Opinion: Larry Downes on What the Apple v. Apple Decision Means

A British court recently decided a case that pitted Apple Computer against Apple Corps, the latter being the record company created by the Beatles and owned today by the band’s former members. (The complete and only occasionally incomprehensible decision is available here) Apple Corps argued that Apple Computer’s entry into the music business with its iPod and iTunes violates the terms of a trademark agreement the two companies signed in 1991.

In his May 8 opinion, the judge disagreed, finding that Apple Computer’s entry into the music business does not breach the terms of the agreement—or at least not yet.

The case raises interesting questions at the intersection of trademark law and technological innovation. As we’ll see, however, it has even more to say about the dangers of turning over decisions about business strategy to lawyers, especially in industries where technology is rapidly changing the rules.

But first, some background. What is a trademark? Most legal definitions describe it as a word, term, name or symbol that uniquely identifies the source of a product or service. Marks have ancient origins, going back to cave paintings identifying the owner of particular bison. Throughout commercial history, such marks have been used to designate the artist, craftsman or guild that made or endorsed particular goods. Today, a mark can be as simple as the Nike “swoosh” or as complex as the layout of a fast-food restaurant. The modern practice of brand development and management simply updates for the global, consumer economy the ancient practice of marking.

When companies use marks consistently, consumers associate the quality of goods and services with the mark of its provider, thus reducing consumer search costs for future purchases. I expect that the experience I might have at a McDonald’s restaurant anywhere in the world—price, speed, quality, taste and decor—will be roughly the same, and to the extent that is true, the brand and its marks become valuable indicators. This is one reason why companies with strong brands are so obsessed with ensuring consistent experiences, and it explains why they work so hard to make sure consumers are not given false signals by other companies using marks that are the same or similar. If my experience at a McDonald’s, or at a McDonald’s knockoff, varies from the norm, the brand loses value and the mark loses meaning.

Trademark law protects marks because doing so benefits consumers, not because the marks are a kind of “property.” Trademarks, unlike copyrights and patents, never expire, and need not be registered to be enforceable. They can, however, fade away: If consumers no longer associate a mark with a particular source, the mark loses its meaning and its legal protection. In Canada, for example, “Aspirin” is still the brand name of a product sold by the Bayer Group, but in the U.S., where the aspirin mark became synonymous in consumers’ minds with all forms of acetylsalicylic acid, the term can be used by anyone. This is yet another reason why companies are so keen to maintain a strong association between their marks and their products and services. If the association ends, the mark loses legal protection.

The holder of a mark can sue to stop misleading uses of their own or similar marks, but only because the law recognizes the holder as having the best incentive to protect consumers. That is why, in order to prove trademark infringement, the plaintiff must demonstrate that the defendant’s mark creates a “likelihood of confusion” in the minds of relevant consumers, leading to consumers mistaking the defendant’s product or service with the plaintiff’s. In other words, no matter how close two marks are in appearance (or how far apart), the only relevant test for courts is whether consumer search costs are materially increased by the defendant’s activities. If not, with certain exceptions, there is no infringement.

If Apple v. Apple rested on this bedrock principle of trademark law, there would be no case at all. Apple Computer’s mark is the well-known profile of an apple with a bite taken out of it; Apple Corps’ mark is the equally well-known green apple. It’s hard to imagine that a survey of any relevant group of music or technology consumers would find anyone having trouble distinguishing between the two. For purposes of the present dispute, Apple Corps would have to prove that consumers seeing the Apple Computer logo on the iTunes Web site were likely to be confused into thinking that Apple Corps was somehow involved in the enterprise.

But as it turns out, the case has little to do with trademark law. After earlier litigation, and protracted negotiations, the two companies decided in 1991 to leave unresolved whether or not there was any likelihood of confusion. Instead, they chose simply to carve up their respective markets and keep them separated. In particular, they agreed that Apple Computer’s exclusive fields of use included “computer software of any kind on any medium,” while Apple Corps’ exclusive fields of use included “music and/or musical performances; regardless of the means by which those works are recorded, or communicated, whether tangible or intangible.”


Next page: Musical Conversions

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