Do trademarks foster or inhibit innovation and competition?

Transcription

1 Do trademarks foster or inhibit innovation and competition? 6 th B G Kumar Memorial Lecture Centre for Development Studies 21st January 2015 By Professor Christine Greenhalgh Oxford Intellectual Property Research Centre, Univ. of Oxford, and Intellectual Property Research Institute of Australia, Univ. of Melbourne

2 Plan of this talk What are trademarks designed to accomplish as intellectual property rights? What evidence exists that they enhance firm and market performance? What are the recent debates about their non-competitive aspects? What changes to trademark law could improve the performance of this type of intellectual property right? 2

3 Growth of trademarks compared with patents -USPTO Source: von Graevenitzet al.,

4 How intellectual property rights (IPRs) are supposed to work IPRs stimulate innovation by offering rights to inventors that bring monopoly profits IPRs promote both product innovation and cost/price competition (process innovation) Innovators improve their product range and compete to find cheaper techniques of supply Costs of awarding these monopoly rights (market distortion) is justified by benefits IPR incentive system produces: cheaper and better products (patents), greater variety of products (trademarks) 4

5 Multiple roles of trade marks Unlike patents (which can only last 20 years) trademarks can last indefinitely so what are the benefits? Three functions of trade marks discussed in economic literature: Unique nature of the registered mark gives a guarantee of origin of the product greater informationfor customers improves market efficiency (Landesand Posner, J Law and Econ. 1987) Registration of a trade mark occurs when a new product is brought to market, so acts as a signal of innovation (Mendonca et al. Research Policy, 2004) Registration of the product name is start of a process of building a strong new brand; management theorists applaud, but economists see this as anti-competitive (Reidenberg and Debelak, Report for WIPO, 2011) 5

6 Benefits of Trademarks Information signalling TM improves market efficiency by signalling source and quality of product Customer saves time and effort in searching for product that fits their preferences Innovation signalling Firms with a new improved product can use registered TM as a basis for advertising TMs work for sectors not able to patent products, such as services or minor innovations Investors can see TMs as signals of innovation 6

7 UK IPO Study by Greenhalgh et al The Research Framework UK Intellectual Property Office (UKIPO) commissioned us to investigate role of trademarks in firm performance (1) document an overview of corporate trademarking activity in Britain (2) analysethe role of trademarks in the innovation process for firms and their impact on households (3) explore links between trademarking and branding For (1) we created database based on regular statistical surveys of UK firms in all sectors and all sizes from For (2) we asked a) Do intellectual property rights (IP) act as incentives to innovate i.e. are there private gains to firms? b) Are the outcomes socially beneficial-do firms that use IP create and sustain more good jobs? For (3) we examined firm growth rates as a signal of brandbuilding activity 7

8 Econometric results for productivity Firms that are persistently trade mark active are 21% more productive than other firms Controlling for level of advertising (itself strongly positive impact) the trade mark effect falls to 7% (but still very significant) Exploring a rise in trade mark intensity (per employee) shows a significant positive impact on productivity Again this is reduced but not eliminated when we include measure of advertising 8

9 Econometric results for employment Firms that regularly apply for trademarks have 20% higher employment for given sales, so are much more labour intensive than firms that are not trademark active Tougher statistic: compare each firm with itself so impact of any variable now reflects only changes within firms across time This eliminates persistent differences between firms that may be due to other variables Impact of recent TM activity on employment for firms that changed behaviour is a 3% increase 9

10 Econometric results for pay Being TM active in a given year leads to pay premium of 0.7% in next year Being patent active in a given year leads to pay premium of 1.3% in next year Advertising expenditure is also associated with higher pay Suggests that increased market power leads to rent sharing Even so these coefficients imply rather small impacts on pay 10

11 Econometric results for growth Firms that trade marked before 2003 have 6% growth premium per annum when advertising is not included When advertising and TM stocks are jointly included both are positive Increase of 10 TMs in last period cumulated stock of TMs (half of 1 S.D.) leads to extra growth of 0.5% per annum To get same growth using advertising would need to raise advertising stock by 37% 11

12 Summing up UK IPO Study Firms that are trade mark active are significantly different from inactive firms in important and valuable ways In all four dimensions explored productivity, employment, wages and growth we found positive associations with trade marks Activity to improve and promote the firm s products by innovation and advertising appear to underlie this success Benefits accrue to the firm and to its workers as there are more jobs and better paid jobs Customers are also happier as product variety and quality increase theory of revealed preference Clear evidence of both private and social benefits12

13 Further Evidence of Social Value of Trademarks and Brands Study of survival of firms in Australia (Buddelmeyer, Jensen, Webster 2010) Looks at risks and rewards of innovative activity in firms using metric of survival v. deregistration Patents (measure of radical innovation) increase risk of death in short run, but decrease it in longer term TMs (measure of incremental innovation) decrease risk of death of the firm in both the short and long run Summary of larger literature see Schautschickand Greenhalgh (2013) 13

14 Costs of Trademarks Underpinning Big Bad Brands? TM s infinite duration enables firms to build brand loyalty using successive waves of advertising Acts as barrier to entry for new firms who have no reputation Established brand owner can enter new fields of enterprise more cheaply -transfer reputation into new products Complacency by brand owners may reduce their rate of innovation (focus on acquisitions) 14

15 Sentiment and Brand Image Firms design trademarks embodying sentiment Build brands that confer status on consumer Protect these from erosion through dilution claims even when no prospect of confusion McDonalds challenges organisations across the globe that use Mc or Mac on their products. Australian community rugby team pursued for using McBrat (nickname of their team sponsor, Malcolm McBratney) on their shorts Further examples relating to this and next two slides are in Greenhalgh (chapter in Kenyon, Richardson and Ng-Loy (eds.), 2012) and in Greenhalgh and Webster (2015) 15

16 Confusion about Product Origin Buying or selling of trademarks (and leasing of marks) is permitted and frequent If whole production unit is sold this is OK Where ownership changes product sourcing why should sale of trademark be allowed? New owner should establish own reputation Volvo Swedish car manufacturer owned by Ford Motor Company from Volvo taken over by Chinese firm Zhejiang Geely Holdings 16

17 Even your own name can be sold! Elizabeth Emanuel fashion label became very famous for wedding dress of Princess Diana She sold her company in 1997 as a going concern and had no further input New owners not only kept trademark of her name but applied to register new graphic styles E Etried to challenge their right to do this In 2006 the European Court of Justice ruled against her, arguing there was no deception She now trades as Art of Being while a company she is not associated with trades with her name 17

18 Multiple Marks from One Producer Producer uses many marks with variety of styles to reach different segments of market Consumer thinks more competition exists than in reality Often packaging does not acknowledge true owner or is in very small print Customers may buy from firms they wished to avoid > TM causes consumer confusion Many examples exist in basic essential consumer goods: Australian firm George Weston Foods produces 15 varieties of bread and occupies 70% of supermarket shelf space for bread products See Hoffman (2013) for next slide and further examples 18

19 Ownership of brands by top ten companies in food and beverages 19

20 One Mark for Multiple Suppliers Companies may share or lease their trademarks with other suppliers Customer does not know which firm is supplying the goods or services Frequently seen in airlines with agreed partnerships buy Qantas fly Emirates, or buy Cadbury s eat Hershey s in US Globalisation has exacerbated problems of tracing origins due to outsourcing Some products carry labels giving country of manufacture but not all 20

21 Anti-competitive Uses of Trademarks Trademark squatting strategy of a domestic firm registering a trademark of international supplier not yet exporting Domestic firm holds international firm to ransom when it applies for its mark to be extended to this territory Trademark cluttering strategy of applying for more marks in more product fields than likely to use raising search costs to other firms Studies for EU reveal problems of cluttering see von Graeventiz et al. (2012) 21

22 Redesigning Trademark Law Remove dilution as a legal defence to stop firms protecting sentiment surrounding trademarks Require evidence of use at time of application (as happens in US) to eliminate squatting and reduce cluttering Ensure TM registration fees rise over time to reflect the value of entrenched brands Insist multiple brand owner in single class of products puts a common name element in each trademark to show the link in ownership Enforce rebranding of products after takeover to signal changes in ownership and sourcing 22

23 Further Policy Possibilities Allow courts to consider prior record of behaviour when considering new cases - e.g. repetitive behaviour of McDonald s Monitor aggressive enforcement behaviour against SMEs Where it is found issue a cease and desist letter from the IP agency Subsidise litigation insurance for SMEs to ensure they can resist bullying 23

24 Self-help and Self-regulation Allow smaller firms (SMEs) to use comparative advertising with products of market leaders This will short-cut their need to acquire a reputation for new products Courts do appear lenient on this issue at least in US and EU Encourage big firms to exercise self control on excessive use of litigation against SMEs This will prevent them attaining a bad reputation and damaging their own image 24

25 Future Research Needed Unknowns: How many larger firms have issued cease and desist notices to smaller firms? How many smaller firms acceded to these requests even if not infringing? How many settlements occur out of court and at what price? Data generation: Add questions to other data enquiries Set up special surveys on enforcement 25

26 Summing up Trademarks clearly benefit firms and societies They permit markets to function well by conveying information to customers and investors However strong evidence exists of faults in the way the TM system is operating so at present it is clearly sub-optimal Cannot change basic nature of trademark law the long duration of TM rights is inevitable Can look to changing the way the law is drafted and implemented to improve its functioning as a signal of product origin and product quality Thank you for your interest and attention 26

27 References I Buddelmeyer, H., P. Jensen, E. Webster, Innovation and the determinants of company survival, Oxford Economic Papers 62 (2), 2010 Greenhalgh, C., M. Rogers, P. Schautschickand V. Sena, Trade Mark Incentives, Report for UK Intellectual Property Office, 2011 Greenhalgh, C., The social benefits and costs of trademarks and brands, in The Law of Reputation and Brands in the Asia Pacific,editors A. Kenyon, M. Richardson and Ng-Loy, W. L., Cambridge U.P Greenhalgh, C., and E. Webster Have trademarks become deceptive? forthcoming WIPO Journal, 2015 Hoffman, B. (2013) Behind the brands: food justice and the Big Ten food and beverage companies, Oxfam Briefing Paper

28 References II Landes, W. M. and Posner, R.A. Trademark law: An economic perspective, Journal of Law and Economics 30(2), 1987 Mendonca, S., Pereira, T., and Godinho, M. Trade marks as an indicator of innovation and industrial change, Research Policy, no. 33, 2004 Reidenberg, J. and J. Debelak(eds.) An Analysis of the Economic/Legal Literature on the Effects of IP Rights as a Barrier to Entry,Report for WIPO, 2011 Schautschick, P. and Greenhalgh, C. A., Empirical studies of trade marks the existing economic literature, Working Paper 25/13, Melbourne Institute of Applied Economic and Social Research, 2013 von Graevenitz, G., C. Greenhalgh, C. Helmers, and P. Schautschick,Trade Mark Cluttering. London, UK: 28 Report for the UK Intellectual Property Office, 2012