Trademark law functions as a type of unfair competition law and protects businesses against competitors stealing customers or harming the goodwill of the business by creating confusion.
Trademark law covers a business's brand, slogan, logo and packaging and it may be enforced federally (under the Lanham Act) or on a state-by-state basis under existing state laws. If a business is likely to loose customers or looses customers as a result of confusion between competitors, then the business may be able to bring a trademark infringement action under the Lanham Act.
In general, the first user (referred to as the senior user) has superior trademark rights over the later user (referred to as a junior user). If necessary, the senior user can file a trademark lawsuit to stop the junior user from causing confusion. This confusion can be as to source, affiliation, sponsorship and endorsement between the competing companies and it can occur before the sale, at the time of the sale or after the sale has occurred.
Typical trademark confusion which occurs when customers mistakenly think the junior user's goods or services are associated with or come from the senior user. This confusion is also referred to as forward confusion and is the traditional confusion which is examined in a trademark dispute.
Trademark customer confusion may occur when customers wanting to buy the senior user's products (think Original Pasta Co.), mistakenly purchase the junior user's products (think New Pasta Co.) believing them to be the senior user's. For example, customer's want to buy Original Pasta's pasta in the red and white bag and they buy the red and white bag of pasta, but it is New Pasta Co.'s pasta. The customers mistakenly purchased New Pasta Co's pasta thinking it was Original Pasta's pasta. This confusion harmed Original Pasta Co.
However, there is a second type of confusion -- Reverse Confusion which may also infringe a trademark. In a reverse confusion situation, the junior user creates customer confusion but in reverse. In contrast to the example of forward confusion above, in a reverse confusion situation the customers mistakenly think the senior user's goods or services come from the junior user. This may happen for example, when the junior user dominates the market with goods or advertising. In such a case, the senior user's brand loses value because it may become associated by the consuming public with the junior user instead of the senior user.
For example, Original Pasta Co makes macaroni under the name MACS and New Pasta Co make macaroni under the name MAX. New Pasta Co. makes theirs MAX pasta with a green stripe. Customers see lots of advertising showing MAX macaroni with a green stripe and they go to Original Pasta Co asking to purchase the green stripe macaroni under the name MACS. The customers mistakenly believed Original Pasta Co is the same company or is affiliated with New Pasta Co. Customers then learn that Original Pasta Co does not have a green stripe macaroni and they think Original Pasta Co stole the MACS mark from New Pasta Co, believing them to be selling macaroni which was a knock-off of New Pasta Co. MAX pasta.
In this case, there was not forward confusion. Customer's didn't mistakenly purchase New Pasta Co's pasta thinking it was Original Pasta Co, they actually went to Original Pasta Co to purchase New Pasta Co's macaroni. They just thought Original Pasta Co was an imitator of New Pasta Co and that New Pasta Co's products were inferior. This is an example of reverse confusion.
Another area of potential trademark conflict is Passing Off and Reverse Passing Off.
Passing off (or palming off, as it is sometimes called) occurs when a a company misrepresents his own goods or services as someone else's. In the case of Original Pasta Co and New Pasta Co., passing off would be if Original Pasta Co. made green striped macaroni and advertised and sold it to the public. If New Pasta Co, made an inferior green striped macaroni and sold it as Original Pasta Co's green striped macaroni, that would be Passing Off. The public would believe that the inferior macaroni product was Original Pasta Co's and their reputation and goodwill would be harmed and/or diluted.
Reverse Passing Off
Reverse Passing Off, as its name implies, is the opposite of Passing Off. It occurs when a company misrepresents someone else's goods or services as their own. For example, Reverse Passing Off may occur when New Pasta Co. purchases Original Pasta Co's green striped macaroni, repackages it under their own name and sells it as their own. In this case, the public would come to associate the qualities of Original Pasta Co's green striped macaroni product with New Pasta Co's. and Original Pasta Co's goodwill would become diluted over time.