As part of our ongoing series examining the ecosystem necessary to bring technology to market, David French, a senior Canadian patent attorney with 35 years of experience, now provides a further of his commentaries on the importance to a company of protecting its Intellectual Property.
In previous posts in this series we addressed mainly issues relating to patents. In this post we take a break from patents to discuss another very important type of Intellectual Property.
Intellectual Property has acquired this name because it is a type of property that is created by government-passed laws. Without legislation, the fundamental rule of the marketplace is that everyone is entitled to copy. But when someone copies trademark, there is an almost universal recognition that this is unjust. Besides being unjust, there are powerful economic justifications for suppressing the copying of trademarks by competitors.
Everyone has an impression as to what a “trademark” is. They think of Coca-Cola, or Heinz, or Heinz 57, or Kentucky Fried Chicken. The common thread of all trademarks is that when you see a mark you have a certain expectation about what you’re going to get. Although there are no rules forcing a trademark owner to market a consistent product under a trademark, there are powerful economic incentives for doing so.
Making sure cheaters don’t prosper
In a legal sense, a trademark is an indication of origin associated with a product that is circulating in trade. A trademark can also be an indication of origin for a service that is delivered to the public, e.g. H&R Block tax preparation services. The legal definition of a trademark derives from initiatives in the 19th century when manufacturers found that the personal identifications they were using on popular and successfully marketed products were being imitated by others. Initially, this was not recognized as an actionable wrong. But then the courts perceived that, where the public is being deceived, there is a need for the law to intervene. Hence, if a trademark owner could demonstrate that there was likelihood that the public was being deceived, then the court would intervene and suppress the activities of the cheating party.
Since the 19th century the legal significance of a trademark has grown substantially. Legislation has been introduced around the world permitting the registration of trademarks as a means to sort out who is the owner of a specific mark. In Canada and the U.S., the person entitled to own a trademark is the first party to adopt the trademark in trade in respect of specific goods or services. In other countries the owner is the first to register.
The law doesn’t recognize ongoing trademark rights if the original owner ceases to use the trademark. Where can you buy beer that carries the trademark Dow or Brading’s Ale? These were once trademarks on widely sold brands of beer. In respect of the mark Dow, a number of prior registrations are no longer in force, partly because they have been abandoned and are probably no longer in use. But the classic label for this beer is still a valid registration. The last transaction on the Register shows that this trademark was assigned to Molson’s Canada 2005 in the year 2005. While this is not certain, it is likely that every year or so Molson ships some hundreds of cases of beer with this label in order to ensure that they can demonstrate that the mark is still in use. Otherwise, it would be vulnerable to cancellation.
Why are trademarks important to corporations? One answer is to ask what a company still possesses once it has spent hundreds of thousands of dollars on advertising. All that remains is the memory that people have of that advertising. A good trademark, such as Head & ShouldersTM, will be the handle by which the product is remembered. According to this yardstick, trademarks are worth at least a portion of the millions of dollars previously spent on advertising and promotion.
From the website of Sony Corp:
“1955, Ibuka and Morita registered SONY as an official trademark of Tokyo Tsushin Kogyo with the intention of establishing the name as a global brand. One month later, when Bulova Inc. of the U.S. promised to order 100,000 transistor radios on the condition that they be sold under its own brand name, Morita refused, saying that his company would only allow its products to be sold under the Sony brand. When pressed, he asked Bulova, ‘How many people had heard of your company 50 years ago? My company is just starting out, but 50 years from now it will be just as famous as yours.’
“In 1958, Tokyo Tsushin Kogyo, which was gaining recognition for its Sony brand goods, changed its name to Sony Corporation.”
A trademark has meaning because it brings people back to buy products again. This is what makes it valuable to the trademark owner. A trademark also contributes to the functioning of the economy because it motivates companies to maintain product quality and consistency. Today we see instances of products being imported from abroad which are shabby or defective. Sometimes there is no trademark associated with the product at all. Sometimes the trademark is strange or obscure. These products originate from suppliers who have little concern about maintaining the quality of their product. They would prefer to compete on price rather than on reputation.
What value does a trademark protect?
Patents are rights that protect an underlying invention. Copyright protects an underlying literary or artistic work. What is the substantive thing of value that is protected by a trademark? I’ve puzzled over this question a number of times and my best shot at answering it is that a trademark stands for the commitment of a market participant, a manufacturer or a supplier, to deliver value to their customers. Once customers understand a trademark to have this meaning, they will return and further purchase.
Comparing the various types of Intellectual Property, there is a solid basis for saying that the most important intellectual property right in terms of having a healthy, functioning marketplace is the trademark right.
David French is the principal and CEO of Second Counsel Services, which provides guidance for companies that wish to improve their management of Intellectual Property. For more information visit www.SecondCounsel.com.
David French is available to lead a discussion group in Ottawa, a Quality Patenting Forum where people can discuss Intellectual Property issues relating to business startups. If you are interested in participating, please e-mail David.French@secondcounsel.com.