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Microbreweries Craft New Flavors of IP Regulation

Tags Legal SystemU.S. EconomyEntrepreneurshipInterventionismMonopoly and Competition

There’s an interesting story in the news about my hometown of Fort Collins, and how its growing craft beer scene is threatened by intellectual property disputes.

The microbrew industry is booming across the US, and the proliferation of so many small competitors means brewers often independently develop similar ideas. In particular, “naming overlaps are increasing as more and more brewers tap into a limited language set for their beer and brewery names.” This has led to a sharp increase in the amount of IP litigation between craft breweries, especially over trademarks, which are relatively cheap and easy to register.

For example, the article linked above discusses the case of the Lombardi brothers, who were recently sent a cease and desist letter claiming that the name of their brewery, Zwei Brüder, infringes on the trademark of a Chicago-based firm. ““We could have taken them to court,” said Kirk Lombardi. “But really we would have had to invest a lot of money in a legal fight that could have been used in more positive places.””

Given the costs involved, it’s easy to see how large, established competitors use the threat of litigation against their smaller rivals. Even without a court battle, the expense of a name change can be crippling to a small business with few resources. In fact, the Lombardi brothers expect to spend “$5,000 to $10,000 in changing the company’s name instead, including all signage, glassware, Web content and promotional materials”—and those costs are on the cheap side.

But there’s more to IP litigation than the problem of big firms smothering little ones. One point I like to stress with my students is that these laws aren’t just used by industry giants like Apple, but by many smaller competitors as well. This is because, in general, regulation encourages firms of all sizes to look to government for a competitive edge. That’s exactly what’s happening in the craft beer industry, where brewers seem to be turning increasingly to non-market forms of competition.

Of course, the breweries doing the litigating defend their actions on the ground that beers or breweries with similar names would be too confusing for consumers. Oh the horror. The danger of mistakenly ordering the wrong beer apparently justifies using government to extract rents from producers while forcing them to discontinue offering valuable products to consumers.

The litigious turn of the microbrew industry is unfortunate, especially given that so many of these small companies are built on the claim that they refuse to imitate the policies of the enormous corporate breweries. It’s sad (or maybe, telling) that an industry that prides itself on promoting eco-friendly production, sustainable growth, and ethical business practices apparently turns so easily to the use of force to capture brand recognition and profits.

Author:

Matthew McCaffrey

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

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