Post-Sale Confusion

Traditionally, the main purposes of trademark law are consequentialist by nature. They are to reduce consumer search costs and to create incentives for producers to invest in product quality. If the source of a good is unclear or confusing, then markets will function less efficiently because consumers will expend wasteful resources searching for goods of a particular quality and producers, who will not derive the full benefit of their investments in product quality, will underinvest as a result. Thus, confusion about the source of goods can be harmful to both consumers and producers, thereby justifying the role of trademark law in allowing producers to protect their source-indicating marks against infringement by other producers of similar goods.

            Confusion, as originally understood, was meant to include consumers who were confused as to the source of a good at the “point-of-sale”. For example, if a consumer purchases an inferior product from Producer A thinking she was buying a quality product from Producer B, and is subsequently unhappy with the quality or performance of the product, that consumer has suffered an injury in the amount of the value attributable to the difference in quality. Next time, the consumer will over-spend in searching for the product of the quality she desires and Producer B, having lost the sale to a producer of a lower quality good due to confusion regarding its source, will underinvest in producing a higher quality product.

            Trademark’s doctrine of consumer confusion has evolved to include a liability theory known as “post-sale confusion.” The theory of post-sale confusion does not focus on the potential confusion of a purchasing customer at the point of sale, rather it aims to prevent confusion by third-party observers of the product bearing a confusing trademark. For example, in 2001 global athletic clothing and shoe company, Adidas, sued discount shoe retailer Payless ShoeSource for trademark infringement claiming harm from post-sale confusion. Payless was selling sneakers that bore similarity to Adidas’ well-known “Superstar” sneaker pictured below (left). Except, the Payless version (right) had four stripes instead of three.

Source: The Trademark Reporter

            Adidas claimed that Payless infringed on its three-stripe trademark as well as various elements of the Superstar’s trade dress. A jury in the U.S. District Court for the District of Oregon found Payless liable for willful infringement, rendering a verdict of over $300 million in monetary relief. This action was obviously not based on a claim of point-of-sale confusion –Payless was a discount store that sold sneakers from inexpensive and lesser-known brands, like Airwalk and SafeTStep, not from giant, global brands like Adidas or Nike. Most consumers shopping at Payless and considering purchasing a four-striped athletic shoe would be aware of the fact that the shoe was not made by Adidas but instead was a Payless look-alike version. Instead, Adidas was concerned about what could happen when Payless shoppers left the store wearing a pair of Payless’ look-alike shoes. Adidas argued post-sale confusion, i.e. that the shoes would cause confusion when worn in public, where third party observers would see the Payless shoes and mistakenly believe Adidas to be their source.

            Many have called into question the legitimacy of this type of liability. For example, Christopher Sprigman – Professor of Law at NYU School of Law – and Kal Raustiala – Professor of Law at UCLA Law School – have argued that actual harm to consumers or to producers due to post-sale confusion is rare and difficult to prove. In their recent article on the subject, Rethinking Post-Sale Confusion, Professors Sprigman and Raustiala describe the characteristics of an observer that must be true in order for confusion to exist in a post-sale context:

The observer must know the attributes of [the senior good] well enough to see them in the purchaser’s [knockoff] good. But she must not be so sophisticated that she can see any differences in the goods’ appearance that may otherwise point out to her that [the knockoff] is really just a look-alike. Too little sophistication on the part of the observer, and she misses the source-identifying features. Too much, and she spots the knockoff.

Aside from the critical issue of the observer’s precise level of sophistication, the context of her post-sale observation of [the knockoff] product must also fit within a narrow range. The observer must be close enough to perceive the similarities in trademark or trade dress leading to confusion. But the observer must also be distant enough, or inattentive enough, that she fails to perceive differences in mark, dress, general design, materials, or quality that might otherwise signal to the observer that the senior mark owner does not in fact produce the product in question.

In their view, these “Goldilocks” circumstances are unlikely to occur. Even if the circumstances do occur, the authors further argue that the observer’s confusion is unlikely to be purchase-relevant in the post-sale context and therefore no harm – to the observer or the producer – is likely to occur. Interestingly, the authors go so far as to argue that if and when post-sale confusion does occur, it may even benefit senior mark holders by producing an advertising effect or by spurring a “confused” observer of the knockoff to buy the senior mark holder’s good. These arguments have deeper implications regarding the requisite burdens of proof in infringement litigation. Sprigman and Raustiala call upon the courts to recognize the unusual set of facts that must be true for harm to exist and to require plaintiffs to demonstrate a valid harm in order to justify judicial relief.

Shaina Hourizadeh is a JD candidate, 2020, at NYU School of Law.