Most innovative start-up companies appreciate that a sound patent strategy is critical to success in the marketplace, and in making the company attractive to investors and future acquirers. But they overlook the importance of having a trademark strategy right out of the gate. Trademarks are an essential part of any successful company’s branding strategy. In addition, there are a number of reasons why an early investment in trademark strategy can have big payoffs — and avoid big headaches — down the road.
A trademark is a word, design or other designation that uniquely identifies your company or its products or services (in this blog post we will follow the common convention of using the word “trademark” to refer to both trademarks and service marks). Most companies use their company names as trademarks, and often have trademarks for each specific product or type of service as well. It is critically important not to tread on the trademarks of other companies, as you can be liable for trademark infringement even if the other mark is obscure, is not exactly the same as your mark, or is used in connection with goods and services that are different than yours.
Don’t Let This Happen to You
A common mistake is for start-up companies to start offering goods and services without ever attempting to determine whether their trademarks are in conflict with the rights of third parties. In many cases, these companies don’t even think of their trademarks as trademarks, but rather as company names and product names that don’t need attention and don’t pose a risk of liability for the company. This is naïve at best and disastrous at worst.
First, even the innocent use of a trademark can subject a company to liability for trademark infringement if it is likely to cause consumer confusion in the marketplace. Whether a likelihood of confusion exists depends on a number of factors, including the degree of similarity between the marks, the degree of similarity between the goods and services, the parties’ channels of trade and advertising, whether consumers are sophisticated, the presence or absence of actual confusion, and other factors. It is easy for your company to commit trademark infringement without even knowing it, and this puts the company at risk.
Second, there is no point in building up brand equity and goodwill in trademarks that you can’t register and may eventually have to change because they are infringing the rights of someone else. It is not uncommon for start-up companies to use certain trademarks for years, and then face an objection from a third party that was out there the whole time but hidden from view — what trademark lawyers sometimes call a “submarine” situation. The reality is that, when you are small, no one may notice you, and it is only when you start to expand that the senior trademark owners come out of the woodwork. That is precisely the time you do not want to be dealing with third party demands to change the name of your company and/or products. As well as causing massive disruption to your business, a trademark snafu can give investors and potential investors cold feet. A little early diligence can avoid this very unfortunate situation.
So what is a start-up to do? Some specific suggestions are below.
Pick Your Company Name With Care
Many start-ups assume that if a company name is available in the Secretary of State’s database, then it is safe to adopt and use. Not true! While the availability of a corporate name is an important piece of the puzzle, as is the availability of corresponding domain names, it makes little sense to invest in those names if you will be prevented from using them later on due to trademark infringement issues. Only by doing some basic trademark clearance can you properly understand and manage this risk.
Do Some Early Trademark Clearance
At a minimum, you or your attorney should search the online database of the U.S. Patent and Trademark Office to determine whether your desired trademarks (including trademarks consisting of or contained within company names, product names, and domain names) are in conflict with federal registrations or applications owned by a party with senior rights.
It is also worth spending 10 or 15 minutes on Google or another search engine, as well as whatever resources exist in your industry, to determine whether your desired trademarks are being used by others. In the U.S., the first party to actually use a trademark in connection with the provision of goods and services will generally have senior rights against later users in the same geographic area.
Of course, if you are aware that a competitor is using an identical or similar mark, this is a huge red flag and you should not proceed further without getting legal advice.
The best way to assess the risks associated with the adoption of a given trademark is to ask a trademark attorney to perform a full clearance search. You will typically receive a report prepared by a professional trademark search agency containing results from the U.S. Patent and Trademark Office, the trademark registries of all 50 states, business directories such as Dun & Bradstreet, industry publications, online resources such as Lexis/Nexis, and internet resources. The search agency will use an algorithm to pick up trademarks that are similar but not identical to yours, because even non-identical marks pose a significant risk of liability. Your attorney will analyze the search results in light of the likelihood of confusion test for trademark infringement described above, and advise you of the chances of successfully registering the trademark on your own behalf and avoiding liability for infringing the trademarks of others.
Start-up companies that cannot afford to engage in full trademark clearance activities should nonetheless do what they can to determine whether third parties — particularly competitors — are using identical or similar trademarks. These steps should be undertaken before using the desired trademarks in public-facing communications, if at all possible, and certainly before the marks have acquired substantial goodwill such that discontinuing them would cause a hardship to the company.
File an Application for Federal Trademark Registration
You can file an application for federal trademark registration with or without having previously conducted any of the clearance activities described above. Many start-up companies elect to file trademark applications without conducting robust clearance activities if they do not anticipate in engaging in public-facing use of the mark for a year or more.
The act of filing a federal application is relatively inexpensive, particularly if the application is based on an intent-to-use basis rather than existing use, and it reserves your place in line. Even if your trademark is in use, you can file an application on an intent-to-use basis, and list all of the goods and services for which you have a good faith intent to use the mark and/or are already using the mark. After the application is approved by the trademark examiner and published for opposition, which often takes between six months and a year, you will then have three more years to file a statement of use listing the specific goods and services you have offered under the mark, discarding the rest. In the meantime, your application provides a constructive priority date as to any later-comers seeking to use or register confusingly similar marks.
Consider Reserving Your Trademark in Foreign Countries
If you plan to do business in other countries in the foreseeable future, you should file trademark applications in those countries as soon as possible. It is best to do so before contacting potential agents or business partners in those countries, as it is unfortunately common for such entities to file applications in their own names as soon as they become aware of the possible venture. Although they will claim to have done so for your mutual benefit, as a practical matter, it forces you to do business with them because they hold the rights to your trademarks in that country. It sometimes takes U.S. companies years to realize that they have been hijacked by their own agents in this manner, and it is often difficult or impossible to remedy the ownership situation.
The reason that foreign trademark rights can be such a trap for unwary U.S. companies is that, unlike in the U.S., most other countries do not recognize common law trademark rights based on use without a registration (with some exceptions for very famous marks). In such countries, known as “first to file” countries, it is imperative that you be the first party to file a trademark application for the mark at issue.
Since the U.S. has joined the Madrid Protocol, an international trademark filing system by which an applicant obtains a single international registration designating multiple countries, it is more cost-effective than ever to obtain foreign trademark protection. That said, the Madrid Protocol is not always the best vehicle for acquiring foreign trademark rights, and in any event it is typically still more expensive to obtain registrations in foreign countries than in the U.S. Working with a trademark attorney will help you determine how to best allocate your limited resources in relation to foreign trademark activity.
The start-up stage is an exciting time in the life of a company. It can sometimes feel like you are in triage mode, and it is not always clear how to invest the company’s limited resources. When it comes to trademarks, a little investment goes a long way, and devoting even a couple of hours to developing the company’s trademark strategy at the outset can avoid expensive and protracted problems down the road. Choosing the right trademarks for your company, by engaging in a thoughtful and informed process, can manage the risk of liability to your company and set the stage for future success.