The protection of trade dress restricts the ability of competitors to compete by imitation. It may also interfere with the public’s ability to copy product features that have been disclosed in expired utility and design patents. These concerns about the anticompetitive potential of trade dress claims have prompted the Supreme Court to tighten the requirements for protecting product configurations under the Lanham Act. To be protectable, the design under consideration should have already acquired secondary meaning. Furthermore, the functionality doctrine may bar protection even though there are enough alternative product configurations at the disposal of competitors so as to market substitutable goods.

The conventional approach to the optimal scope of trade dress rights could be challenged by a reassessment of the effect of their protection on competition. This Paper conducts an economic analysis of trade dress protection based on the theory of product differentiation. In economic terms, the choice of trade dress amounts to a business decision to differentiate by product design. Differentiation allows the exercise of market power within the market niche consisting of the consumers that have a preference for a specific product design. Despite this price, premium consumer welfare increases overall because the existence of product variety allows for the satisfaction of diverse consumer preferences. Competition becomes more dynamic as firms seek to market products that come closer to the taste of the targeted consumer group.

The main implication for trademark and unfair competition theory is that the intangible value of goodwill created by product differentiation should be protected against free-riding. Such protection is not simply intended to favor the trademark holder, but rather to promote dynamic competition with differentiated products. In view of the principle of complementarity between intellectual property rights and competition law, this Paper analyzes how trademark and unfair competition law could regulate imitative activity in the marketplace so as to foster the effectiveness of competition.

On the other hand, trade dress protection might lead to monopolization of submarkets and suppress locational competition in product space. These anticompetitive effects could be effectively addressed by an application of the functionality doctrine. The submarket analysis links the limits of trade dress rights to the valuations of the Sherman Act.

This Paper also examines the phenomenon of the cumulative protection of trade dress through copyright, patent and trademark law. In this context, it also addresses the problem of determining the circumstances under which trade dress becomes the practical equivalent of an expired patent, a question left open by the Supreme Court in Traffix.