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Trademark Dilution Search Costs and Naked Licensing Daniel Klerman USC Law School Abstract Trademark dilution needs to be rethought to ensure that it enhances social welfare Blurring should only be considered harmful when it increases consumer search costs The fact that a trademark calls to mind two different products should not itself be considered actionable Blurring only causes real harm when it interferes with consumers ability to remember brand attributes The Coase Theorem suggests that anti dilution statutes will not block beneficial non competing uses of a mark because if transactions costs are low and the use is socially beneficial the trademark owner will license the use Unfortunately the naked licensing rule which forbids unsupervised licenses adds unnecessary transactions costs and blocks potentially beneficial uses Some commentators think free riding is or should be the essence of dilution If free riding causes no harm no consumer confusion no blurring and no tarnishment then it is socially beneficial and should be allowed Daniel Klerman Trademark Dilution Search Costs and Naked Licensing 1 Trademark Dilution Search Costs and Naked Licensing Daniel Klerman September 23 2005 Speaking for a unanimous court Justice Stevens s opinion in Victor s Little Secret1 held that plaintiffs in dilution cases must prove actual dilution which most courts and commentators interpret as requiring proof of actual harm 2 The opinion said relatively little however about the nature of dilutive harm or how it is to be proved This article argues that Victor s Little Secret should spur litigants experts judges and academics to think more deeply about the harms dilution may cause In particular it argues a that blurring should only be considered harmful when it increase consumer search costs b that the rule against naked licensing should be relaxed to encourage beneficial but potentially dilutive licensing and c that free riding should not be considered actionable Blurring occurs



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