October 31, 2011

Trademarks Can Snare the Unwary

Marketing people will tell you that a name means everything.  Just ask Coca-Cola, McDonald’s, Microsoft or Nike. It is the name that sells the products.  If you think about it, there is probably nothing that they cannot sell.  Nike diapers?  Companies such as these didn’t gain that recognition overnight.  But the fact remains, the company name or trademark is perhaps the most valuable asset of all.

A trademark is a word, phrase, symbol, design or combination thereof which identifies and distinguishes the source of the goods or services of one party from those of others.  A service mark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product.

Federal registration is not required to establish rights in a mark, nor is it required to begin use of the mark.  However, federal registration can secure benefits beyond the rights acquired by merely using the mark.  Unlike copyrights or patents, trademark rights can last indefinitely if the owner continues to use the mark to identify its goods or services.

While there is obviously much that can be said about trademarks, one recurring problem seems to vex the expanding company.  Once a business is formed (typically incorporation or limited liability company formation), selects a name, and clears that name through the Idaho Secretary of State’s office, the company proceeds without any further thought. It must be okay to use the name or the Idaho Secretary of State’s office would never have allowed them to use the name, right?  Everything is fine until, perhaps a few years later, the company expands out of the Idaho area or some other foreign company expands into the Idaho area. That’s when the Idaho company finds out that it is not alone in the universe and, in fact, someone else is using the same name for the same or similar products.

The initial reaction is, “Who do they think they are, using our name?”  Once the shock of finding such an “impostor” wears off, true dismay takes its place when it is determined that the other company started using the name before the Idaho company and, even worse, has a federally registered trademark that cannot be challenged.

It is about that time that a cease and desist letter shows up from the other company’s attorney, demanding a change in name.  Changing the name at this point can be a costly process because of the need to abandon the goodwill that has been built up through hard work.

In the long run, a company can save time, money and certainly heartburn by checking the federal trademark office records to see if the name is available for use.  Just because a name can be cleared with the Idaho Secretary of State’s office for incorporation (the same holds true for limited partnerships or LLCs) does not mean that the name is truly available for use in the global marketplace. If another company in another state or area of the country has superior trademark rights in the name, especially if those rights are protected through federal registration, then whatever the Idaho Secretary of State’s office may allow simply is not going to help.

For example, a quick check with the Idaho Secretary of State’s office reveals that the name “Adidas, Inc.” is available for use as a corporate name in the state of Idaho.  However, use of that name to sell athletic clothing and shoes would be ill-advised because of superior trademark rights owned by a certain well known sporting goods provider with the same name.  The moral of the story – spend the money up front to verify availability of the name that you want to use, especially if there are plans of moving outside the local area.  A knowledgeable trademark attorney can help you avoid this quagmire.

A closely related problem involves the internet.  Companies often feel that if they are successful in obtaining a domain name for their internet web address, then they have the green light for use of the name.  However, just because one can obtain a domain name does not mean that use of the name will be free from trademark challenge by some other owner of the same or similar name.

Once again, trademark rights, especially those obtained through a federal registration, generally provide a party with superior rights to the exclusive use of a mark, and the party with such superior rights can generally prevent others from using confusingly similar marks, even if that use is by way of a domain name.

There is an old saying about being penny-wise and pound foolish.  When it comes to trademarks, often the party who refuses to do the homework up front later pays the costly price when the real test comes.  Protecting your trademarks may be the smartest thing you will ever do.

By Tom C. Morris