The Merchandising Right: Fragile Theory or Fait Accompli?
Authors: Lemley Mark 
Published: July 2018

Trademark merchandising is big business. One marketing consultant estimatedthe global market for licensing and marketing sports-related merchandise at$17 billion in 2001. With this much money at stake, it's no surprise thattrademark holders demand royalties for use of their marks on shirts, keychains, jewelry, and related consumer products. After all, the value ofthese products comes largely from the allure of the trademarks, and itseems only fair to reward the party that created that value . . . doesn'tit?It turns out that the answer is more complicated than this intuitiveaccount would predict. Trademark law historically has existed primarily toprotect against the consumer deception that occurs when one party attemptsto pass off its products as those of another. From an economic and policyperspective, it is by no means obvious that trademark holders should haveexclusive rights over the sale of products that use marks for theirornamental or intrinsic value, rather than as indicators of source orofficial sponsorship. Trademark law seeks to promote, rather than hinder,truthful competition in markets for products sought by consumers; if atrademark is the product, then giving one party exclusive rights over itruns in tension with the law's pro-competitive goals, frequently withoutany deception-related justification. On the other hand, there may becircumstances in which consumers expect that trademark holders sponsored orproduced products bearing their mark, in which case use of the mark byothers - even as a part of a product - might result in genuine confusion.Given these complexities, together with the economic interests at stake,one might expect that the law and practice of merchandising rights would bewell-settled and reflect a considered balancing of the interests oftrademark holders and their competitors. In reality, however, much of themulti-billion dollar industry of merchandise licensing has grown around ahandful of cases from the 1970s and 1980s that established merchandisingrights with little regard for the competing legal or policy concerns atstake. Those cases are far from settled law - indeed, at least as manydecisions decline to give trademark owners the right to control sales oftheir trademarks as products. We think it is high time to revisit that caselaw and to reconsider the theoretical justifications for a merchandisingright.That review provides little support for trademark owners' assumptions aboutmerchandising. Doctrinally, the most broad-reaching merchandising cases -which presumed infringement based on the public recognition of the mark asa trademark - were simply wrong in their analysis of trademark infringementand have been specifically rejected by subsequent decisions.Philosophically, even a merchandising right that hinges on likelihood ofconfusion raises competition-related concerns that should affect courts'analysis of both the merits and appropriate remedies in merchandisingcases. Perhaps most importantly, recent Supreme Court case law suggeststhat, if it had the opportunity to evaluate the merchandising theory(something it has never done), the Court would deny the existence of such aright. Further, the Court would be right to do so. When a trademark issold, not as a source indicator, but as a desirable feature of a product,competition suffers - and consumers pay - if other sellers are shut out ofthe market for that feature.