Tradenames and Trademarks
by Annette P. Heller
One of the most valuable assets a business has is the trade name and trademarks (service and product name) under which the recognition and goodwill of the business is built. However, most business owners are unaware that this valuable asset may not be fully protected by incorporation with the Secretary of State, by state trademark registration or even by filing a fictitious name registration. In fact, federal trademark registration (Lanham Act 15 U.S.C. 1072) are constructive notice of one’s rights to the use of a name and if one fails to check the federal register prior to adoption, then that business does it at the risk of infringing a federal trademark registration.
Under Federal Trademark law, a federal trademark registration may take precedent over the state laws if an infringement arises as a result of two business using the same or similar trade name or trademark. Recently, I settled a trademark infringement suit resulting from the adoption of a corporate and product name that infringed an existing federally registered mark. Three months after my client was incorporated and started to sell his product, he received a cease and desist letter from the trademark owner. At that time, my client had in inventory over $25,000 worth of products bearing the infringed trademark. Fortunately, by the time suit was filed and I was retained, the inventory had been reduced to $5,000 and we were able to work out a settlement which included a phase out period for depleting the remaining inventory. If a federal trademark search had been done prior to incorporating or the use of the trademark on the product, my client would have avoided the expense of litigation plus the expenses involved in changing their name and trademark. Furthermore, the client lost the goodwill that had been built up using the infringed name.
Another similar situation involved a service business which was incorporated in Missouri fifteen years ago. Three years after incorporation, another company in another state obtained a federal trademark registration for the same mark covering the same services as the Missouri company for trademark infringement. After extended litigation, the Missouri company was left with the right to use its name within a five-mile radius of its original store and incurred $24,000 in legal fees. In addition, the Missouri company had to compete with the local franchisees and was unable to expand beyond the five-mile radius. A federal registration of the name when the Missouri company started business may have prevented the subsequent complications.
Before adopting a business name or trademark, a business, whether it is a sole proprietorship, partnership or corporation, should do the following research in order to avoid creating a potential infringement.
FIRST: The business owner should review available literature to determine what trademarks or business names are being used in the area in which the business owner is doing business. This would include reviewing the Yellow Pages and the business section of the White Pages of the telephone directory plus local newspaper advertisements.
SECOND: Doing an internet search is also useful to eliminate trademarks that are already being used by others. In addition, a screening search of the Patent & Trademark Office's web site can also eliminate names that are being registered.
THIRD: A search of the Secretary of State office's web site should be done of the corporate records, fictitious name registrations and state trademark records checked for the name chosen.
FOURTH: A trademark search by a trademark attorney should be done to determine if there are any federal trademarks or applications existing that could present a problem to the use of the chosen name. The federal trademark search should be reviewed by an attorney familiar with trademark law in order to properly evaluate the results of the search. In addition, if the search indicates that the name is available, then the business owner should consider federal trademark registration to further protect its rights.
In conclusion, a business builds its reputation under a chosen trade name and/or trademarks. These names are business assets that add value to the business and can be sold or assigned to others along with the business. If a business loses the right to use that trade name or trademark, then it must re-establish its reputation under a new trade name or trademark. As a result, the chosen trade name or trademark are valuable business assets which a business should seek to protect in order to protect the investment being made to establish a profitable business.