Elizabeth Cheng, '27

Spring 2025

PDF available with citations and footnotes here

Introduction

Today, breakfast cereal is as staple to the American diet as the Economics Department is to Williams College. But cereal’s rise to popularity was not without disputes regarding intellectual property law. 

Henry Perky invented a machine for shredded wheat in 1893, but soon found the cereal itself to be more popular. Perky’s Shredded Wheat Company was later sold to the National Biscuit Company, who brought shredded wheat to commercial success in the first half of the 20th century. Shredded wheat biscuits are made of whole wheat that has been boiled, partially dried, then crafted into thin shreds and baked, often in a pillow-shaped form. The biscuits are usually consumed after being partially submerged in a bowl of milk. Perky’s patent for shredded wheat expired in 1912, passing the product into the public domain. In the wake of the patent’s expiration, Kellogg Company, one of the NBC’s competitors, made a similar product with a different manufacturing process. Kellogg manufactured the product from 1912 until 1919, reintroducing the cereal for a brief stint in 1922, and then resumed manufacturing from 1927 to the time of the case. 

In Kellogg Co. v. National Biscuit Co. (1938), the NBC brought Kellogg to court to enjoin Kellogg’s alleged unfair competition in the manufacture and sale of shredded wheat after the expiration of Perky’s patent. The Supreme Court presided over the case which rested upon trademark and unfair competition law, specifically addressing Kellogg’s right to manufacture and sell shredded wheat in a form similar to that of NBC’s product. The NBC argued that both the term “shredded wheat” and the pillow shape of the cereal should be protected by trademark law. The NBC sought to enjoin Kellogg to halt their manufacturing, advertising, and selling shredded wheat. Kellogg argued that “shredded wheat” was a generic term and that the pillow shape was functional and thus could not be trademarked. Further, the company argued that it had a right to copy the product after the patent’s expiration, and that it had already put in substantial effort to differentiate their product from NBC’s product through branding and advertising. In a decision promoting innovation, fair competition, and overall economic efficiency, the Supreme Court sided with Kellogg, establishing that trademark protections cannot be used to extend expired patent rights to generic terms and functional designs.“Shredded Wheat” as a Generic Term   

The Court ruled “shredded wheat” to be a generic term that could, accordingly, not be trademarked, defining and ensuring the effectiveness of trademark law while upholding fair competition. In order for a term to be a trademark, Justice Brandeis stated that the primary significance of the term in the minds of the consuming public must be the producer instead of the product. This is now known as the distinctiveness doctrine: a trademarkable term must identify the source of the product and distinguish that product from those manufactured by others. The distinctiveness doctrine ensures that a trademark helps solve the problem of consumer ignorance about quality of the product, lowering consumer search costs and creating an incentive for producers to supply high quality goods. For example, trademarks like Coca-Cola or Apple reduce the need for consumers to search for quality indicators, simplifying purchasing decisions.

 The Court’s decision that “shredded wheat” held no secondary meaning further limited the scope of what could be trademarked, limiting the NBC’s potential monopoly. While the NBC tried to argue that the term had a secondary meaning, or that consumers identified their cereal product through the term “shredded wheat,” the Court determined that the association was only due to past patents instead of public recognition of the term as identifying a particular source. Thus, a trademark was not justified after the patent’s expiration. Furthermore, if the NBC owned the trademark, they would receive an unfair advantage by securing exclusive rights to terms that were needed by others to compete fairly in the marketplace. Secondary meaning can only be granted when consumers identify a mark to a specific source, such as Taco Cabana’s trade, dress, or restaurant design, in Two Pesos, Inc. v. Taco Cabana, Inc. (1992). 

Limiting the scope of secondary meaning and establishing “shredded wheat” as a generic term upheld fair  competition, and ensured no logistical difficulties in Kellogg’s practicing the expired patent. The Court also helped limit the NBC’s monopoly since products labeled “shredded wheat” could now be produced by any company. If the Court had set a precedent that generic terms like “shredded wheat” could be trademarked, companies would be empowered to battle for trademarks which define entire markets, increasing the likelihood of the monopolization of such markets. The importance of limiting monopoly is discussed further in a later section. The Court’s establishment of the doctrine of functionality forced competitors to differentiate themselves through advertising and branding. Similar to the previous section, this helped to limit trademark law and promote fair competition. The Court stated that shredded wheat’s pillow-shaped form cannot be trademarked because it is essential to the function of the cereal. The pillow shape is essential to the function of the cereal because it contributes to lower manufacturing costs and overall higher quality, like absorbing the ideal amount of milk to align with consumer preferences. Furthermore, the shape facilitates the integrity of the biscuit in shipping, preventing unnecessarily high shipping costs. The doctrine of functionality forces competitors to differentiate themselves through advertising and branding, which unlike the characteristics of a product that are essential to its function, is protected by trademark law. 

Twenty years before Kellogg, in Shredded Wheat Co. v. Humphrey Cornell Co. (1918), the NBC succeeded in trademarking the pillow shape because they showed that the shape had acquired secondary meaning—consumers identified the shredded wheat product based on its shape. However, the Court, having observed the adverse effects of this ruling, reversed it in Kellogg. Because there are fewer ways to make a product than there are to describe it, trademarking a functional characteristic of a product limits competition in a way that trademarking advertising does not. Therefore, limiting trademark law protections to advertising and branding promotes fair competition. Healthy competition lowers prices to their market level, improving economic efficiency, and allowing consumers increased choice among similar products, likely improving their satisfaction. 

 Limiting Monopoly 

The Court’s denial of trademark protection for “shredded wheat,” both as a term and a product, following the patent’s expiration promotes economic efficiency and innovation by ensuring that a patent-holder’s monopoly ends after its expiration, when the exclusive right no longer serves a clear economic purpose. If the NBC were granted the trademark beyond the patent's expiration, the maintenance of its a monopoly on shredded wheat could lower the quantity produced, artificially increasing the market price to maximize profit. As a result, fewer consumers would be able to afford or access shredded wheat and those able to would pay inflated prices. These conditions constitute deadweight loss due to lessened consumer surplus and, thus, reduce economic efficiency. In a monopoly environment, there would also be fewer incentives for the NBC to continue innovating the original product. In a world of perfect competition, free of monopolies, prices are efficient and companies are motivated to improve the quality of their products in order to compete with companies who produce similar products, likely increasing consumer choice and satisfaction. 

The Court’s decision effectively balances the tradeoff between dynamic and static efficiency because it encourages long-term innovation and the development of new products, while preventing the inefficient resource allocation to a singular firm caused by a monopoly. The Court’s decision maintains dynamic efficiency because the NBC already benefited from their patent on shredded wheat—they had decades of exclusivity before the case to recoup their investments on initial innovation. By denying trademark protection to an expired patent, rather than stifling innovation, the Court enabled companies to innovate from the original product as both the term and the product shredded wheat became a part of the competitive marketplace. For example, Kellogg introduced Frosted Mini-Wheats in 1969, a product that would not have been possible if Kellogg’s opportunity to innovate was prevented by NBC’s trademark of the shape of shredded wheat. Other cereal companies have followed, like Post and Kashi. The Court also prevented static inefficiency from the inefficient resource allocation of NBC’s monopoly power. Inefficient resource allocation would be caused by the NBC’s restricting the quantity produced, increasing prices, and reducing consumer surplus compared to a competitive market, all to maximize profit. 

Preventing Confusion

 By establishing a precedent that a competitor must put their best effort forward to prevent confusion between two products, the Court preserved the role of trademarks in reducing consumer search costs while maintaining the economic feasibility of production, ultimately balancing consumer protection against producer efficiency. The Court ruled that Kellogg did not have to take further action beyond creating cartons distinct from the National Biscuit Company to differentiate their product. This is the economically efficient choice because adding a “K” to every piece of cereal would likely require Kellogg to purchase new equipment, increase manufacturing time, or compromise the quality of the cereal. Differentiation merely through packaging limits consumer confusion but does not force producers to take on inefficient manufacturing processes. It reserves trademark protections to what consumers use to differentiate between products. There is also no economically feasible way to drastically change the color or size of the cereal. Changing the color would impair taste and altering the size would make the cereal less ideal for consumption, reducing consumer satisfaction. Furthermore, the percentage of customers who were served the cereal without observing the carton was negligible, so the majority of customers could identify the cereal based on the carton. Thus, the costs of further differentiation between the cereals besides distinguishable cartons outweighed the benefits, making the Court’s decision the economically efficient one. 

Possible Economic Shortcomings 

Despite the strong economic rationale for the other aspects of the Court’s decision, the Court failed to consider possible spillover effects and positive externalities in advertising, although it seemed to be a reasonable efficiency tradeoff for the benefits outlined above. The Court stated that the right of a competitor to make the patented product cannot be lost even if the earlier manufacturer spent large sums of money to advertise the product, as long as the patent is expired, the product is public, and the competitor has spent effort in identifying their product. This allows Kellogg to benefit from the NBC’s large and expensive efforts in advertising to make shredded wheat popular. The NBC’s efforts to advertise their shredded wheat creates a positive externality because the NBC’s efforts not only help promote the NBC’s  product, but also shredded wheat in general. Thus, Kellogg becomes somewhat of a free rider in marketing crunchy wheat breakfast cereal to consumers and boosting overall industry demand for shredded wheat. 

Mitigating the spillover effect will depend on the actions that the NBC takes to emphasize what distinguishes them from Kellogg and other competitors, not the Court. Because the NBC maintains a trademark of their brand, the NBC can mitigate the spillover effect by targeting their advertising to promote brand loyalty, helping them keep a portion of their customer base as Kellogg enters the shredded wheat market. It would be difficult for the Court to calculate the loss that the NBC experienced and to justify any compensation, given that the cereal industry is a free market with little restrictions on advertising. The spillover effect could complicate incentives for companies to invest in marketing. But perhaps these benefits will be evened out by the National Biscuit Company soon also benefiting from Kellogg marketing. This is akin to the “Got Milk?” advertisement campaign, in which the dairy association paid for advertising aimed at increasing industry demand, rather than supporting a single company. 

Conclusion 

The Court’s decision in Kellogg promoted fair competition and innovation by limiting the ability to indefinitely hold a monopoly over a patent, defining the scope of the trademark, and encouraging companies to differentiate themselves through advertising and branding. Justice Brandeis and the majority successfully balanced producer efficiency with consumer protection, despite incurring possible positive externalities for companies Kellogg that can benefit from another company’s advertising.

 Kellogg set important precedents in trademark, patent, and fair competition law, namely defining the functionality and distinctiveness doctrines, secondary meaning, and right to copy expired patents. Immediately after Kellogg, the bills that would eventually lead to the Lanham Act were introduced. The Lanham Act established a federal system for registering trademarks. Its policies included stating that generic terms and expired patents could not be protected, a direct result of Kellogg. 

Kellogg has been cited numerous times in cases that applied the functionality doctrine and secondary meaning. For example, in TrafFix Devices, Inc. v. Marketing Displays, Inc. (2001), the Court sided with TrafFix Devices, stating that dual-spring designs for which Marketing Displays originally held patents could not be. For example, in TrafFix Devices, Inc. v. Marketing Displays, Inc. (2001), the Court sided with TrafFix Devices, stating that dual-spring designs for which Marketing Displays originally held patents could not be trademarked. The Court cited the doctrine of functionality established in Kellogg to reason that the springs could not be trademarked since they provided a utilitarian advantage of stabilizing outdoor signs in the wind. Importantly, functionality has been cited frequently in cases involving claims of rights in product designs that were not the subject of an expired patent. In Qualitex Co. v. Jacobson Products Co., Inc. (1995), the Court determined that color alone could not be trademarked because it was deemed functional. However, Kellogg left certain rights regarding copying expired patents unclear, such as the precise scope of the patent that is free to be copied.

 Kellogg remains a significant case in intellectual property law, shaping how courts balance the competing interests of innovation, competition, and consumer welfare. By emphasizing the importance of fair competition, Kellogg reinforced the principle that intellectual property rights are not meant to grant monopolies, but rather to encourage innovation and benefit society as a whole.