Trademarks

TRADE NAMES VERSUS TRADEMARKS UNDERSTANDING WHY YOU MAY NEED BOTH
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             In the course of my practice, I am often asked to explain the difference between a trademark and a trade name.  Understanding the role that each  plays in the life of a business is important so that the owner can take appropriate steps to protect its interest in one or both of these forms of intellectual property.

What Is a Trade Name and How Can You Protected It? 

              Once you have chosen the legal form under which your business will operate, you need to identify the official name of the owner of that business.  If you will be a sole proprietor, then your name will be the one that identifies the owner, for example, Susan Smith.  If John Wilson and Susan form a partnership, then the name of the owner of the business might be “Smith & Wilson. “  On the other hand, Susan and John could operate as a corporation or limited liability company and might name their entity “Smith & Wilson, Inc” or “Smith & Wilson, LLC.”

              Depending on the State where Susan chooses to run her business, she may need to register her sole proprietorship or partnership name with the appropriate State and local authorities.[i] / If she will operate as a corporation or limited liability company, she will first have to form the entity in the State of organization before the entity can come into existence. Part of the formation process will require her to identify the official name of her entity in accordance with the naming conventions required by that State’s law.

              Although the business owner has been identified with an official name, the owner may wish to use another name in the market place.  In Susan’s case, if she is a caterer, she might want to identify her business as “Heavenly Spread.”  This other name will be her trade name, also referred to as a fictitious name.  Owners operating in this manner usually will make the distinction clear when entering into agreements by signing as “Susan Smith dba (or T/A) Heavenly Spread,” even though they drop the dba designation when marketing to the public.

              Because no one will know who actually owns Heavenly Spread when Susan announces the opening of her catering establishment using the Heavenly Spread name, she will have to register her fictitious name in accordance with the State’s fictitious name regulations where she conducts her business.  Such registration is necessary so that if anyone needs to contact her as the owner or has a complaint with Heavenly Spread, there will be a record with the State identifying the owner of that trade name.

What Is the Difference Between a Trade Name and a Trademark?

              A trade name is an alternative name that a business owner can use.  By contrast, a trademark or service mark, which can be a word, phrase, symbol, design or combination of such, indicates to the consuming public that there is a specific provider that stands behind the goods or services being offered which is different from another provider of similar goods or services.

              It is possible that the owner of a business will adopt the same words for its official name or trade name and its trademark.  Prime examples are “Dell” and “Ford.”  However, the family names did not become trademarks immediately.  Rather, it took time for those words to take on the characteristics of a trademark, meaning that in the mind of the public those words came to stand for the providers of specific goods, namely, computers and cars.

              In the case of Susan and John, they can choose to adopt “Heavenly Spread” as their service mark in connection with their catering business.  However, before adopting any mark, it is wise to have a professional search done to be sure that others who provide similar services are not already using the mark for their business.

What Are Some Steps You Can Take to Protect Your Trademark?

              As a business owner you only acquire rights in a mark by using it; therefore, one major step that must be taken to protect your rights in your mark is to use it continuously and frequently.  Do not be afraid to display it prominently, whether on your website, labels, or marketing materials.

              Another protective step is to use the symbols   TM SM  ® near your mark.Use of these symbols shows that you are claiming ownership rights in the mark.

              “TM” stands for trademark and “SM” stands for service mark.  You do not need to have any special governmental approval in order to display those symbols.  However, depending on the geographic area where you conduct your business, your trademark protection may be limited to that geographic location.  This means that while your business is focused in Maryland and Virginia, someone else operating in Texas or Oklahoma may use the same mark for a similar business and not be guilty of infringing on your rights.

              If you qualify to obtain federal registration of your mark, meaning that you are actually using the mark in interstate commerce, you can apply to the United States Patent and Trademark Office.  Once you complete the registration process, you are authorized to use the ® designation with your mark.  Federal registration provides you with more muscle to restrict others from using your mark as it means that, generally, your ownership rights extend throughout the United States.

              A third step you should take to protect your mark is to choose it carefully.  If your mark is merely descriptive, meaning it describes your services or goods, you may not qualify for federal registration.  Or, even if you do, there will be many others using similar terms, making it harder for you to distinguish yourself.  Such an outcome defeats the very purpose of having a mark, which is to enable you to distinguish yourself from your competition.

              Therefore, while it could be harder, and may even cost you money to identify, choosing a strong mark gives you a higher level of protection.  A strong mark means a word mark that may be a made-up, arbitrary, suggestive or fanciful word or phrase.  Some strong marks that come to mind are:  “Xerox,” “NIKE,” “Apple,” “VW Beetle,” “Footlocker.”

              What you should take away from this discussion is that while a business owner may use the same words for the business’ official name or trade name and its trademark, each iteration serves a different purpose.  By understanding the distinctions, you will know how best to protect your interests in the various ways you go about presenting your business to the public.

              For additional information about the trademark/trade name distinction, go to the SBA’s blog at:

http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/difference-between-trade-name-and-trademark-%E2%80%93-a


[i] /           Establishing a business in any jurisdiction can require the owner to apply for multiple registrations and permits or licenses.  Those requirements are beyond the scope of this Blog.

TRADEMARK RIGHTS GIVE WAY TO FREEDOM OF EXPRESSION
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     If you plan to create a work that will include references to famous people, you may well ask will you run into challenges for using such references. A recent 9th Circuit decision offers guidance as to whether your use will withstand the challenge by a famous person who claims you are violating his or her trademark-related rights.

            Brown v. Electronic Arts, Inc., involves James “Jim” Brown (“Brown”), the famous football player, who sued Electronic Arts (“EA”), the manufacturer distributor and seller of the Madden NFL series of football video games.  http://caselaw.findlaw.com/us-9th-circuit/1640518.html?DCMP=NWL-pro_ip  The video games allow users to control avatars representing professional players, and to participate in simulated games.  Some versions of the games included likenesses of Brown.

            Brown’s claims under the Lanham Act, the main federal trademark law, are of particular interest here.  Generally with trademarks, the basic test a mark’s owner is asked to show is whether use of the competing mark is likely to cause confusion in the public’s mind, and Brown’s basic argument was that EA’s use of his likeness without his permission was likely to cause confusion in the mind of the public as to whether he endorsed the video games. 

            However, there is always the understanding that granting exclusive use of marks limits constitutionally protected free speech.  In evaluating the competing interests of protecting the public from deception and protecting freedom of expression, when the identifying material in question appears in an expressive work, Courts tend to shift the balance toward First Amendment considerations.

            Because EA’s videos are considered expressive works, the Court considered whether EA’s use of Brown’s likeness in the videos was relevant.  Given EA’s professed interest in creating a high level of realism for the various football teams portrayed, inclusion of Brown’s likeness in the recreation of the ’65 Cleveland Browns team was relevant.

            While the takeaway from the Brown v. EA decision is that if inclusion of a famous person’s likeness in an expressive work is relevant, you are likely to withstand a challenge to such use under federal law.  However, it is important to keep in mind, despite the dismissal of Brown’s case in federal court, Brown was not foreclosed from pursuing claims under California law for invasion of privacy and unfair businesses practices.  

ARE YOU READY TO SELL YOUR INTELLECTUAL PROPERTY RICH BUSINESS AT ANY TIME?
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Service oriented businesses that create intellectual property (IP), such as software, data, and applications, need to be nimble so they are ready to take advantage of unexpected opportunities.  One important opportunity to anticipate is the sale of your business.  Large service oriented businesses wishing to expand their underlying capabilities or client base could now be on the hunt for just what you do.   Because such an offer could come at any time, will you be ready to exploit the opportunity advantageously?   

At such a time, you will be faced with a variety of decisions and actions requiring a quick turn-around.   This article poses a series of questions and identifies concrete steps that every business owner should incorporate into her business operations. Then, like the proverbial Boy Scout, you will “be prepared.”

1.    Are You Ready for the Due Diligence Inquiries That the Buyer Will Be Make?

It goes without saying that as a seller, you will be confronted by a close examination of your organizational and operational documents by the potential buyer.  Therefore, at least yearly, you should:

  • Review and update your entity’s documents (enabling and owner related agreements) and keep them current.
  • Maintain your business entity’s legal good standing in all jurisdictions in which you function.
  • Verify licensure and other regulatory requirements.
  • Review management and operational procedures, especially as they relate to your IP products. 
  • Confirm that NDAs, employment and contractor agreements assure your control over your IP.

Unfortunately, business owners frequently fail to conduct this type of annual self-examination.   Perhaps surprisingly, a common oversight is the failure of a business to maintain its good standing in all the jurisdictions where it is organized and doing business.   This lapse, along with the failure to have documents signed or to keep licenses current, can quickly derail what otherwise seems to be a marriage made in heaven.

2.    If Some or All Of Your Business’ Assets Are Tied to the Good Will Associated With an Individual, What Steps Are You Taking Now to Allow for a Smooth Changing of the Guard?

From a seller’s point of view, it may not be what the founder wants to hear, but if others are not being groomed for a change in control, then the business’ value is likely to be diminished in the eyes of a potential suitor.    Especially in a business where the key asset is “its people,” if this asset is not going to be preserved in a change of control, the buyer is going to move on.  The necessary preparatory actions for a potential seller are to have the hard discussions, be willing to anticipate changes, have contractual obligations in place and be comfortable with those changes well before a potential buyer comes to call.

3.    If Your Business Relies Heavily on Intellectual Property Assets, Do You Control What You Need?

Conduct an inventory of all of the intellectual property (IP) assets that your company uses.  Know whether you IP is subject to copyright, trademark, patent, or trade secret laws and regulations not just in the United States, but in all the countries where you conduct business.  

Not surprisingly, business owners understand the need to inventory and value their hard assets if, solely to have such listed and depreciated on tax returns.  Conducting a full inventory of a business’ IP assets can be harder because it is not always clear who actually owns the assets.  But it is of equal importance because those assets do add great value to your business’ bottom line.

The inventory should cover an assessment of what you have and close review of your documents to be sure they comport with your expectations of ownership and control.   Once you have the inventory, periodically re-evaluate it to be sure all permissions are current and available for your continued use and exploitation of the IP.   

 Can you answer the following questions in the affirmative?  If not, then you could be leaving money on the table.

  • Are procedures in place to identify the ownership of the IP that your business uses? 
  • Are you living within the limits of any licenses to which you are a party?
  • In the case of copyrighted works, trademarks, and patented or potentially patentable works, have you registered them? 
  • Are all IP registrations current? 
  • What steps are you taking to police your IP to prevent others from infringing upon it? 
  • Do your contracts with third parties include the IP protections you need?
  • Are you complying with the IP related laws of relevant other countries?

4.    Do You Have a Good Team of Consultants in Place Who Can Watch Your Back?

By employing a good team of advisors, you will have the necessary documents in place and you may be able to delegate some of the preparatory work outlined in this article. The obvious players are your corporate and IP lawyers and CPA.   But your insurance agent and marketing specialist can be equally important advisors who can help you ask the hard questions and position your business in the most favorable light either to acquire or be acquired.

5.    Do You Know What Your Business Is Worth?

Offers to be purchased can come from a variety of unexpected places.  An insider may want to make a play for control or a larger firm may have identified your company as a strategic acquisition.   Similarly, you may conclude that it is important to expand.  Knowing what your business is worth will be helpful in evaluating an offer to buy you or in obtaining financing for an internal expansion.  

Therefore, regularly analyze the value of your assets.  Your CPA’s reports and even feedback from your banker should give you a good idea of the “fair market value” of your business as a whole and its various assets.  

6.    Are the Business’ Assets Transferable?

For valuable assets such as your IP and commercial leases and licenses, it is important to know whether they are transferable or assignable.  A periodic review should answer questions such as:  whether restrictions exist on the transferability of licenses; whether a new owner can use the software or data on which you rely; whether your commercial lease can be assigned in connection with a third-party acquisition.  Going forward, a word of advice:  when negotiating new deals, try to avoid restrictions on your ability to transfer assets.

Answering these questions should go a long way in helping you be ready should “the call” come from a potential buyer.  As with anything worthwhile, you need to take the time and make the investment in advance to have your business ready to respond with agility to whatever opportunities come along, including being bought.

HOW PROTECTABLE IS YOUR DOMAIN NAME?
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No matter what size a business may be, the Internet allows that business to reach a very large market.  While this kind of reach is amazing, intoxicating and can be very lucrative, it does not come without its pitfalls.  In a series of blogs, I have been examining one such pitfall, namely the business owner being faced with the greater chance of being called upon to defend its activities in a court far from home.  Needless to say, if an owner must bring a case or defend itself away from home, it will be faced with added expenses, inconvenience and unfamiliarity with local law.  Two of my recent blogs have examined some issues of the potential for nationwide exposure to litigation when business is conducted on the web.  Here I examine what factors a court may consider when deciding whether to assert jurisdiction over the defendant, and, once jurisdiction is found, some clues as to whether the defendant is likely to be held liable.

Before the wide acceptance of the Internet, a locally focused business would have to concentrate its efforts on its local market and thus could more easily become familiar with the relevant rules and regulations that would govern its business practices. As discussed in any earlier blog concerning nationwide cigarette sales, an e-business owner may need to know the rules of the road in all 50 states.  In Illinois v Hemi Group, LLC, http://caselaw.findlaw.com/us-7th-circuit/1538180.html?DCMP=NWL-pro_technology , the Seventh Circuit Court of Appeals concluded that Hemi, located in New Mexico, had sufficient voluntary contacts with Illinois residents, in addition to its interactive website, so that the state government could assert a claim that Hemi had failed to file reports of Illinois cigarette sales.  The decision of the trial court to assert jurisdiction was affirmed and the matter sent back for trial on Illinois’ claim.

By contrast, in Mobile Anesthesiologists Chicago LLC v Anesthesia Associates of Houston Metroplex, the Seventh Circuit did not find that a Houston anesthesiologist had sufficient contact with Illinois to allow an Illinois plaintiff to bring a federal Anti-Cybersquatting Consumer Protection Act (the “ACCPA”) claim based on the Houston doctor having selected a domain name very similar to that adopted and registered as a federal trademark by the plaintiff.  http://caselaw.findlaw.com/us-7th-circuit/1539920.html?DCMP=NWL-pro_technology .  However, although the Houston doctor only practiced medicine in Texas and thus was able to avoid being sued in Illinois, it appeared from the facts that the Illinois plaintiff, a large company, could nevertheless bring its domain name cybersquatting claim in Texas so that the locality of the doctor’s practice would not insulate him from ultimately answering for his domain name choice.

The third case, also reviewed by the Seventh Circuit, involves a well-known Internet player, namely, GoDaddy, the domain name registration company, who was found to have sufficient contacts with Illinois so that it was fair for it to be called upon to defend itself there.

The facts of uBid, Inc. v the GoDaddy Group, Inc., also involved an ACCPA claim.  uBid alleged that GoDaddy violated the ACCPA when it allowed third parties freely to register domain names confusingly similar to those of the trademarks and domain names of uBid, and thus profited in bad faith from sales when confused web surfers visited those parked pages.  http://caselaw.findlaw.com/us-7th-circuit/1539590.html?DCMP=NWL-pro_ip

The fact that GoDaddy took great pains to restrict its physical presence to Arizona (incorporation, headquarters, servers and employees all located there) did not insulate it from the Illinois court’s broad reach.  The Seventh Circuit looked at a myriad of factors such as:  GoDaddy’s nationwide and local advertising campaigns, which were not limited to the web but included advertising during Super Bowl broadcasts, celebrity endorsements and advertisements in the home parks of the Chicago Clubs, White Sox, Chicago Bulls and Blackhawks.  The result of GoDaddy’s aggressive campaign was to gain hundreds of thousands of Illinois customers and millions of dollars in profits from them.

In the end, no argument offered by GoDaddy was persuasive to limit its exposure to litigation in Illinois.  In overruling the trial court’s dismissal of uBid’s claim on the basis of finding a lack of personal jurisdiction, the Seventh Circuit’s opinion strongly hinted as to why GoDaddy could be held liable.  In reversing the trial court, the Seventh circuit said, “GoDaddy has continuously and deliberately exploited the Illinois market for domain name registration and has profited handsomely from it.  Now GoDaddy is being called to account for alleged harm to an Illinois resident arising directly from the services GoDaddy provides to its Illinois customers, at least two of whom registered domain names that contributed to the alleged harm.  There is no unfairness in requiring GoDaddy to defend that lawsuit in the courts of the state where, through the very activity giving rise to the suit, it continues to gain so much.”  While GoDaddy will certainly have its day in court to argue why it should not be held liable, having lost this round, it has a harder argument to make on uBid’s substantive claims.

Because policing your domain name can be as important as trying to protect your trademarks, do these cases give any comfort as to your ability to protect your domain name?  Appearing on the Internet gives businesses potentially access to a huge market at a relatively low cost, but are there other prices to be paid?

HOW FAR IS TOO FAR TO POLICE YOUR WEBSITE?
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In a previous blog, “Selling Over the Internet May Require Knowing the Law in All 50 States,” I considered a real life situation that exposed an Internet business owner based in New Mexico, who sold cigarettes throughout the United States, to a lawsuit filed in Illinois.  There, the U.S. Court of Appeals for the Seventh Circuit found that the seller had purposely directed its wares into Illinois, so that sufficient contact with the state existed to give a federal court personal jurisdiction to hear the case.  (http://caselaw.findlaw.com/us-7th-circuit/1538180.html?DCMP=NWL-pro_technology .)  You may well ask, “Is there any limit to that kind of ‘long-arm’ jurisdictional reach?”  Another recent decision, also by the Seventh Circuit, helps draw some useful distinctions and define some of the limits to a court’s jurisdiction in this highly mobile, Internet era.

A large Chicago-based medical company that provided on-site anesthesia services in various cities throughout the USA (“Mobile/Chicago”) also owned a federally registered trademark,  MOBILE ANESTHESIOLOGISTS.   In 2003, Mobile/Chicago registered the domain name http://www.mobileanesthesiologists.com .  In 2008, a doctor (“Mobile/Houston”), who offered similar anesthesia services in the Houston area, launched his website using the domain name http://mobileanesthesia.com/Home_page.html .

Not much difference between the phrases “mobile anesthesia” and “mobile anesthesiologists,” right?  Not surprisingly, Mobile/Chicago sued Mobile/Houston in Illinois under the federal Anti-Cybersquatting Consumer Protection Act (the “ACCPA”) alleging that the Houston doctor was using a domain name that was confusingly similar to its registered trademark.  Never addressing the question as to whether the doctor’s mark was confusingly similar to that of Mobile/Chicago, the Seventh Circuit upheld the trial court’s decision to dismiss the case for lack of personal jurisdiction over the defendant.  The full text of the opinion can be found at http://caselaw.findlaw.com/us-7th-circuit/1539920.html?DCMP=NWL-pro_technology .

What factors existed to cause such a different outcome to that which resulted in the cigarette case?  Although the Mobile/Houston website could be viewed by Illinois residents, the site made clear that the services were being offered only in the Houston area.  Furthermore, the doctor was licensed only in Texas, where his professional activities all took place.  His contacts to Illinois consisted of his visiting there for vacation and the fact that some professional organizations of which he was a member were located in Illinois.

The Circuit Court did not view these kinds of activities as of sufficient connection to the state to give an Illinois court the authority to assert personal jurisdiction over the doctor.  Nor was the fact that Mobile/Chicago had sent a “cease and desist” letter enough to show that the doctor’s continued operation of his website was an intentional directing of tortuous activities to Illinois.

Thus, while the outcome of this case gives some guidance as to what kinds of activities would be insufficient for a court to obtain personal jurisdiction over a defendant located in another state, the decision did not address the underlying substantive issue of whether mobile anesthesia” and “mobile anesthesiologists” were so similar as to violate the ACCPA.  I wonder whether the Houston doctor really should draw much comfort from the fact that at least, as to the actual defense of his choice of domain name, the matter would be heard on his home turf should Mobile/Illinois decide to continue pursuit of its claim.

A STAR VS A SWOOSH FOR A TRADEMARK
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When advising my small business clients about what to consider when they adopt a trademark or service mark, I urge them to look for strong characteristics in the mark that will help to differentiate them from their competitors.  In the case of word marks, the farther you get from using descriptive terms, the stronger and more protectable your mark will be.

If having a logo is an important part of your brand development, I suggest that you consider your design carefully, with an eye toward selecting a strong mark, so that you can effectively protect it against competitors.  One company has learned the hard way that even with a service mark logo successfully registered with the United States Patent and Trademark Office (USPTO), it could not prevent a direct competitor from using a similarly designed mark.

Here are the bare facts.  Amazing Spaces, a self storage company in Houston, Texas, registered with the USPTO a five-pointed star in a circle as one of its marks.  Its rival in the same geographic market, Metro Mini Storage, adopted a five-pointed star in a circle for its service mark.  Metro Mini refused to back down when Amazing Spaces demanded it cease and desist.  You might think this is a no brainer.  The registered mark should win, right?  Well according to the Fifth Circuit Court of Appeals, Amazing Spaces had a non-protectable mark and dismissed the claim against Metro Mini.  The Court’s reasoning is important and goes to the core of what really constitutes a trade mark.

A trademark exists only if in the mind of Ms. Q. Public, it successfully acts as an identifier of the source of the goods or services being sold.  In the case of a logo, it is important to avoid adopting ordinary geometric shapes because they can be considered by a consumer as mere decoration.

Even if you successfully were to register such a logo with the USPTO, it later could be cancelled by a challenger under the theory that the design or symbol you adopted was common and likely to be perceived by consumers as ornamentation rather than indicating you as the source of the goods or services.  The only way you could defend your mark against such an attack would be by proving that it had acquired “secondary meaning.”  In other words, consumers viewing the mark know it refers to you, in the way that the swoosh means NIKE.  So while NIKE’s simple curved bar shaped logo upon its introduction in the 1970’s may not have withstood a challenge similar to that raised by Metro Mini, due to NIKE’s longstanding promotional efforts, the swoosh has acquired the necessary secondary meaning.

The clear lesson is that even in the case of a big player like NIKE, having simple geometric shapes acquire the strength to withstand a direct challenge by a competitor could depend on how much time and money you have spent in getting the public to understand that the logo is not merely ornamentation but stands for you.

If you were considering the adoption of a logo for your goods or services, what characteristics would you want the design to have?  Do you have any war stories to share related to selecting your logo?