Trademark "Coexistence" Agreements: Legitimate Contracts or Tools of Consumer Deception?

Coexistence agreements allow potentially confusing trademarks to coexist in the market without trademark infringement lawsuits. Although competitors frequently use coexistence agreements to avoid or settle lawsuits, there is no significant scholarship discussing the legal validity of such agreements in terms of antitrust and trademark law. This paper discusses the validity of coexistence agreements between manufacturers of similar products. The discussion begins with historical reasons for trademark protection and goes on to explore whether trademarks are the property of their "owners." The validity of coexistence agreements hinges on this concept. If trademarks are property of their "owners," then coexistence agreements are valid despite the possible harm to the public interest. If, on the other hand, trademarks are not their "owners"' true property, then, in evaluating the validity of coexistence agreements, courts should consider the agreements' usefulness or possible harm to the public. Another relevant aspect of trademark law is the law and economics of trademark protection. The main effect of trademark protection in terms of economics is the reduction of consumer search costs. If manufacturers keep the quality of their product constant, then consumers will use a trademark as a proxy for the product's quality. This gives manufacturers an incentive to invest in and maintain their products' quality. Next, the paper explores views of various international * Law clerk to the Honorable Charles Clevert, U.S. District Judge, Eastern District of Wisconsin; J.D. (magna cum laude), Fordham Law School, 2005. The author wishes to thank Professor Irene Calboli and the members of the Trademarks seminar at Marquette University Law School for their helpful suggestions and feedback. Loyola Consumer Law Review tribunals on the validity of coexistence agreements. Courts' interpretations vary from validating an agreement based solely on its terms without considering public interest to invalidating an otherwise legitimate agreement because it violates public policy. The proposed explanation for this difference is that courts consider the type of products subject to a coexistence agreement. If fashion items are involved, the courts will not consider public interest even if the trademarks are confusingly similar. If, on the other hand, the product in question is medication, courts will invalidate a coexistence agreement between manufacturers who own confusingly similar marks to protect public health. The next section of the paper discusses antitrust implications of coexistence agreements. Generally, coexistence agreements do not violate antitrust laws, but they nevertheless may affect competition between manufacturers of similar products. Two possible aspects of competition affected by coexistence agreements are the price and quality of products. However, the effect of a coexistence agreement on quality and price is unpredictable. Depending on the behavior of a manufacturer, a coexistence agreement may increase or lower the price of a product; the same goes for the product's quality. Finally, the paper concludes that, in evaluating the validity of coexistence agreements, courts should consider public interest based on a sliding scale. The more vital the public interest implicated by the agreement (such as public health), the more strictly should the court scrutinize it. The standard for invalidating an agreement in case of a vital public interest is the likelihood of confusion. If the trademarks involved in the agreement are likely to be confusing to the public, the agreement should be invalidated. Conversely, if the trademarks involved are not likely to cause public confusion, then the court should allow the agreement to stand.