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The trouble with the Federal law of trademarks is that it rests on unstated assumptions about how marks are selected and marketed, and, because of its assumptions, it might be granting too much in return for too little. In theory, legal protection of trademarks provides incentives for firms to make investments aimed at gaining consumer confidence in their marks. Successful marks are like packets of information. They lower consumer search costs, thus promoting the efficient functioning of the market. Too few ask the question, however, whether Federal trademark law is consistent with this theory.

The common law of unfair competition, which predates Federal trademark protection and continues to exist side-by-side with it, enhances the function of marks by protecting a mark from imitation only to the extent that its use in the market actually identifies the goods or services of a particular firm. This is the reason that it is frequently said that rights to a mark flow from its use. But since the Lanham Act of 1946 created the first system of nationwide protection of marks, Federal trademark law has been moving stubbornly in another direction, toward granting protection for marks that have no significance at all. Matters are likely to worsen under the Trademark Law Revision Act of 1988 (TMRA), which took effect in November of 1989.

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