The value of trade marks: economic assets and cultural icons

Dr. Jennifer DavisWolfson CollegeCambridge(jsd27@cam.ac.uk)

In his 1909 book, Tono-Bungay1, H. G. Wells tells the story of the rise and rise of the eponymous brand. Tono-Bungay’s beginnings were modest. Its progenitor, Teddy Ponderevo, operated a small chemist’s shop in Wimblehurst, London. His rise to business success began when he hired three women to manufacture a patent revitalizing medicine in the back room of his shop. The medicine, whose precise make-up was kept a closely guarded trade secret, was advertised as providing the ‘secret of vigour’. 2

The name Ponderevo chose for his medicine was ‘Tono-Bungay’. Like almost all distinctive brands, the name was an entirely invented one. It was described by his nephew, George Ponderevo, as ‘arresting’. He noted, “It aroused one’s attention like the sound of distant guns. ‘Tono’-what’s that? And deep, rich, unhurrying—‘Bun-gay’”.3 Apart from its distinctive name, the medicine was packaged, Wells tells us, in small bottles which carried a label having greenish-blue ‘rather old-fashioned bordering’, the legend, the name, ‘Tono-Bungay’ in good black type, ‘very clear’, and the additional logo of a strong man “all set about with lightning flashes” above a double column in red, setting out the medicine’s uses and ingredients. By 1909, the product with its distinctive label had “become one of the most familiar objects of the chemist’s shop.”4

At the time, there was some criticism as to the real efficacy of the medicine. In his defence, Teddy says: “Everybody who does a large advertised trade is selling something common on the strength of saying it’s uncommon.” He goes on in his inimitable fashion: “I grant our labels are a bit emphatic… . No good setting people against the medicine. Tell me a solitary trader nowadays that hasn’t to be—emphatic. It’s the modern way! Everybody understands it—everybody allows for it.” Teddy also argues that the product carries other social benefits, in particular it creates employment and that it encourages global trade.5 In response to his nephew’s view that

1 H. G. Wells, Tono-Bungay [London: 1909]. 2 H. G. Wells, op. cit., p.84.3 H. G. Wells, op. cit., p.82.4 H. G. Wells, op. cit., p.83.5 H. G. Wells, op. cit., p.83

some businesses were ‘straight and quiet’, supplying sound articles that were really needed and did not shout ‘advertisements’, Teddy responds: “The last of that sort was sold ‘bout five years ago.”6

According to Wells, Pondevero undertook what for the time was innovative marketing, based, in part, on his view that “the quickest way to get wealth is to sell the cheapest thing possible in the dearest bottle.”7 Indeed while the product cost 9 pence to produce it was sold for 2s/6d—at least a two-thirds mark up.8 Part of his marketing strategy was to blanket the hoardings first in London and then more widely in the UK with advertisements, and also to ensure that the press was similarly used. Pondevero personally wrote the advertisements which, in a novel touch for the time, according to Wells, included an attractive phrase in capitals even as it aimed to inform the reader. An example would be: “Many people who are MODERATELY well think they are QUITE well. “Do not NEED DRUGS OR MEDICINE. SIMPLY A PROPER REGIMEN TO GET YOU IN TONE”9

In a short time, Tono-Bungay became a best seller throughout the UK. In Scotland, Pondevero altered the product to include a greater alcohol content and the advertisement to show a kilted Briton in ‘a misty Highland scene’. It was known as the “Tono-Bungay Thistle brand”. In Wales, well known for its non-conformist religion, he developed a more ‘pious’ advertisement.10 As Wells tells it, and in a remarkable portent of contemporary business strategies, Pondevero built on the success of the ‘Tono-Bungay’ name, by launching further products, including ‘Tono-Bungay Hair Stimulant’ and later ‘Tono-Bungay Lozenges’ and ‘Tono Bungay Chocolate’, all with considerable commercial success. His last addition, the ‘Tono-Bungay Mouthwash’ was sold under the ubiquitous slogan, “You are Young Yet, but are you Sure Nothing has Aged your Gums?”11 6H. G. Wells, op. cit., p.88. 7 H. G. Wells, op. cit., p.90.8 H. G. Wells, op. cit., p.89; at least part of this considerable mark-up was attributable to the fact that the product was produced by cheap, female, non-unionised labour in premises provided by Pondevero. 9 H. G. Wells, op. cit., p.95.10 H. G. Wells, op. cit., p.98. This would be appear to be an early example of the use of different brands used in relation to the same product to appeal to different segments of the market. 11 H. G. Wells, op. cit., p.99. The lozenges were advertised thus: “ Barristerish barrister, wig, side whiskers, teeth, a horribly lifelike portrait of all existing barristers talking at a table, beneath the legend, ‘A Four Hours’ Speech on Tono-Bungay lozenges and as fresh as when he began’.” That, according to Wells, brought in schoolteachers, revivalist ministers, politicians, etc.

On the back of this success, Pondevero took the company public. Major investors included, perhaps unsurprisingly, drug wholesalers, printing companies and a media group. The flotation was a success. Once a small time chemist, Pondevero realized the princely sum, at the time, of £150,000.12 Furthermore, in this same period, Wells also has Teddy acquiring exclusive distribution rights for three or four ‘ good American lines’ including ‘Texan Embrocation’13 He later went on to acquire a number of UK companies, producing well-known branded products, including ‘Skinnerton’s polishes’ and ‘Runcorn’s mincer and coffee mills’. Following his acquisition of Moggs soap, Pondevero expanded the brand to include other related products sold under the name ‘Moggs’, including several varieties of cleaner, such as ‘Moggs Paragon’, a knife cleaner.14

In seeking to explain his success, Wells has Pondevero tell us that it occurred during, “a period of expansion and confidence; much money was seeking investment and ‘Industrials’ were the fashion.”15 Perhaps a more prescient explanation for those of us who are interested in the value of trade marks in contemporary society, was offered by Wells, through the words of Ewart, the artist friend of George. Ewart says:

It’s advertisement has—done it. Advertisement has revolutionized trade and industry; it is going to revolutionise the world. The old merchant used to tote about commodities. The new one creates values. Doesn’t need to tote. He takes something that isn’t worth anything—or something that isn’t particularly worth anything, and he makes it worth something. He takes mustard that is just like anybody else’s’ mustard, and goes about saying, shouting, singing, chalking on the wall, writing inside people’s books, putting it everywhere, “Smith’s Mustard is the Best”. And behold, it is the Best!16

For those who have an interest in trade marks and how they might be valued, Well’s Tono Bungay makes interesting reading. It suggests that the fact that a trade mark might have a value far in excess of the tangible assets of its proprietor is not a novel phenomenon of the late twentieth century, although it is often

12 H. G. Wells, op.cit., p. 101. According to his nephew, his raised this money, “for the goodwill in a strong of lies and a trade in a bottle of mitigated water.”13H. G. Wells, op. cit. p. 101. 14 The advertisements for Moggs dwelt on the fact that this was an old established company, for example a special nursery cleaner was advertised as having been used in the household of the Duke of Kent and ‘for the old Queen in infancy’. Or in the words of Teddy’s nephew: “We roped in a good little second-rate black lead firm and carried their origins back into the mists of antiquity.” H. G. Wells, op. cit. p. 138-9. 15 H. G. Wells, op. cit., p. 140.16 H. G. Wells, op. cit., p. 103.

assumed to be so.17 It also teaches another lesson. The subject of this paper, the value of trade marks, may seem appropriate for a gathering of legal scholars interested in intellectual property. However, in the wider context of global commerce, the issue of trade mark valuation18 would appear to provoke scant interest.19 Rather, as was the case with Tono-Bungay at the turn of the twentieth century, it is the value of the brand rather than the value of the trade mark which has come to be seen of central concern not only to those involved in commerce but also to academics in a wide range of disciplines from economics to linguistics, business studies to law.20 And while there is by no means a consensus, amongst those working in these fields, as to how brands might be defined and, indeed, how they might be valued, there does seem to be a widespread conviction that brands are different from and more than trade marks. Ironically, this conviction persists despite the fact that while trade marks may claim legal protection, arguably brands, as such, cannot.

17 In fact, the turn of the twentieth century was a golden age for branding, with the emergence of a number of brands, many of which continue to be extremely valuable, for instance Kodak, Quaker Oats and Coca Cola. The Chairman of Quaker Oats is reported to have said at the time, “If this business were split up, I would give you the land and bricks and mortar, I would take the brands and trade marks, and I would fare better than you.” Quoted in Lindemann, “Brand Valuation”, p. 27. It is also surely no coincidence that Saki published his celebrated short story, “Fiboid Studge, the Story of a Mouse that Helped,” which concerned the successful re-branding of a breakfast cereal in 1911 (Hector Munro (‘Saki”), The Chronicles of Clovis [1911]). This is not to say that brands have always been at the centre of trading since the late 19th century, but rather that the present is not the only period when they have occupied centre ground. 18 References to ‘trade marks’ in this paper will mean references to ‘trade marks’ as legally protectable entities, either through registration or by the common law of passing off.19 In the most authoritative US work on trade mark valuation, G. V. Smith, Trademark Valuation (J. Wiley & Sons, N.Y., 1997), the author states that in his discussion of trade mark valuation, he will ‘assume that a trademark carries with it all the other elements ascribed to a brand—that a trademark carries with it a full complement of all the ingredients necessary to also be recognised as a brand.”, p.44.20 Indeed, even those studies which purportedly concern ‘trade mark’ valuation seem almost inevitably to ignore any distinction which may be made between trade marks, as they are legally defined, and brands. See for example, D. Haigh and T. Heberden, “Doing the number s: the value of brands and trademarks,’ Trade Mark World, no. 156, 1 April 2003, pp. 36-39; C. Davies and K. Adcock, “Trade Mark Licensing and the Role of Brand Valuation”, Brand Valuation (ed. Raymond Perrier) (London: 1997), p. 117-129. See also, D. Bosworth, A. Wharton and C. Greenhalgh, “Intangible Assets and the Market Valuation of UK Companies: Evidence from Fixed Effects Models,” Working paper No. 2: April 2000. The authors who are concerned with using applied econometric research to value intangible assets point out that in the past such exercises have largely been concerned with patents rather than trade marks. For a complete discussion of trade mark licensing see, N. Wilkof and D. Burkitt, Trade Mark Licensing (2nd edit), (Sweet & Maxwell, London: 2004).

The first part of this paper will examine the reasons that brand valuation has come to be widely seen as playing a crucial role in contemporary commerce. It will then look at the various methods which have been proposed for valuing brands. It will note that where the issue of trade mark valuation arises, it is invariably the case that the trade mark, legally defined, is viewed as either a feature of or as equivalent to a brand. In the latter case, the message carried by the trade mark is assumed to be one that goes beyond its role as an indicator of origin, to embody some of the wider meanings that a brand is assumed to carry. The second part of this paper will query the categories upon which these methods of valuation are based. In particular, it will suggest that in the field of brand valuation and more generally in studies of ‘brands’ and ‘branding’, the concept of a ‘brand’ has not been adequately defined. As a consequence, the boundary between ‘brands’ and ‘trade marks’, as legally protectable assets, has remained blurred. The final section will examine European trade mark law and its relationship to brands. It will consider the extent to which the legal protection afforded to trade marks under EU trade mark law has moved into the territory which is characteristically viewed as being occupied by brands. In particular, it will examine whether the legal protection afforded to trade marks now extends beyond their role as simple indicators of origin. The paper will conclude by suggesting that so long as there has been a failure to adequately define the attributes of a ‘brand’, the ECJ would do well to exercise caution in moving the boundaries of trade mark protection in order to encompass an increasing number of values which trade mark proprietors would claim not simply for their marks but also for their ‘brands’.

I

As with all ‘big ideas’, there is a narrative attached to the arrival of brand valuations. In 1988, as the story is most commonly told, Rank Hovis McDougall (RHM) became the first listed company to show non-acquired brands as assets on its balance sheet.21 It is generally acknowledged that RHM’s motive was to defend itself from a take-over bid, at a time when other ‘brand rich companies’ were being acquired at grossly undervalued prices. As a result of the brand valuation exercise, RHM valued its brands at £678m., while its tangible assets had amounted to less than £400m.22 The takeover bid

21D. Haigh, Brand Valuation: Understanding, exploiting and communicating brand values (Financial Times, London; 1998), p. 1. 22 D.Haigh, Brand Valuation, p. 49. See also, T. McAuley, “Brand Family Values”, CFO.com, 31 December 2003, www.cfo.com.

by Goodman Fielder Wattie did not succeed.23 Others have suggested that the move to acquire companies with strong brands, where the value was ‘hidden’ or ‘not reflected in their stock market valuations’ had begun even earlier in the United States, perhaps with the acquisition of Braun by Gillette in 1967.24 Nonetheless, commentators are in broad agreement that it was RHM which first publicly valued its brands as intangible assets. They also agree that valuation occurred during a period, the late 1980s on, when there was an enormous increase in mergers and acquisitions which put a premium on the value of intangible assets (most notably brands), leading to a sharp divergence between the share value of the acquired companies and their book values.25

It is obviously the case that if, in the 1980s, brand-rich companies came to be seen as desirable objects for acquisition, this is because the perceived value of ‘brands’ as, albeit intangible, company assets was already widely recognised. Thus, in the mid-1980s, while some companies were intent on acquiring brands, others were focussed on nurturing their own. For example, Grand Metropolitan (GrandMet), also a food and beverage company, concluded that its most profitable businesses were those with the strongest brands. Indeed, it concluded that while ‘other aspects of the business management—such as cost control and technological leadership--were important to success they were unlikely to influence the group’s long-term profitability as could a leading brand.”26 The lesson taken by GrandMet was that not only should it ‘build’ and ‘support’ its own brands, but that the way to success lay in acquiring others. In 1987, it acquired Heublein, a major drinks company, whose brands included SMIRNOFF vodka, and in 1989 it acquired another US company, Pillsbury, whose brands included BURGER KING and HAAGEN-DAZS.27

23 Goodman Fielder Wattie is quoted as saying at the time, “RHM owns a number of strong brands, many of which are market leaders, which are valuable in their own right but which the stock market tends to consistently undervalue. These valuable assets are not included in RHM’s balance sheet, but they have helped RHM build profits in the past and provide a sound base for future growth”, M. Stirling, “Extracting value: have the ‘hidden jewels’ of European Business finally been uncovered?”, Trade Mark World, no. 171, 1 October 2004, pp. 32-33. RHM was subsequently sold to in 1992 to Tomkins, which wrote off all its intangible assets. T. McAuley, op. cit . Among its brands were HOVIS, MR. KIPLING and SHARWOOD.24 Stirling, op. cit., p. 32. 25 J. Lindemann, “Brand Valuation”, Brands and Branding (eds. R. Clifton & J. Simmons), Bloomberg NJ: 2003). 26 G. Corbett, ‘The Benefits of Valuing Brands’, Brand Valuation (ed. R. Perrier) (3rd edition) (London: 1997), p. 11-12.27 Corbett, op. cit.,13-16, It is significant that both RHM and GrandMet are food and beverage companies. It has been suggested that such companies were “at the

RMH had chosen to show the value of its non-acquired brands on its balance sheet, as a means of averting a take-over bid at an ‘undervalued’ price. In the late 1980s, GrandMet took the decision to include the value of its acquired brands on its balance sheet also for fear that it would, otherwise, appear to be under-valued. Under standard accountancy procedure at the time, acquired brands were invariably subsumed under the general category of acquired goodwill.28 Companies were required to capitalise goodwill and amortise it according to its useful life (or twenty years). The result was that companies who expended substantial sums in acquiring brands, were not able demonstrate to third parties the fruits of such expenditure. Thus, when GrandMet published its first set of accounts after the acquisition of Heublein, the acquired brands were not valued separately, and indeed £564m of the £800m paid for the company was written off as goodwill.29 As a result, when GrandMet took the decision to include the value of its acquired brands on its balance sheet, its apparent value increased to the amount of £608m. GrandMet was able to adopt this strategy because contemporary accounting standards allowed companies to recognise the value of acquired brands as ‘identifiable intangible assets’ and to include them on the balance sheet separate from goodwill. However, it would appear that it was not until major companies came to recognise brands as their key assets that this optional route was chosen first by GrandMet and subsequently by others with similarly valuable brand portfolios. Similarly, from the late 1980s, a considerable number of brand-rich companies, but by no means all, decide to recognise the value of non-acquired brands on their balance sheets.30

Most recently the circumstances in which brand values may or may not be disclosed on the balance sheet has been regularised for all European quoted companies. In the past year, International Financial Reporting Standards (IFRs3) and Accounting Standards (IAS36, 38) have been introduced which will ensure that intangible assets acquired by a business must be recognised separately from goodwill if forefront of acknowledging the importance of intellectual property rights in the UK.” Indeed, in the 1990s, the food and beverage industry showed a major growth in the value of its shares. M. Stirling, “Extracting value,’, p.33.28 Goodwill is defined according to accountancy standards as ‘the difference between the value of the businesses a whole and the aggregate of the fair values of its separable assets.” Furthermore, goodwill is only valued at the point of acquisition, and therefore cannot account for the fact that intangibles, such as brands, can increase in value. T. Tollington, “The Separable Nature of Brands as Assets: The United Kingdom Legal and Accounting Perspective,” EIPR [2001], Issue 1, p. 7.29 Or in other words, the impression was given that ‘£565m of the company’s money had been wasted.” Corbett, op.cit., p. 12. 30 Lindemann, op.cit, p.31.

they are identifiable and if their cost can be measured accurately. This will apply to acquired brands. Furthermore, companies can decide that a brand has an indefinite life and can leave it on the balance sheet for the same value as it had on acquisition provided an annual impairment review suggests that its value has not fallen. By contrast, these new standards specifically exclude non-acquired brands within the definition of internally generated intangibles which may be shown on the balance sheet. Not surprisingly, these new IFRSs have been criticised by some who view the prohibition against disclosing the value of internally generated brands on the balance sheet as retrograde step. However, it has been pointed out that brand values may still be disclosed in a company’s annual report; and that they continue to be important for internal company purposes, such as for example to measure the success of marketing strategies.31

It is arguable that the decision to exclude non-acquired brands from the balance sheet, under the new accounting rules, may derive in large part from a general lack of consensus among the accounting profession as to how their value might be properly measured. It is certainly the case that while brand values now have a central place in international accounting standards as well as in the internal strategic planning of many companies, a clear answer to the question of how brand value is to be measured has yet to emerge.32 Such lack of agreement may not be surprising given the nature of a brand as an intangible asset, and, as we shall argue later, an ill-defined one at that. Nonetheless, it is certainly the case that since the 1980s, not one but a number of different approaches to brand valuation have emerged, including a number of proprietary methods.33 This paper will now turn briefly to the most common general approaches to brand valuation. These include the cost based approach, the marketing 31 These same standards will apply in Australia, Canada and New Zealand. The UK has also introduced a requirement that publicly quoted firms must produce an Operating and Financial Review (OFR), from April 5, 2005. This will give general information about the firms, including some have suggested, brand strategies, market shares and other related information. Thus, although internally generated brand values will no longer appear on the balance sheet, it has been suggested that the information offered by the OFR will fill the gap. ”Brand Values Strategy and Development”, Intangible Business, www.intangiblebusiness.com/content/738. For UK accounting standards, see FRS10. 32 With acquired brands, the obvious answer is by the cost of acquisition. But the cost of acquisition will itself invariably reflect an exercise in brand valuation by either the company that generated the brand or the acquiring company.33 The most famous proprietary method would probably be that offered by Interbrand. It was Interbrand, which undertook the first brand valuation for RHM. See, for example, Perrier, Brand Valuation, p. vii. Interbrand is itself of course a trade mark, and also a ‘brand’. FutureBrand, ‘a global brand consultancy, also offers its own proprietary method of brand valuation. See The Times, 23 May 2005, “Unique Experience: Futurebrand”, for an example of its method.

approach, the premium price approach, the relief from royalty approach and finally the income based approach.34

The cost approach method is based on the putative cost of creating the brand, for example the amount spent on marketing and advertising it. It is considered to be the most conservative method in terms of the value which results. Not surprisingly, it is sometimes deployed in trade mark cases, when the issue of damages is at stake. When applied to an acquired brand, it will assume that the value of the asset will decline from the time of acquisition. It has been argued that this fails to take account of the fact that brand values may increase over time.35

Another commonly adopted approach is the market value or comparables approach, which bases the value of the brand on what it might bring in the open market. The obvious bench mark for such an approach would be to compare the brand with other similar brands in the market which have been sold. Clearly problems would arise if there were no other brands available for comparison.36

The premium price approach has been characterised as being more often applicable to the valuing of patents, although it has been applied to the valuation of trade marks.37 The essence of this approach is to identify the price premium of the branded product over similar unbranded or differently branded products. Again, used on its own, this approach presents problems. 38 For example, it may be that the value of the brand lies not in the fact that it motivates consumers to pay a premium price for the product it represents, but rather that its association with the product increases present and future consumer demand.

The royalty relief method assumes that the company, which owns the brand, must license it from a third party and asks what the putative royalty rate would be. Since the company already owns the 34 Another approach, favoured for taxation purposes is the residual value approach. This simple method of valuation involves subtracting the value of a company’s tangible assets from its overall value. What is left over is assumed to be the value of its intangible assets. However, one obvious limitation to this method is that this residual value does not differentiate between different kinds of intangibles.35 Lindemann, op cit, p. 34; C. Glover, “Alternative Methods of Brand Valuation” in Perrier (ed.), Brand Valuation, p. 27.36 Indeed, as one commentator has noted, “But comparability is difficult in the case of brands as by definition they should be differentiated and thus not comparable.”, Lindemann, “Brand Valuation,” p. 36.37 C. Glover, “Alternative Methods of Brand Valuation,”, p. 21. 38 It would be far easier, for example, to estimate the price premium provided by a patent for a medicine, as against a generic drug.

brand, it is ‘relieved’ from paying royalties in order to use it. The cost of such royalties can then be translated into future income which would be realised by the brand. 39

The income based approach is perhaps the most commonly deployed method of brand valuation.40 This approach is designed to arrive at the value that the brand produces in after tax income. Its attraction no doubt lies in the fact that it combines several different indicators of brand value. These may include the relief from royalty measures, as well as market and cost based assumptions of brand value.41

The question of how brands might be valued became an subject of widespread concern in the mid 1980s. Since the 1980s, a number of different methods of brand valuation have been both identified and, indeed, promoted. Nonetheless, despite the perceived importance of the value of brands in the present economic context, no consensus has emerged as to which is the ‘correct’ method of valuation. 42 One reason for this lack of certainty may well reside in the difficulty of defining a ‘brand’ for the purposes of valuation. Another loosely defined area in this field, which it is submitted adds to the

39 D. Haigh and R. Perrier, “Valuation of Trade Marks and Brand Names”, Brand Valuation, p. 28. As a rule of thumb, in the UK, the royalty rate for a licensed brand is assumed to be 5% of its net value.40 Its aim is to arrive at an estimation of the future earnings for the brand and discount them (in light of foreseeable risks to profit taking) in order to arrive at a net present value for the brand. Haigh and Perrier, op. Cit., p. 28.41 The income based approach closely approximates the ‘economic use’ method which was developed by Interbrand following their valuation of RHM’s internally generated brands. The Interbrand method, however, goes beyond simply estimating the present and future value of the brand from a financial perspective and adds a ‘brand valuation’ component which might include for example, a ‘demand’ analysis: ie, an assessment the role that the brand plays in promoting demand. The point of this more holistic approach, according to its proponents, would be that it would provide ‘a management tool’ for a company in terms of developing their brand. J. Lindemman, “Brand Valuation”, p. 39. Bosworth, Wharton and Greenhalgh in “Intangible Assets and Market Valuation” look, inter alia, at the market valuation of intangibles using an econometric approach, in which they include R&D, patents and trade marks.42 In his chapter, “What makes brands great”, in Brands and Branding, C. Brymer identified 23 different methods currently available for brand valuation, some financially based and others based on marketing techniques. (p. 65). See also, W. Anston, “Aces High: Maximising your mark in licensing negotiations,” Trademark World, no. 164, February, 2004, 34-37.There is a similar lack of consensus in the US, where at least one case turned upon the issue of how a trade mark might be valued, leading the 9th Circuit Court to opine that trade mark valuation might be expected to be problematic, ‘given the imprecise art of valuing an intangible asset.” See, for example, DHL Corporation v Commissioner, 99-71580m 00-70008m 99-71592, the 9th Circuit

uncertainties inherent in the concept of ‘brand valuation’, is the exact relationship between brands and trade marks, legally defined. It is notable that even those studies which purport to offer a method of trade mark valuation as distinct from brand valuation, are invariably t0 be found attributing to trade marks many of the same characteristics commonly associated with brands.43 This paper will now turn to an examination of the common assumptions which lie behind the meaning of ‘brands’ in the context of brand valuation. It will ask how the ‘brand’ is understood to be different to or to overlap with the trade mark. It will suggest that the answer to this latter question has considerable implications for the way that the law of trade marks has developed in the EU.

II

In the literature concerned with brands and brand valuation two

facts emerge: first that there is no agreed definition of a brand and second, that ‘brands’ are not understood to be the same as ‘trade marks’. According to the International Trademark Association (INTA), on its brand valuation website: 44

A brand is a trademark or (combination of trademarks) that, through promotion and use, has acquired significance over and above its functional use by a company to distinguish its goods or services from those of other traders. A trademark will usually consist of a word or logo, or combination of both, but can also be the appearance or shape of the goods or their packaging, a sound, e.g. a jingle, or a smell. Brands are intellectual property and are part of the assets or “goodwill” of a company and may be bought or sold like any other asset or property.”

It might be argued that despite suggesting that a brand is distinguishable from a trade mark, the INTA definition does not take the definition of a brand much further. It does, however, identify one common concept associated with a brand in the wider literature: that is that its value extends beyond the value of the product (or products) with which it is associated.45 According to one marketing expert, 43 See for example, D. Haigh and J. Knowles, “Don’t waste time with brand valuation”, Marketing NPV, Brand-Finance, www.brandfinance.com. In this piece, the authors identify ‘a trade mark valuation’ as distinct from a brand valuation. The former is said to concentrate on ‘a logo and associated visual elements’. Nonetheless, the value of the trade mark is also understood to include ‘associated goodwill’. See also, Tony Tollington, “The separable nature of brands,” pp. 6-12. And G. V. Smith, Trade Mark Valuation.44 International Trade Mark Association, Brand Valuation, www.inta.org/info/basics.valuation.html.45 “The difference between products and brands is fundamental. A product is something made in a factory; a brand is something bought by a consumer. A

brands “offer value to the customer that goes beyond the product alone and becomes synonymous with the brand.”46 The different relationship between a trade mark and a brand in relation to products may be explained in part by their different histories. It is generally accepted that trade marks rose to prominence at a time, the late nineteenth century, when the close proximity between producer and consumer was disrupted both by migration, particularly to the cities, and by the rise of the corporation. As described by Schechter, in “The Rational Basis of Trade Mark Protection,” the growth in the importance of the trade mark coincided with the decline of the “antiquated neighborhood theory of trade”.47 More specifically, it has been suggested that the big, often multinational, corporations which emerged in the early-twentieth century, were by virtue of their large output, characterised “by a separation of producer and consumer in the distribution chain.” As a result, it is argued, they came to rely on their registered trade marks to act for the consumer as a badge of origin, a guarantee of quality and hence of repeat custom.48

If historians of the trade mark generally attribute its rise to its ability to act as a badge of origin, those concerned with brands are more likely to point to the latter’s role in distinguishing two products, which in all other respects might be virtually identical—what Well’s termed making the common, uncommon. Of course, the period which witnessed the emergence of an abundance of competing products was the same period which saw the rise of the trade mark.49 But its ability to distinguish between virtually identical goods has remained a widely remarked attribute of a ‘brand’. According to one observer, “it helps us to find what we are looking for in a sea of apparent sameness.”50 It is also, arguably, why most leading brands attach to commodities, which as one commentator has observed “are easily substitutable”, for example, Coca-Cola and Pepsi-Cola.51

product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless.” S. King quoted in Haigh, Brand Valuation, p. 8.46 S. Smith, “The Brand Experience” in Clifton and Simmons, Brands and Branding, p. 106. According to G. V. Smith in Trademark Valuation, “a product is what is manufactured for sale, while a brand is what the customer buys.”, p. 43.47 F. I. Schechter, “The rational basis of trade mark protection,” Harvard Law Review, vol. XL, 1926-27, 824. 48 M. Wilkins, “The Neglected Intangible Asset: The Influence of the Trade Mark on the Rise of the Modern Corporation,” Business History, vol. 35, 1/1992, p. 68.49 Wilkins, op. cit., p. 68.50 Perrier, Brand Valuation, p. 5. In 1958, David Ogilvy, dubbed an ‘apostle of the ‘brand image’, sought to persuade the consumer “that brand A, technically identical with brand B, is somehow a better product.” Quoted by W. Safire, “’Brand’ is pervasive pitching style.” International Herald Tribune, 11 April 2005.51 Brymer, “What makes brands great”, p. 69.

Another commonly attributed feature of a brand is that it may usefully be applied to more than one product. G. V. Smith has described this process as the secondary exploitation of the brand or brand extension.52 According to Haigh in Brand Valuation: 53

A brand has the unique ability to transfer consumer loyalty between products, services and categories over time and to separate it from tangible production. The ability to franchise and license brands has enabled recognition of this intangible property as the most powerful and productive asset owned by modern business.

For some commentators, it is this transferability of the brand between products that differentiates it from a trade mark. For example, Tollington sees the brand’s transferable nature as crucial to its distinction from a legally defined trade mark. He defines a ‘brand asset’ thus:54

A brand asset is a name and/or symbol (a design, a trademark, a logo) used to uniquely identify the goods or services of a seller from those of its competitors, with a view to obtaining wealth in excess of that obtainable without a brand. A brand asset’s unique identity is secured through legal recognition which firstly, protects the seller from competitors who may attempt to provide similar goods and/or services and secondly, enables it to exist as an entity in its own right and therefore be capable of being transferred independently of the goods/or services to which it was originally linked.

From this viewpoint, companies do not acquire the ability to provide specific products when they buy out other companies in order to acquire their brands; rather they acquire the ability to exploit brands, to which the products attach. One example, often cited, is the Ford buyout of Volvo, in which Ford is generally described as having acquired the Volvo brand name, rather than its tangible assets which were, of course, also part of the bargain.55

Clearly, there are some registered trade marks whose function will overlap with those commonly attributed to a brand. For example, they may acquire a reputation which allows them to attract customers when placed on a range of different products.56 Nonetheless, in the

52 G. V. Smith, op.cit., p.69.53 Haigh, Brand Valuation, p. 1; see also, D. Aaker and E. Joachimsthaler, Brand Leadership (The Free Press, New York: 2000), p. 48.54 Tollington, “The Separable Value of Brand Assets”, p. 10.55 Lindemann, op.cit., p. 29.56 The EU Trade Mark Directive (89/104/EEC) does recognise that some trade marks have this broader brand value. It protects registered trade marks which have a

literature, the ‘trade mark’, understood as a badge of origin, is frequently portrayed as lacking the ability to transfer consumer loyalty, since when a trade mark is acting as a badge of origin, consumer loyalty is deemed to attach to the product which is mediated by the trade mark, rather than to the trade mark as such. It is also the case that any registered trade mark which no longer functions as a badge of origin, because for example it has become the generic name for the product to which it attaches, or it has become deceptive will be struck off the Register.

A second way in which brands are frequently differentiated from trade marks is that the consumer’s relationship to the trade mark is generally portrayed as rational, indeed functional. The trade mark informs the consumer of the origin of the product and hence acts as a guarantee of quality. Conversely, the consumer’s relationship to the brand is frequently portrayed as ‘non-rational’57 or ‘emotional’.58 Indeed, in one study, customers themselves are characterised as “sometimes irrational, inconsistent and difficult to manage.”59 A more practical explanation often given as to why brands must go beyond trade marks and represent more than a mere indication of origin returns to the substitutability of many consumer goods. According to Runkel and Brymer60, while all companies will have a ‘name’ (or trade mark):

Competition and product/service parity sooner or later force companies to change to a more market-oriented and brand centred culture. Companies in this type of market environment soon realise that one of the best means of standing apart, being perceived as unique, and increasing sales and revenues, lies in the creation and on-going management of brands.

Interestingly, the turn towards brands as a means of adding value has been presented as an alternative to price competition; as a means of avoiding what Aaker and Joachimsthaler have termed the commoditisation of products, which would force the price of the product down.61

‘reputation’ against the registration or the use of identical or similar marks on similar or dissimilar goods and services (author’s emphasis) where use of the later trade mark without due cause would take unfair advantage of or be detrimental to, the distinctive character or repute of the mark (Arts. 4(3) and 5(2)).57 Haigh, Brand Valuation, p. 12.58 K. Runkel & C. E. Brymer, “The Nature of Brands,” in Perrier, Brand Valuation, p. 5; see also, Brymer, “What makes brands great”, p. 70.59 S. Smith, “Brand Experience,”, p. 98.60 Runkel and Brymer, op.cit., p. 6 61 D. Aaker and E. Joachimsthaler, Brand Leadership, p. 14. According to W. M. Landes and W.M.Posner, ”a possible danger of using brands (or trade marks) to ‘foster product differentiation’ might be that this would create ‘deadweight’ costs.

In the literature, a particular feature of brands which is seen to emphasise their non-functional nature is deemed to be the extent to which the public is complicit in shaping their meaning and hence their value. Douglas B. Holt tells us in his book, How Brands Become Iconic, that a brand emerges as various ‘authors’ tell stories that involve the brand. Four primary types of ‘authors’ are involved: companies, the culture industries, intermediaries (such as critics and retail salespeople), and customers (particularly where they form communities).62 The most successful brands are often said to be used by consumers as a means of self expression.63 If one turns to the legal protection of trade marks, consumers’ perceptions are also important of course. In this case, according to European Community law, it is the perceptions of the average consumer for the goods and services at issue which are deemed decisive in determining whether a mark is acting as a badge of origin, for example, or is confusingly similar to another mark.64 As I have argued elsewhere, the perceptions of the average consumer in this context have been assumed rather than interrogated by the judiciary.65 Nonetheless, it is submitted that the average consumer of trade mark law is, unlike the consumer in brand valuation studies, generally assumed to have a rational relationship to the products or services which is mediated through the trade mark.66 He understands the trade mark as a signpost to the goods which he values, rather than, as with a brand, a destination in itself. Indeed, it is difficult to see how the courts could have developed the average

That is, the brand owner would be able to ‘deflect consumers from lower-price substitutes of equal or even higher quality”. But Landes and Posner believe that ‘this hostile view of brand advertising anyway is unsound.” Rather even in the case of broadly similar products, trade marks would enable the consumer to chose the product whose quality he trusts. W.M. Landes and R.A. Posner, “The Economics of Trade Mark Law” in Landes and Posner, The Economic Structure of Intellectual Property Law (Harvard University Press, Cambridge, Ma: 2003), p. 175-176. This benign view of brands does not appear however to be shared by the brand valuation literature, which sees the ability of brands to enable similar, even generic, products to be sold at premium prices as one of their key attractions.62 D.B. Holt, How brands become icons: The principles of cultural branding (Harvard Business School Press, Boston, MA.: 2004), p. 4. 63 Aaker and Joachimsthaler, op.cit. p. 110. Although often presented as a new insight, Wells had said something of the same in Tono-Bungay. Talking of the allure of Tono-Bungay, the artist, Ewart, says: “What I like about it all, Ponderevo, is its poetry….And it’s not your poetry only. It’s the poetry of the customer too. Poet answering to poet—soul to soul. Health, Strength and Beauty—in a bottle—the magic philtre!…” Wells, op.cit., p. 102.64 See for example, Lloyd Schuhfabrik Meyer v Klijsen Handel BV [2000] FSR 77.65 J. Davis, “Locating the average consumer: His judicial origins, intellectual influences and current role in European trade mark law,’ [2005] IPQ 183-203. 66 Davis, “Locating the average consumer”, 199-200.

consumer test or applied it so widely without interpreting the role of the trade mark in this functional sense.

In the literature, brands are generally deemed to have extra qualities, such as transferability and an emotional link to consumers, which are not necessarily shared by trade marks. But it is equally true, that a brand will be expected to embody the functional role attributed to the trade mark: that is it will also act as an indicator of origin and hence a guarantor of quality. According to G. V. Smith, “a useful way to conceptualise a brand is as an aggregation of assets which includes, but is not limited to a trade mark.”67 These other assets might include a visual identity or identifying trade-dress or a particular marketing or advertising strategy .68 Alternatively, brands may be ‘a combination of legal rights, together with the culture, people, and programs of an organization within which the specific logo and associated visual elements plus the larger bundle of “visual and marketing intangibles” and the “associated goodwill are deployed”.69 What we have sought to suggest thus far is that without a clear definition of the brand, there are no obvious markers which identify the boundaries between a brand with its perceived added value and a legally defined trade mark. It is both cause and consequence of this lack of definition that, in the area of trade mark law, courts have been consistently called upon to make decisions as to which values should be protected by law as belonging to trade marks, and which values properly fall outside this protection. The final part of this paper will consider how European trade mark law has developed in the age of the brand.

67 G. V. Smith, op.cit., p,42. Others aspects of brands may be protected, in the UK, by other IP rights such as copyright, confidentiality and by the tort of passing off. Passing off depends upon a misrepresentation which damages the claimant’s goodwill. It has been used to protect the trade dress of a product, where a trade mark registration would not (see for example, United Biscuits (UK) Ltd. v Asda Stores Ltd [1997] RPC 513). It has also be used to protect a style of advertising (as in, Cadbury-Schweppes Pty. Ltd. v Pub Squash Co. Pty. Ltd. [1981] 249. It would be tempting from these cases to conclude that passing-off may be used to protect brands per se particularly since it is said to protect goodwill rather than any identifying insignia. However, two of the most authoritative commentators on passing off argue convincingly that an operative misrepresentation, in the context of passing off, must be one leading to confusion as to the origin of the goods or services concerned. See C. Wadlow, The Law of Passing-Off: Unfair Competition by Misrepresentation (Sweet & Maxwell, London: 2004), pp. 268-272. Also, H. Carty, “Dilution and Passing Off: Cause for Concern”, Law Quarterly Review [1996] 112, 632-666.68 G. V. Smith, op.cit.p.42. T. Allen and J. Simmons, Visual and verbal identity”, in Brands and Branding, p. 114-115.69 D. Haigh and J. Knowles, “Don’t waste time with brand valuation”, 5 October 2004, Marketing NPV, www.brandfinance.com.

III

It is generally taken as a given that a trade mark or marks, legally defined, will be a crucial element in any brand.70 According to the ECJ, the essential function of a trade mark is to:71

guarantee the identity of origin of the marked goods or services to the consumer or end user by enabling him, without any possibility of confusion, to distinguish the goods or services from others which have another origin. For the trade mark to be able to fulfil its essential role in the system of undistorted competition which the Treaty seeks to establish and maintain, it must offer a guarantee that all the goods or services bearing it have been manufactured or supplied under the control of a single undertaking which is responsible for their quality.

Nonetheless, it is also the case that in interpreting the Trade Mark Directive, the ECJ has been given the opportunity to extend the protection afforded by registration to attributes more commonly associated with brands. In this instance, we will look at how and to what extent, under the Trade Mark Directive, the ECJ has recognised both the transferable nature of certain trade marks and also their ability to embody meanings other than that of a simple indication of origin. To this end, this paper will now consider how the ECJ has approached the issue of trade mark use in relation to trade mark infringement. 72

It was the case of Arsenal v Reed that offered the ECJ a clear opportunity to consider the extent to which the protection afforded to a registered trade mark should encompass those values more 70 C. Glover, “Alternative Methods of Brand Valuation” in Perrier, Brand Valuation, p. 19. D. Haigh, Brand Valuation, p. 7.71Arsenal Football Club v Reed, Case C-206/01, [2003]1 CMLR 382, para. 48. See also, inter alia, Case 102/77 Hoffmann-La Roche [1978] E.C.R. 1139, paragraph 7, and Case C-299/99 Philips [2002] O.J. C191/1, paragraph 30.72 Another area of European trade mark law which deals with brand values is of course Articles 4(3) and 5(2) of the Trade Mark Directive. See fn. 56 above. There is little argument that these provisions are intended to protect functions of the trade mark which go beyond their function as indicators of origin. See for example, J. Davis, “To Protect or Serve? European Trade mark Law and the Decline of the Public Interest” [2003] EIPR 180. See also, for example, C. Morcom, “Extending the Protection for Marks having a reputation: what is the effect of the decision of the European Court of Justice in Davidoff v Gofkid,” [2003] EIPR 25(6), pp.279-282. A.Carboni, “Two Stripes and You’re Out: added protection for trade marks with a reputation” [2004] EIPR 229; and more generally, N. Dawson, “Famous and well-known trade marks—“usurping a corner of the giant’s robe,” [1998] IPQ no. 4, pp.350-382. In this version of the paper, I have chosen to pursue the related issue of trade mark use as, I believe, it also usefully reveals the attitude which the ECJ has taken to what might be termed ‘brand values’.

commonly associated with a brand. In Arsenal v Reed, the ‘brand values’ at issue were the brand’s ‘emotional’ or ‘irrational’ attraction for the consumer and also its ability to be exploited through licensing or merchandising, that is its transferability.73 In this case, which originated in the UK, the defendant, Reed, had sold merchandise carrying the registered marks of Arsenal Football Club. The Club sued for trade mark infringement. In the High Court, Reed argued that the marks were understood not as a badge of origin but as a mark of support, loyalty or affiliation.74 The question posed to the ECJ was whether such use was non-trade mark use, and if so whether nonetheless it was infringing.75 In effect, the ECJ was being asked whether the infringement provisions of the Directive could be used by proprietors to prevent the use of signs which undermined their mark’s appeal, beyond their role as a mere indicator of origin. This was certainly the view of Advocate General Colomer, who believed very strongly that these further values should be protected. According to the Advocate General: “It seems to me to be simplistic reductionism to limit the function of the trade mark to an indication of origin.”76 Rather, trade marks not only ‘indicate provenance’, but also quality, reputation or ‘the renown of the producer or provider’. Trade marks could also “be used for advertising purposes in order to inform and persuade the consumer.”77 In fact, according to the Advocate General: “Experience teaches that, in most cases, the user is unaware of who produces the goods that he consumes. The trade mark acquires a life of its own, making a statement, as I have suggested, about quality, reputation and even, in certain cases, a way of seeing life.”78 Because the Advocate General took the view that the trade mark embodied these broad meanings, he concluded that non-trade mark use of a sign should be sufficient to infringe a registered mark, if the result of such use was to exploit the commercial potential of the registered mark beyond its ability to function as a badge of origin.79

73 See J. Davis, “To Protect or Serve?”, in particular pp. 184-187; R. Sumroy and C. Badger, “Infringing ‘Use in the Course of Trade’: Trade Mark Use and the Essential Function of a Trade Mark,” in J. Phillips and I. Simon, Trade Mark Use (OUP: 2005), p. 164-165.74 Arsenal Football Club plc v. Matthew Reed [2001] RPC 922. 75 The relevant provision of the Directive is Art. 5, which provides at 5(1)…the proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade: (a) any sign which is identical with the trade mark in relation to the goods or services which are identical with those for which the trade mark is registered.76 Arsenal v Reed [2002] ETMR 975 at para. 46. 77 Advocate General, Arsenal v Reed at para. 42.78 Advocate General, Arsenal v Reed at para. 46.79 Advocate General, Arsenal v Reed at para. .

In the event, where the Advocate General pushed, the ECJ was not entirely ready to jump. The ECJ held that non-trade mark use, such as the use of the Arsenal trade marks by Reed, could constitute infringing use. But it also found that such use would only be infringing if it affected the essential function of the mark which, in this case, it recognised as the mark’s ability to act as a guarantee of origin. According to the ECJ:80

…the use of a sign which is identical to the trade mark at issue in the main proceedings is liable to jeopardise the guarantee of origin which constitutes the essential function of the mark… . It is consequently a use which the trade mark proprietor may prevent in accordance with Art.5(1) of the Directive. Once it has been found that, in the present case, the use of the sign in question by the third party is liable to affect the guarantee of origin of the goods and that the trade mark proprietor must be able to prevent this, it is immaterial that in the context of that use the sign is perceived as a badge of support for or loyalty or affiliation to the proprietor of the mark.

The judgement in Arsenal v Reed suggests that the attitude of the ECJ towards trade mark protection and wider brand values remains equivocal. As I have noted elsewhere, it is certainly the case that throughout the judgement, the ECJ referred to the ‘functions’ of trade marks, in the plural, which leaves open the possibility that on a different set of facts, the ECJ might have been willing to recognise other functions for a trade mark, such as those suggested by the Advocate General.81 However, it is submitted that, in the event, the ECJ appeared to identify the trade mark’s function as an indicator of origin, as the key ‘brand value’ which should be protected against infringement.

The equivocal nature of the ECJ judgement in Arsenal v Reed led to subsequent confusion as to the extent to which trade mark law now protects broader ‘brand values’, at least in the UK. Such confusion can be seen both in the judgement’s reception in the UK courts and also by later commentators. When the case returned to the High Court, Mr. Justice Laddie concluded that the ECJ had found that only trade mark use, that is use of a mark as a badge of origin, could infringe a registered mark. He noted:82

It appears from the above analysis that the ECJ held that where the defendant's use of a mark is not intended by him, or understood by the

80 Arsenal v Reed, ECJ, paras. 60-61. 81 Arsenal v Reed, para. 42, 51, 54. Davis, “To Protect or Serve?”, fn. 73.82 Arsenal Football Club Plc v. Matthew Reed [2003] E.T.M.R., High Court, at para. 20. He then went on to find that the ECJ had exceeded its jurisdiction by finding, on the facts, that Reed had infringed the Arsenal marks. He found for the defendant.

public, to be a designation of origin, there can be no infringement because such use does not prejudice the essential function of the registered mark.

Whereas, following an appeal, the Court of Appeal found for the claimant. According to Lord Justice Aldous, the use made by Reed of the Arsenal marks did affect their ability to function as a guarantee of origin. In these circumstances, Reed’s use of the mark was infringing even if it was not trade mark use. As Aldous LJ said:83

I therefore conclude that the result reached by the ECJ was inevitable once their judgment had made it clear that the material consideration was whether the use complained of was liable to jeopardise the guarantee of origin, not whether the use was trade mark use. The judge should have followed the ruling and decided the case in Arsenal's favour.

Commentators on the Arsenal v Reed case have generally explicitly welcomed it as a victory for brand owners, particularly those who wish to license their trade marks or are involved in merchandising.84 This is so, even if there is some disagreement as to whether or not, following Arsenal v Reed, infringing use need no longer be trade mark use.85 Thus, according to one observer, the rise in the value of brands at the end of the twentieth century, and the need to protect them through trade mark registration, meant that there needed ‘to be a wider definition of ‘a sign’ and a ‘trademark’ as well as ‘the definition of infringement’. In the event, the ECJ reasoning in Arsenal v Reed, which eschewed trade mark use for infringement, ‘is consistent with modern commercial activity.”86

83 Arsenal Football Club Plc v. Reed [2003] 2 C.M.L.R. 25 CA. Aldous LJ also found that, as a matter of fact, Reed had used the Arsenal marks in a trade mark sense, that is as a badge of origin. 84In the UK, the extent to which Arsenal v Reed could be viewed as heralding a new age for brand owners was somewhat muddied by the near simultaneous judgement of the House of Lord in R v Johnstone [2004] ETMR 2, in which their Lordships appeared to hold that in order to be infringing use, use of a mark must be use as a badge of origin. It has been suggested that this apparent contradiction may arise from the fact that Johnstone was a criminal case and therefore the Court was concerned to make the barrier to infringement a high hurdle to cross. (See for example, Sunroy and Badger, op. cit, p. 178.). Another, perhaps, more convincing interpretation is that their Lordships were concerned to draw a distinction between infringing use and descriptive use which was not infringing (See, R. Calleja,”R. v Johnstone [2003] UKHL 28: Bootlegging and Legitimate Use of an Artist’s Trade Mark”, Ent.L.R. 2003, 14(7), 186-188). Whatever the their intentions, there is no doubt that their Lordships judgement in Johnstone has left the question of use in some disarray in the UK.85 For example, P. Dryberg and M. Skylv, in their article, “Does Trade Mark Infringement Require that the Infringing Use be Trade Mark Use and if so, what is “Trade Mark Use”?”, [2003] EIPR 229 appear to take the position that it does.86A. Poulter, “What is “use”: reconciling divergent views on the nature of infringing use,” Trademark World, no. 163, December 2003/January 2004, 23-24.

Elsewhere, the decision in Arsenal v Reed is portrayed as offering ‘broad’ protection for trade marks in their role as ‘brands’, which is defined as “a wider concept intended to attract consumer loyalty by virtue of values, including lifestyle messages, associated with that brand. The concept of a brand therefore goes much further than the technical notion of a trade mark as a mere indicator of origin.”87 But the confusion evoked by the Arsenal v Reed decision both in the courts and amongst commentators, is in itself significant. It is submitted that the fact that the ECJ took a cautious, middling approach to the recognition of ‘brand values’ in trade mark law, has allowed for these differing interpretations. By suggesting that, on the one hand, the essential function of a trade mark remains its ability to function as an indicator of origin, but on the other that non-trade mark use can compromise this function, the ECJ has taken a nuanced approach to the extent to which ‘brand values’ should be protected by trade mark registration. It has recognised the importance of the transferability of trade marks (a key brand value, as we have argued), but it has remained cautious as to the extent to which a trade mark’s ‘emotional’ values might also be protected.88

IV

In the past two decades, a widespread belief has arisen that brands have acquired an unprecedented commercial value. As a result, there has been growing concern to measure the financial value of brands, both acquired and internally generated. There has also been pressure to increase the legal protection afforded to brands, not least in the context of the law of registered trade marks. It has been argued here that both developments are problematic. On the one hand, it has not yet been possible to agree on a method which would be universally accepted as measuring brand value. On the other, the relationship between brands and trade marks, legally defined, remains ill-defined. The ECJ, itself, has itself remained cautious about

87 Sumroy & Badger, op.cit., p.164. See also, H. Norman, “Time to blow the whistle on trade mark use” [2004] I.P.Q., 1, 1-34, who believes that the value of trade marks, not least as merchandising and licensing tools, suggests that they deserve to be protected beyond their role as a badge of origin. From this perspective she views the Arsenal decision as a promising development. See also, J. Tunbridge, “Trade marks: the confusion of “use’’’ [2004] EIPR 431.88 Another example of the ECJ’s caution is this area is to be found in its approach to colour marks. In Libertel Groep BV v Benelux-Merkenbureau (Case C-104/01) [2003]ETMR 63, the applicant sought to register the colour orange as a trade mark for telecommunications. The ECJ recognised that ‘colours are capable of conveying certain associations of ideas, and of arousing feelings’, but that they should only be registrable if they are found to be acting as a badge of origin (paras. 40-41). See also, Heidelberger Bauchemie GmbH (Case C-49/02) [2004] ETMR 99.

the extent to which registered trade mark protection should encompass wider brand values. It is submitted that for a number of reasons it is right to do so.

It has already been suggested that there is no agreed definition as to what actually constitutes a brand and how it differs from a registered trade mark. It is true that the literature on brand valuation frequently suggests that ‘brands’, as opposed to trade marks, have become divorced from the products or services they once represented to become objects of value, in their own right. But such a statement appears to be based on belief rather than on evidence. Indeed, in this same literature, the close link between brand value and product quality is frequently emphasised. In a typical comment, one observer noted that the “minimum requirements of a brand”, are that “a truly innovative product, or one of superior performance, exceptional quality or high value” should be at its core.89 There is undeniable evidence that where even a powerful brand no longer represents, for consumers, a source of quality, its value beyond its function as an indicator of origin is diminished. For example, it has been convincingly argued that during the ‘dot.com’ era, many internet companies emerged “with minimal tangible assets” but with the aim of establishing a strong brand name through their trade marks. For a period, they appeared to have succeeded. In the event, during the economic downturn of 2001, the value of the “intangible assets upon which these companies had been valued began to appear as grossly inflated and their share values collapsed.”90 In a similar vein, few would argue that the recent acquisition of Manchester United by the Malcolm Glazer, the American entrepreneur, was in large measure motivated by the value of the club’s intangible assets, that is its brand value. But there is also a widely held belief that should the quality of the club’s football suffer, then so too will the value of its brands; just as it has been the recent football success of Chelsea FC which has allowed it to close a number of extremely profitable sponsorship deals.91

89 Runkel and Brymer, “The Nature of Brands”, p. 6. See also, for example, Haigh, Brand Valuation, p. 8. 90 M. Stirling, “Extracting value”, 33.91 See for example, D. Campbell, ”Will the Glazers lose their shirts?”, The Observer, 15 May 2005. The fact that Coca Cola is apparently the world’s most valuable brand did not save its product, ‘New Coke’, which it introduced in 1990. The product was withdrawn because of the unpopularity of its taste. Nor did it save its bottled water, ‘Dasani’, introduced into the UK in 2004, after it was discovered that the product was in fact bottled tap water from Sidcup, Kent, and contained high levels of bromide.

As long as it can be argued that brand values continue to rely upon the attractiveness of the underlying product to which they attach, then the argument that the protection afforded to registered trade marks should go beyond their function as an indicator of origin appears less convincing. From this point of view, the cautious approach adopted by the ECJ in Arsenal v Reed appears entirely justified. Furthermore, evidence that we have entered an age when the high value of brands in relation to tangible assets is unprecedented has also been called into question by this paper. We have already seen that the turn of the twentieth century was another period when trade marks occupied a particularly important position in global commerce.92 But it would be wrong to think that having staked its claim to recognition in the late nineteenth-century, the value of the ‘brand’ has continued an uninterrupted growth since then. A more convincing argument is that brands (as opposed to trade marks) are perceived to be most valuable at times, or in certain sectors of the economy, when, for various reasons, the tangible costs of production (including, importantly, labour costs) are relatively low. This was undoubtedly the case during the two periods mentioned in this paper. Thus, Tono-Bungay was produced by non-unionised, unskilled female labour in a non-industrialised setting.93 Today, it is widely accepted that some of the products associated with a number of the world’s most valuable brands involve very low production costs indeed.94 By contrast, it is interesting that in 1948, when R. S. Brown

92Such may also have been the case twenty-years later, when Schechter argued that the “the creation and retention of custom, rather than the designation of source, is the primary purpose of the trade mark today….”Schechter, op.cit., p.822. He concluded that “the value of the modern trademark lies”, inter alia, in its selling power” and that “ (2) that this selling power depends for its psychological hold upon the public, not merely upon the merit of the goods upon which it is used, but equally upon its own uniqueness and singularity….” (p. 831).93 For Tono-Bungay, see fn. 8 above. A real-life example of this sort of manufacture at the turn of the twentieth century was the garment industry in the United States. The United States began to consume mass produced clothing during this period. However, as D. von Drehle notes, in his book, Triangle: the fire that changed America (Grove Press, New York: 2003), “By the end of the nineteenth century, relatively little of the sewing on mass produced clothing was actually done by the ‘manufacturer’. Instead, the label in a cloak or suit or dress meant only that the pieces had been cut from that company’s pattern, and the finished garment inspected before sale. Between cutting and inspection, the garments travelled from sweatshop to sweatshop.” (p.40). Consumers were increasingly likely in this period to buy from impersonal department-stores or mail order catalogues: hence the importance of the ‘label’. In a striking parallel to what has been written about the West’s outsourcing of production in today’s brand-rich environment, it was noted, about the garment industry at the turn of the twentieth century, that manufacturers favoured this system of manufacture because “it saved them the trouble of dealing with workers.” (von Drehle, p. 40).94 This is the argument made by among others, N. Klein in her book, No Logo (Harper Collins, London: 2000). Klein’s book is, of course, highly critical of

published his influential essay, “Advertising and the Public Interest,” which argued that registration should protect only the origin function and not the advertising functions of marks, the United States was experiencing a golden age of manufacturing and labour protection was at an all time high. 95 One lesson to be taken from these examples might be that the increase in brand value relative to tangible assets, which seems to be a feature of contemporary commerce, was neither inevitable nor need it be continuous. For this reason, too, it is submitted that in considering trade mark law, the ECJ should not be seduced by the need to protect brand values at all costs and that we should treat the exercise of brand valuation itself with a measure of caution.

companies, such as Nike, which have outsourced production of their products to low-cost labour in the developing world. Although, not surprisingly, her political conclusions have aroused controversy, the fact that manufacturing is moving from Western countries to the ex-Communist countries and to the developing world where both labour costs and the costs of fixed assets are cheaper, is hardly open to debate. As for Schechter he was, of course, writing at a time of high unemployment just before the Great Depression.95 R. S. Brown, “Advertising and the Public Interest: Legal Protection of Trade Symbols”, 57 YALE LJ 1165 (1948). He believed that protecting the advertising functions of marks encouraged wastefulness and monopoly practices.