Brand Value & The Communication/ Advertising/ Investment Functions: An Irrational Basis For Trade Mark Protection?

"The protection of trademarks is the law's recognition of the psychological function of symbols."1


Advertising used to be about informing consumers where the products they purchased came from and which person or corporation was responsible for their manufacture. However, over the past 50-60 years, advertisers have been striving to give brands an image or identity, which induces consumers to buy the brand as much as the underlying product to which it is affixed. Brands have therefore become valuable economic assets in their own right.

Whilst the words and logos that are protected by trade mark registration represent a very small part of the overall branding strategy of a corporation, trade mark law is still an obvious starting point for protecting a corporation's brand.

Trade mark law has traditionally focused on preventing second uses of a trade mark where a consumer is likely to be confused into thinking that the second user's goods originate from the trade mark owner. In other words, according to early trade mark law, trade marks only functioned as indicators of origin. However, the developments in branding outlined above, mean that consumers no longer care who manufactures their products as long as they are "official" products.

Part I of this paper looks at how trade mark law in the US and Europe has started to take into account this shift in the way that consumers interact with brands and to protect the brand image/equity that brand owners create in their marks. In particular we shall see how the US legal commentator Schechter called for a change in the law, as early as the 1920s. In fact, Schechter claimed that preserving the distinctiveness that a mark acquires through advertising was the "only rational basis for trade mark protection."2

Part II will go on to consider how the Court of Justice of the European Union (CJEU), in its eagerness to recognise the changed interaction between consumers and trade marks, has developed its own concept of marks have advertising/communication/investment functions in addition to their essential (origin) function. Whilst this is an exciting development for brand owners, it is unclear from the CJEU's dicta when these functions are infringed. It seems that the Court could benefit from delving a little deeper into exactly what these functions represent and the rationale for protecting them.

Part III considers how consumers interact with modern marks and shows that the advertising/communication/investment functions are at least partly attributable to the fact that consumers are vulnerable to corporate selling messages contained in advertising. In some cases, consumer loyalty to particular brands may be described as being irrational (at least in the psychological sense of the word). Therefore, the CJEU needs to ensure it does not protect the new non-origin functions absolutely, as this would be far from being the rational basis for protection that Schechter envisaged.

Having performed the above analysis, part IV will look at three of the most common models proposed for trade mark protection: misappropriation, property and harm-based theories. It will then consider which of these models is best suited to protecting the brand value/equity that modern marks have acquired and will examine how having a concrete legal basis for trade mark law could assist the CJEU in future cases.


1.1. How Marketing has Changed

"The astronomical growth in the wealth and cultural influence of multi-national corporations over the last fifteen years can arguably be traced back to a single, seemingly innocuous idea developed by management theorists in the mid-1980s: that successful corporations must primarily produce brands, as opposed to products.3"

In the early nineteenth century, the primary concern of every manufacturer was to establish a reputation for the quality of their goods. Advertisements used to inform consumers about the existence of some new invention and convince them that their lives would be better if they used, for example, cars instead of wagons, telephones instead of mail and electric light instead of oil lamps.4 Therefore advertising was designed to inform and educate the public.

After a time, the market became flooded with mass-produced products that were physically fairly indistinguishable from each other. Therefore, manufacturers started to create a brand image in an attempt to entice consumers away from similar products created by rivals.5 Advertisers worked to ensure that marks symbolised to consumers not just the identity of the origin/manufacturer of the goods but also a whole host of other information about the underlying products built up through the trade mark owner's advertising.

Certain industries (e.g. clothing) arguably managed to make consumers desire logos more than the underlying product. Until the early seventies, logos on clothes were generally discreetly placed on the inside of a collar and hidden from view, however, as Klein points out today "logos have grown so dominant that they have essentially transformed the clothing on which they appear into empty carriers for the brands they represent.6"

The result of this is that brands have become economic assets with equity value completely independent of the goods they are affixed to. According to Klein, the defining moment was in 1988, when Philip Morris purchased Kraft for $12.6 billion, six times what the company was worth on paper, for the name "Kraft".7 Today brands such as Coca-Cola are valued at more than $70 billion.8

So what does this increasing autonomy and economic value of brands have to do with trade mark law? Trade mark law only protects a small part of a corporation's brand; it protects the name or logo (provided they are registered) of the corporation, rather than the brand identity of the corporation as a whole. However, as we shall see in the subsequent sections, the changed focus of branding has infiltrated into and influenced trade mark law.

1.2. Schechter and Dilution

Trade mark protection has traditionally been based on enabling consumers to identify without any possibility of confusion the manufacturer or origin of branded products. This was sensible when consumers and advertisers used marks only to indicate who manufactured the underlying products. However, as marks began to play a much more active role in consumer purchasing behaviour (as outlined in section 1.1 above) and became valuable business assets in their own right, the focus of trade mark protection was forced to change.

As early as the 1920s, a US legal commentator called Frank Schechter recognised that the ramifications of modern trade meant that consumers rarely knew or cared who manufactured products they purchased.9 Instead marks had come to signify goods that emanated from the same – possibly anonymous – source as previous goods they have experienced bearing that mark.10 For example, if we consider the situation of a consumer purchasing a particular brand of soap, when that consumer sees the trade mark in the supermarket, he does not see it as signifying who manufactured the soap but instead as indicating the fact that here is a product that he has tried before, that was satisfied with and would like to try again.

This shift in focus meant that consumers were now associating information about the goods with the mark rather than the manufacturer:

"today the trademark is not merely the symbol of good will but often the most effective agent for the creation of good will, imprinting upon the public mind an anonymous and impersonal guaranty of satisfaction creating a desire for further satisfactions. The mark actually sells the goods. And, self-evidently, the more distinctive the mark, the more effective is its selling power.11"


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