PROTECTING YOUR INTELLECTUAL PROPERTY RIGHTS-TRADE MARKS

In the May 2007 Law Newsletter I discussed the importance of protecting the
intellectual property rights in a small business.  I discussed Trade Secrets in that
inaugural issue.  In this issue of the Law Newsletter I’ll discuss the importance of
another area of intellectual property rights, i.e. “trademarks.” A company’s
“trademarks” are an integral and valuable part of its business success.  Federal
and California law protect trademarks.  In actuality, the generic term “trademarks”
includes several sub-categories of intellectual property rights, including:

•   Trademarks
•   Service marks
•   Collective marks
•   Certification marks
•   Trade names
•   Domain names

The major purpose of “trademark” law is to prevent confusion among consumers
as to the source of goods or services. A trademark may consist of a name, a
phrase, numbers, symbols, characters, sounds, visually moving images, designs,
configurations, etc.; even colors under special circumstances. The owner of a
“trademark” has rights in the mark, to the exclusion of all others, to use the same
or a similar mark in connection with goods or services, in circumstances that may
result in confusion to consumers.

Legal Basis for Trademarks

The legal authority for trademarks is found in common, state and federal law.
Most states allow the registration of trademarks.  Federal registration affords the
registrant national protection against infringement.  State laws generally only afford
intrastate protection.  A trademark may also be established through common law
“usage” vis-à-vis registration.
  
Definitional Framework

Trademarks.        A trademark is “any word, name, symbol, device or any combination
thereof used by a manufacturer or retailer of a product, in connection with that product,
to help consumers identify that product and distinguish that product from the products
of competitors.”  Trademarks distinguish products in the minds of consumers, even if
the source of the products is unknown to them.  They connote a certain quality,
craftsmanship, reputation and goodwill of the mark’s owner.

Service marks.        A service mark is “any word, name, symbol or device used in
providing services, in connection with those services, to aid the public in identifying
the services and in distinguishing them from the services of others.”  Service marks
are protected in the same manner as trademarks.

Collective marks.        A collective mark is “a trademark or service mark used by the
members of a cooperative, an association or other collective group or organization to
indicate membership in such a group or organization.”  They are registrable and
protected in the same manner as trademarks and service marks.

Certification marks.        A certification mark is “a mark used in connection with a
product or service by a person other than the owner of the mark to certify that the
product or service is of a specific regional origin, material, mode of manufacture,
quality, accuracy or other characteristic.”  These marks are registrable and protected
under federal law (the Lanham Act) except if misleading.

Trade names.        A trade name is “a mark used to identify a business.  It is the name
under which a company does business.”  Trade names are not registrable under
federal law unless they also function as trademarks or service marks.  An example of
a trade name that has been registered is “Allstate.”  It is demonstrative to note the
unique stylized “A” in the trade name “Allstate.”  Trade names are registrable under
various state statutes.

Domain names.        A domain name is “the text name corresponding to the numeric
IP address of a computer on the Internet. A domain name must be unique. Internet
users access websites using domain names and thereby gain access to the
contents of that page.”  The IP address is also known as the URL, an acronym for
Uniform Resource Locator.  Domain names may also be trademarks or service
marks if more than an address, i.e. they must identify products or services being
provided under the domain name via the internet.  Therefore, domain names are
registrable and protected under federal and state laws.   The Internet Corporation for
Assigned Names and Numbers (ICANN) is responsible for managing and
coordinating domain names, but it does not protect the registrant of the domain name
with respect to trademark, service mark or content copyright infringements.

Mark or Name Selection

Several economic events may trigger the need for mark or name selection and
registration.  They include:

•        BStarting a new business
•        Incorporating or forming an LLC or LLP
•        Introducing a new product or service
•        Selling over the internet
•        Expanding the scope of a business or company
•        Forming a franchise

Before selecting or adopting a trademark (hereinafter “mark”), it is important to
determine whether any one else is already using a similar mark in connection with
the manufacture or sale of goods or services similar to the planned product or service.

Selection Process

Before settling upon a particular mark, the party seeking to register or introduce the
mark should conduct a search as to the existence of marks, both registered and
unregistered, that are the same or similar.  Failure to conduct a proper search may
result in the introduction of a “mark” that infringes on the rights of another, leading to
subsequent legal action forcing the company to cease using the mark and the award
of a judgment for damages (including costs and attorney fees) to the owner of the
earlier mark.

The business owner should also consider the so-called “strength” of the mark.  The
mark will identify the business and its products.  Strong marks typically not only afford
their owners protection from use of identical marks, but also similar marks.  In this
sense the mark should be “distinctive.” A hierarchy of attributes is used to assess
distinctiveness, i.e. whether the mark is fanciful, arbitrary, suggestive or descriptive.  

A fanciful mark is a “coined” mark.  It is highly protected.  An example might be
“Exxon.”  It has no existence in the vernacular before it is “coined.”  Another example is
“Q-Tips.”  An arbitrary mark is found in the dictionary, but it bears no relationship to the
product or service that it represents.  An example might be Apple Computers, or
“Seven for all mankind.”  The latter is a popular jeans brand, privately owned until
recently, when it was acquired in a lucrative deal by a large multi-national.  A
suggestive mark contains some description, but requires imagination to make the
connection between the mark and the product.  An example is “Roach Motel” or
“Chicken of the Sea.”  And finally, descriptive marks are least protected under the law.  
Unless the descriptive term achieves market recognition or “secondary” meaning, i.e.
distinctiveness, e.g. “Philadelphia Cream Cheese,” no protection will be afforded the
mark.  

The following marks are barred from registration:

•        Generic terms, e.g. “diet cola”
•        Surnames (unless proved to have distinctiveness, e.g. Levi Jeans)
•        Geographic locations (again, unless distinctive, e.g. Philadelphia Cream
        Cheese)
•        Deceptive, disparaging or scandalous terms, e.g. bull sh*t by Red Bull.

Common Problem Areas

A few commonly troublesome areas are worth nothing.  

Fictitious business names:

•        Filing establishes a rebuttable presumption that the registrant has the exclusive
       right to use as a trade name, the fictitious business in the county of registration
•        It also establishes the same presumption as to any confusingly similar trade
       name in the county of registration
•        Provided the registrant is the first to file in that county and is actually engaged in
       a trade or business utilizing the fictitious name or a confusingly similar name in
       that county.

Articles of Incorporation:

•        Filing articles establish a rebuttable presumption that the corporation has the
       exclusive right to use the corporate name as a trade name in the California
•        Filing articles also establish the same rights as to confusingly similar trade
        names
•        Provided the corporation is the first to file articles (or register a foreign
       corporation in California) and is actually engaged in a trade or business utilizing
       the corporate name or any confusingly similar name.

A rebuttable presumption is legal terminology for establishing a prima facie (on the
face of it) right by facts and circumstances that tends to prove the right to use the
“mark,” which may be rebutted (i.e. later overcome) by a showing of other facts or
circumstances that trump the facts establishing the prima facie right.

Neither the filing of a fictitious name statement, nor the filing of articles of
incorporation will authorize the use of a business name, be it fictitious or corporate, in
violation of the rights of a third party who has established its right in the name under
the federal Trademark Act (15 USC Sec. 1127 or the Lanham Act), California law (Civil
Code Sec. 655 and Business & Professions Code Sec. 14200) or common law.

Finally, while domestic use of marks is governed by state and federal laws,
international use is an entirely different “ball game.” Although there are international
trademark treaties, you need to be very careful about protecting your trademark rights
in other countries. Not only is translation problematic, but the laws of the land must be
considered when allowing others to use the mark.  Words that convey one meaning
locally, may convey entirely different meanings in other countries.  For example,
“Come alive with the Pepsi generation” may mean “Pepsi brings your ancestors back
from the grave” in China.  While international trademark treaty systemization is beyond
the scope of this issue, suffice to say that the Paris Convention and the Madrid
Agreement and Protocol are two significant international treaties addressing
trademarks and are generally “policed” by the World Intellectual Property Organization
(WIPO), which is part of the United Nations. The latter instrument allows for
registration of trademarks regionally among signatory countries to the treaty.  For
example, one application and fee filed from the US may cover most of Southeast Asia,
with the exception of Countries A and B (who may not be signatory countries to the
treaty).  Another application and/or fee might be required for South America.  This
procedure is known as the integrated filing and registration system.  Moreover, with
respect to Countries A and B, separate applications may be required and the
retention of local counsel to handle those registrations will likely be required.

Infringement

Once established, a trademark must be "policed" to maintain rights. If allowed the
mark may become synonymous with others' goods or services, running the risk that
the rights in the mark will be lost because the mark may be deemed to have become
"generic," and thereby no longer identifies a source, but rather a good or service
available from several sources.  Legally, this is often referred to as “dilution,” i.e. the
value of the mark is “diluted” by the inferior or pervasive exploitation of the mark.  If a
mark has not been registered, place the symbols "TM" and "SM" next to the mark in
advertisements, etc., to indicate that the rights are claimed in the trademark or service
mark involved, respectively. Registered marks should to be identified by the ® symbol.
If referring to a mark belonging to another, indicate that the mark is owned by the other
party: for example, "Presario is a registered trademark of Compaq Computers."

Conclusion

As noted, “marks” can be valuable property of a business.  They may be licensed, as
well as exploited commercially by their owners.  They may be sold as well.  The tax
treatment under each scenario is different and in the international context yield widely
different tax results.  The laws governing “marks” are somewhat complex and warrant
counsel in the use thereof from start to finish.  Accordingly, competent legal advice
should be secured.