Trade mark troubles in the Galápagos islands

Can there be anywhere on earth whose isolation is more inversely correlated to its contribution to modern scientific thought than the Galápagos archipelago? Located in the Pacific Ocean some 973 km (605 miles) off the west coast of South America, this collection of 18 main islands, three smaller islands, and 107 rocks and islets was a stop in 1835 on the voyage of the survey ship HMS Beagle, whose passengers included the young English naturalist Charles Darwin. What Darwin found at the Galápagos played a central role in enabling him to fashion his theory of natural selection. Indeed, the isolation of these islands provided Darwin with the perfect natural laboratory that ultimately propelled him to write On the Origin of Species. Annexed by Ecuador, the Galápagos and its unique isolated ecosystem continue to attract both scientists and tourists (including several from this Kat’s extended family).

As such, the Galápagos would likely be at the bottom of any list of locales that would be expected to give rise to a trade mark matter. And yet, as reported last month in a brief piece that appeared in The Economist (“Trouble on the cards”), the Galápagos is the focus of a dispute between the gift shop of the Charles Darwin Foundation, located in the Foundation’s research station, and local merchants selling items primarily to tourists. The research station is dedicated to assisting scientists who wish to research the Galápagos' natural ecosystem and it has played a central role in preventing the extinction of any unique species found in the archipelago. However, the Foundation has faced continuous funding problems, especially in attracting unrestricted financing to maintain the nuts and bolts of the operation and its 60 permanent staff.

To try and solve this problem, the Foundation in 2010 brought in an experienced financier from London. One of the steps that he did was to expand the research station’s gift shop to include typical tourist souvenirs such as t-shirts and various baubles and more specific items, such as playing cards, each containing the picture of an indigenous species (which can been seen by viewing the linked article in The Economist above). This initiative was a success and the gift shop was poised to become the Foundation’s single largest source of unrestricted funds. Enter the local merchants, who complained that the sale of such items at the gift shop constituted “unfair competition.” Following such objections, the local government declined to grant to the gift shop a 2014 licence to trade, unless the gift shop agreed only to sell “foundation-branded souvenirs and clothing.” The upshot is that without a trading licence, the gift shop closed in July 2014 and it faced lost revenues for the year of nearly $200,000. Moreover, if it limits itself to the sale of Foundation-branded items, it will have to cancel contracts with the purveyors of the various non-branded souvenirs that were providing the Foundation with a potential financial cushion.

What is of particular interest in this tale is the role being played by the Foundation’s name and brand. We are accustomed to view a brand in positive terms as a valuable asset of its owner. Here, the ability of the Foundation to control the sale of its branded items at the gift shop had been leveraged to include the sale of non-branded goods as well. For tourists who wanted to buy Foundation-branded items, they apparently had to do so at the gift shop. Once there, non-branded souvenir items could then be offered for sale, even if they were available for purchase at other locations as well.

Whether this “fair” or “unfair” depends upon how one views the market power ascribed to trade marks. The answer to this question recalls the changing economic perception of trade marks in the United States. Until the 1970s, the general approach taken was that trade marks constituted a potential anti-competitive risk, because a strong mark by virtue of extensive advertising could enjoy market power where demand, price and output for the product could be manipulated. That view gave way to the position that trade marks are pro-competitive, because they lower search costs for consumers seeking desired goods and services and induce higher product quality. In our situation, the claim against the Foundation might be that the gift shop offers an array of branded items for purchase only at a fixed location. For tourists, these branded items are highly desirable. As long as the non-branded items are competitively priced, there is little incentive for the tourist to look elsewhere for them. (How one is meant to factor the public’s interest in having the Foundation continue its operations, and the contribution of the sale of the non-branded items at the gift shop to the unrestricted finances of the Foundation, is not part of the discussion.)

The Foundation continues to press its claim with various local and Ecuadorian governmental channels. Stay tuned.