Bounded by Brands: An Information Network Approach to Trademarks

Abstract

Trademarks are indeed about information, but trademark doctrine misunderstands trademarks’ information function. Trademark doctrine takes a broadcast view in a networked world. Rather than a world where a single source transmits messages to a passive public, we live in a world where many actors use trademarks to transmit data about a mark. Decisions are made based on data received, but trademark law’s broadcast model has a naïve view of whether the data leads to good or bad decisions. This Paper explores what happens if trademarks are taken to be part of an information network. I show that by ignoring the information network nature of trademarks, current trademark doctrine favors herding and cascade problems, ensconces incumbents, and thwarts competition.

One way to describe this situation is as one of bounded information and rationality. Although these concepts lie at the heart of the network theory and behavioral economics literature that explains herds, and at the heart of the law and economics approach to trademark law, the law and economics approach reaches conclusions about the implications if bounded information and rationality far different than the other disciplines. I argue that the law and economics conclusions are incorrect. They foster further bounded information and rationality problems that protect incumbent brand holders rather than enhancing consumer welfare. Furthermore, I argue that insights from information network and behavioral economics theory explain and enhance our understanding of how to correct these outcomes. In short, these theories better answer why recent calls favoring less trademark protection and increasing information available to consumers are correct.

Keywords: trademarks, brands, bounded rationality, networks, information, search costs, cascades, herds, advertising, online advertising, competition, information theory

JEL Classification: D82, D83, L10, L14, L15, L20, L21,M3, M30, M31, M37, O33, O34, O38