Playing the Rent V—Trademarksism

There is nothing in the world that some man cannot make a little worse and sell a little cheaper, and he who considers price only is that man's lawful prey. --John Ruskin (1819-1900)

When AOL bought Time Warner last January, it paid $147 billion to form the world's largest media concern. But the accounting value of Time Warner's assets was only about $51 billion. What was the other $96 billion for? It was the premium AOL paid for scores of brands, trademarks and other so-called intangible assets. The value of this stuff - called goodwill - now sits on the asset side of the balance sheet of the combined AOL Time Warner. In the magical world of accounting, all assets, from factories to machinery, fall in value. The process can take anywhere from four years (at tech companies) to 40 years (old-line factories), depending on the asset's expected usefulness, and is accounted for in a quarterly expense to the income statement. In AOL's case, this amortization of goodwill, as the expense is called, currently subtracts an astonishing $1.5 billion a quarter from the bottom line, leading the company that owns the publisher of MONEY to post a near-billion-dollar net loss in the third quarter. [Source: "The Goodwill Games." By Pablo Galarza. Money 30 (13): 61. In ABI/INFORM.]

Every business has “intangible assets” and it’s long been a problem in accounting for them. Realize, though, that there are intangibles and “intangibles.” Is a promissory note, an IOU, more “tangible” than a trademark? Apparently, as the former is considered a “financial asset,” while the later is called an “intangible asset.” That doesn’t keep companies from trading in trademarks, however.

A trademark is part of a company’s “good will,” the respect (or, in some cases, fear) that a firm possesses in the marketplace. In “the good old days,” trademarks and brand names were a sign of the quality of the goods, and that still has some relevance. Almost everyone shows a certain degree of brand loyalty, and the most common and useful form of it is, “These guys haven’t screwed me yet. They do good work.” The trademark as an indicator of quality makes “counterfeiting” a real crime, akin to fraud, trying to pass off something inferior as something of superior quality.

Still, there are, if not exceptions, at least some interesting variations on the theme. Those guys on the street selling $20 Rolexes, I mean, I doubt that anyone thinks they are genuine (and anyone who does, also believes they are receiving stolen goods). So it might be said that there has been a strange “counterfeit Rolex” brand that has been established. Illegal, sure, but not as immoral as one might think at first.

The quality assurance part of trademark doesn’t look a lot like intellectual property. It really does look like a reification of true “good will,” the respect that customers have for the quality of an enterprise. It’s hard work to establish and it’s so very easy to lose. The story goes that when Sarah Lee was sold, the contract stipulated that the purchasing company not change the recipes in any manner. When they tried anyway, the founder took them to court and refused a monetary settlement; only adherence to the original terms would do. “I named this company after my daughter,” he explained. “I’m not going to sell out my daughter’s name for mere money.”

Harlan Sanders made the mistake of not getting such a clear-cut contract. He spent the last years of his life bad-mouthing the product that bore his name.

Some brands try to hook into image and identity, to varying degrees of success. Harley-Davidson was a huge comeback story. The original Harleys were bikes that were just perfectly suited to garage modification into “choppers,” highly individualized bikes. Then came the Japanese imports, better bikes, but not as easily customized. After years of languish, the owners began emphasizing the customization, and took out magazine ads that just showed a highly muscled arm, with a Harley-Davidson tattoo, and the words “When was the last time you felt this strongly about anything?”

It didn’t hurt that they also began a stringent quality control program at about the same time.

But there is no idea so good that human beings can’t find a way to overdo it, and so we come to the “famous brands,” “brand extension” and “brand dilution.”

Let me give an example of a reasonable use of the idea of protecting “brand extension.” A while after the introduction of “V-8” the vegetable juice, someone introduced a brand of vitamins called “V-8 Vitamins.” Since one of the marketing points of V-8 Juice was that it contained vitamins, a court held that there was a real possibility of confusion on the part of the consumer and the vitamin makers were ordered to change the name. And, of course, if V-8 Juice were to actually introduce a line of vitamins, that would be an obvious bit of “brand extension.”

But then you head toward “lifestyle” branding, and Harley-Davidson shows up again, along with Nike, Apple, Abercrombie and Fitch, Gucci, Star Wars, and the New York Yankees. These are “famous brands,” things that might show up on almost anything. Star Wars toothbushes? Absolutely. Gucci golf clubs? Why not? Nike baby carriages? I wouldn’t be a bit surprised.

MacDonald’s has sued any number of small, family owned restaurants into changing their names (or out of business if they tried to resist). There used to be a coffee shop in Berkeley called “Fat Albert’s;” it’s “Fat Apple’s” now.

Disney has trademarked just about every character that paraded through a Disney movie, including some that were originally public domain. You can use Frankenstein in your work, but he’d better not have rivets in his neck; Universal owns those. Tarzan? The Burroughs estate is very litigious. Better use some other jungle man; maybe have him raised by elephants.

Now realize, an awful lot of this has nothing to do with “confusion in the public mind.” There was zero chance that the Air Pirates’ version of Mickey and Minnie Mouse were going to be mistaken for anything other than an underground comix parody. No, this heads over toward toll-taking, barratry, and, in many cases, legal departments making work for themselves, to no real corporate benefit whatsoever.

Well, that does depend on whether “control” counts as “good will.” I’ll certainly agree with the “will” part of it. I certainly do.