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Trademarks as Valuable Business Assets

Imagine a landowner finding gold on his land and then spending significant resources to build a mining operation, only to later discover that someone else owns the mineral rights to the land. Such a discovery would not only greatly reduce the value of the land to the owner, but it would also mean the investment he made in his land would be wasted. Such a scenario is similar to the business owner who starts a business and invests in building a brand only to later discover that he or she does not have exclusive ownership of the name or logo that has become synonymous with their brand. In addition to the owner having wasted resources on building the brand, such a situation would surely disappoint a potential investor or buyer who expects to take advantage of the good name a business has built. Savvy investors always ask about trademarks as part of their due diligence, and business owners dilute the value of their businesses if they neglect protection of this valuable asset.

In addition to potentially lowering the value of a business, neglecting protection of a trademark can create an opening for another business to capitalize on a well-earned good name. While national brands typically get the headlines in trademark disputes, an unprotected trademark can be just as impactful – if not more so – on local businesses. If even one competitor a few miles away adopts a name similar to an established brand, it will cause customer confusion at the expense of the established brand. At best, the established business may lose loyal customers. At worst, shoddy service by the competitor could ruin a brand’s reputation. Just ask any New Yorker which “Ray’s Pizza” is the original and/or best, and you will see the problems this can create.

Do not rely on common-law protection or other shortcuts.

A trademark can be protected in a geographic area simply by using it if it is clear that a business is the first user. This is called a common-law trademark. While it seems like the easy and inexpensive route, it can be just the opposite if it is contested. Proving first use of a common-law trademark is complex and will be many times more expensive and aggravating than registering it in the beginning.

Common “shortcuts” to registering a trademark include adding the “TM” symbol on the name or logo. This action will put consumers on notice that the business is claiming a trademark, but it does not add protection. Similarly, registering a domain name will not give any exclusive rights to that name as trademark, and under anti-cybersquatting laws, you could be forced to give-up the domain name if it is someone else’s trademark. Finally, there have been instances where clients registered a corporate or LLC name in the hope of obtaining exclusivity over using that name. While such a filing with a state means that someone cannot officially form a business using the same name in that state, it means nothing for trademark protection.

Select the right name.

Obviously, selecting a name for a business or product is primarily a marketing decision; but the standards for what can be registered as a trademark should also be considered as part of the overall business decision. One of the biggest problems encountered with clients who want to register their trademark are marks that are “merely descriptive.” For example, “Italian Pizzeria” would be unlikely to be approved as a trademark because it only describes the product generically.

Another problem is trademarks must avoid creating a “likelihood of confusion” with another registered mark. These are often very subjective calls made by an examiner; but if the examiner determines a mark is likely to create confusion among buyers, it will not be approved. For instance, “Big Jack’s Tires” will not be approved if there is a registered trademark for “Jack’s Tires.” However, the likelihood of confusion standard does take into account the similarity of the goods or services being sold. Hence, the “Dove” trademark is registered to two different owners – one for personal-care products and one for chocolate.

The most defensible trademarks are those that are fanciful-words formed from acronyms like “Aflac,” or made-up words such as “Pepsi.” Arbitrary words – using “Apple” to describe a computer company or using “Dove” to describe soap or chocolate – also are quite defensible. However, there are limits to using made-up words. Many clients think they can overcome objections based on descriptiveness of confusion through alternate, creative spellings. However, the trademark examination takes into account the phonetic sound of a mark. Accordingly, “Kar Parts” would still be merely descriptive of a business that sells parts for cars; and “Jilett” would still be confusingly similar to “Gillette.”

Along with selecting a distinctive name, some registrants elect to register their stylized name, or a separate logo or emblem, as an image or design trademark. Coca-Cola’s distinctive wave, the Nike swoosh next to its name, and the Home Depot orange box with an overlay of its name are examples of design marks. If a business invests heavily in a logo and stylized name, protection likely is a good idea; but it also creates the need to update registration if the business decides later to change the design.

What is involved in registering?

Registering a trademark is not onerous. The application process is not too complicated, but the federal agency is deliberate in its review. The process is begun by searching the database of the U.S. Patent and Trademark Office (USPTO) to see if there are conflicts or similar names (though what the USPTO views as “similar” can often be surprising). Sometimes a minor adjustment is sufficient to differentiate the trademark, but sometimes the desired mark is already taken. Once it is determined that there are no conflicts, the registration is filed and the USPTO can take four to six months to review it. If the USPTO approves the mark, it will then publish it in its Official Gazette and give other parties another 30 days to object to the registration. It is not uncommon to wait six months to receive final approval.

As mentioned above, the USPTO’s review of a trademark can be highly subjective, and that is why clients must realize that an initial rejection of their mark is not necessarily the end of the road. The philosophy of the trademark office often seems to be to place the burden of proving distinctiveness or the lack of a likelihood of confusion on the registrant and will sometimes push back to see if a registrant can defend an application. It is not uncommon to file a response after an initial rejection and receive approval in the second round of the examination.

Registering a trademark is one of the easier things to do in the early stages of a business but it can have a substantial impact on the long-term value of the business.

Contact MendenFreiman today if you have any questions.

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