Intellectual Property | Trademark Strategy for Startups

As a new semester begins, I have a new wave of startups looking for guidance in many aspects of business model formation, strategic planning, and project execution. However, one area that causes founders a lot of anxiety is their venture’s naming. The challenges typically fall into two categories; either the founder can’t come up with a name that everyone agrees on, or more commonly, they fall in love with a specific name only to find that they don’t have the right to use it.

As I will discuss across several upcoming posts, there are several legal issues you, as a founder, should consider as you prepare to launch a new venture. Protecting your intellectual property should be a top-of-mind issue for all founders. These actions range from considering direct IP protections such as copyrights, trademarks, patenting, and trade secrets. You also need to consider specific legal agreements that help to protect your intellectual property, including employee agreements, contracts with independent contractors, and stockholders. For this post, I will focus on the importance of trademark protection for startups.

What are Trademarks?

The trademark process protects one of your most important assets, your brand. A startup’s brand begins to develop as soon as founders engage early customers. In the earliest stages, the brand maybe you and your name. (By the way, you might consider trademarking your surname if you plan to use it for commercial reasons. But it must meet several criteria, and you should consult a lawyer as this can be tricky). I understand that most legal experts find using a surname a poor trademark strategy. Eventually, your fledgling enterprise will have a name, and you will want to protect it. 

At this point, you should consider trademarking your brand name, logo, and slogans. You can trademark a number or some combination of forms, including name, symbol, motto, color, or jingle. Any of these can represent your company and a product you are offering to customers. For example, the circular seal with the design of a siren (a two-tailed mermaid) wearing a crown with a five-point star in the middle of the crown is one of 194 trademarks held by Starbucks. The slogan “Just do it” is one of Nike Company’s trademarks. The computer start chime for Apple Mac Computers is a well-known example of a trademark in the form of sound.

Standard advice to startups is first to seek protection for the word mark itself. While your logo may seem like a more critical protection target, it is not a primary concern. Trademark registration for a word or sequence of words covers the use of those words regardless of the font, size, color, or configuration. Additionally, early venture logos tend to be fluid, and much can change. With your word mark (brand name) protected, you can always add additional protection for your logo in the future.

Trademarks are context-specific and protect your brand and the consumer from confusion about the marketplace offering. US laws prohibit the use of a trademark that interferes with the public’s understanding of the source of a product or service offering. For example, if you wanted to call your computer services startup, Apple Computer Services, the company Apple, a recognized computer and consumer electronics company, would be able to prohibit your use of the name. However, if you wanted to start a record label called Apple Records, you may have a dispute with a famous British band that won several trademark disputes over Apple Inc. The point is you may be able to use a well-recognized brand name if you can show that there is little chance of confusing the marketplace. Again, if you are considering a brand name similar to an existing brand, you should consult a legal professional.

Central to the above discussion is that a trademark must be distinctive. A trademark must identify and distinguish the source of the product and services. If two companies offering a similar product use the same or similar trademark, the consumer will not know which enterprise provided the product. Thus, only one of the companies can possess a trademark to their name.

There are four different terms in trademark law; generic, descriptive, suggestive, and arbitrary or fanciful. When deciding on your brand name, it is wise to keep the distinctions in mind. Generic terms are not given protection by US law. For example, you cannot register the word Apple for a trademark if you plan to sell apples. However, if you call your business Jack’s Apple Orchard, you may be able to acquire a descriptive trademark. Descriptive trademarks are rarely considered a good protection strategy. Generally, the most common reason for refusing trademark registration is either the “likelihood of confusion” with an existing registered or pending mark. The second most common reason is that the proposed name is merely descriptive.

Suggestive and arbitrary trademarks offer much stronger trademark protection and are more likely to be approved if not already used. Suggestive trademarks are distinctive but not descriptive. The brand name does not directly refer to a product or service but suggests or references them. Netflix is a typical example of a suggestive mark. It indicates that it provides a product or service related to films. Arbitrary marks apply actual words that have no relation to the product or service in question. So Apple is a real word that has nothing to do with computers and electronic devices. Finally, fanciful marks are made-up words that did not exist before their creation and had no meaning before their use in the market. Examples of these marks include Lexus, Verizon, and Hoka One One.

What Is the Value of a Trademark?

The key to trademarks is their association in the consumer’s mind. They are basic forms of intellectual property affecting decisions in the minds of consumers or users. Based on personal experience, word of mouth, advertising, and other means of acquaintance, consumers form impressions about different products or services offered. Those impressions guide the consumer in deciding on spending time and money when given a choice between competing products or services.

Trademarks protect a word, name, symbol, motto, or other distinctive form or identification associated with a product or service. Examples include Coca-Cola in script form, Windex, Band-Aid (now often a generic term for an adhesive bandage), and the Intel Inside symbol. Even a catchy jingle or attractive design used as a trademark is unlikely to provide a business entity with much value unless that entity takes steps to create the positive associations described. Such associations are initially built through robust advertising and promotional trials and reinforced by such practices as providing good quality, value, user-friendliness, transparency, and customer service. A new venture must invest substantial capital, effort, and time in development to create brand awareness. An established trademark can be a highly effective tool for communicating a broad amount of information at a glance and for promoting use among consumers.

What Are the Benefits of Trademark Registration?

Federal trademark registration grants the owner a competitive advantage in using the mark. In addition to nationwide public notice of the legal claim in progress, the owner has the benefit of legal appeal in federal court concerning matters of dispute and infringement. Furthermore, national evidence of ownership can provide a basis for achieving international trademark registration and preventing the importation of global goods which infringe on the registrant’s rights but only in the United States.

The US has a two-tier trademark protection system at the state and federal levels. For this reason, as a founder, you may have the right to use the trademark symbol “TM” and afford limited protection in the state where you operate. However, protection is minimal, and if taken to court, you would need to prove you were the first to use the mark in commerce in the state. While the use of TM may provide some benefits in terms of brand messaging and credibility as a business entity, there are many benefits to registering your trademark at the federal level.

US Federal trademark registration and protection are preferable, especially with many businesses operating across state lines via online commerce. When registering a trademark with the USPTO, the afforded protection is broader in scope and across the US. With federal registration, you have the exclusive right to use the trademark nationwide. Your ownership is publicly listed in the national trademark database (TESS). You can bring an action in federal court if you find someone infringing on your rights. Once approved, you have the right to use the federal registration symbol “®.”

Finally, if you plan to operate your business internationally, every nation has its governance of trademarks used in the specified country. As a starting point, you can investigate the best course of action for a specific country or group of nations through the United Nations World Intellectual Property Organization (WIPO). To identify the best international trademark strategy, consider the locations of your customers and critical supply chain partners and how difficult it is to enforce trademark rights in each region. The combination of these conditions will help balance the risks and benefits.

A founder can file for trademark registration directly in other countries or through a treaty arrangement with a group of nations. In many countries, trademark rights are based on the “first to apply” for registration rather than the “first to use.” Therefore, the mark is not required to be in use before a trademark registration is issued. However, if the mark is not used in that country for several years following registration, another business may petition to have the registration revoked based on nonuse.

How Are Trademarks Registered? 

I recommend founders apply to have their brand names registered with the United States Patent and Trademark Office (USPTO) as soon as they decide on a venture name. Only the owner of a trademark may apply for registration, although an attorney may initiate the application on behalf of an owner. Attorneys are not essential to this process, but they can provide invaluable guidance to the aspiring trademark registrant for avoiding pitfalls and safeguarding the fruit of labor. 

The owner must apply with supporting documentation. For example, suppose the mark is currently in commercial use. In that case, you must submit an in-use application that includes: a) a trademark drawing on a separate sheet of paper, b a filing fee corresponding with the product class to which the brand applies, and c) specimens of the trademark. Where possible, specimens should be actual commercial-grade material bearing the trademark. However, where samples are impractically unwieldy, 8½ × 11″ photographs of real specimens may be supplied instead. In many cases, the venture’s website URL and high-quality images showing the trademark will be sufficient.

Until recently, the applicants had to show that the mark was commercially in use. The federal law now allows trademark applications with an intent to use commercially within six months. Extensions up to three years are available for additional fees. This modification to the law enables new startup founders to ensure their proposed mark is available and reduces the chances for future challenges. 

When an applicant’s trademark is not for commercial use at the time of application, one can file an intend-to-use application. Submit a trademark drawing on a separate sheet of paper with a filing fee corresponding with the product class to which the trademark applies. If accepted, you have six months to transition to commercial use. Owners can file an additional request for an extension of time if the mark is not used within the six months following their application submission. Failure to make commercial use of the mark without an extension filing will result in the USPTO’s disavowal of the application.

The USPTO will grant registration approval to the first party to commercially use or file an intent-to-use application. Because registration of a trademark with the USPTO confers upon the registrant particular legal privileges, entrepreneurs should seek registration as early as possible.

Applicants should expect it to take approximately one year to receive registration approval for the trademark. During this period, the application is reviewed by a USPTO’s trademark attorneys and evaluated for compliance with regulations and potential conflict with existing registered marks. If the application meets all criteria, a trademark will be published in the USPTO’s Gazette for review and possible challenge by competitive parties.

You should apply for a US-registered trademark from the United States Patent and Trademark Office (USPTO). You should use a legal service to facilitate the application for this step. The law firm will conduct a comprehensive search and if they deem the name worthy of application, will apply on your behalf. You will pay specific government fees for the application and the legal costs associated with the application process. If the trademark application is accepted, you now have the protection of your venture’s name for a specific period. In addition, you can now place the registered trademark symbol after your name – Great Cuts®. You have to show that the name is used in commerce periodically through various maintenance and renewal filings. 

The first maintenance filing occurs between years five and six. Then, towards the end of every ten years, you file a Declaration of Use or Excusable Nonuse Application for Renewal under Sections 8 and 9 and pay applicable fees. This declaration generally includes a verified statement that the trademark is in use in commerce, along with evidence showing that use and the renewal is a statement requesting that the USPTO renew your registration. If you don’t file this declaration, registration is canceled and expires.

How Are Trademarks Enforced?

Once one registers as a trademark with the USPTO, the owner of the mark may use the federal registration symbol®. This recognition informs others of the exclusive rights afforded by the mark. Therefore, until official registration occurs, it is a good idea to use the TM symbol to notify others that you are claiming rights associated with using your mark. 

Registration is the first step towards protection. As the trademark holder, you must remain alert to possible trademark infringers in the US (and in other countries as applicable). Even when officially registered and kept in constant use, there is no guarantee that others will not infringe on the trademark. Therefore, you should notify the USPTO when infringement potentially has taken place. A decision to pursue legal recourse for damages should hinge on the infringement’s actual or potential financial loss. However, marks owners are entitled to file suit even where no such losses are readily apparent.

In cases where the injury is minimal, it may make more sense to notify the infringing party of infringement, providing records of your rights and a request to terminate the usage of the mark. Document this action so you can use it in future prosecution should the infringing party fail to comply. Then, contact a qualified attorney to perform prosecution for non-compliance or significant financial interests are at stake.

For infringement to exist, a mark need not be identical to that used by the infringed party, only similar enough to be likely to confuse. Similar marks are more likely to infringe on one another when used in the same or similar businesses. Furthermore, infringement need not be intentional for damages to be awarded. It is the obligation of any party employing a mark to ensure its use is unrestricted. Nonetheless, determination of intent can strengthen a case against an infringing party and result in the award of more significant damages than in cases where intent does not exist.

All this said founders must have a plan to police their trademarks and brand. Especially in today’s ever-growing and evolving social media, it is easy for someone to infringe on your rights. However, you must weigh your brand’s threat and damage versus the legal costs of pursuing infringers. Your brand protection must take into account your priorities and resources.

Guidance for Selecting Your Venture Name

As I mentioned, founders tend to love their venture’s name. However, when co-founders are involved, the choice of name can become a hotly contested (and long) discussion. That said, I find it helpful to conduct some due diligence before you start celebrating your new brand name.

Understanding how trademark protection works helps when considering what to call your venture. As a starting point, just considering the different types of trademarks and the varying degrees of protection should guide your name selection. For example, your brand may benefit from a suggestive or arbitrary name versus one that is descriptive.

Once you have some choices in mind, you can take steps to evaluate whether you can protect the selected name. The first step sounds obvious, but you should conduct a thorough internet search to see if the name exists in the marketplace. Start by typing in the name and look at the search results. What’s on the list? Any businesses? Organizations? Products? This action can be the first and last step, as you might find that the name is active in the marketplace, thus eliminating its utility for your venture.

However, if other businesses or products pop up in your search results, you can take your research to the next level before throwing in the towel. First, note down any business that is using your selected name. What business are they in, and where do they operate? Sometimes if a company is in a completely different industry, offering other products or services, located far away from your intended location, and there is no possibility of market confusion, you may still have an opportunity to use the name. For example, if you wanted to start a landscaping business in New Jersey and call it “Great Cuts” and found an individual barbershop in Montana with the same name, you may still pursue it. This condition is where the “likelihood of confusion” element of the trademark law comes into play. Several factors are considered, including the degree of similarity of the marks in terms of appearance and suggestion and actual differences between products and services offered between the two businesses. The comparison of products and services is one of the critical elements. Identical trademarks occur in unrelated industries.

As part of this first step, you can also check any local government or state databases to see if someone has incorporated the state using the name in question. Eventually, if you decide to incorporate your business, the availability of the name will be searched as part of the legal process. You will not be able to incorporate your business with a name already listed in the state. Later on, once a venture name is selected, you can have a legal professional legal counsel complete a company name search in available principal states in which the venture anticipates conducting business to identify conflicts with entities already using similar names.

The second action you can take is a domain search to see if the primary URLs are available to secure. Minimally, you should be able to purchase through a domain buying service, the .com, and .org. In some industries, you may want to secure additional URLs to help protect the name from use. Especially before your brand name possesses trademark protection, it is easy for another entity to register it with a different top-level domain extension. So you may own the .com, but another entity uses the same name as .co or .net. Unfortunately, a .co extension can create a scenario where people mistype and go to the .co instead of the .com. Founders need to weigh the risks with the costs of owning multiple domains to protect their digital assets.

Along with checking web domain availability, you should also review the possible use f the name in various social media. You should check all relevant social media to see if you can select your company name as the identifier for your account. For both domains and social media handles, it is better if you can use your venture’s name exactly as you want it to be displayed. Compromises such as dashes, added letters, or numbers are not ideal for your brand consistency. 

Finally, you should conduct a trademark search to see if anyone has registered the name under the trademark protection law. You can perform a preliminary search using the TESS search database. This search allows you to check all the existing uses of the name, including other names that might be close; This search will discover names with partial use of the words used in the name. For example, If you search the name Great Cuts, you will see all the registered names using these two words, usually ordered by closest to less similar. While deciding whether the name may be available to be trademarked should be reviewed by a lawyer, you can begin to have some confidence as to whether the name is available depending on the results of this trademark search. 

After the above search, if you feel confident that you will be able to use the name, you should apply the TM mark to the end of your name. This action can be done without registration and provides minimal protection in the state you operate. So Great Cuts™ would be a good step at this point. 

Next Up

In future posts, I will look at other intellectual property management approaches, including copyrights, patents, and trade secrets.

Get a copy of Patterns of Entrepreneurship Management, 6th Edition, for more on this subject and other entrepreneurship topics.

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