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Marks, morals, and markets.

INTRODUCTION

I. MORAL THEORIES OF TRADEMARK LAW
 A. Consequentialism: The Chicago School
 B. Deontology: Locke, Labor, and Desert

II. CONTRACTUALISM: A THEORETICAL ALTERNATIVE
 A. The Wellspring of Contractualism: Kant and the Categorical
 Imperative
 B. Contractualist Approaches to Lies and Deception
 C. Tensions Within Contractualism: The Problem of Paternalism
 D. Objections to Contractualism

III. MORALS AND MARKETS

IV. TOWARD A CONTRACTUALIST THEORY OF TRADEMARK LAW
 A. Trademark as Promise
 B. Contractualism Versus Consequentialism: Products or People?
 C. Hard Cases for Contractualism
 D. Further Implications and Future Directions

CONCLUSION


INTRODUCTION

The word property as applied to trade-marks ... is an unanalyzed expression of certain secondary consequences of the primary fact that the law makes some rudimentary requirements of good faith.

--Justice Oliver Wendell Holmes, Jr. (1)

The law of trademarks and unfair competition is at once both over-theorized and undertheorized. Countless commentators, myself included, have devoted considerable energies to fleshing out and critiquing the dominant law and economics model of trademarks. While this model is theoretically rigorous and intuitively appealing, it has obvious descriptive failings in its predictions of consumer and producer behavior. Moreover, the expansion of trademark doctrine over the past half century has led to the creation of new trademark rights and remedies that find little justification in economic theory--and in some cases are arguably inconsistent with that theory. Trademark law is thus overtheorized to the extent that we view it through the lens of a theory that fails to accurately describe the world in which the law is developed and applied.

But the absence of equally rigorous and developed theoretical models to compete with the law and economics model has led to an inverse problem of undertheorization. To be sure, alternatives to the law and economics model exist. Most notably, Lockean theories of "natural rights" or "moral rights," so common in theoretical discussions of property and intellectual property generally, have been brought to bear on trademark doctrine. In general, though, such theories have been found unpersuasive by the scholars who develop them, largely on grounds that they lack intelligible limiting principles. The result is that trademark doctrine depends for its justification on one of two unsatisfactory theoretical alternatives--the Lockean account that offers little guidance for shaping doctrine, or the economic account that rests on mistaken assumptions about the behavior that doctrine purports to regulate.

What all these theories have in common is their understanding of trademarks as instruments for conveying meaning between producers and consumers. Trademark law's focus on regulating the invocation and manipulation of symbols' meanings can be understood as not just a legal concern, but also a moral one. Indeed, the law and economics framework and the Lockean framework map directly to the two great schools of moral philosophy: consequentialism and deontology. These two schools famously clash over the sources and content of moral obligations, and the trademark literature has been no exception. But the Lockean framework--inasmuch as it focuses on the moral claims of labor as a justification for property rights--has always seemed better suited to copyright or patent than to trademark, which has often, throughout its history, chafed against the analogy to property. Lockean theory is thus a poor deontological foil for the economic theory of trademark law. To the extent that the economic theory is found wanting, then, we lack a suitable theoretical alternative to help understand and shape trademark doctrine. In this Article, I hope to remedy that deficiency. I propose to examine trademark law by analogy not to property, nor even to its other historical analogue, tort, but rather to contract. In so doing, I will introduce a new deontological framework for the analysis of trademark law based on the Kantian, rather than the Lockean, tradition.

The interactions that the trademark system governs are first and foremost commercial interactions--between and among buyers and sellers in a competitive market. To be sure, trademark law deals with the regulation of information, just as copyright and patent law do. But trademark law is less about incentivizing the laborious creation and dispersal of new information (which then itself becomes the subject of commercial exchange, as in copyright and patent) than it is about regulating the flow of information that already exists, as an aid to the completion of consumer transactions in goods and services other than the information in question. Locke has less to say about this latter type of interaction than he does about the former.

For a deontological moral theory that addresses the world of trademark law, I propose we look to Immanuel Kant and his successors in the contractualist school. I use the term "contractualist" here to refer to the strain of social contract theory beginning with Kant's effort to rationally derive abstract and universal moral principles, and proceeding through contemporary philosophers who purport to derive moral principles from hypothetical reason giving and consensus, the common thread being the ideal of the social contract and the underlying assumptions of equality and mutual respect among moral agents. (2) Scholars have already applied contractualist analysis to other types of markets--commercial markets and securities markets, for example--but such analysis is curiously absent from the literature on consumer markets of the type that trademark law regulates. This is a significant omission, as the contractualist tradition has at least as much relevance to the atomized consumer marketplace as it does to the sophisticated and highly institutionalized spheres of commercial and financial markets. This Article will attempt to construct a new contractualist approach to trademark law and to test the resulting theoretical structure by reference to various controversial trademark doctrines. I hope to show that contractualist analysis has considerable promise as both a descriptive and a prescriptive theory of trademark law.

This Article proceeds as follows. Part I outlines the various extant approaches to the moral dimension of trademark law, identifying a large gap in the literature--dealing with relationships between producers and consumers--that calls out for a new deontological approach. Part II reviews a body of deontological theory that might fill this gap--contractualist moral philosophy. Part III then explores the differences between these theories' approaches to legal doctrine in two areas that, like trademark law, regulate the conduct of parties engaged in market exchange: contract and securities law. This analysis shows that the conflict between consequentialist and contractualist theories with respect to information transfers in the course of market exchange reflects a difference in priorities: where consequentialist theories place the highest importance on the efficient creation and distribution of information about the subject of exchange, contractualist theories subjugate that concern to an overriding duty of moral agents engaged in market interactions to respect one another's autonomy.

Part IV applies the features of contractualist moral theory identified in Parts II and III to a sampling of trademark law doctrines that implicate the competing priorities of consequentialism and contractualism in governing the relationships between sellers and buyers. In so doing, it argues that the contractualist principles outlined in Part II do a better job than consequentialism in justifying the traditional core doctrines of trademark law in terms of consumer rather than producer interests. It then goes on to examine areas of trademark law that present the conflict of priorities identified in Part III, finding that contractualism's response to such conflicts depends on competing normative arguments about the proper scope of individual autonomy. I conclude Part IV by bringing these arguments about the scope of autonomy to bear on novel and controversial doctrines in trademark law, demonstrating some of the implications and the limits of the new contractualist theory I develop in this Article. In doing so, I defend the theory as a potentially superior mode of analysis to the currently dominant law and economics approach, which unsatisfyingly elides fundamental normative questions by replacing them with unanswerable empirical questions.

I conclude the Article by suggesting some implications of my contractualist framework for other areas of unfair competition and consumer protection law.

I. MORAL THEORIES OF TRADEMARK LAW (3)

A. Consequentialism: The Chicago School (4)

The dominant theoretical account of trademark law today comes from the law and economics movement of the Chicago School. (5) The economic justification for trademark protection, as described in the models of Chicago School commentators, is twofold. First, it is argued that trademark protection lowers consumer search costs, thereby facilitating welfare-increasing transactions. The mechanism by which trademarks accomplish this feat is by shifting search costs from buyers--who face high costs of obtaining product information--to sellers, who face far lower information costs. As Nicholas Economides explains:
 In many markets, sellers have much better information as to the
 unobservable features of a commodity for sale than the buyers....
 Unobservable features, valued by the consumer, may be crucial
 determinants of the total value of the good.... [I]f there is a way
 to identify the unobservable qualities, the consumer's choice
 becomes clear....

 The economic role of the trademark is to help the consumer
 identify the unobservable features of the trademarked product. This
 information is not provided to the consumer in an analytic form,
 such as an indication of size or a listing of ingredients, but
 rather in summary form, through a symbol which the consumer
 identifies with a specific combination of features. (6)


Of course, as William Landes and Judge Richard Posner note, "[t]o perform its economizing function a trademark ... must not be duplicated," and therefore "the benefits of trademarks in lowering consumer search costs presuppose legal protection of trademarks." (7) Put another way, legal enforcement of trademark rights allows trademarks to perform their economizing function. Where such enforcement is present, we expect that producers will assume the costs of disseminating information about the unobservable qualities of their products through promotion of their trademarks, with the understanding that consumers will associate that information with the products bearing the producer's trademark and the investment in promoting those trademarks will thus redound to the producer's benefit.

This reputational benefit, in turn, is argued to generate additional salutary incentives that constitute the second justification for trademark protection. Specifically, giving individual producers an exclusive right to access the consumer goodwill that attaches to a particular word or symbol is said to provide those producers with an incentive to maximize the value of that goodwill. In order to maximize that value, it is argued, producers will make investments to produce products of a high and consistent quality that they would not otherwise make, (8) Again, legal protection is essential to this phenomenon: if just anyone could free ride on the goodwill embodied in a trademark that signified high quality, the incentive to make investments in quality would be diminished or eliminated. (9) Thus, the Chicago School theory of trademark law is that it both promotes the development of markets for high-quality goods and promotes efficiency in those markets by incentivizing consistency of product quality and facilitating the creation and dissemination of reliable product information.

Two features of the Chicago School account of trademark law bear special mention. First, like the law and economics movement from which it sprang, the Chicago School theory of trademark law works within a particular approach to welfare economics, a normative system that takes the maximization of aggregate individual welfare as its guiding principle. (10) In the taxonomy of moral philosophy, Chicago School theory is consequentialist in approach--a descendant of the utilitarian moral theories of philosophers like Jeremy Bentham and John Stuart Mill. (11) As such, it assesses the goodness or badness of actions or rules based on the desirability of the effects they produce (12)--in this case, the effects of the rules of trademark law on the aggregate welfare of buyers and sellers in the consumer marketplace.

Second, with its two separate justifications for trademark rights, the Chicago School approach provides a moral account of two sets of relationships implicated by trademark law. The first is the relationship between seller and buyer--where the shifting of search costs confers a mutual benefit that it would be morally wrong to interfere with (because interference would generate undesirable consequences, such as substitution of a good that fails to satisfy a consumer's preferences for a good that would have done so). The second is the relationship among sellers, where free riding is morally wrong because of its effects on incentives to undertake welfare-increasing investments.

The Chicago School approach to trademark law has its fair share of critics (myself included), though relatively few of these critics challenge the theory's consequentialist stance. Rather, we question whether extant trademark doctrine is consistent with the normative arguments advanced by Chicago School theorists, and whether empirical evidence supports the descriptive arguments of those theorists. The first critique is raised by commentators who argue that many of the more recent innovations in trademark doctrine cannot be satisfactorily explained by reference to economic analysis. For example, some have argued that the expansion of trademark owners' rights through doctrines such as post-sale confusion, sponsorship and affiliation confusion, dilution, and initial-interest confusion imposes significant social costs without providing comparable social benefits. (13)

The second critique is raised by commentators reviewing empirical evidence from other disciplines (notably behavioral economics, consumer psychology, and marketing) that suggests persistent and predictable deviations of consumer behavior from the rational behavior assumed in Chicago School models. (14) In particular, I have argued in a previous work that these empirical data suggest that once we move beyond the most obvious cases of outright passing off, we enter a world where the risk of welfare losses from trademark owners' manipulation of consumer psychology may be as large as or larger than any welfare losses that would result from the administrative costs and error costs of attempting to regulate such manipulation. (15) Whether extant trademark doctrine tends toward economic efficiency in such circumstances is a fiendishly complex empirical question that Chicago School theory largely does not even attempt to answer. Thus, what we are left with on the consequentialist side of the theoretical divide is an intuitively appealing model that everybody invokes but few believe is accurate enough to satisfactorily describe the law it purports to justify or the behavior it purports to regulate.

B. Deontology: Locke, Labor, and Desert

One possible alternative to this state of affairs is to turn away from the (potentially unresolvable) empirical contingencies of consequentialism and toward a fundamentally different normative framework. (16) This leads us toward the other great branch of moral philosophy, deontology--the class of ethical systems that define the rightness or wrongness of an action or rule based on abstract normative principles derived from rational deliberation, rather than solely by reference to the welfare effects of the action or rule. (17) While many moral philosophers work within other normative traditions, (18) deontology and consequentialism remain the two great schools of ethical thought. Kant is the towering giant of deontological ethics, (19) and his moral philosophy is very important to the project of this Article. But the dominant deontological theory of property (at least in the common law tradition) dates back a century earlier to the philosophy of John Locke, who argued that property rights are derived from the moral claims of labor:
 Though the earth, and all inferior creatures be common to all men,
 yet every man has a property in his own person. This no body has
 any right to but himself. The labour of his body, and the work of
 his hands, we may say, are properly his. Whatsoever then he removes
 out of the state that nature hath provided, and left it in, he hath
 mixed his labour with and joined to it something that is his own,
 and thereby makes it his property. It being by him removed from the
 common state nature placed it in, it hath by this labour something
 annexed to it, that excludes the common right of other men. For
 this labour being the unquestionable property of the labourer, no
 man but he can have a right to what that is once joined to, at
 least where there is enough, and as good left in common for others.
 (20)


Insofar as trademark law is conceived of as part of the system of intellectual property, Locke's philosophy seems to provide the most relevant deontological perspective. And indeed, as Mark McKenna has documented, early trademark law was heavily influenced by the deontological underpinnings of nineteenth-century Anglo-American "natural law" jurisprudence, which in turn was heavily influenced by Locke. (21) For the American system in particular, McKenna shows how trademark law evolved out of the law of unfair competition, a body of doctrine that purported to prohibit certain tactics for peeling customers away from one's competitors (passing off one's goods as those of another being the leading example). (22) Under this view, there are some ways of competing--such as deceiving the mark owner's potential customers--that are by their very nature unfair (that is, out of line with the normative principles of "commercial morality" (23)), and therefore illegal. The boundary between fair and unfair competitive practices was defined not in terms of the effects of such practices--which in any event was the diversion of customers from one competitor to another. Rather, the boundary was drawn by reference to independent (if perhaps undertheorized) normative principles governing commercial activity. (24) And indeed, following Locke, trademark rights in this understanding were circumscribed so as to protect the mark owner's labor in cultivating his business goodwill, while ensuring that his rights did not interfere with an equal right in others. (25)

Lockean justifications of trademark law came under serious challenge in the twentieth century, not just from external critics (such as consequentialist theorists of the Chicago School), but on their own terms. Law professors as far back as Felix Cohen derided Lockean labor-desert theory as circular and therefore empty when applied to trademarks. Rather than protecting the value generated by a mark owner through productive labor, these commentators argued, trademark rights merely allocate to their beneficiaries whatever value inheres in the legal enforcement of the right itself. (26) Because of this fundamental circularity, these commentators argue, Lockean theory offers no guidance whatsoever as to the proper scope or allocation of trademark rights. (27)

Thus, while Lockean labor-desert theories may lurk in the background of many of trademark law's most recent and controversial doctrinal innovations (such as the merchandising right, (28) sponsorship and affiliation confusion, (29) post-sale confusion, (30) initial-interest confusion, (31) and dilution (32)), they are rarely overtly invoked these days. (33) The modern focus, rather, is on protecting consumers from confusion. The existence of such confusion, originally a matter of proving the producer-to-producer injury of wrongful diversion of trade, (34) has become our definition of the trademark infringement injury itself. (35) This shift in emphasis, in turn, has pivoted trademark theory away from deontological rationales and toward the currently dominant consequentialist approach, which as discussed above has advanced a coherent and plausible theory of consumer interests and injuries under the trademark regime. (36)

Lockean theory, in contrast, has no account of consumer interests in the trademark regime (with one important but limited exception (37)). Part of the reason for this shortcoming is likely historical. Prior to the modern era, interproducer injuries dominated trademark debates. The nineteenth-century system of trademark law described by McKenna was at best only marginally concerned with the duties owed by sellers to buyers, which were governed separately by the common law torts of fraud and deceit. (38) Rather, trademark law defined sellers' duties to each other--buyers were essentially the evidence, not the victims. (39) The prioritization of consumer interests in the trademark system is a relatively recent phenomenon--dating only to the mid-twentieth century. (40) Thus, one could argue that Lockean theory simply hasn't yet caught up to this doctrinal shift. Admittedly, there have been some recent efforts to apply Lockean understandings of intellectual property law generally, with more philosophical rigor than could be found in the opinions of nineteenth-century jurists. (41) It is telling, however, that trademark law is often an afterthought in such analyses, which focus more (or in some cases exclusively) on copyright and patent. (42) Indeed, specific applications of rigorously argued Lockean theory to extant trademark doctrine tend to find an imperfect fit. (43)

This lack of fit, I think, points the way to a more persuasive explanation for Lockean trademark theory's general failure or inability to account for consumer interests. What we appear to be dealing with is a kind of category error--an "allocat[ion] [of] ... concepts to logical types to which they do not belong." (44) Here, the error lies in taking the perceived usefulness of Locke's theory in addressing one set of relationships in trademark law (producer-to-producer relationships) as evidence that these relationships, cast in property-related terms, are what trademark law is essentially about. There is, in fact, a deep historical ambivalence as to whether this is correct--whether trademark law is better thought of as a species of property law (i.e., intellectual property law) or rather as a species of tort law. (45) This ambivalence is perpetuated in the modern era by the dual mission at the core of trademark law: both to protect producers' investments in goodwill (by giving them a property-like right in the symbol of that goodwill) and to protect consumers so they can be confident in their purchasing decisions (by imposing tort-like liability for conduct that deceives consumers). (46) Lockean labor-desert theory can address the first of these missions, but not the second. The relative labor or effort of two producers with respect to the goodwill symbolized by a trademark might well be relevant to the task of allocating rights in the mark between them (just as it might be relevant to allocating rights to an invention or a work of authorship as between the inventor or author and the rest of the world). (47) But attempting to derive a consumer's rights as a consumer (48) against a trademark-using producer by reference to the labor the two parties have invested in the mark is an exercise in absurdity. Once we extend trademark law's domain to include producer-to-consumer relationships, the conceptual framework of Lockean theory breaks down.

There is therefore a gap in extant deontological theory with respect to trademark law. Because such theories historically derive from Lockean principles, and because those principles address the relationships among producers but have little to say about relationships between producers and consumers, there is no coherent and generally applicable nonconsequentialist moral framework available to address the consumer-focused turn in the past half century of trademark doctrine. By plotting on a matrix each school's normative theory of the relationships implicated by trademark law, we can see the gap immediately:
FIGURE 1

Moral Theory Producer-Producer Producer-Consumer
 Relationship Relationship

Consequentialist Free Riding Search Costs

Deontological Lockean Labor-Desert


The intent of the rest of this Article is to fill in the missing box in this matrix. In this regard, it is important to remember that Lockean theory--founded on the moral claims of labor--is only one deontological system; there are others. The social contract tradition (of which Locke's philosophy forms but one, albeit an important, part) is far broader than labor-desert theory standing alone. In particular, contractualism--a branch of the Kantian stream of social contract thought--purports not merely to justify those rights and obligations that arise among persons by virtue of their labor as to things that might be classified as property (though it can do so), but also to provide the tools to identify all rights and duties that might arise between individuals in society. Contractualism thus has the capacity not only to fill the empty box in the matrix above, but potentially to offer a theoretical framework for trademark law as comprehensive as the law and economics framework. Moreover, as I will argue in Part IV, a contractualist framework appears to do a better job at describing current trademark doctrine than consequentialism. Finally, legal thinkers have experience applying Kantian moral philosophy to legal regimes that may have greater relevance to trademark law than does property law--regimes that govern the behavior of actors engaged in market exchange. To take advantage of this experience, we must adopt a new perspective on trademark law; we must think of it in terms not only of property, nor even of both property and tort, but also in terms of contract.

II. CONTRACTUALISM: A THEORETICAL ALTERNATIVE

If the contractualist tradition is to serve as a theoretical foundation to the consumer-focused turn in modern trademark law, it will be necessary to understand the relevant features of this branch of moral philosophy. This Part will outline those features, paying particular attention to the aspects of contractualist moral theory that are relevant to the relationships between buyers and sellers engaged in market exchange.

A. The Wellspring of Contractualism: Kant and the Categorical Imperative

Today, deontological philosophy is perhaps best known through the work of John Rawls, whose primary interest--like that of early social contract theorists such as Hobbes, Rousseau, and Locke--is in the rational foundations of the proper relationship between the individual and the institutions of the state. (49) But underlying this political philosophy is a strain of moral philosophy that was most clearly expressed in Kant's Grounding for the Metaphysics of Morals. (50) In the Grounding (and later The Metaphysics of Morals (51)), Kant famously attempted to deduce moral principles as a matter of pure reason, rather than by reasoning backwards from desired effects. Kant's moral philosophy (to say nothing of the school of ethical thought that flowed from it) is far too complex and contested to be thoroughly explored here. What follows are the basic outlines of those elements of the system he developed that are most useful to understanding the ethics of market exchange.

It must be admitted at the outset that Kant himself did not think market exchange had much to teach us about morality, which he thought of in terms of "duties"--the "[TEXT NOT REPRODUCIBLE IN ASCII.]" in deontology. Duty for Kant "is the necessity of an action done out of respect for the law." (52) Accordingly, duty-based morality depends "not on the realization of the object of the action, but merely on the principle of volition [i.e., the maxim] according to which, without regard to any objects of the faculty of desire, the action has been done." (53) Honesty in commerce, Kant thought, shed little light on morality because it was motivated by self-interested pursuit of certain results, not by duty. The dishonest merchant would risk losing future business by, for example, overcharging a naive customer; the honest shopkeeper thus acts honestly not out of duty but because "his own advantage require[s] him to do it." (54)

This is not to say that duties have no role in commerce, but rather that they are consistent with enlightened self-interested pursuit of the inclinations of market participants. Honesty in commerce is thus "in accordance with duty, but not from duty." (55) To identify duty and distinguish it from self-interest, Kant looked to actions that are performed despite an inclination of the agent against them. (56) Such actions, Kant surmised, must be motivated by an obedience to some obligation apart from fulfillment of one's desires; a motivation not to achieve a particular end, but to do good for its own sake. (57) The reasoning behind such actions, Kant argued, can illuminate the nature of what he posited as the only unqualified good: a good will. (58)

What might compel such self-effacing obedience in choosing a course of action? And how can an agent even choose a course of action if not by reference to the consequences one desires to bring about by that action? Kant's answer to this question is the fundamental proposition of deontological ethics and of the liberal political philosophy that sprang from it:
 But what sort of law can that be the thought of which must
 determine the will without reference to any expected effect, so
 that the will can be called absolutely good without qualification?
 Since I have deprived the will of every impulse that might arise
 for it from obeying any particular law, there is nothing left to
 serve the will as principle except the universal conformity of its
 actions to law as such, i.e., I should never act except in such a
 way that I can also will that my maxim should become a universal
 law. (59)


This is the categorical imperative, the principle that determines what maxims--subjective reasons for acting a particular way in particular circumstances-are consistent with duty and therefore morally permitted (or required). (60) This particular formulation of the categorical imperative--known as the Formula of Universal Law--is only one of several putatively equivalent formulations derived by Kant in the Grounding, (61) and it most clearly presents the mutuality and reciprocity at the heart of all contractualist systems. Another formula--the Formula of the Kingdom of Ends (62)--is the comerstone of liberal political philosophy, familiar to us as elaborated and expanded on by modern philosophers such as Rawls. (63) But perhaps the most helpful formulation for application to the domain of market exchange is the Formula of the End in Itself:
 [R]ational nature exists as an end in itself. In this way man
 necessarily thinks of his own existence; thus far is it a
 subjective principle of human actions. But in this way also does
 every other rational being think of his existence on the same
 rational ground that holds also for me; hence it is at the same
 time an objective principle, from which, as a supreme practical
 ground, all laws of the will must be able to be derived. The
 practical imperative will therefore be the following: Act in such a
 way that you treat humanity, whether in your own person or in the
 person of another, always at the same time as an end and never
 simply as a means. (64)


"Humanity" here may be understood as the unique capacity of rational beings to choose what ends they will pursue and to settle on actions to achieve those ends. (65) In modern usage we might substitute the term "autonomy," which is the term I will use to refer to this concept for the remainder of this Article. And by using someone "simply as a means," we may understand Kant to be referring (consistent with the idea of the social contract) to actions based on maxims to which another person "could not in principle consent." (66) Thus, perhaps unsurprisingly, lies, deception, and broken promises loom large in contractualist moral philosophy. And because engaging in market exchange is one of the ways individuals pursue the ends that rational beings might find worthwhile, contractualist principles can be invoked to discern the boundaries of appropriate conduct between buyers and sellers, Kant's deprecations notwithstanding.

B. Contractualist Approaches to Lies and Deception

Kant situated the duty to refrain from lying as a duty to oneself rather than a duty to others, because in saying something he does not believe, a moral agent uses himself as a mere means to achieve some desired end. (67) That a lie might be harmful to others, while it might provide a sufficient basis for condemnation, was not a necessary condition of Kant's prohibition against lying. (68) This somewhat idiosyncratic position may be attributable to Kant's desire to avoid the intrusion of concerns over consequences into his "pure" moral philosophy. (69) Later philosophers in the contractualist tradition have not been quite so absolute as Kant on this point, and have generally held lies and other forms of deception to be wrong by reference to the interests of persons other than the deceiver.

The most prominent (and, for present purposes, most helpful) modern contractualist philosopher is Tim Scanlon. Scanlon's moral philosophy is closely identified with the term "contractualist" as a label for a deontological theory of interpersonal duties ("what we owe to each other," in his phrase), rather than a theory of just political or social institutions. (70) Scanlon's somewhat modernized answer to the categorical imperative is his formulation of the general test of right and wrong:
 [J]udgments of right and wrong ... are judgments about what would
 be permitted by principles that could not reasonably be rejected,
 by people who were moved to find principles for the general
 regulation of behavior that others, similarly motivated, could not
 reasonably reject. In particular, an act is wrong if and only if
 any principle that permitted it would be one that could reasonably
 be rejected by people with the motivation just described (or,
 equivalently, if and only if it would be disallowed by any
 principle that such people could not reasonably reject). (71)


Scanlon's test shares with other deontological theories--including Kant's categorical imperative--an overriding concern with the social contract, with (admittedly hypothetical and idealized) universal agreement as the basis for moral obligations. Much of his project is devoted to addressing debates within philosophy over the nature of moral reasoning, of the relationship between rationality and reasonableness, and of the subjects and sources of moral obligations and responsibilities, none of which are particularly relevant for the purposes of this Article. But the project culminates in a helpful set of crystallized moral principles having to do with deception and promises, which have obvious application to relationships between buyers and sellers.

For example, Scanlon's Principle M (for "manipulation"), provides:
 In the absence of special justification, it is not permissible for
 one person, A, in order to get another person, B, to do some act, X
 (which A wants B to do and which B is morally free to do or not do
 but would otherwise not do), to lead B to expect that if he or she
 does X then A will do Y (which B wants but believes that A will
 otherwise not do), when in fact A has no intention of doing
 Y if B does X, and A can reasonably foresee that B will suffer
 significant loss if he or she does X and A does not reciprocate by
 doing y. (72)


Setting aside the "special justification" proviso for the moment, we can see how Scanlon's Principle M is consistent not only with his own test for right and wrong but also with various formulations of the categorical imperative. For Scanlon's purposes, "it would be reasonable to reject a principle offering any less protection against manipulation" because in general a moral agent "want[s] to be able to direct one's efforts and resources toward aims one has chosen and not to have one's planning co-opted ... whenever this suits someone else's purposes." (73) This is consistent with the Formula of the End in Itself, insofar as A in violating Principle M would be using B as a mere means to achieve A's chosen end of X, which is not a chosen end of B (who would not do X but for A's creation of the false expectation of B's chosen end of y). (74) And it is also consistent with the Formula of Universal Law insofar as one could not rationally will a universal law that allowed others to act towards oneself as A acts towards B in this example.

Scanlon proposes a related principle, Principle D (for "due care"), requiring moral agents to exercise due care so as to avoid creating such false expectations. (75) Again, this is consistent not only with Scanlon's standard of right and wrong, but with the categorical imperative--particularly the Formula of Universal Law. Just as it would be reasonable to reject a principle that allowed others to negligently lead one to form false expectations, it is difficult to imagine that anyone could rationally will a universal law allowing the same thing.

Finally, Scanlon's Principle F (for "fidelity") deals with promises (and courses of conduct tantamount to promises). Scanlon argues that in some instances, B will not only desire that A will do X, but will also desire some assurance that X will come to pass--not only for purposes of relying on X in planning B's actions, but because B desires X in itself. (76) Principle F provides:
 If (1) A voluntarily and intentionally leads B to expect that A
 will do X (unless B consents to A's not doing so); (2) A knows that
 B wants to be assured of this; (3) A acts with the aim of providing
 this assurance, and has good reason to believe that he or she has
 done so; (4) B knows that A has the beliefs and intentions just
 described," (5) A intends for B to know this, and knows that B does
 know it," and (6) B knows that A has this knowledge and intent;
 then, in the absence of special justification, A must do X unless B
 consents to X's not being done. (77)


Some important features of Principle F bear mention: First, it shares Principle M's "special justification" proviso, to which we will return shortly. Second, it adds to the mix of facts that can give rise to moral obligation an individual's desire for assurance plus mutual knowledge of that desire and the intent to satisfy it. It is these additional facts that impose duties on A that A cannot, as might be the case with respect to other expectations A might create in B, discharge with a warning or compensation. (78)

Scanlon's "special justification" proviso is significant, though, insofar as it allows A to mislead B into doing X, or to break a promise to B, in certain limited circumstances. Scanlon identifies four such circumstances: emergencies (i.e., where X is immediately necessary to remove some serious external danger), threat (i.e., where B is himself threatening some harm that can be prevented by misleading him into doing X), paternalism (i.e., where B's rational capacities are diminished or impaired and "misleading him is the least intrusive way to prevent him from suffering serious loss or harm"), and permission (i.e., where A and B have voluntarily entered into some activity that foreseeably involves some kinds of deception). (79) The last two circumstances--and particularly the possibility of permissible paternalism, whether grounded in consent or otherwise--are especially relevant to the contractualist analysis of market exchange, and bear further elaboration.

C. Tensions Within Contractualism: The Problem of Paternalism

Opportunities for paternalist intervention in markets arise with considerable frequency. Indeed, the very idea of "consumer protection" presumes that consumers need some legal authority to look after them in the marketplace--that they are incapable of protecting themselves, or would be better off with some third party looking after their interests. So any theoretical approach to market exchange will have to grapple with fundamental questions about whether, and when, regulating the conduct of market participants "for their own good" is permissible.

Kant himself did not abide paternalism. As one might deduce from his conception of "humanity" and the Formula of the End in Itself, (80) Kant considered it a duty of rational beings to choose their own ends and to cultivate their ability to pursue those ends (within the constraints of other applicable duties), (81) Accordingly, he considered any effort--even a well-meaning one--to interfere with any rational being's freedom and duty to pursue such a course of self-determination to be wrongful. (82) Nevertheless, there are contractualists--including Scanlon--who accept that paternalism might be justified where it would be the subject of agreement (or would not be rejected) by reasonable people with knowledge of the circumstances that would be held to permit paternalist intervention. (83)

Views on paternalism do not map neatly to the consequentialist/deontological divide; Kant's absolutist views against paternalism are remarkably similar to those of John Stuart Mill. (84) Nevertheless, Gerald Dworkin, a leading thinker on the philosophical problems of paternalism, (85) has plausibly identified contractualist tolerance of paternalist interventions in the choices of competent adults with the "soft paternalism" defended by Joel Feinberg in his work on the criminal law. (86) Feinberg's distinction between hard and soft paternalism hinges on the information available to the individual whose choices are to be interfered with:
 Hard paternalism will accept as a reason for criminal legislation
 that it is necessary to protect competent adults, against their
 will, from the harmful consequences even of their fully voluntary
 choices and undertakings....

 .... Soft paternalism holds that the state has the right to
 prevent self-regarding harmful conduct (so far as it looks
 "paternalistic") when but only when that conduct is substantially
 nonvoluntary, or when temporary intervention is necessary to
 establish whether it is voluntary or not.... [T]o whatever extent
 [an individual's] apparent choice stems from ignorance, coercion,
 derangement, drugs, or other voluntariness-vitiating factors, there
 are grounds for suspecting that it does not come from his own will,
 and might be as alien to him as the choices of someone else. (87)


Donald VanDeVeer, in turn, formalizes a related model of permissible paternalism and extends it beyond the special case of criminal legislation in his "Principle of Hypothetical Individualized Consent":

A's paternalistic interference, X, with S is justified if

1. S would validly consent to A's Xing if (a) S were aware of the relevant circumstances; (b) S's normal capacities for deliberation and choice were not substantially impaired; and

2. A's Xing involves no wrong to those other than A or S. (88)

Thus, the model of paternalism that its supporters have argued is consistent with the liberalism at the heart of contractualism is essentially limited to correcting for missing information or diminished capacity (89) on the part of the person whose decisionmaking is being interfered with.

In sum, the contractualist school would seem to be capable of encompassing at least two positions on paternalism with respect to competent adults. The traditional Kantian would deem unacceptable any attempt to take choices that affect an individual's well-being out of his hands or otherwise interfere with his decisionmaking--even if the interference was for his own good, and even if he consented (or would hypothetically consent) to the interference--on the theory that it is the individual's duty to cultivate his capacity to select and pursue his own ends, and he may not be used as a means to any end (even one believed to be in his interest). Some modern contractualists, however, would allow for some limited interference with individuals' decisionmaking, but only to the extent that the individual would (at least hypothetically) consent to such interference as a useful aid to that individual's rational and informed decisionmaking. As we shall see, this distinction will be of central importance to some of the thorniest issues regarding the regulation of market exchange.

D. Objections to Contractualism

This potential schism within contractualism points the way to some general objections to it as a legitimate moral theory. I will focus here on three: the charge of indeterminacy, the charge of circularity, and the charge of illiberality. All three are frequently leveled by consequentialist critics of contractualism, though they do not necessarily depend on agreement with consequentialist theory.

The most basic of these objections is that contractualism is indeterminate: that it does not allow us to deduce principles of moral conduct in many, if not most, of the circumstances we are likely to find ourselves in. The internal debate over paternalism does seem to illustrate that contractualists themselves do not agree on what a properly constructed contractualist theory would prescribe over a vast domain of moral choice. However, as Kim Lane Scheppele, a defender of contractualism (under the older label "contractarianism" (90)), explains, the principle of mutual agreement as the foundation for moral rules
 may operate more decisively in telling us what the legal rules
 should not be than in telling us what the laws should be; that is,
 it may be easier to tell which laws would be rejected by [people
 seeking a contractarian consensus] than it would be to tell
 precisely on which single rule they would agree....

 ....

 ... It may be that there are several rules that would be
 acceptable from a contractarian point of view, depending on the
 twists and turns of particular arguments. (91)


The contractualist thus claims that moral theory is not designed to eliminate the need for moral judgment or practical reasoning, only that it helpfully limits the range of possible conclusions from such reasoning. Again, as Scheppele argues:
 The availability of multiple rules that may be justified in
 contractarian terms does not count against a contractarian theory
 of law so long as the theory is capable of ruling out some
 alternatives and therefore has some real bite.... As long as the
 rules themselves meet the test of not being rejected on the basis
 of negative contractarian arguments, then a choice from the set of
 alternatives remaining may be based on other principles like
 majoritarianism or efficiency. (92)


Put somewhat differently, the charge of indeterminacy may actually be a charge of underdeterminacy: a disagreement over the importance to a moral theory's viability of the size and scope of the deontic categories it generates. If such systems carve actions up into categories such as "obligatory," "permitted," and "forbidden," (93) the charge may be no more than an objection that the "permitted" category in contractualist ethics is unacceptably broad or encompasses acts that ought to be relegated to the "required" or "forbidden" categories. Scheppele argues, in essence, that this breadth may be narrowed by reference to other moral theories without violating the principles of contractualist ethics, so long as that narrowing would not lead to moral approval of acts forbidden by contractualism or moral disapproval of acts required by contractualism. In other words, she raises the possibility--an important one for the project of this Article-that different moral values and modes of moral reasoning can coexist and might even be complementary. (94)

The second relevant critique is that contractualism is circular. David Hume leveled such a charge against "rationalist" moral theories centuries ago, (95) and it is one that modern contractualists remain sensitive to (96) under the onslaught of consequentialism and its intuitively attractive account of individual well-being as a totalizing and unifying moral principle. But of course, as Scanlon notes, the claim that individual well-being is any less circular a basis for moral argument than any other basis is little more than an assumption--albeit an intuitively appealing one. (97) Conversely, to the extent that individual well-being is a permissible basis for moral reasoning, there may be other criteria that share the essential properties that make it so. Scanlon refers to such criteria as "generic reasons," (98) and while he concedes that individual well-being is an important one, he denies that it is the only or even always the most important principle on which moral claims may rest. (99) In particular, he claims that principles of fairness (100) and responsibility or autonomy (101) are often entitled to equal or even greater consideration in moral argument. (102)

This leads us to the third, and to my mind the most persuasive, objection to contractualism: that it is illiberal. That is, once we move beyond individual well-being as determined by the individual himself as a basis for moral reasoning, we arbitrarily subject individuals to rules devised by others that might make those individuals worse off than they would be under an alternative moral framework. In legal academic circles this argument was recently (and voluminously) made by Louis Kaplow and Steven Shavell, whose hundreds of pages of analysis boil down to the essential thesis that "there is no sound justification for imputing an analyst's tastes to citizens at large." (103) And as Scheppele concedes, "[f]oundational principles look suspiciously like some particular elite's sense of what would serve its interests, dressed up to look neutral." (104) This is particularly problematic from the liberal perspective if the elite in question purports to derive universally applicable rules from moral intuitions that differ predictably from those held by the general population--as some recent psychological and empirical research suggests is likely to be the case. (105)

At bottom, this objection is the same antipaternalist argument discussed above, (106) and as noted there, the liberal premise of self-determination and individual autonomy is not particular to contractualism or consequentialism. The fundamental debate here, it seems, is about whether the thought exercise on which contractualism rests--the other-regarding quest for principles of hypothetical mutual consent (107)--is normatively sound. That is, whether the moral exercise of putting oneself in another's shoes and trying to understand and respect his or her reasons for wanting us to act in a certain way is more likely to lead us to a world all consider more just, or is more likely to lead those of us in positions of policymaking authority to justify limitations on others' freedom by reference to what we (erroneously and perhaps self-servingly) convince ourselves those others would want.

This is a larger debate than this Article can contain, or even adequately review. (108) My ambition here is not to settle centuries-old debates in moral philosophy, but merely to bring one heretofore-neglected side of that debate to bear on a particular area of law on which it might shed a helpful light. In doing so, I do not mean to suggest that I view the contractualist approach as unassailably correct nor that it will always offer the best approach to the regulation of market exchange. In fact, I have some doubts about these questions, largely along the lines of the objections raised in this Part. But as discussed in Part III, the application of contractualist theory to other areas of law regulating market exchange has led to helpful identification and clarification of fundamental normative questions for policymakers in those areas, and as discussed in Part IV this clarity helps avoid some of the pitfalls of consequentialist analysis. It is my hope in this Article to initiate--though by no means to resolve--a similarly clarifying and productive normative debate in trademark law.

III. MORALS AND MARKETS (109)

Both consequentialist and contractualist moral systems have been brought to bear on hotly contested issues in private law, and particularly in areas that raise vexing questions about the legal obligations of market participants to one another prior to their agreeing to a transaction. I am speaking here about the duty to disclose in contract law, and the prohibition of insider trading in securities law. One key feature of these areas of doctrine is that both of them, like intellectual property law, purport to regulate the flow of information between individuals engaged in market exchange. This Part explores the battle of moral philosophies in these areas of contract and securities law, in an effort to identify some useful principles for constructing a contractualist theory of trademark law as an alternative to the well-worn consequentialist theories of the Chicago School.

It is an inescapable fact that parties to a transaction are likely to have different levels of information about the subject matter of their exchange. This asymmetry obviously creates an opportunity for the party with more information to take advantage--to benefit at the expense of the party with less information. One might characterize a transaction completed under these circumstances as offensive to contractualist principles of equality and mutual respect, or to a consequentialist principle of welfare maximization--that is, as unfair or inefficient. It is therefore notable that the law does not consider asymmetric information an absolute evil. In general, we accept the fact that there will be asymmetric information in transactions, subject to certain exceptions.

Contract law provides a clear example. The parties to a contract may have differing levels of information about the subject matter of their agreement, and yet that asymmetry in and of itself is insufficient to determine whether the disadvantaged party will be entitled to relief as a result of the asymmetry. (110) Thus, a unilateral mistake of fact, standing alone, is not grounds for avoiding performance of a contract. (111) However, if the party with greater information could somehow be said to be responsible for his counterparty's mistaken belief--if he knew of it and failed to correct it despite being uniquely in the position to do so, or worse, if he created it through his own misrepresentation or concealment of the facts--then the mistaken party may be entitled to relief including rescission and potentially even damages. (112) Thus, there must be something beyond the mere fact of asymmetric information about the subject of exchange-something that goes to the relationship between the parties--that makes the asymmetry problematic or unproblematic from the point of view of contract law.

In securities law, we see a similar ambivalence about asymmetric information. In general, we think that curing such asymmetry is precisely what securities markets are for. Large, liquid markets on transparent public exchanges use the price mechanism to efficiently disseminate relevant but disparately held information about the subject of exchange through transactions between better-informed and worse-informed buyers. (113) But there is a category of informational advantage--material nonpublic information obtained through a relationship of trust--that we apparently think shouldn't be the basis of such transactions, and we outlaw insider trading accordingly. (114) Again, information asymmetry in itself is not problematic, but when combined with some other factor going to the relationship between seller and buyer it may become so.

In each of these two spheres, commentators have offered both consequentialist and contractualist analyses of the relevant legal doctrines. (115) In contractualist analysis, we often look at the causal relationship between the parties' own acts or omissions and the existence of the asymmetry itself: was the party with greater knowledge in some way responsible for his counterparty's informational disadvantage, or could the disadvantaged party reasonably have removed the disadvantage himself? (116) In consequentialist analysis, in contrast, we often look to the incentives for acquiring or transferring information: would holding the more-informed party liable (or excusing the less-informed party from performance) generate incentives that undesirably decrease the production or dissemination of socially valuable but costly information going forward? (117)

These two areas of law are a useful prelude to thinking about the implications of our competing moral theories for trademark law for three reasons. The first reason lies in the scope of the debate between the two schools of thought over these areas of law. These moral theorists are engaged in both descriptive and prescriptive lines of argument. To be sure, across all areas of law for which moral theory might be relevant, contractualists argue that their moral framework is normatively preferable to the consequentialist framework, and vice versa. But the descriptive claims of these two schools vary by area of doctrine.

In contract, the two schools vigorously debate whose theory best explains and predicts the decisions of courts in contract cases--a descriptive rather than a prescriptive question. (118) Consider a series of cases in which oil or mineral extraction companies purchased valuable land from owners who were unaware of its potential. (119) In one, Neill v. Shamburg, (120) the defendant leased several parcels of land adjacent to one he leased jointly with the plaintiff, and one of the adjacent properties had been found (after considerable investment by the defendant) to have valuable oil deposits. Not knowing about the nearby oil find, the plaintiff sold her interest in the jointly held parcel to the defendant, then sued to rescind the contract of sale once the information became known. The court found for the defendant. (121) The consequentialist interpretation of this result, best expressed by Anthony Kronman, is that information about the subject matter of a contract such as the one involved in Neill is costly to produce but socially valuable, and that therefore the party that undertakes the necessary investment should obtain a property right in the information in order to provide the requisite incentive to produce it in the first place. (122) Where, in contrast, the information was "casually" acquired, or would have been acquired in the ordinary course of events, no such property right is necessary to incentivize the information's production, and disclosure of the information to a counterparty may therefore be required in order to ensure that the transaction does in fact increase aggregate welfare. (123)

Contractualists look at the same set of facts quite differently. Scheppele, for example, claims that the duty to disclose in the oil cases hinges not on incentives to produce information, but on asymmetric access to information. Citing the factually similar case of Feist v. Roesler, in which the court affirmed a jury's finding of fraud by concealment and accordingly refused to enforce the parties' agreement, (124) Scheppele asserts that a contracting party's investment in the production of valuable information is not the relevant factor in duty to disclose cases. Instead, she argues, the parties' equality of access to the information is the deciding factor: in Feist the court noted that the underinformed seller was living hundreds of miles from the investment property at issue, a fact absent from Neill. (125) Thus, both schools of moral philosophy look to the facts and outcomes of particular cases to support their descriptive claim that the duty to disclose in contract law is grounded in their own theories.

On insider trading, in contrast, both schools generally concede that extant doctrine does not align with their theories' prescriptions and critique the doctrine on that basis. Obviously any rule against insider trading is inconsistent with consequentialist prescriptive arguments that there should be no such rule. But the contractualist argument that the rule ought to rest on equality of access and respect for market participants' autonomy (126) has explicitly been rejected by the Supreme Court. In particular, the Court's precedents require that a Rule 10b-5 defendant owe some preexisting duty to either his or her counterparty (the fiduciary theory) (127) or to the source of the inside information (the misappropriation theory) (128) in order to be held liable. These theories of insider trading liability appear to stem from the Court's efforts to put some limit on the potentially expansive reach of alternative theories founded on contractualist principles of fairness. Indeed, asymmetric access to material information had arguably been sufficient to ground liability under Second Circuit precedent, (129) and the Supreme Court's rejection of that precedent drew a vigorous dissent from Justice Blackmun, who argued in explicitly fairness-based terms. (130)

In sum, both schools claim to have the best descriptive account of the duty to disclose in contract law, but neither camp can claim that its moral theory accurately describes positive insider trading law. (131) The interplay of descriptive and normative arguments in these areas nevertheless helps to clarify the key normative questions underlying both bodies of doctrine and the pivotal doctrinal levers for putting a particular normative vision into practice. Trademark law and consumer law generally would, I think, benefit from this kind of clarifying debate. Thus, both descriptive and prescriptive lines of argument will be relevant to the application of moral theory to consumer markets--we will want to know both what a body of trademark law informed by contractualist principles would look like, and whether the law on the books is consistent with that vision.

The second reason for examining these two bodies of law is that in the contract literature, the conclusions of contractualist and consequentialist analyses largely (albeit not perfectly) agree, whereas in the insider trading literature, they differ. (132) This is evident in the fact that both schools emphasize descriptive claims with respect to contract but rely on prescriptive arguments with respect to insider trading. Law and economics scholars famously argue that insider trading should be legal (133) (against contractualists who argue it should be prohibited as fraud (134)), while theorists of all stripes are largely in agreement on the scope of the duty to disclose in contract law (if not on the reasons underlying the duty). (135) Thus, there must be some difference between the two fields that makes the choice of an ethical system determinative. We might therefore ask what that difference is, and whether it correlates with some feature of trademark-related transactions that distinguishes them from negotiated bilateral transactions on the one hand or impersonal exchange-based transactions on the other.

The search for such a correlation provides the third and most important reason why the contract and securities law examples are a useful prelude to the analysis of trademarks. I propose that such a correlation does in fact exist, and that it rests on a particular conflict between the priorities of consequentialist and contractualist systems. This conflict has to do not with the parties' knowledge concerning the subject of exchange, but rather with the relationship between an individual transaction and the broader market. It arises where the consequentialist goal of generating incentives to produce information and disseminate it to the market comes into conflict with the contractualist principle of respect for a counterparty's autonomy.

To see how our two schools of moral theory deal with this conflict, consider two situations. (136) In the first situation, [S.sub.1]:

([a.sub.1]) material information about the subject matter of exchange is equally available to both parties;

([b.sub.1]) the seller has--through effort, investment, or chance--acquired the information, but the buyer has not; and

([c.sub.1]) the buyer does not know that the seller has superior information, though the seller does know this.

In the second situation, [S.sub.2]:

([a.sub.2]) the seller is in a uniquely privileged position that gives him access to material information about the subject matter of exchange without undertaking costly investment or effort;

([b.sub.2]) the seller has taken advantage of this privileged access to acquire material information that the buyer lacks; and

([c.sub.2]) the buyer does not know that the seller has superior information, though the seller does know this.

If we were dealing with a contract law case, both consequentialist and contractualist approaches would deny the buyer any relief in [S.sub.1] and provide it in [S.sub.2], (137) but they would do so in reliance on different facts. For the contractualist, the key fact is a; for the consequentialist, it is b. (Fact c is simply the factual predicate that puts the duty to disclose at issue.)

The consequentialist would decide both cases on grounds of promoting the completion of welfare-enhancing transactions while minimizing information costs (a form of transaction costs) by providing appropriate incentives to acquire relevant information about the subject matter of exchange. In [S.sub.1], denying relief to the buyer gives him an incentive to acquire information that is available to him and removes the disincentive of free riding from the seller's efforts to acquire information. In [S.sub.2], the buyer's incentives to acquire information are irrelevant because he lacks the means to do so; without providing the information to the buyer, the seller's activities are a mere extraction of rents from his superior access--a transfer of welfare from the buyer to the seller rather than a mutually beneficial exchange.

The contractualist, in contrast, is concerned with the duties of moral agents to rationally pursue their own ends consistently with a respect for the equal right of all other moral agents to do likewise. In [S.sub.1], the contractualist would say that the buyer has a duty to seek out information that will be useful to him in pursuing his rationally chosen ends, and if he fails to do so the seller has no duty-and perhaps even no right (138)--to provide the buyer with information that both parties know the buyer might just as easily have acquired himself. In $2, the contractualist would argue that a seller has a duty to respect the buyer's autonomy-his freedom of rational choice--by not allowing the buyer to rely to his detriment on a mistaken belief that the seller knows he is in a unique position to correct. (139)

Importantly, focusing the ethical analysis on one of these justifications at the expense of the other does not change the outcome of the analysis in the contract example. Within the closed universe of a bilateral contract, forbidding a party from knowingly taking advantage of his counterparty's inferior access to material information does not decrease, and may in fact increase, the flow of information to the broader market. This is because the seller who has unique or privileged access to material information about the subject of exchange will be obliged to disclose the information to those without similar access if he wishes to trade, but the seller who could obtain such information by effort, investment, or chance will not be discouraged from doing so. Conversely, allowing a party to take advantage of his counterparty's inferior access to material information will not necessarily increase, and may in fact decrease, the flow of information to the broader market--again within the closed universe of a bilateral contract. This is because sellers with unique or privileged access to material information require no special incentive to produce the information and will, if permitted, likely exploit that access to the fullest by maintaining secrecy to the greatest possible extent and for as long as possible. It is thus unsurprising that the consequentialist and contractualist approaches to the duty to disclose in contract law arrive at similar results in our two hypothetical situations.

The same cannot be said for insider trading. Note in this regard that [S.sub.2] is a prototypical description of an insider trading case. Since consequentialists argue that insider trading should be permitted, there must be some additional fact that could be added to [S.sub.2] that would reverse the consequentialist's view of the proper outcome while leaving the contractualist's view unaffected. As suggested above, I believe that fact has to do with the relationship between an individual transaction and the broader market. Dealing strictly with the prescriptive arguments of each school, (140) the contractualist objects when an insider enters into a securities trade with someone who lacks the access to material information that the insider enjoys. (141) Where we are dealing with an exchange-based securities transaction, however, blocking the transaction based on asymmetric access to information about the subject of exchange has the effect of blocking the dissemination of that information to third parties, insofar as such information is conveyed primarily through the price paid for a security traded over an exchange. (142) To a contractualist, this effect may be of little moment, but to a consequentialist, it is has great significance for the efficiency of the market (and thus the welfare of market participants) going forward.

Thus, the conflict between ethical systems that arises as we move from the bilateral contract to the exchange-based trade can be seen as a question of priorities. While the consequentialist system seems to view the dissemination of information about the subject of exchange (and the resulting benefits to all participants in the relevant market) as paramount, the contractualist system focuses on how we deal with one another in our individual interactions. I propose that this difference, more than anything else, explains the disparity between contractualist and consequentialist conclusions regarding insider trading, and the difference between those conclusions and the conclusions of the same ethical systems regarding the duty to disclose in contract law. (143) We can ask, then, whether and how this difference in priorities applies to the consumer markets regulated by trademark law.

IV. TOWARD A CONTRACTUALIST THEORY OF TRADEMARK LAW

This Part applies the theoretical insights of the foregoing analysis to the producer-consumer relationships governed by trademark law. First, I will argue that contractualist theory does at least as well as--and perhaps better than--consequentialist theory in justifying the traditional core of trademark law, the prohibition against passing off. Next, I will explore an area of doctrine that raises a conflict of priorities similar to that explored in the previous Part: the doctrine of post-sale confusion, which I believe to be the only trademark doctrine that purports to regulate transactions based on the information that marks convey to third parties to those transactions. Third, I will explore an area that exposes some of the limits of contractualist analysis, the doctrine of initial-interest confusion. This doctrine squarely raises the question of paternalism, and while it therefore presents a harder case for contractualism, I will argue that it nevertheless makes a strong case for the relevance of contractualist analysis to some of the most controversial questions in consumer protection law generally and trademark law in particular. Fourth and finally, I will suggest some broader implications of a contractualist model of trademark law.
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Title Annotation:Introduction to IV. Toward a Contractualist Theory of Trademark Law, p. 761-796
Author:Sheff, Jeremy N.
Publication:Stanford Law Review
Date:Apr 1, 2013
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