The Strategic Effects of Trademark Protection

TLDR

The study investigates how the 1996 Federal Trademark Dilution Act, which extended legal protection to selected trademarks, influences firms’ profits and strategic decisions. The authors use the Act as a natural experiment, comparing treated firms to untreated counterparts to assess its effects. The Act raised treated firms’ operating profits, triggered a spike in trademark lawsuits, reduced market entry and exit, cut R&D spending, lowered patent and product output, and increased unsafe product recalls, indicating a negative impact on innovation and product quality. Code, data.

Abstract

Abstract We study the effects of trademark protection on firms’ profits and strategy using the 1996 Federal Trademark Dilution Act, which granted additional legal protection to selected trademarks. We find that the FTDA raised treated firms’ operating profits and was followed by a spike in trademark lawsuits and lower entry and exit in affected product markets. Treated firms reduced R&D spending, produced fewer patents and new products, and recalled a higher number of unsafe products. Our results suggest that stronger trademark protection negatively affected innovation and product quality. (JEL D22, K2, L43, O31, O34, O38) Authors have furnished code/data and an Internet Appendix, which are available on the Oxford University Press Web site next to the link to the final published paper online.