BRANDS AND THE ALLIED COMPLICATIONS IN COMPETITION LAW
Updated: Feb 21, 2019
This piece is authored by Utkarsh Jhingan & Akhil Kumar, students of B.A.LL.B (Hons.) at the National University of Advanced Legal Studies, Kochi.
Brands are complex symbols that incorporate consumers’ feelings, logic, and attitude.[i]Major characteristics of a brand include image- building coupled with status, inherent value, and brand transformation.[ii] Therefore, brands are one of the most important features of modern economy and business practice.
It allows companies to move beyond the four ‘P’s i.e. product, price, place, and promotion -which a competitor could duplicate, to include a fifth ‘P’- personality of a company which cannot be duplicated by a competitor.[iii] Manufacturers use brands to provide information about why the branded good should be purchased. It is used to ensure consumers remain loyal to the brand, even if a competitor offers the same product at a lower price. Lastly, brands have become a means of performing a variety of functions including demand-creation, price-control, platform-creation for trademark enforcement, consumer-satisfaction and fulfillment of psychological needs.
In this article, the authors will shed light on the misunderstanding between brands and market definition, the role of brands in causing anticompetitive harms in the case of mergers, brands, barriers, and vertical restrains.
Brand issues in competition law
There are numerous competition law cases that involve trademarks in one way or another, but most of them do not contain any type of discussion on the role of brands. There are several reasons for this.. Firstly, most courts fail to distinguish between the general and specific issue of brands. Secondly, most of the leading cases related to trademarks have been relatively straightforward, where there was no scope of discussion on the role of brands.
Evolution of Market Definition to include Brands
Competition law heavily relies upon the definition of the term ‘market’ in almost every case, except the cases involving price-fixing and cartel activity. The law regarding market definition began with the Dupont case.[iv] The definition of Market was very crucial to the case because monopolization requires both proof of market power and an exclusionary act that injures competition. The court in this case rejected an important role of brands in this analysis, stating that, “the power that automobile or soft drink manufacturers have over their trademarked products is not the power that makes an illegal monopoly”[v]
The question of market definition returned in the case of Brown Shoe Co. v. United States[vi] and it was held that, the way the products or services were sold and perceived by the consumers was also relevant.
Tests like SSNIP, Lerner index, and other approaches to market definition do not work in a world of brands[vii] as, increasing the price of a branded product would not move a substantial portion of the loyal customers of the brand. As and when one considers the role of price discrimination, the need to consider brands increases.
The element that is clearly missing in the existing market definition is the role of brand management in establishing the ability to indulge in price discrimination. The very purpose of branding is to allow companies to charge higher prices as compared to an unbranded item for a significant private label brand of the same item. Branded goods will always enjoy a substantial premium over other goods. Courts have misunderstood how brands and market definition interact. For example, in this case[viii]the market definition test was applied which showed that the market power of the brand was trivial for antitrust purposes. Hence, it was dismissed by the court.
If the notion of brands and branding is taken seriously, there will be instances where a single brand of a product is a relevant market. Therefore, the authors are of the opinion that, courts should look beyond physical similarities and focus more on branding as an anti-competitive tool.
Anticompetitive harm in the case of mergers: Role of Brand
Anticompetitive harm in cases of mergers is the closest that competition law comes to in effective recognition of the unique role of brands. The best example for this will be the General Mills – Pillsbury merger involving flour, it is of importance because of the commodity nature of the business. The key for understanding the competitive harm alleged by the government lies in the success of these two firms, creating effective brands for what was otherwise a functionally equivalent baking product. Because of the branding neither unbranded flour nor the imperfect substitute of certain regional brands were predicted to be an effective constraint on the merged companies’ ability to raise prices and the merger was permitted subject to divestiture of Pillsbury baking products line.[ix] Hence when successful branding generates sufficient customer loyalty, customers simply do not regard other products as reasonable effective substitutes and are unwilling to switch.
Brands and Entry Barriers
Once the relevant markets are defined and anticompetitive harms are shown, the court or the agency will proceed with an analysis of entry barriers. At this stage brands are quite important in the analysis of anticompetitive practices. It is a recognized fact that the possession of a strong brand or brands by the merging firms can constitute a barrier to entry. Repositioning of existing brands by competitive producers can be considered as an alternative remedy to entry. This repositioning of brands shows why there is a need to understand the brand literature. Brand repositioning normally refers to changing of the status of the brand in the marketplace. It includes changes to the marketing mix such as product, price, promotion, and place. The main motive of brand repositioning is to keep up with the needs of consumers. Brand repositioning is a difficult and problematic process and hence it is suggested that rather than changing the core of the brand it is better to create sub-brands where new products or services are offered.
Brands and Vertical Restraints
Manufacturers’ use of brands to control price and extract value that otherwise goes to wholesalers or retailers or is retained by the consumers, relates to the issue of vertical restraints. Vertical restraints are imposed by a manufacturer on someone “down” the distribution chain as a wholesaler or distributor, or between a wholesaler/ distributor and a retailer. The restraints can involve price terms, which are referred to as resale price maintenance or non-price terms such as the location, territories, or customers that a wholesaler, distributor, or retailer can serve. The result of this trend is that competition law has become the enabler of the growth of brands as a marketing strategy.
The Continental T.V. Inc v. G.T.E. Sylvania, Inc[x] is the best example in this regard. The instant case was decided against a complicated and rapidly evolving antitrust landscape for vertical non-price. It was held that inter- brand competition is the major concern of competition law. Inter- brand competition refers to competition between suppliers or dealers dealing with different brands of the same or equivalent goods. For example, Pepsi and Coke are competing against each other in an inter- brand competition. The court also held that certain restrictions on intra- brand competition will also create incentives for dealers to promote a given brand. The court was of the view that non- price vertical restrains could promote inter- brand competition more than it restricted intra-brand competition. The court went on to hold that such restrains were unlikely to harm consumers if the manufacturer imposing the restrictions lacked significant market power.
The willful blindness on the part of the legislature has enabled the power of brands to grow without considering whether such increased power was desirable. The scope of market powers of various brands has been treated insignificantly in the Indian regime and therefore, the significance of brands has eluded competition law in India. Hence, competition law and trademark law in India should take inputs from the landmark decisions of the United State of America (as mentioned above) in regard to brands and it should catch up with the real world practice. The authors recommend that the competition law should not tilt towards laissez faire in areas where brands are involved. Furthermore, there should be an emphasis on the importance of choices and interactions between brands and the formation of consumer preferences which is an integral part of the concept of brands.
Responsibility for the information and views set out in this Article lies entirely with the authors. Reproduction is authorised provided the source is duly acknowledged.
[i] B.B. Gardner & S.J. Levy, The Product and the Brand, Harvard Business Review 33 (1955).
[iii]Lury, Brands: The Logos of the Global Economy 24 (2004).
[iv] US v. E.I du Pont de Nemours and Co.,, 351 U.S. 377 (1956).
[v] US v. E.I du Pont de Nemours and Co., 351 U.S. 377 (1956).
[vi] Brown Shoe Co. v. United States, 370 US 294 (1962).
[vii]G. Lunney, Trademark Monopolies, Emory Law Review, 49 (1999), 424.
[viii] Sheridan v. Marathon Petroleum Co., 530 F.3d 950.
[ix] General Mills Inc. /Diago PLC Pillsbury Co. F.T.C. file No.001-0213. Available at: https://www.ftc.gov/sites/default/files/documents/cases/2001/10/www.ftc_.gov-gmstmtant.htm