Mises Wire

Trademark and Fraud

Trademark and Fraud

An edited excerpt from my comment in an email discussion:

It seems to me that the primary justification for trademark rights is based on the notion of fraud--that the “infringer” is defrauding his customers by misrepresenting his identity and the source of the goods being sold (see pp. 43-44 of my Against Intellectual Property, pp. 59-63 of Reply to Van Dun: Non-Aggression and Title Transfer, p. 34 of A Theory of Contracts: Binding Promises, Title Transfer, and Inalienability). This would give a cause of action to customers, however, not to the holder of the mark, who is not defrauded.Now just as some a “class representative” is given the right to sue on behalf of the whole class in a class action lawsuit for efficiency/incentive reasons, the more law-and-economics minded types might say that the right to sue for such consumer fraud ought to be transferred from the diffuse group of defrauded customers, to the trademark holder himself. That is, the trademark user can sue infringers, but his right to do this is based on the right of customers’ fraud cause of action.

There are problems, to my mind, with transferring the customers’ rights to the trademark holder, but even if you were to do this, the trademark holder should not be able to sue an infringer unless there is clear fraud of the customer. For example, Rolex could not sue Rolex knock-off companies, because people who buy fake Rolexes for $10 are not being defrauded. They know they are buying a cheap knock-off. But trademark law--both statutory and common law--does give trademark holders the right to sue infringers, regardless of whether there is really fraud to the consumer.

This is my main problem with current trademark law--that in transferring the customer-fraud-based right to trademark holders, the fraud basis is lost over time, as the trademark right is conceived of as a right of the trademark holder. Then it gets broadened and extended, as all IP law does, just like money is continually debased and rights are continually diluted--for example, now trademark law has the horrendous “anti-dilution” cause of action, which does not even require “consumer confusion,” which at least standard trademark infringement claims do.


From earlier comments in the same email thread:

Identity theft is usually a form of fraud. But the concept of fraud, like that of IP (as well as “labor” and “creation” etc.) is bandied about imprecisely. To my mind, “fraud” is a type of crime not if it’s merely “being dishonest,” but if it’s one way to gain unconsented-to use of another’s property. Just as sex with a child is effectively rape, because the child has no capacity to consent--no effective consent is given--so the transfer of possession and title to a good based on false representations made by the recipient is one where no effective consent is given. In other words, it’s a way of stealing property; it’s “theft by trick.” If you give me your pig, for my bucket of (good) apples, but my apples are all rotten or fake, then title to the pig does not pass to me, and I know it. My right to have and use your pig is conditioned on my not tricking you about the quality of the apples made in payment. So if you give me bad payment, you know you have my pig without my effective consent. And what is theft or trespass but the use of others’ property without consent?

But what is important to realize here, and in the case of fraud, is that it is the party actually being defrauded who is the victim. If you try to base trademark, or reputation rights, on fraud, it fails. In the case of trademark, the company using the mark is held to be infringed. If it were really based on a fraud claim, then the buyers of fake Louis Vuitton purses are not defrauded (they know they are buying a fake $10 purse), so there would be no trademark infringement; yet there is.

To address some of Professor Reisman’s particular points:

“Is identity theft, about which so many people are concerned, some form of mirage or is it a real phenomenon”

Identity theft describes a real phenomenon, one in which fraud is almost always involved. For example, I lie to a bank and persuade them I am Reisman, and they hand over Reisman’s gold to me. I am in possession of gold I do not own and have no right to control. I have defrauded, and stolen from, at least Reisman or the bank. I see no reason to invent “IP” to describe this.

“If it is a real phenomenon and identities are actually being stolen—as many thousands of victims of identity theft are prepared to swear, and as the banks and credit card companies of these victims also swear—then does it not follow that identities are a form of property? For nothing can be stolen that is not first owned by someone.”

I do not think it implies identity is a form of property. It only implies that you only have a right to use others’ property if they consent to it.

“If identities are a form of property, are they not intellectual property, since they consist entirely of words and symbols, not the physical persons of the people to whom the identities refer?”

I think it is not “intellectual property,” since the property at issue is always real property. The question is who is controlling it. If someone uses it or takes or controls it without the consent of its owner, it’s a form of theft or trespass.

“If individuals do have a property right in their own identities, do they not also have a property right in the words and symbols that uniquely identify their products and services? And, by extension, do not voluntary associations of individuals, such as business partnerships and private corporations have a property right in the words and symbols that uniquely identify them and their products and services? Thus, for example, does not General Motors have a property right in its name and logo and in the names and logos of its various individual products and services? In other words, are not brand names and trademarks legitimate forms of intellectual property?”

If I claim to sell a Mont Blanc pen, but it’s a knockoff, then the buyer is defrauded, unless he knows what is is buying is a fake. The company “Mont Blanc” is not defrauded in either case, as far as I can see.

“Are trademarks and brand names not essential for the operation of free competition, in which better producers benefit from their record of past good work and poorer producers suffer from their record of past poor work?”

It is perhaps essential that people be able to identify themselves, and communicate, but this does not mean there are property rights in identifications or ways of communication (languages or words). I see no reason to believe that absent IP there would be no records or reputations, or no ways to prevent or penalize fraud.

And let’s face it: who publishes public domain works now, under false names? Who claims to be the new author of the Nichomachean Ethics? Any serious businessman wants to establish his own name, not pirate others’.

“I want to say that I recognize that we live in an age of intellectual disintegration, in which philosophers, lawyers, and judges have proved themselves capable of corrupting practically any concept. As a result, it should not be surprising that there are corruptions of the concept of intellectual property and its application. One that comes readily to mind is Ralph Lauren’s ability, according to John Stossel, to appropriate the word “Polo,” to the point that even organizations of actual polo players cannot use the word without being held guilty of violating an alleged intellectual property right of Lauren’s. The truth, of course, if Stossel is right, is that Lauren’s appropriation of the word “Polo” is a violation of their intellectual property rights.”

In my view, this is the inevitable and predictable result of entrusting the state with the production and adminstration of law.

“I’ve deliberately avoided any discussion of patents and copyrights here because my purpose has been simply to establish the legitimacy of the concept of intellectual property as such.”

As far as I can see, there is no legitimacy to this concept. To the extent it’s legitimate, it’s just the application of principles of fraud and property. To the extent it goes beyond these things (e.g., giving the right to sue to the trademark user instead of to the customer) it’s not legitimate.

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