’s work (see, e.g. Klein & Leffler) and to a lesser extent Williamson, were the role of brand-name capital in facilitating performance in a world of incomplete contracts. The underlying economics are at the heart of work on RPM, franchising, exclusive territories, and other vertical restraints.

    When you say “antitrust” has adopted a neoclassical view, perhaps you are referring to the Supreme Court. That would get you out of the merger law problem discussed above, but not vertical restraints (e.g., where the court has relied in Klein’s work in Leegin).

    I’m trying to get a better handle on what you mean you say that antitrust has not satisfactorily handled branding. My view of the antitrust economics literature and at least current merger practice is that that claim doesn’t hold up. If you are making normative claims about the impact of branding and brand advertising on consumers — well, the claims likely have testable implications and can be supported by evidence. I’m just wondering what the claims are.

  7. Brands do matter! They seem to perform well as a heuristic generally for consumers making decisions, but they also lead consumers to make irrational decisions that result in waste. For instance, why pay a premium for a branded commodity when the generic is identical? Couldn’t brands be anti-competitive, in that new market entrants may have more innovative products that are ignored, simply because they do not come with a recognizable brand?

    The up and coming Droid phone is likely to be better than the iphone, from a features perspective (and certainly from a network perspective). Will it even matter? Hasn’t the Apple brand become more important that the substantive performance of competing products?

  8. Deven says:

    Ah so much great feedback.

    A.J. Thanks much. Already looking at the Bentley book. Not sure what you are saying about MBA literature but we draw on marketing texts, recent theoretical work, and historical material to try and capture the ways business has looked at and understood brands. If you have other sources that may help on that front, please send along to references.

    Michael, the full paper will get into the differences between brands and trademark. So no, we are not simply saying brands equal trademarks and vice versa.

    Josh, Spencer is the antitrust lead so I defer to him on your question.

    Chris, thanks much. Your point is precisely what my larger project about brands is trying to capture from a variety of angles. As simple matter, the law ignores the irrational side of brands and the competitive problems that go with them. Apple and Google have tremendous power via their brands. Would/could anyone with a truly better search engine really compete with Google for search?

    To be clear, brands are not necessarily bad. We are not arguing that brands automatically lead to harm. Rather the law seems to misunderstand or ignore the way brands operate. That lack of appreciation can lead to problems. We want to show how that happens and then see what the next steps for the law are.

  9. geoff says:

    Chris: “they also lead consumers to make irrational decisions that result in waste.” This is wholly ex post. How about ex ante? How exactly do you think the Droid phone is going to establish its credentials without a brand? Do you think we would even be talking about it–or that it would have found a niche with phone makers in the first place–if it didn’t come with Google’s brand, and the capital backing that Google’s brand enabled them to bring (because Google itself would be nothing without its brand) Brands anticompetitive? I recoil in horror at the lack of rigor with which you must be defining “anticompetitive.” Your follow up clause is the equivalent of “in that new market entrants may have more innovative products that are ignored, simply because they are more expensive? As Spencer points out above, brands do accomplish a lot of things. He sees problems with some of these things at the margins (I hope only at the margins) and describes them in pejorative terms, but price discrimination, segmentation, etc. are all flip sides of things like reducing search costs, guaranteeing quality, guaranteeing interoperability (I would think this would be an overwhelming and overlooked benefit), etc. All of these things are equivalent to quality improvements or cost reductions. We usually think these are good things, but I do understand that there are some models in which low prices and higher quality are bads–the effects just don’t seem to exist in the real world. It is quite hasty to label brands as anticompetitive–and following on Josh’s comment, also quite hasty to assume that more traditional and well-incorporated economics can’t handle branding.

  10. Spencer Weber Waller says:

    Thanks to everyone for their thoughtful and much obliged to Deven for jumping in on some of the specific trademark points. I see two things going on in our piece (as it evolves). The first is descriptive rather than normative. Brands matter a lot in the business world but are not usually addressed head-on in legal discourse. I am enough of a legal realist that I think the law on the books should make some effort to understand on its own terms the real world events and decisions that it is regulating and in general have the law in action match up with the law on the books (or at least explain why not). Is there anyone out there who really thinks that we do that with respect to brands and brand management in any body of law?

    I do think merger law has just begun to deal with some aspects of brands through the unilateral effects theory of harm but in my view it is incomplete and highly contested in the real world.

    But I do think that there have a large number of developments in trademark law and antitrust that have resulted in the continued growth of the importance of the brand in the real world without anyone talking about in those terms. Important examples include the growth of anti-dilution laws, the ability to trademark colors, the elimination of per se rules governing resale price maintenance, etc.

    That is of course separate from the question from we should do, if anything about this. But to have an open and explicit discussion of whether you want to do more, less, or just preserve the legal status seems to require recognizing the centrality of brands as a concept not exactly congruent with trademarks and not fully encompassed by the way we usually talk about antitrust issues.

    I don’t think brands=monopoly power, brands=trademarks, trademarks=brands or that branding is either good or bad in the abstract. I also recognize that there is a lot of silly fluffy business literature out there about branding. But there is a lot of serious stuff by people like Michael Porter and Kevin Keller that give us a more direct route to debate and fashion legal rules than indirectly filtering it existing legal frameworks.

  11. Josh says:

    Spencer:

    Let me try again because your comment doesn’t really get at the heart of my question. I’ll try to be more clear. You identify adherence to neoclassical price theory as a cause of antitrust and trademark law missing important things about firm and consumer behavior in markets. In fact, you write that the mode of economic analysis “often assumes away” important things like product differentiation, customer loyalty, and price discrimination.

    I’ve given at least two examples where that isn’t true. Its definitely not the case in mergers. The modern unilateral effects approach sure isn’t neoclassical price theory. The old structure-conduct-performance paradigm approach of the older Supreme Court cases sure isn’t neoclassical price theory. Its just not there.

    Its arguably not the case in RPM. I don’t think that the Williamsonian or Klein explanations of RPM, or the Klein & Leffler (1981) explanation of the role of brand name capital and advertising in facilitating contract performance are neoclassical price theoretic explanations. But you use RPM (where the court does cite the Klein and Murphy (1988) explanation of RPM as facilitating promotion) as an example of court’s NOT discussing branding. So that strikes me as wrong too, or at least incomplete. But its just a blog post — I might be missing what you are saying.

    But those two examples suggest to me that antitrust doesn’t fit your simple story of adherence to neoclassical price theory causing ignorance about branding and its consequences.

    My best guess is that you mean something about branding not being considered a barrier to entry in antitrust analysis under modern economic definitions. That’s probably true. But its also true for good reason and there is a tremendous literature on the competitive benefits of branding, advertising, and product differentiation that would be worth looking at before making that claim, I think.

  12. Spencer Weber Waller says:

    Lest we turn a general interest blog into an antitrust specialist one, I will send you the draft down the line and you can see the examples I use in market definition and other issues in mergers and elsewhere where things might have come out differently or at least come out the same through a better route. As to Leegin, that cite doesn’t convince me that the Court was seriously thinking in the brand direction as opposed to general free rider concerns. At least it didn’t say so.

  13. Logan Roise says:

    You are assuming that creating an effective brand could limit competition (or it seems to me you are) but it is the competition in the marketplace that creates the brand. Branding is like a multilevel game of chess where companies compete against each other in an attempt to create a strong brand. However, a company can be too successful. Take “Kleenex,” for example. When is the last time you needed to blow your nose and asked for a kleenex when all you really cared for was some sort of facial tissue paper. “Kleenex” was so successful in their branding campaign that most individuals refer to any tissue as a “Kleenex.”

  14. Shubha Ghosh says:

    Great project and I look forward to future discussion. A couple of points here. One example of the disconnect between branding and trademark law is the way in which trademark law has expanded over the years to protect trade dress, “look and feel” or what could simply be called image. The parallel development is the emergence (and perhaps death) of dilution law, which blurs (pun intended) protection for consumers with protection for mark owners. So I think you are right there is a disconnect between theory and law. The danger is whether you know set the stage for a sui generis type of IP to protect brands in ways that trademark law cannot. I think you need to clearly set forth what type of regulatory scheme you are proposing: exclusions for current IP, an antitrust type regime, or a consumer protection/FTC regime. Or as Scalia might say, a quartium quid.

    I think the point about neoclassical price theory is interesting. Other posters are correct in pointing out that IO theory has brought other types of market structure into consideration beyond that of perfect price competition. I would frame this issue more as one of how the notion of competition arises and is used in legal analysis. What are the parameters of competition? What normative role does it serve? And finally how does it shape regulatory schemes and responses?

  15. @geoff, I’d didn’t say all branding was bad, but that in some situations, esp products in parity, it causes consumers to buy more expensive but identical products. My point goes to consumer sophistication: brands are used as a good but imperfect heuristic. How can we get consumers to the point where they look for features and quality rather than the gimmick? One promising approach is hunch (hunch.com), which asks the consumer a series of questions and I hope will drive more rational decisionmaking.

    As far as “anti-competitive” goes, I reserve the right to use the word however I want because economists use “competitive” to describe all types of market landscapes :)

  16. Spencer, What a fascinating discussion and issue. I wonder if in later posts you might describe examples of branding where law fails to capture problems and how your prescriptions might tackle them. This might help the uninformed (like me) better appreciate the headier parts of your discussion. And it might put into context your fuller response to Shubha.

    Thank you for your brilliant posts!