Studies prove – empirically increased protection causes a flood of litigation
Davidson Heath and Christopher Mace, 2020 – professors of business at the University of Utah. “The Strategic Effects of Trademark Protection” The Review of Financial Studies 33 (2020) 1848–1877, Oxford University Press, accessed via University of Michigan //DH
To study the causal effects of varying trademark protection we exploit the Federal Trademark Dilution Act (FTDA) of 1996, which granted additional legal protection to “famous" trademarks until its key provision was nullified in 2003 by a U.S. Supreme Court decision. We find that the FTDA raised treated firms’ operating return on assets by an average of 1.7 percentage points (pp), equal to 12% of their average pretreatment profits. The FTDA was followed by a sharp increase in trademark lawsuits under the new provision and by reduced entry and turnover in affected goods and service classes, consistent with our hypothesis that the FTDA raised the expected cost of entry into affected product markets. Treatment effects were strongest in firms that faced moderate entry threat ex ante, consistent with strategic entry deterrence as a mechanism.