NYC Bag Ban and the Shifting Rationale for Trademark Law

By contributor Jeremiah Newhall

The recent BlawgConomics post on NYC’s proposed bag ban prompted me to wonder: what, or whose, interest is the ban protecting?  Trademark law should prevent unfair competition and consumer confusion, but this law punishes consumers, not competitors.  What’s going on here?

The ban is aimed at the putative world capital of designer knock-offs, the Canal Street area.  The previous post focused upon the efficiency (or, as Josh concluded, lack thereof) of enacting and enforcing such a measure, but I’m drawn to other questions.  The proposal represents a seismic shift in the way we think about trademark law.

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As a preliminary matter, I’d like to dispense with two basic points: first, the bags in question are protected by trademark, not copyright.  For reasons best explained elsewhere, designer bags are not, in most cases, copyrightable.  As a result, designers from Donna Karan to Calvin Klein have relied instead upon trademark protection to prevent others from creating copy-cat designs.

Second, NYC has the power to enact such a law.  The general police power of the states is plenary, and extends to the limits of the Constitution.  So long as the state provides at least a rational basis for its laws, it may punish citizens for owning knock-off bags, or dynamite, or even celery.  Nor is NYC’s bag ban preempted by any federal legislation.  Congress could preempt such a ban, by regulating ownership of false trademarks under its commerce clause power, but it has chosen not to do so.

Moving past those preliminary points, whether or not NYC should enact its bag ban raises fascinating questions about why we have trademark law at all.  From a legal perspective, trademark law has traditionally been a consumer-protection measure. But from an economic perspective, trademark law creates an asset on the value sheet. With these notions in mind, it is possible to view the NYC bag ban as an overdue legal response to the economic reality of trademark ownership.

The rationale of trademark law is summed up most succinctly in the title of the introductory course in trademarks at my alma mater (GWU): Trademark Law and Unfair Competition.  Trademark ownership is protected because it identifies the source of goods; consumers can reliably determine that one shirt from Armani will be of roughly the same quality as the last.  If the quality is high, the consumer can buy another; if the consumer judges the quality deficient, then the trademark tells them which designer to avoid.

When sellers of any goods begin copying one another’s trademarks, they can cause consumer confusion.  Marks that are too similar create, in the parlance of trademark law, a “substantial likelihood of consumer confusion.”  In other words, the legal threshold is crossed if there is a threat that someone might buy a knockoff when they instead meant to purchase the original.  By way of example, the greeting-card trademark “Hallmark” (not coincidentally synonymous with the term “trademark” itself) might be confused with a mark such as “Hullmark.” Therefore Hallmark has the right to prevent such a competitor from using that mark for greeting cards (or tear-jerking cable-TV productions).  All competitors must compete fairly, by trading on the value and prestige of their own names, and not someone else’s.

The bag ban is different because there is no consumer confusion.  Instead, the ban punishes consumers for intentionally purchasing goods with similar marks.  This is a stark departure.  Hitherto, governments punished unfair competition by penalizing the competitors; NYC’s law would be the first to punish the consumers.  If the rationale were adopted broadly, GWU might retitle its course Trademark Law and Unfair Consumption.

Why is if unfair for consumers to buy knockoff goods?  Because of the social value associated with a trademark.  The consumer wishes to benefit not from consumer confusion, but social confusion, as her friends mistake her DKMY bag for a DKNY bag.  This ancillary value to trademarks, the social prestige they bestow upon the consumer, is unanticipated by the traditional focus of trademark law; the identification of the source of goods.

To date, the social value of designer goods has relied upon snide gossip from fashion snobs for protection, but perhaps the recession has made even this ever-vigilant source of protection insufficient.  The NYC bag ban would be the first trademark law in the United States to protect (really, to create) the right of a designer to be compensated for bestowing social value on the consumer.  If adopted, a whole host of goods might begin to clamor for protection, raising some interesting questions.

For example, what about consumers who begin their shopping day with a small purchase from Coach, which the clerk then places in a shopping bag bearing the Coach logo.  Should consumers be banned from placing their wares from Big Lots or JCPenney inside the Coach bag, thus trading (deceptively) on Coach’s social value?  Should shoppers be required to disclose if we buy designer clothes on sale, or own a used car?  In answer, and in case my opinion of NYC’s proposed bag ban is unclear, may I suggest a scarlet “P” to identify consumers who are poorer than they appear.

Jeremiah Newhall is a graduate of The George Washington University Law School and will serve as a law clerk in Chicago.  He can be reached via the miracle of email.