New York University School of Law; Co-Director, Engelberg Center on Innovation Law & Policy
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NEW YORK UNIVERSITY SCHOOL OF LAW PUBLIC LAW & LEGAL THEORY RESEARCH PAPER SERIES WORKING PAPER NO. 17-05 LAW & ECONOMICS RESEARCH PAPER SERIES WORKING PAPER NO. 17-06 The Unregulated Certification Mark(et) Jeanne C. Fromer March 2017 Electronic copy available at: https://ssrn.com/abstract=2910564 Stanford Law Review Volume 69 January 2017 ARTICLE The Unregulated Certification Mark(et)† Jeanne C. Fromer* Abstract. Certification mark law—a branch of trademark law—itself enables consequences that undermine the law’s own goals through inadequate regulation or oversight. Because the law allows certification standards to be kept vague, high-level, and underdeveloped, a certifier can choose to exclude certain businesses inconsistently or arbitrarily, even when those businesses’ goods or services would seem to qualify for the certification mark (particularly to consumers). Moreover, even when a certification standard is clear and complete, certifiers can wield their marks anticompetitively. They can do so through redefinition—something certification mark law currently allows without oversight—to ensure that certain businesses’ goods or services will not qualify for the mark. Both of these forms of certification mark manipulation undermine the goals of certification marks: to protect consumers by providing them with succinct information on goods’ or services’ characteristics and to promote competition by ensuring that any businesses’ goods or services sharing certain characteristics salient to consumers qualify for a mark certifying those characteristics. The law should be restructured to curb this conduct. I advocate for robust procedural regulation of certification standardmaking and decisionmaking that would detect and punish poor certification behavior. Moreover, for anticompetitive behavior that nonetheless slips through the regulatory cracks, I suggest that attentive antitrust scrutiny be arrayed to catch it. † See Ian Ayres & Jennifer Gerarda Brown, Mark(et)ing Nondiscrimination: Privatizing ENDA with a Certification Mark, 104 MICH. L. REV. 1639 (2006); Mark A. Lemley & Mark P. McKenna, Owning Mark(et)s, 109 MICH. L. REV. 137 (2010). * Professor of Law, New York University School of Law; Co-Director, Engelberg Center on Innovation Law & Policy. For their gold-standard comments, I am grateful to David Abrams, Amy Adler, Arnaud Ajdler, Barton Beebe, Christopher Buccafusco, Emiliano Catan, Harlan Cohen, Julie Cohen, Adam Cox, Jorge Contreras, Graeme Dinwoodie, Rochelle Dreyfuss, Harry First, Eleanor Fox, Dev Gangjee, Kristelia Garcia, Jim Gibson, Eric Goldman, Michael Avi Helfand, Scott Hemphill, Laura Heymann, Jake Linford, Mark McKenna, Alexandra Mogyoros, Paul Ohm, Lucas Peeperkorn, Lisa Ramsey, Edward Rock, Albert Rosenblatt, Daniel Rubinfeld, Zahr Said, Jason Schultz, Victoria Schwartz, Jeremy Sheff, Christopher Sprigman, Katherine Strandburg, Neel Sukhatme, Rebecca Tushnet, Philip Weiser, and Katrina Wyman, as well as participants at workshops at Georgetown University, New York University, Oxford University, and University of Colorado law schools and at the fourteenth annual Intellectual Property Scholars Conference. I thank Emily Ellis, Andrew Hunter, Jordan Joachim, James Salem, and Russell Silver-Fagan for excellent research assistance. I also gratefully acknowledge support from the Filomen D’Agostino and Max E. Greenberg Research Fund. 121 Electronic copy available at: https://ssrn.com/abstract=2910564 The Unregulated Certification Mark(et) 69 STAN. L. REV. 121 (2017) Table of Contents Introduction ............................................................................................................................................................ 123 I. The Certification Mark as a Species of Trademark ............................................................... 125 A. The Similarities ................................................................................................................................ 127 B. Statutory Differences .................................................................................................................... 128 C. Consumer Perceptions of Certification Standards ....................................................... 131 II. Exclusive Certification or Certification Exclusion? ............................................................. 134 A. The Kosher Certification of Jezebel ..................................................................................... 135 B. Movie Rating for Henry: Portrait of a Serial Killer ......................................................... 140 C. Geographical Indication for Swiss Watches .................................................................... 146 III. Counterproductive Certification Marks ..................................................................................... 152 A. Certifier Incentives ........................................................................................................................ 153 B. Counterproductive Worries .................................................................................................... 158 1. Flexible standards ................................................................................................................. 158 2. Certifier and downstream market power ............................................................... 167 IV. Fixing Certification Marks .................................................................................................................. 173 A. Substantive Regulation ................................................................................................................ 174 B. Procedural Regulation.................................................................................................................. 180 1. Regulation of certification standardmaking ......................................................... 182 a. Disclosure of the certification test .................................................................... 182 b. Review of standard clarity and comprehensiveness .............................. 186 c. Notice-and-comment standardmaking and revisions ........................... 187 2. Regulation of certification decisionmaking .......................................................... 189 a. Disclosure of certification decisions and reasoning ................................ 190 b. Procedural protections for businesses in decisionmaking .................. 192 c. Certification audits .................................................................................................... 194 C. Antitrust Scrutiny .......................................................................................................................... 196 Conclusion ............................................................................................................................................................... 198 122 Electronic copy available at: https://ssrn.com/abstract=2910564 The Unregulated Certification Mark(et) 69 STAN. L. REV. 121 (2017) Introduction What do a trendy kosher restaurant in SoHo, an independent movie about a serial killer, and a Swiss watchmaker have in common? Each has been excluded by a certifier from employing its legally protected certification mark in ways that seem to run counter to the certification mark’s purposes of consumer protection and promotion of competition. Each of these businesses has either been disqualified by a certifier from getting a certification mark or been manipulated by a certifier into securing a certification mark: a kosher food certification withheld from the restaurant until it changed its name; an R movie rating withheld from the independent movie, whose producer claimed the rating was being given to far gorier—yet non-independent—movies; and a withheld geographical certification of SWISS MADE for the watchmaker located in Switzerland and much of whose watches’ value—but not all— originates in Switzerland. The inability of each of these businesses to be certified as is—without any clear certification standard or procedural regularity—can have adverse, and sometimes catastrophic, consequences for the businesses, their consumers, and competition writ large. This is no fringe issue. Not only are major certifiers, like those here, making many millions of dollars annually in certification fees,1 but revenues for the goods and services they certify can turn, often significantly, on these certifications.2 This Article explores more generally how certification mark law—a branch of trademark law—itself enables counterproductive consequences through inadequate regulation or oversight. Because the law allows certification standards to be vague, high-level, and underdeveloped, a certifier can choose to exclude certain businesses inconsistently or arbitrarily, even when these businesses’ goods or services would seem to qualify for the certification mark (particularly to consumers). Moreover, certifiers can wield their marks anticompetitively, even when a certification standard is clear and complete. They can do so through redefinition—something certification mark law currently allows without oversight—to ensure that certain businesses’ goods or services will not qualify for the mark. Both of these forms of 1. See, e.g., Ernesto, MPAA Revenue Up 50% as “War on Piracy” Cranks Up, TORRENTFREAK (Nov. 25, 2013), https://torrentfreak.com/mpaa-revenue-up-as-war-on-piracy-cranks -up-131125 (listing over $5 million in revenue from the Motion Picture Association