IP and quality guarantees

Economics Economics Questions
1

I just received an email for a fellow who offered an interesting challenge. He makes an ice cream with a brand name. I won’t give the real name but let’s say it is: RasberryRabbit. He has a drawer full of patents, copyrights, and trademarks. He spends vast time batting down impersonators and even litigating against them.

Now, I know that trademarks are a slightly different issue and Boldin/Levine don’t really go into that but, at the same time, they generally defend pirates who make fake Guccis and the like.

Here is his fear. Someone else makes RasberryRabbit, or perhaps BlastberryBabbit or whatever, based on a reverse engineering of the RasberryRabbit recipe, and doesn’t clean the machines well and people get sick and some people die. Suddenly his brand is disgraced forever, even though he had nothing to do with it. His entire company is shot.

This is his main fear, he says. This is why we need the entire IP appartus and why he works so hard to defend it.

This has something to do with the “overgrazing” defense of IP discussed by B/L, such that Mickey Mouse is protected by copyright from having the mouse’s currency degraded. I think B/L deal with that objection just fine. But the health scare issue is an interesting spin.

What do you think of that?

2

Hmm, I haven’t given very much thought to this case yet, but perhaps his company could add a seal of approval that identifies their RaspberryRabbit (haha) as unique? That way, knock-offs such as BlastberryBabbit can’t copy that without [rightfully] being accused of fraud.

For example, Nintendo has a “seal of assurance” or something like that on all of their products. Granted, their products are easily identifiable as compared to generally crudely-made copies, though. Anyway, this is just what first came to mind.

3

Ok, I think I have an answer from Kinsella. If it is a fake product, sold under the guise that it is the real thing, this is fraud. The owner of the original can easily set up a dummy consumer to sue and the issue is gone. If it is a different name, the reputation of the original is unharmed. If it is a real business, and the product is said to taste like the original, consumers are alert to the difference between the real original and the impersonator. They want the real thing.

4

A brand is an assurance of quality or a mark of approval that product standards have been met, further guaranteed by the manufacturer’s “brand”, seal of approval, or logo. The flavor is simply an attribute of the product and nothing more. To reproduce the flavor (the “attribute” of the product) under a different brand would be fine. To reproduce it with the original manufacturer’s “guarentee” would be fraudulent or counterfeit.

Consider that a product often has many things that make it undeniably unique:

  • Product is always or only sold at X location under Y circumstances
  • Product bears an original seal, logo, and/or a unique manufacturer serial number (limited editioning, guarantees)
  • Product’s lifespan (warranty, quality), enjoyment (refunds, returns) is guaranteed by the manufacturer

The list goes on; although, it’s suffice to say that no one can make claims on behalf of another, i.e., a knock-off manufacturer cannot make claims that the original manufacturer of RasberryRabbit will guarantee the knock-off product. A seal of approval, logo, or brand is often more than a symbol or a feature of a product or service, it is almost always a guarantee. To issue this guarantee without consent would constitute fraud and/or counterfeiting.

The above assumes that the seal of approval, logo, or brand is being used as a guarantee.

5

This reminds me of the problem of software development. You can patent your process that you devised in code and constantly litigate or you can improve the process (and still possibly patent with possibly a royalty free licensing scheme), but you can’t do both. What’s interesting is if a developer just focuses largely on improvement on the processes (and products), they’re more likely to be stay one step ahead of their competition, even in countries where software plagiarism (not piracy, different thing) is common. The only other real problem with such a situation is that the prices on software often have to go down (and thus the profit margins get smaller accordingly), which could make certain kinds of software not valuable alone. One of the ways I’ve seen this resolved is to treat that given piece of software as value-added to a service/support/software package.

6

I see it as working in his favour, because he can now turn around to his consumers and say “see, you ought to have bought the real thing and not some cheap knock off”, boosting his own brand.

7

I think the question is, given that the product is made the same, from the same ingredients, and by the same process, it may be an identical product, then why does he have competitors who would try to compete? Is he too expensive? Has someone else captured a new efficiency?

When you’re in small business, you understand that you have to carve out a niche in already established industries. Normally, people compete on price. They accept a lower margin which is doable because they are smaller than established players, and likely much more agile. People also compete on quality or service. They try to make a better product ,or service it better, whether it is online ordering, 24 hour delivery, english speaking tech support, etc.

I’m not sure there is an answer to his reputation problem. Obviously, if someone copies his brand then they are committing fraud. But from my experience, this isn’t a concern about consumer safety or brand power (which is arbitrary) but competition. Instead of defending patents, why not improve the good, lower the price, and expand the customer base? Fighting competitors is a losing tactic, over time, companies get mired in this and lose inertia.

Roderick Long in the conflation argument stakes out a position about big firms not existing without the state. I have argued over this position extensively. But in a regard, he is correct. Large firms are an anamoly, not because the state offloads the cost of roads and such, but because the state reduces competition in all spheres. And yet, for a firm to crawl from small to large, it likely had to show incredibly creativity and agility. At one point, it must have provided significant consumer satisfaction to separate itself from the pack.

The really successful and enduring large firms are the ones who continue to succeed in two aspects. Price and service. While the state makes it hard to compete, big firms know how to deal with hordes of smaller competitors in the market place. Adapt or die.

8

also, someone could set up a brand exactly like his in every single way, ie ingredients, packaging, etc., and then purposely cause a scandal.

One quality control apparatus could be retailers. They could require some sort of confirmation that the RascallyRasberryRabbit is indeed the real thing.

“OK, whats the freakin password dude?”

“Uh, Tucker time?”

“You may pass.”

9

so would allied associates along the distribution line bolster the integrity of his product and reduce fraud?

10

maybe ‘lines of distribution’ would emerge in larger roles. It could also shift quality control aspects to self-governance. Each line would have an interest in only selling good things. If they slip up and shoddy products sneak thru, that line of distribution is sullied and they lose revenues.