CREATe presents the tenth entry in our 2022 series of working papers: “Trade Dress Protection and its Impact on Competition: an Attempt At an Empirical Approach”. This paper by Dr Xiaoren Wang, a postdoctoral research fellow at CREATe, University of Glasgow, is a pre-print of an article recently published in The Trademark Reporter.
This paper suggests an empirical approach for courts to assess the possible anti-competition consequence of trade dress protection.
Nowadays, many companies use colors, shapes, product features, or packing to signal themselves to consumers. For example, without brand names, many consumers can recognize Tiffany by an egg-blue gift box or identify Christian Louboutin shoes when they see the red outsole of a high heel. These product features are able to identify the producer or the service provider, which is the core function of trademarks. Such product features are also called trade dress, which is the overall appearance of a product or service. Trademark law in the UK, the US, and the EU allow firms to protect their trade dress as trademarks if it has distinctiveness, namely the ability to identify the producer or the service provider in the consumer minds.
However, trade dress protection can reduce market competition. For example, if a candy firm claims a trademark right on the heart-shaped chocolate box, this firm can prevent competitors from using the same box to compete sufficiently in the Valentine’s Day sweets market. To avoid such anticompetitive consequences, the US courts have developed the doctrine of aesthetic functionality. Aesthetic functionality refers to a situation where the trade dress is a primary attraction for consumers so that if protected as a trademark, it is likely to reduce market competition. Once a trade dress is recognized by courts as aesthetically functional, the trade dress cannot get a trademark protection. The problem is how to decide whether a trade dress, if protected as a trademark, is likely to hinder competition? Judges generally have to rely on their personal expectations and experiences to assess the aforesaid potential competition hindrance.
This paper suggests an empirical approach to this problem with the aim of providing a more reliable and less subjective basis for the assessment of possible anti-competitiveness of trade dress protection. The research uses color trademarks, a sub-category of trade dress, as an example. It conducts two empirical exercises on color trademarks: an Amazon data mining exercise and a consumer experiment. Combining the two exercises, it proposes an empirical approach for litigants and courts to assess the possible anticompetitive consequence in color trademark cases.
The main findings of this research include:
- The results of the Amazon data mining indicate that black has a larger market share than other colors for some products (hats, scarves, and home-used electronic cords). It implies that some colors are associated with the market power and therefore trademarking these colors is likely to grant market power to the trademark owner. The experiment results reveal that blue, purple and yellow are inelastic at certain price points for some products. This phenomenon shows the possibility that colors without big market shares might also have the market power to retain consumers against the price increase.
- The data mining and consumer experiments are able to measure the market power of color trademarks, a subcategory of trade dress. Despite limitations, the empirical approach can provide data-based evidence for the courts to predict the anticompetitive consequence of trade dress protection, and therefore make the courts’ decisions less subjective.
- The paper further suggests how to conduct the data mining and consumer experiments to develop data evidence in litigations. For data mining, the paper advises on the selection of alternative colors and a baseline product, the judgment of market power, and the choice of prices. Regarding the consumer experiment, the paper provides advice on the choice of prices, the recruitment of participants, and the experiment strategy.
The research is funded by the UK Creative Industries Policy and Evidence Centre (PEC) under Arts and Humanities Research Council (AHRC) grant AH/S001298/1 and the Empirical Study Grant, Law Behavior and Social Science Program, University of Illinois. And the paper will be presented at EPIP 2022 in Cambridge (September 14-16).
This paper presents a new empirical approach for courts to identify anticompetitive consequences of trademarking product features, so-called“trade dress”. Granting a firm rights in its trade dress (imagine a candy company employing a heart-shaped Valentine’s Day box) can diminish competition and harm consumers (consider the high price a heart-box monopolist could charge). Therefore, U.S. courts recognize such trade dress as “aesthetically functional” and refuse to grant a trademark right, even if the trade dress identifies the source of the product to consumers. However, it is practically difficult for courts to discern what kind of trade dress, if trademarked, would diminish competition in specific cases. Despite plentiful doctrinal commentary on this issue, no empirical studies have explored the anticompetitive consequences of trademarking a disputed trade dress. This paper fills this gap by data mining and a human subjects experiment on color trademarks, a subcategory of trade dress. The paper first mines the data of different colored products on the Amazon website, revealing several colors might have larger market shares than others. It further experiments on relations between prices and colors, showing that some colors imply a higher price than other colors. Based on these studies, the paper proposes an empirical approach for litigants and judges to employ in deciding aesthetic functionality in trade dress litigations.
The full paper can be downloaded here.