Valuing Residual Goodwill After Trademark Forfeiture

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Valuing Residual Goodwill After Trademark Forfeiture

Jake Linford*

Trademarks contribute to an efficient market by helping consumers find products they like from sources they trust. This information-transmission function of trademarks can be upset if the law fails to reflect both how trademark owners communicate through marks and how consumers understand and use them. But many of trademark law’s forfeiture mechanisms (the ways a trademark can lose protection) ignore or discount consumer perception. This failure threatens not only to increase consumer search costs and consumer confusion, but also to distort markets.

For example, trademark protection may be forfeited when the mark owner interrupts or abandons use, even though consumers still see the mark as identifying products from that owner. Or a mark may be forfeited if the mark owner licenses the mark for use without following certain quality control requirements, even if there is no evidence that licensees produce subpar products or disappoint consumers. As a result, a new seller can adopt a forfeited mark to identify its own products, even when many consumers will be confused by that use. If consumers think forfeited marks often identify products from the original mark owner, widespread reuse of forfeited marks can disrupt the ability of trademarks to transmit useful information to consumers.

Trademark forfeiture mechanisms operate like information-forcing penalty default rules, but failure to account for consumer perception renders the information that they force incomplete. Those mechanisms should be readjusted to account for residual consumer goodwill—the likelihood that consumers reasonably associate a forfeited mark with the original owner. This Article proposes a framework for revealing and valuing residual consumer goodwill, and in the process, restores needed balance to trademark’s forfeiture mechanisms as new entrants jockey for market position by appropriating residual goodwill.

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© 2017 Jake Linford. Individuals and nonprofit institutions may reproduce and distribute copies of this Article in any format at or below cost, for educational purposes, so long as each copy identifies the author, provides a citation to the Notre Dame Law Review, and includes this provision in the copyright notice.

*Assistant Professor, Florida State University College of Law. Thanks to Tara Aaron, Fred Abbott, Lisa Bernstein, Amanda Conley, Ted Davis, J. Shahar Dillbary, Christine Haight Farley, Shi-Ling Hsu, Barbara Kaplan, Jay Kesten, Anne Gilson LaLonde, Glynn Lunney, Jonathan Masur, Murat Mungan, David Orozco, Janewa Osei-Tutu, Alexandra Roberts, Joshua Sarnoff, Andres Sawicki, Marty Schwimmer, Franita Tolson, Manuel Utset, Hannah Wiseman, and participants at the 15th Annual Intellectual Property Scholars Conference, the 7th Annual Trademark Scholarship Symposium at the 138th Annual Meeting of the International Trademark Association, the JIPSA Gnocchi Workshop (June 2016) and workshops at American University Washington College of Law and the University of Chicago Law School for helpful feedback. Thanks to Alan LaCerra and Luis Then for able and timely research assistance.