How Trademarks affect Reuse
Intellectual property rights (IPRs) introduce a fundamental dynamic trade-off to society. Evidence suggests that patents and copyright provide incentives to innovate (Zhao, 2006; Giorcelli and Moser, 2020), but we also know that patents and copyright substantially limit cumulative innovation and reuse (Williams, 2013; Galasso and Schankerman, 2015; Nagaraj, 2018; Reimers, 2019; Watson et al., 2022; Schankerman and Schuett, 2022).
TMs correspond to the downstream part of the innovation process, but the reasons why firms use TMs are similar to other IPRs, i.e. to secure market positions. TMs not only protect from imitation and competition, they help to appropriate rents either from exploitation of exclusive rights or from engaging in licensing markets and to attract resources such as investors (Castaldi, 2018, 2020; Castaldi et al., 2020; Fisch et al., 2022). What makes TMs special, however, is that they can signal value to consumers, which creates differentiation and can have additional competitive advantages (Ramello and Silva, 2006; Gao and Hitt, 2012). TMs also often overlap with other IPRs. For example, creative products, which are generally governed by copyright, may use trademarked components. While designing and executing a strategy of overlapping IPRs is clearly more complex than only relying on copyright, TMs are especially interesting, because the application process of TMs is much less costly compared to patents. As a consequence, TMs can affect the reuse process even beyond copyright. Despite their high practical relevance, trademarks (TMs) are generally understudied in the literature such that few empirical studies on TMs exist. For example, evidence shows that firms with larger stocks of TMs (in addition to other IPRs) are less likely to release software as open source, which is especially prone to be used by third parties (Fosfuri et al., 2008). However, the societal reach of TMs more generally, and especially concerning how TMs affect reuse, remains largely unknown.
In this paper, we empirically investigate how TMs affect the supply of new products. In particular, we ask how trademarking and licensing decisions affect reuse by TM holders and third parties. Compared to the existing literature that focuses mostly on patents and copyright, our setting lets us study situations where reuse can be blocked or enabled by trademarking and corresponding licensing decisions of the rights holder, and we are not limited to exploit variation from when IP protection is introduced, prolonged or removed by court decisions or law. We can therefore attempt to provide evidence on which mechanism prevails: whether TMs act as a way to exclude third-party reuse or whether TMs enable licensed third-party reuse. Because we have access to a large panel data set that covers almost three decades, we can additionally study how changes in the market environment due to technological advancement afforded by digitization have altered the relationship between TMs and reuse.
The empirical context of our study is the comic industry, which has some interesting general features. Comics as original expressions naturally fall under copyright law, which has been shown to affect the supply of music and books (Li et al., 2018; Reimers, 2019; Giorcelli and Moser, 2020; Watson et al., 2022). Quite in contrast to other entertainment products, however, comic characters are eligible for other IPRs beyond copyright, in particular TMs (Calboli and Ginsburg, 2020). TMs can therefore make it easier to exclude third-parties from producing derivative works. These limiting effects are further amplified when copyright and TMs apply simultaneously and create high transaction costs and royalty stacking (Farrell et al., 2007; Spulber, 2017; Galetovic and Gupta, 2020). At the same time, effectively advertising and building brand value might require TM protection for characters. A TM can therefore help to improve general appropriability conditions around franchises and merchandising activity, based on these ‘ancillary’ rights. Furthermore, licensing revenue may be an important source of financing for new derivative productions, in particular in the movie industry (Epstein, 2012; Hart, 2015; Ferrucci et al., 2020). Focusing on the comic industry as a case in point therefore lets us extend the literature by studying the role of TMs in the supply of new products which are built upon cumulative creative efforts.
Our empirical analysis is based on a unique data set collected from a variety of sources. We can follow 49,369 comic characters with respect to TM protection status and reuse in print comic books from 1990 to 2017. We compare reuse across characters that receive a TM versus characters that do not have TMs (yet). While we are careful not to claim causality, we employ recent methods that let us arrive at potentially unbiased estimates of the average treatment effect on the treated (Goodman-Bacon, 2021; Callaway and Sant’Anna, 2021). On average, we find that TMs are associated with about 19% less reuse of protected comic characters in comic books. We further show that the relationship between TMs and reuse varies over time, being stronger (more negative) in periods in which the comic industry is affected by the various changes following digitization. Our estimation strategy makes use of fixed effects that should absorb time-invariant unobserved variation that could bias the results.
Our study contributes to different strands of literature. Naturally, we connect to the literature on the economics of copyright and TMs. Specifically, our results are complementary to work on copyright, reuse and cumulative creativity in the context of music (Gans, 2015; Watson, 2017a,b; Watson et al., 2022), book publishing (Reimers, 2019; Heald, 2014) and online platforms (Nagaraj, 2018). We also add to a literature that discusses the strategic use of TMs (Castaldi, 2018; Castaldi et al., 2020), especially when used in conjunction with other IPRs (Derclaye, 2017; Senftleben, 2021). By highlighting the role of TMs in reuse and derivative work, we add to the literature on the effects of digitization on innovation and supply (Waldfogel, 2017; Aguiar and Waldfogel, 2018; Peukert and Reimers, 2022; Bradley and Kolev, 2023).