The Arena of Trademark Merchandising

    Trademark merchandising is an emerging field of influence in the context of intellectual property rights. In rudimentary terms, trademark merchandising involves attaching a commercial value to the trademark, and not the goods that the trademark seeks to represent. The right to merchandise a trademark has become an extremely controversial field as it poses an important question:

    Can a trademark be used for purposes apart from its designated function?

    Background

    At the turn of the century, the field of intellectual property rights was booming. A new category of rights emerged with the expansion and globalisation of trade and commerce. The field of trademarks and the supporting laws also attuned themselves to the dynamic nature of the societies as a new generation of trademarks came into existence. The illustrative and not exhaustive list includes:

    • Olfactory or Scent marks such as the ‘Minty’ Pain Relief Patches registered by the Japanese company known as Hisamitsu Pharmaceutical Co., [1]
    • Textile marks like ‘Levis’ stitched in a particular format on apparels,
    • Colour marks such as ‘Barbie Pink’ or ‘Tiffany Blue,’[2]
    •  Sound marks such as ‘The Yahoo Yodel’,[3]
    • Collective marks such as the ‘CPA’ which stands for the Society of Certified Public Accountants,
    • Certification marks like the ‘BIS Hallmark’ or the ‘AGMARK,’
    • Shape Marks like the contour-shaped bottle of Coca Cola,[4]
    • Motion marks like the ‘Columbia Motion Trademark,’[5]
    • Touch Marks such as ‘velvet-textured covering on the surface of a bottle…’ granted to American Wholesale Wines and Spirits Inc.[6]
    • Well-known marks such as ‘Amul’ or ‘Pepsi.’

    There is no denying the fact that a trademark is an integral part of the product. Even though the purpose of the trademark is to provide a distinctive quality of differentiation between several products in the market, a trademark does much more than that. It proves to be a source of indication of the products and/or services and simultaneously affirms that the goods and/or services sold under a particular trademark resemble in quality and fitness. The difference in colours, texts, patterns and logo are steps towards carving the distinction out. Once the trademark is granted under the law, the owner has full control over the type and quality of goods being sold. It also provides a red-flag to detect unregistered brands impersonating the registered brand and passing-off goods, thereby diluting the quality. However, a new category of trademarks eventually gave way to a new concept: the idea of commercialising and merchandising the trademark itself.

    The Ingredients of Trademark Merchandising

    The concept of trademark merchandising came into focus in the 1970s. In essence, the concept involved the sale of a trademark as a product in itself. It included the selling of merchandise such as key chains, apparels such as t-shirts, hats and jerseys with legally trademarked logos and brands imprinted on them. The idea was to sell the trademark as they represent the brand value of the products they’re known for. From your favourite football team to the university you attend, merchandising of trademarks by third parties who were not the registered owners was ignored for a long period of time. Here, because the trademark was used for reasons other than distinction among products, merchandising of trademarks was, and still is, a booming business tactic.

    The Legal Aspect

    Trademark merchandising, although been in practice since decades, has acquired legal validation quite recently. Extending the scope of the functions of a valid trademark, the American concept and its ancillary uses are governed by the Lanham Act, 1946, the Trademark Registration Act, 1962, Trademark Revision Act, 1988 and the Federal Trademark Dilution Act, 1995.

    The European Union resolves the issue surrounding trademarks vide its Trade Mark Directive or the TMD[7] and the European Union Trade Mark Regulation or the EUTMR.[8] However, they have struggled to accommodate the practice of merchandising trademarks in the 21st Century.

    In India, the issue of trademarks is addressed by the Trade Marks Act, 1999. However, the scope of the laws is slowly expanding to encompass the American doctrine of confusion and to clamp down on the unauthorised uses of a trademark.

    The Profitability of the Practice

    The commercial viability and the profits generated by the sale of trademarks were recognised as early as the 1970s. In 2001, the global market for sports-related merchandise was estimated at 17 billion US Dollars.[9]

    Furthermore, according to a report published by the Los Angeles Times in 2017, the global retail sales of merchandise connected to movies and entertainment reached around 118 billion US dollars while those regarding sports, corporate and college logos generated about 263 billion US dollars.[10]

    In 2018, Walt Disney Co.’s Disney consumer products became the top licensor in the world garnering 54.7 billion US dollars in retail sales.[11]

    The increasing profit margins collected by third parties who necessarily weren’t the legal owners of the trademark eventually led to questioning of the legality and the ethics of the practice in itself.

    Judicial Recognition of the Merchandising Rights

    Trademark merchandising was officially recognised and addressed in 1975, in the American case of Boston Professional Hockey Association vs. Dallas Cap & Emblem Manufacturing.[12] In this case, the National Hockey League and several member-clubs filed a lawsuit against the sale of emblems and their registered trademarks. The District Court found no grounds for infringement, stating that the consumers did not necessarily affiliate the emblem seller with the actual hockey teams. It also invoked the Doctrine of Functionality, stating that competitors in the market should have access to trademarks that have ornamental purpose for the products. The Fifth Circuit Court, however, reversed the judgement. Heralded as a ‘revolutionary’ precedent, the court stated that the trademark was created by the efforts of the plaintiffs and if they had acquired a license, they would have enforced it against the defendants. Secondly, the fact that merchandise of a particular emblem or trademark sells more is indicative of the fact that the consumer connects the logo with his/her favourite team and therefore, is a ‘triggering mechanism’ for sale of the merchandise. Thirdly, to sell reproductions of trademarks is suitable for sports sector but the court also admitted that it was extending the use of trademarks from protecting public from confusion to protecting the business interests of the plaintiffs.[13]

    Subsequently, in the case of International Order of Job’s Daughters vs. Lindeburg & Co.[14], the Ninth Circuit Court, in its judgement, relied on the concept of confusion regarding the source of fraternal emblems on the merchandise, despite ruling out infringement since the use of emblems was purely ornamental in nature.[15]

    Furthermore, in the case of Boston Athletic Association vs. Sullivan[16], the First Circuit Court upheld the objection against the sale of ‘BOSTON MARATHON’ merchandise by third-parties and adopted a similar conclusion based on the logic of free-riding on the plaintiff’s trademark and outweighing misappropriation of mark more than product confusion.[17]

    Similarly, in Europe, in the case of Mitsubishi,[18] the CJEU held that the use of trademark, even though subsequently removed and was not used to distinguish between goods, was found to be infringing upon the rights of the registered owners.[19]

    In India, the case of D.M. Entertainment Pvt. Ltd. vs. Baby Gift House and Ors[20]was one of the first cases that explored the arena of character merchandising. In this case, the defendant company was cashing on the popularity of the singer Daler Mehdi by selling his miniature version of dolls, despite the plaintiff company possessing all the rights, licenses and the trademark of the singer. Eventually, the Delhi High Court ruled in favour of the appellant but it opened up the floodgates of debate regarding the use of a trademark apart from distinction of goods and services.[21]

    https://legalreadings.com/analysis-of-draft-of-national-science-and-technology-policy-2020/

    The Need for Merchandising Rights

    There have been several arguments that have been advanced to defend the need to appropriate merchandising rights to trademark owners. Firstly, it would prevent free-riding[22] on the registered trademark. This ideology was applied in the above-mentioned Boston Athletic Association case[23]. It seems unethical that the plaintiff who has put in his/her efforts in creating a trademark that has considerable value when sold on its own should be sold by third-parties without the owner’s consent or participation. This stems from the instinct of ‘if value then right.’[24] Furthermore, it is a safeguard against misappropriation of the trademark by third-parties. This, in turn, would create the need to protect the brand image and the quality of the merchandise.

    According to an ideology adopted by the section 43(c) of the Lanham Act, 1946, and the 10 (2)(c)TMD and Article 9 (2)(c)EUTMR the protected trademarks would be secured against any act/acts that blur its distinctiveness or harm its reputation. This would include its unauthorized use. This ideology is known as the Dilution Theory.[25] To prevent the dilution of the protected trademark, especially in a competitive arena of a market, merchandising rights of trademarks should be ideally accorded to its lawful owners.

    Another facet of protection of rights of trademark owners would be to avoid the post-sale confusion among customers. This theory was propounded in the case of Lois Sportswear vs. Levi Strauss & Co.[26] In this case, the Lois Sportswear sold jeans with clearly different labels but with a stitching pattern similar to that of Levi Strauss, which was trademarked. The trial court held that there was no evidence of confusion but a non-purchaser who may witness another wearing the apparel may assume it belongs to Levis. The Second Circuit court upheld that such post-sale confusion constituted infringement against the trademark.[27]

    Furthermore, in the case of Arsenal Football Club plc vs. Matthew Reed,[28] the defendant sold unofficial Arsenal Football Club or Arsenal FC merchandise in the form of scarves bearing the club’s mark. However, he had put up a notice stating that there was an absence of affiliation between him, the merchandise being sold and the football club. Nevertheless, the football club filed a suit in the High Court of Justice of England and Wales against the owner accusing him of infringement under domestic laws and stated a possibility of confusion among customers regarding the source of the merchandise. The case, being the one of the first to address trademark merchandising, reached the CJEU. The preliminary ruling issued by the court upheld the claim of infringement against the defendant. The CJEU opined that the fact that a sign was put up as a disclaimer would add to the confusion of the customers as they may assume it to be a sign declaring an official partnership between the club and the merchandise.[29] Thus, post-sale confusion theory was used to wield against any and every possibility of infringement and passing-off of goods and services.

    The Possible Demerits

    The theories and the ideologies advanced so as to protect the interests of the trademark owners are not without any shortcomings. The first issue would be protecting its myriad uses. It is common knowledge that the trademark is used to provide a distinctive quality to the goods and services. There is no clear cut law prohibiting a different use of trademarks, laws addressing only their unlawful use. If one is to believe that the scope of the trademark law extends beyond providing distinction, then it would be very difficult to keep track of the use of trademarks. People will not be able to replicate the trademarks on edibles, fashionable items like jewellery or even sing trademarked songs or even possess the authority to take the trademarked names of celebrities in the public domain. Extending the uses of trademarks beyond the normal scope of law would open a new can of worms.

    Secondly, on a comparatively lower scale, it would affect competition among vendors in a market. Small-scale industries or shops thriving on sports-seasons generate demand for the sale of trademarks on merchandise. Since the trademark is the product, and not representing any product, it would not go beyond the scope of law to permit the activities. This would also promote a healthy competition among sellers. Consequently, it would affect the quality of the merchandise sold. If the merchandising rights are to be vested solely with the trademark owner, it would open the market to unhealthy business practices such as monopoly and would lead to an increase in prices of merchandise, thereby narrowing the customer base. Thus, it would lead to a situation where owning a trademarked merchandise would become a status symbol. The idea of ‘if value then right’ would make the trademarked goods available only to a handful of the population.

    Thirdly, the post-sale confusion is an unbridled weapon of defence. The liberal use of such an important concept will empty the markets. What appears as another brand to a ‘passer-by’ is a factor that cannot be controlled. People will continue to misinterpret brands and fashion icons. Unless corrected, it feels illogical to charge companies with infringement. The idea of a pre-sale confusion may be understandable but the idea of charging industries due to a possibility of a post-sale confusion despite disclaimers being posted is stretching the trademark law to unnecessary levels.

    Conclusion

    Trademark merchandising is a money-making strategy. Whether it’s a trade mark owner or an unregistered third-party, selling trademarks as commodities does attract sales. It is important that countries across the world should take cognizance of the growing trend of trademark merchandising and tailor the law to suit this social and economic change. It is visible that the law tilts in favour of the registered owner of the trademark and any efforts to permit a different use of the mark has been met with resistance. However, it is important to follow the middle path of this conundrum and develop rules that not only help the trademark owners, but also provide a certain level of freedom to laymen to use the trademark lawfully and without attracting litigation and payment of royalties.

    A liberal usage of the term ‘unauthorised use’ and ‘post-sale confusion’ would only restrict the public access to the trademarks. It dangerously ventures into the idea of monopolising not only the trademarked merchandise but every class of products the trademark seeks protection in. Assigning merchandising rights exclusively to the owners of the intellectual property is not a wrong move but a step in a rather risky territory that hasn’t been fully uncovered yet. An impact analysis should be conducted before manoeuvring the law in any direction.

    REFERENCES

    [1] Scent Trademarks: A Unique Smell, available at https://smithhopen.com/2021/03/23/scent-trademarks-a-unique-smell/ (last visited on April 30, 2021).

    [2] Be Careful When Using These Six Colours, You Could Get Sued, available at https://www.newindianexpress.com/lifestyle/fashion/2018/nov/30/careful-when-using-these-colours-you-could-get-sued-1905405.html#:~:text=Barbie%20Pink%3A%20Barbie’s%20parent%20company,Girl’%20by%20Aqua%20came%20out. (last visited on April 29, 2021).

    [3] Lubna Kably, “Jingles and Chimes Can Make Trademark Noise,” The Times of India, March 27, 2017.

    [4] Kameron Virk, “Kit Kat Case: The Food and Drinks with Trademarked Shapes,” British Broadcasting Corporation News, July 25, 2018, available at https://www.bbc.com/news/newsbeat-44953460 (last visited on April 30, 2021).

    [5] USPTO TM 1975999.

    [6] U.S. Trademark Registration No.: 3,155,702.

    [7] Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L336/1.

    [8] Regulation (EU) 2017/1001 of the European Parliament and of the Council of 14 June 2017 on the European Union trade mark [2017] OJ L154/1.

    [9] Ardi Kolah, “Maximising Revenue from Licensing and Merchandising,” Sport Business Associates, July 2004, available at http://www.sportbusinessassociates.com/sports_reports/Licensing%20and%20Merchandi sing%20brochure.pdf (last visited on April 29, 2021).

    [10] Ryan Faughnder, “Year-round ‘Star Wars’ Toy Sales Boost Entertainment Merchandise Revenue,” Los Angeles Times, May 22, 2017, available at https://www.latimes.com/business/hollywood/la-fi-ct-licensing-star-wars-20170522-story.html ( last visited on April 30, 2021).

    [11]Etan Vlessing, “Disney Consumer Products Hits $54.7B in Retail Sales as Top Global Licensor of 2018,” The Hollywood Reporter, August 8, 2019, available at  https://www.hollywoodreporter.com/news/disney-repeats-as-top-global-licensor-547b-retail-sales-1229916 (last visited on April 30, 2021).

    [12] 510 F.2d 1004 (5th Cir. 1975).

    [13] Ibid.

    [14] 633 F.2d 912, 918 (9th Cir. 1980).

    [15] Ibid.

    [16] 867 F.2d 22 (1st Cir. 1989).

    [17] Ibid.

    [18] Mitsubishi Shoji Kaisha Ltd., Mitsubishi Caterpillar Forklift Europe BV vs. Duma Forklifts NV, G.S. International BVBA, Case C‑129/17 [2018] ECLI:EU:C:2018:594.

    [19] Ibid.

    [20] CS(OS) No. 893/2002.

    [21] Ibid.

    [22] Irene Calboli, “The Case for a Limited Protection of Trademark Merchandising,” 2011 University of Illinois Law Review 865 (2011).

    [23] Supra note 14 at 4.

    [24] Rochelle Cooper Dreyfuss, “Expressive Genericity: Trademarks as Language in the Pepsi Generation,” 65 Notre Dame Law Review 397 (1990).

    [25] Min Hung Tao, Merchandising Rights: The Possibility of Full Integration into the Trademark System (2019) (Unpublished Master Thesis, Munich Intellectual Property Law Centre).

    [26] 799 F.2d 867 (2d Cir. 1986).

    [27] Ibid.

    [28] Case C-206/01 [2002] ECLI:EU:C:2002:651.

    [29] Ibid.


    BY SHARMEEN SHAIKH | SAVITRIBAI PHULE PUNE UNIVERSITY

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