Trademarks are a universal phenomenon in that the legal system of almost every nation in the world recognizes some form of identification of the source and quality of goods. Trademarks have been in existence for almost as long as trade itself. Indeed, identification symbols have been found on the goods that were traded in China, India, Persia, Egypt, Rome, and Greece, and date back to as early as 4000 years ago.

In free market economies, trademarks are legally recognized and protected as an inherent feature of the marketplace and of consumer protection. Even in the formerly highly socialized economies of Eastern Europe and the USSR, trademarks were legally recognized as contributing to the improvement of quality in goods. A USSR economist was quoted as saying that:

The trademark makes it possible for the consumer to select the goods which he likes. … This forces other firms to undertake measures to improve the quality of their own products in harmony with the demands of the consumer. Thus the trademark promotes the drive for raising the quality of production.

From an economic point of view, a trademark is merely a symbol that allows a purchaser to identify goods or services that have been acceptable in the past and reject goods or services that have failed to live up to the desired standards, which will vary from consumer to consumer. Microeconomic theory teaches that trademarks perform at least two important market functions: (1) they encourage the production of quality products; and (2) they reduce the consumer’s costs of shopping and making purchasing decisions, by allowing the consumer to easily and quickly identify between competing goods and services.

Indeed, two leading economic theorists have concluded that “trademark law … can best be explained on the hypothesis that the law is trying to promote economic efficiency.” In 1982, William F. Baxter, then Assistant Attorney General in charge of the Antitrust Division, stated that:

Trademarks play a crucial role in our free market economic system. By identifying the source of goods or services, marks help consumers to identify their expected quality and, hence, assist in identifying goods and services that meet the individual consumer’s expectations. … [T]rademark counterfeiting … if freely permitted, … would eventually destroy the incentive of trademark owners to make the investments in quality control, promotion and other activities necessary to establishing strong marks and brand names. It is this result that would have severe anticompetitive consequences.

The contributions of trademarks to effective competition are much greater than any “monopolistic” effects. Identification of product source and quality is the essence of competition. If there are competing sellers, there must be some system of symbols that allows the buying public to discriminate. In reporting the bill that became the Federal Trademark Act of 1946 (Lanham Act) the Senate Committee on Patents pointed out the fundamental basis for trademark protection:

Trademarks, indeed, are the essence of competition, because they make possible a choice between competing articles by enabling the buyer to distinguish one from the other. Trademarks encourage the maintenance of quality by securing to the producer the benefit of the good reputation which excellence creates. To protect trademarks, therefore, is to protect the public from deceit, to foster fair competition, and to secure to the business community the advantages of reputation and good will by preventing their diversion from those who have created them to those who have not. This is the end to which this bill is directed.

In pointing out that there is no inconsistency between enforcement of free competition by the antitrust laws and enforcement of fair competition by trademark infringement laws, the Fifth Circuit stated:

The antitrust laws require competition, not piracy. The essence of competition is the ability of competing products to obtain public recognition based on their own individual merit. A product has not won on its own merit if the real reason the public purchases it is that the public believes it is obtaining the product of another company. There is not now, nor has there ever been, a conflict between the antitrust laws and trademark laws or the law of unfair competition.