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Privatizing Trademarks:

My soon-to-be-new colleague Irina Manta has recently posted her article "Privatizing Trademarks" (forthcoming in the Arizona Law Review on SSRN. While I don't know much of anything about trademark law, I generally like privatization and found the article interesting. The abstract is below.

While trademarks are designed to promote a competitive and productive marketplace, the current system of trademark registration is run by the Patent & Trademark Office as a monopoly of questionable productivity. The average time that it takes for the Patent & Trademark Office to process a trademark application is over a year, and as a result, trademark applicants risk investing substantial sums of money into a mark to discover much later that the Patent & Trademark Office will not register it. This Article considers a possible solution - a system of privatized trademark registration. The system would contain several features: 1) Multiple "entities" serving as registrars: Various private entities would compete with each other and register trademarks while sharing one database for pending and registered trademarks. Market mechanisms would thus encourage speedier and more effective registrations. 2) Optional expedited process: Different entities could employ price discrimination calibrated to the speed with which a trademark applicant wants to use his mark. 3) Quality control mechanisms: For example, to ensure the quality of the registration process, a rating system would permit clients to provide feedback after registration and years later. An entity providing ineffective services or issuing trademarks that later faced serious litigation would earn poor ratings while a reliable entity would fare well. To explore the viability of trademark privatization, the Article relies on both the theoretical privatization literature and practical examples in which government exclusivity has been removed from intellectual property (and other) decision-making. By challenging assumptions about the status quo surrounding the monopoly of the Patent & Trademark Office, the Article seeks to open a more general discussion about improvements to the existing system of trademark registration.

Soronel Haetir (mail):
I know this has been done with the internet's domain registrars, but am not sure the modle really works well for trademarks.

There can only be one mcdonalds.com but I recall a case of MacDonalds Cheese or similar being forced to change their name due to likelyhood of confusion. There are just so many infringing variants to consider.

Also the (unsuccessful) efforts of Monster Cable to prevent the use of the word 'Monster' in contexts entirely divorced from electronics products. As well as the problems with cyber-squatting come to mind.

A prime example of this in my mind would be the registration of peta.org by People Eating Tasty Animals, which would normally seem to fall under some sort of satirical fair use protection yet the domain was forcibly transferred.

Seeing how poorly privitization has worked in this arena that at least to me doesn't appear to be nearly as complicated leaves me with significant doubt that it would work for the more general case.
6.6.2009 2:04pm
Soronel Haetir (mail):
I will also bring up that even in the name server context I've seen attempts to start a competing root server network, which failed miserably due to lack of adoption.

That seems like an area where some form of monopoly is of absolute necessity, imagine if there were competing telephone assignment schemes where two providers might each assign the same number to two customers.
6.6.2009 2:13pm
hidflect (mail):
Ahh... the road to hell is paved with good intentions. I see enormous possibilities for abuse under this proposed system. Look at how Boxing screwed up when different parties with financially vested interests split up the boxing crown into a bewildering range of associations (this is not dependent on whether you support boxing or not). Or take the Hard Rock Cafe. It's Dutch. Some yank went there one day, liked the idea and swiped the concept including name and (slightly altered) logo registering it internationally and then tried to close down the original Holland bar for breach of copyright! If there were multiple associations, that bar would've been forced to litigate against a telephone book's worth of associations, many of whom might be on the take from the largest 800 pound gorilla involved. What would they get? 14 favourable rulings and 6 infavourable? How would that work?
6.6.2009 2:14pm
hidflect (mail):
typo: unfavourable - not infavourable. The English spelling is intentional tho'!
6.6.2009 2:15pm
Justin Levine:
Must agree with Soronel on this one.

Until more legal safeguards are in place to prevent trademark claim abuse and corporate attempts to monopolize language under the guise of 'trademarks', I think it would be very dangerous to farm out trademark registration responsibilities to the private sector - even after acknowledging the ineffeciencies of the current system.
6.6.2009 2:22pm
theobromophile (www):
Didn't Judge Kozinski suggest the same thing for the patent system?
6.6.2009 3:00pm
Jason F:
I haven't read the article, but the abstract's description of a system where there are "optional expedited processes" for trademark registration seems like a recipe for allowing deep-pocketed interests to trample the trademark rights of those of lesser means.
6.6.2009 3:27pm
William Spieler (mail) (www):
@Justin Levine:

What abuse are you referring to?
6.6.2009 3:34pm
William Spieler (mail) (www):
In any event, remember that there's state trademark protection, so we can somewhat see how effective a multiple-registrar trademark system works today.
6.6.2009 3:36pm
David Welker (www):
I am going to go out on a limb and guess that Irina Manta is a libertarian. Isn't it amazing how you can probabilistically determine the probably ideology of people via the titles they choose plus their abstracts?

I could be wrong, but I doubt it.
6.6.2009 4:02pm
Jeff Kadi (mail):
As an attorney who regularly works with the PTO, I would have to say at first blush this is a poor idea.

Get rid of one government bureaucracy (Trademark Office) and replace it with at least one more bureaucracy (e.g. the Trademark Registrar Office).

The entire purpose of Trademark Registration is to obtain legal protection as a deterrent against copiers, essentially the threat of a lawsuit and subsequent damages.

While I could entertain an argument to eliminate trademark examination (register a mark like a copyright, let the private/legal system deal with infringers or overly broad marks), the idea of privatizing the Trademark side of the PTO sounds like a poor idea.
6.6.2009 4:51pm
Jon Roland (mail) (www):
This is a tad off-topic, but is anyone in the VC planning to attend the FreedomFest 2009 in Las Vegas July 9-11? Looks like it would make a good occasion for VC denizens, especially libertarians, to get together for some face time. I am likely to be attending.
6.6.2009 6:42pm
Mark N. (www):
I don't see how this will be much of an improvement. The inherently government-monopoly aspect of the USPTO isn't the way it's administered, but its substantive content: trademarks are a government-granted monopoly to use certain terms in commerce, based on a social-policy decision that the restrictions on natural rights that entails are less bad than the increase in market clarity that is gained.

You can try to dance around the issue with some network of registrars, but ultimately it's, one way or another, going to be apparatus enforcing a centrally administered monopoly. Seems more transparent to just call it what it is and have it centrally administered. I mean, would privatizing the administration of farm subsidies make them magically not farm subsidies?
6.6.2009 7:30pm
MCM (mail):
While I don't know much of anything about trademark law, I generally like privatization and found the article interesting.


Hey, someone used the word "privatization"! I don't know anything about the topic, but it must be good, right?

To be honest, drivel like this is pretty much why I've stopped reading volokh. I'm pretty sure you could train a monkey to recognize specific words and then click the "submit blog post" button.
6.6.2009 9:07pm
pxyvision (mail) (www):
Dear Professor Volokh and readers: I highly disagree with the article.

I have worked in the field for over 20 years and I am also a web developer. As such, I am very familiar with third party vendors who work with ICANN to register domain names - and I am also very familiar with Trademark applications via the USPTO.

While the USPTO is a government entity, and with it comes delays, bureaucracy, etc., the Trademark Office is very user friendly and efficient. Users may submit applications electronically and the fees remain very cost effective for filers.

If the system were to be privatized, in all likelihood the costs to the consumer would increase with no guarantee of the submissions being processed and registered quickly.

Of note, many applications are "delayed" not by the USPTO, but by filers making mistakes on the applications causing the Examiner's to request additional information from the applicant via "Office Actions."

Additionally, the applications I file typically are registered between six to nine months after submission. Any competent Trademark specialist will tell you the same.

http://tmapps.blogspot.com
6.7.2009 1:32am
Justin Levine:
William Spieler:

There are many examples that I could come up with, but I'd direct you to this site as a start -

Trademark Abuse
6.7.2009 2:13am
ReaderY:
Trademark registration is not a mechanical process like internet domain registration. Moreover, society has concluded that a variety of public interests exist, as well of interests of other parties, which need to be addressed.

Privatization works best when the people paying the money are the ones getting the benefit. This is only partially the case here.
6.7.2009 3:44am
Raoul (mail):
MCM: Dead on. Also, it may take several months to register, federal protection begins from the filing date even if the mark is not used. Moreover, it typically takes less than three months for a finding on whether other marks are registered and there exists a process to expedite if necessary.
6.7.2009 8:57am
PeteP (mail):
When you privatize thing, you monetize a thing.

In some contexts this is good ( free market system ), but when the 'product' being sold is 'someone's opinion', then it will take ~ zero time before those opinions start being made based on who's paying us how much ?'.

Given a willing seller, you could patent a ham sandwich.

It's a terrible unworkable idea, and would only make our currently bad IP patent system even worse ( patents on 'business methods' and software have GOT to go ! ).
6.7.2009 9:21am
David Schwartz (mail):
In some contexts this is good ( free market system ), but when the 'product' being sold is 'someone's opinion', then it will take ~ zero time before those opinions start being made based on who's paying us how much ?'.
And those opinions will be of zero value as well.
6.7.2009 10:24am
Irina Manta (mail):
Thank you for Jonathan's post and for the comments! I agree that the issue of potential abuse is of the utmost importance, and the paper addresses it in-depth. While I won't be able to discuss every issue here, I would like to give a summary of some of the features that I implemented in my model to ensure the quality of registered marks. I would also note that the model actually provides significantly more checks on issued registrations than we have in the existing system, which should be of particular interest to those who want to fight registration abuse:

1) Large fines and potential loss of license for deficient registrars after random PTO audits of registrations or after a significant portion of registrations are publicly opposed or struck down by courts.

2) Liability insurance provided by registrars, through which registrars would pay a certain sum of money or percentage of damages to mark owners who faced lawsuits as a result of low-quality registration.

3) An e-Bay style feedback mechanism through which trademark applicants could leave publicly accessible ratings of registrars after registration and every number of years thereafter.

4) The use of contract and fraud laws as a mechanism to deter residual bad behavior on the part of registrars.

For a more detailed explanation of these proposals as well as answers to other objections to the model, I would suggest taking a look at pages 414-423 of the article. Also, those interested in the use of private entities for patent registration may want to read a paper called "Ending the Patenting Monopoly" by John Duffy and Michael Abramowicz (forthcoming in the next few months in Penn's intellectual property symposium issue, I believe).
6.7.2009 10:01pm
ohwilleke:
Many government agencies (for example, the office that issues passports) offer expedited service for an extra charge. The private sector has no monopoly on this innovation.

The trouble with laxity in issuing trademarks is that the PTO is in the business of protecting the public domain from people making claims upon it that their applications don't support, while private entities have little incentive to do so.

Allowing successful challenges to marks to be reported later doesn't solve the problem. A principal register trademark, even if seriously deficient on the merits (e.g. because it is purely descriptive, one example in my experience being a principal register trademark granted for the words "Palisade Red" to describe red wine made in Palisade, Colorado) has a great value in excluding others from using it.

The presumption of validity that a principal register trademark is essential to creating crimps the public domain, until a court or the PTO cause the registration to be declared invalid.

Private entities don't have the same incentive to protect the public domain that the PTO does (as it has a client other than the applicants).

There are already more lightly policed options for those who want to make claims but worry that they might be rejected by the PTO on the merits, like the supplemental register, and state level trademark filings. Indeed, since the Lanham Act does not pre-empt state statutory and common law trademark claims (unlike federal copyright and patent laws) it isn't even really accurate to speak of the PTO as if it has a monopoly of trademark protection. It offers a premium product, at a premium price in time, money and scrutiny.

Interestingly, in the area of signature verification, the equation is reversed in the U.S. Notarizations to verify signatures are government controlled, cheap and widely available but not very reliable when big money is at stake because enforcing liability for big dollar amounts against a bad notary is difficult (many notaries are not very affluent clerical workers). Private signature guarantees, which serve essentially the same purpose and are available from a carefully controlled network of banks and insurance companies, are often used insteead of notarizations when big money is at stake, because the parties making the verifications have the financial ability to make good on their mistakes.

The original post proposal quite resembles the way notaries work in civil law countries, with a small fixed number of notary franchises allowed in each jurisdiction, and high levels of quality control necessary to be eligible to own one (with law degree class education and something comparable to a bar exam required). There, this partial monopoly right is bought and sold to eligible buyers a bit like a stock exchange seat is on the NYSE. The notaries serve not only as the equivalent of a U.S. notary and third party transactional lawyer, but also as a de facto clerk of court/secretary of state recording office for "public documents." But, civil law notaries are mostly devoted to doing their duty in the context of entirely private transactions, unlike the PTO which is first charged with balancing private interests against the public domain.
6.8.2009 9:42pm
ohwilleke:
1) Large fines and potential loss of license for deficient registrars after random PTO audits of registrations or after a significant portion of registrations are publicly opposed or struck down by courts.


Guess who the biggest lobbies in favor of low audit funding and lax audit standards will be?

A registered trademark is harder to strike down after the fact than in the initial process. Even the perception that one of many private registrars is lax imposes monitoring costs on those who are worried about bad trademarks being registered.

2) Liability insurance provided by registrars, through which registrars would pay a certain sum of money or percentage of damages to mark owners who faced lawsuits as a result of low-quality registration.


If the market wanted insurance, it would buy insurance now. Indeed, trademark service firm negligence liability and attorney malpractice liability for the applicant's attorney serve this function to some extent already. People who want to be really sure that their trademark is good pay extra for opinion letters from solvent IP specialists at law firms to go with their principal register registrations.

Also, I strongly suspect that any political coalition that would privatize the PTO would also permit registrars to require that applicants arbitrate disputes the way that securities dealers do, and would be inclined favorable to contractual or statutory limitations on liability for registrars of some type. This would make remedies like class action suits unavailable, despite the fact that the only way to show systemic sloppiness may be to do so statistically, rather than in a parrticular case. It would also cast doubt on the fairness of the remedy and might make tactics of disgruntled applicants to sully a bad registrar's reputation less effective.

Finally, even if the market can support multiple registrars, I doubt that it could support very many trademark liability insurance companies or reinsurers. The underwriting standards those insurers provide might very well undermine the benefits that privatizing trademark registration on a competitive market basis might otherwise provide.

3) An e-Bay style feedback mechanism through which trademark applicants could leave publicly accessible ratings of registrars after registration and every number of years thereafter.


Why resort to e-Bay, when blogs, discussion forums, e-mails to superiors in the government bureacracy, and communications to members of Congress can have a very similar or better effect?

Also, the failure of credit reporting agencies to accurately report the real risk involved in mortgage backed securities as the financial crisis loomed illustrates the perils of relying on the market to serve those who are directly paying the bill to a company, notwithstanding the fact that those agencies sell nothing but their reputation and the fact that their certification is neccessary for bond issuers to receive faster track SEC registration treatment.

4) The use of contract and fraud laws as a mechanism to deter residual bad behavior on the part of registrars.


Those we expect to be aggrieved will rarely be in privity with registrars. Misconduct by PTO employees can already result in loss of jobs and criminal sanctions.
6.8.2009 10:04pm

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