In a recent blog, Larry Bodine, a web and marketing guru, offers great advice to business owners when choosing the “look” of their logo/trademark. He provides information as to how some large companies came to adopt their famous marks, their investment expenses along with examples of famous logo faux pas. Larry’s blog re-enforces a message I have offered [Earlier Blog] as to how important it is to select your logo/trademark with care. [See Also]
The football world is abuzz with the possible relocation of the San Diego Chargers to Los Angeles. Background for Team Move. While the outcome of where the Chargers end up is of short term interest, the more interesting question business owners should ask is: Why did the team file “intent to use” applications Section 1(b), Lanham Act for federal registration of two possible marks with the United States Patent and Trademark Office (“USPTO”)? 1/ The answer is that the Chargers want to block others from hindering their future adoption of the new marks if the relocation happens.
This blog follows on my earlier examination of why a certification mark could improve the bottom line for both for-profit and not-for-profit organizations.
If you think that setting up a certification program is in your future, or you already have one in place, here are some points to consider as you develop or perfect the program:
1. A certification mark is not the same as the mark your organization uses to identify its goods and services (“identification mark”). While the design of the certification mark may incorporate some elements from your identification mark, it should nonetheless have distinctive elements to eliminate confusion between the two.
2. Because there are basically three types of marks, it is critical to understand which kind applies to your organization, because the standards for the United States Patent and Trademark Office (“USPTO”) registration process differ:
a. Marks that certify that goods or services originate from a specific geographic region (“Champagne” for wine, “Roquefort” for cheese, “Indian River Fruit” for Florida citrus);
b. Marks that certify that goods or services meet certain standards for quality, materials or mode of manufacture (“UL” mark certifies electrical equipment meets certain safety standards; “Pure Wool” logo means the product is made of a 100% wool); and
c. Marks that certify that the work or labor for a product or service was performed by a member of a union or other person meeting certain standards.( Union workmanship).
3. Identify the standards that an applicant to your program must meet. These may be created by your organization or based on standards established by a governmental agency or other standard developer.
4. The certification mark will be used by third parties, not by your organization. Once the third party has met the standards your organization has set, they will be permitted to use the certification mark in connection with their own goods or services to tell the world they are “qualified” to do so by the certifier.
5. Consider federally registering your certification mark with the USPTO, which, once accomplished, basically gives your organization protection in all 50 states.
6. If you are going to request federal registration of the mark, the USPTO will require you to submit a copy of the standards you have established to determine whether others may use the certification mark. (37 C.F.R. §2.45)
7. To protect your rights in the mark and not risk being deemed to have abandoned it, maintain an appropriate policing program to insure that it will be used correctly by the third parties. Here are two actions you should take:
a. Issue a letter that makes it clear that they are using the certification mark under license from your organization and if they fail to maintain the standards you have required, you can revoke the privilege; and
b. Monitor third-party use of your certification mark. For example, depending on what is appropriate, you could require periodic refresher training or status reporting. At such intervals, your organization could charge fees to support this monitoring process.
In these difficult economic times, developing a certification program can not only help to set you apart from your competition but also force others to play by your rules. That is definitely an enviable position.
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.
In some of my previous blogs and articles I have urged business owners with intellectual property (“IP”) rights to take precautions to avoid being engulfed in costly infringement disputes. The first line of defense to such threats is to use best practices with the handling of your IP, i.e., to know its provenance. However, as with all risk management, another path is to acquire adequate insurance coverage.
For those of you who carry commercial general liability insurance, check to see whether and to what extent your coverage extends to IP infringement. Your carrier may have specifically exempted most intellectual property claims from your coverage, to your surprise. The facts of the following case illustrate the dilemma in which you could find yourself.
In Santa’s Best Craft, LLC v. St. Paul Fire and Marine Insurance Co., the Seventh Circuit examined whether the insurer (“St. Paul”) had an obligation to defend Santa’s Best Craft (“SBC”) and others in an IP infringement matter. http://caselaw.findlaw.com/us-7th-circuit/1529895.html?DCMP=NWL-pro_ip
SBC was sued by JLJ, Inc., (“JLJ”) over how it marketed certain holiday lights. JLJ alleged that SBC copied its “Stay Lit” lights packaging design and used false and deceptive language, thereby co-opting the look and slogans of JLJ’s Stay Lit Lights.
SBC settled with JLJ for $3.5 million. In the SBC-St. Paul’s litigation, although St. Paul, which originally questioned its duty to defend SBC, was found to have the obligation. However, the facts in the case were such that it is easy to imagine the Court ruling in St. Paul’s favor.
St. Paul’s policy contained an IP exclusion disallowing coverage for “injury or damage . . . that results from any actual or alleged infringement or violation of any of the following rights or laws: “. . . trade dress . . .trademark, other intellectual property rights or laws.” The St. Paul policy did provide coverage for “[u]nauthorized use of . . . any slogan . . . of others in your advertising.”
Despite the fact that the JLJ complaint did not clearly allege an infringement of its slogan, luckily for SBC, the Court found enough facts in JLJ’s allegations to fall within the St Paul policy coverage.
But can a business owner take much comfort from the outcome in this case? Even if commercial liability insurance contains such an advertising exception to the general IP exclusion, is that enough to insulate you from potentially large damage claims by third parties?
The IP rights and laws typically covered in a commercial general liability policy include copyrights, patents, and trademarks. It is therefore critical to determine to what extent your business activities rely on any IP. Then, have a heart to hear discussion with your insurance agent that specifically focuses on your IP issues and to determine whether special insurance coverage is available and whether you should include such in your liability policy.
A little effort now is better than to discover the limits of your coverage later — to your regret.