Why Trademark Tarnishment Laws Are Dubious

We recently wrote about Disney’s attempt to trademark “Seal Team Six”–the name of the Navy SEAL unit that killed Osama bin Laden. Disney’s bid to make a buck off the SEALs didn’t go down very well – the public response was overwhelmingly negative. It also caught the attention of the Navy, which made clear that it had a better claim over the name. Last Thursday, Disney gave up.
But just as one bizarre trademark dispute recedes, another one springs up.
Last Wednesday, the New York Stock Exchange threatened to sue the widely read liberal blog Talking Points Memo over TPM’s use of a file photograph of the NYSE trading floor. (Copy of letter here).
TPM ran a story detailing an insider trading investigation against a number of hedge funds in New York. The story contained no accusations against the NYSE; TPM ran the file photo of the trading floor as a way of signaling that this was a business story.
The NYSE claims to have the trademark rights for images of its trading floor, and you have to get permission to use an image. At first blush, that might seem odd. We usually think of trademarks as symbols or words or names that identify products as coming from a particular producer. But trademark is broader than that. It can encompass any kind of symbol that communicates information to consumers about the source of a product or service. And the NYSE claims that the appearance of its trading floor signals “New York Stock Exchange” to consumers.
That’s pretty dubious. It works only if consumers actually associate the floor’s appearance with the NYSE. Although we haven’t seen data either way, we suspect that when a lot people look at a picture of the NYSE, they may think “air traffic control center” or “Best Buy showroom.” Or possibly “stock exchange” – which isn’t enough for a trademark, because there are many stock exchanges in the world.

(Hemera)

Moreover, trademark law is aimed mostly at preventing consumer confusion about the source of products or services. So TPM would be liable if it caused consumers to mistakenly believe that the source of the TPM news article was actually the NYSE. Again, very doubtful.
But the NYSE’s central, and much more interesting, claim is that TPM’s use of the NYSE picture “dilutes” the value of its mark through “tarnishment”. What does this mean? Essentially that TPM is associating the NYSE with bad things – in this case, allegations of insider trading. Tarnishment claims are controversial. The First Amendment gives the press wide latitude to criticize – explicitly or implicitly – important institutions like the NYSE. And the idea that TPM’s use of the NYSE trading floor picture in an unrelated story about insider trading is likely to hurt NYSE’s business in any way is, to put it as gently as possible, far-fetched.
In a phone call with us yesterday, TPM honcho Josh Marshall made clear that TPM won’t give in to the NYSE’s demands. Often, however, frivolous trademark threats succeed, because the recipient of a legal nastygram simply folds without a fight.
Take the example of the Hollywood, California Chamber of Commerce, which claims to own a trademark in the famous “Hollywood” sign. When the UCLA Law School (where one of us teaches) tried to use a photo of the sign in a recruitment brochure to illustrate its connection to the world’s entertainment capital, it was threatened with a suit. There was no risk of confusion, or tarnishment – the Chamber just wanted to get paid. And the law school, rather than fight a frivolous claim, gave in. It used a stock photo of a film reel instead.
Why have any rule at all against “tarnishing” a trademark? If you think about it for a moment, a trademark tarnishment claim is really just a species of defamation. Defamation law protects personal reputations. Likewise, trademarks are repositories of corporate reputation – or, in economics argot, of a business’s investment in creating “goodwill”. So far, so good—reputations are costly, and it makes sense to have a legal rule to protect them, so as to encourage investment in good reputations.
There is still a puzzle here, however. In the U.S., plaintiffs who believe they’ve been defamed have the odds stacked heavily against them – the Supreme Court has held that the First Amendment strongly protects speech, even when it is harmful to personal reputation. If the background rule is that investment in reputation is subordinated to free speech, then trademark tarnishment claims, which involve speech harmful to corporate reputations, should, if anything, succeed less often – at least if we still believe that people are more deserving of our solicitude than corporations. But that doesn’t seem to be the case. We’ll leave off with that question hanging.