Econ in the News: The Power of a College Trademark

Given Stanford University's status as an elite academic and athletic institution, its licensed products are always in high demand.
Given Stanford University’s status as an elite athletic and academic institution, its licensed products are always in high demand.

Although there are more than 4,000 colleges in the United States alone, a select few have been able to build immense brand-name recognition, whether that be for athletics (University of Alabama), academics (MIT), or both combined (Stanford). These trademarks, worth billions of dollars, have led to confrontations between enterprising vendors selling college-inspired items and colleges who wish to protect their brand.

Mary Cesar, owner of a small bakery near the University of Alabama, recently ran into this legal snafu when she received a cease-and-desist letter regarding her Crimson A cookies, houndstooth hat cakes, and elephant heads in the shape of Big Al. The letter was sent by the Collegiate Licensing Company, hired by many colleges to troll physical and virtual sites in search of trademark and copyright infringements. To avoid losing business in the upcoming football season, Mary’s Cakes and Pastries obtained a licensing agreement from the University of Alabama, and the 12% royalty that comes with it.

This is a common licensing play for universities looking to preserve their name-brand recognition, and generate more revenue using the power of their brands. On a technical basis, any use of the trademark outside of legally approved vendors can potentially defame or severely hurt the reputation of a university, which is exacerbated if the university has spent decades building a good reputation. Realistically, a few cookies from a mom-and-pop bakery should be insignificant to a large brand. However, leniency towards one bakery, or perhaps a small boutique store, opens up the threat of huge numbers of these stores operating without supervision, thus increasing the risk towards brands and multiplying lost revenue that could go towards students.

What you see with these trademarks is the implementation of the Coase Theorem, which states that resources will be efficiently allocated when property rights are given to one party and transaction costs are very low. Given the benefits to each, the purchase of a license agreement is often the most efficient outcome between store owners and universities.

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