Protecting Your Brand In China Against Trademark Squatting

With its rapidly expanding economy, the largest middle class in the world, and significant manufacturing capacity, China can be a great new market for American businesses interested in global expansion or manufacturing goods for export in China.  Before expanding, however, American companies should first ensure that their brand is sufficiently protected from a common practice in China — trademark squatting.

Unlike the United States, China is a “first-to-file” country.  This means that, in order to accrue rights in a trademark in China, a company must be the first to file to register that trademark there.  This system is very different from the United States, where the senior user of a mark, regardless of registration, has rights.  In addition, the Chinese Trademark Office does not require an applicant to prove that it is using the applied-for mark before granting a trademark registration.  This system of first-to-file with no proof of use requirement allows unscrupulous individuals and entities to engage in the practice of trademark squatting, or registering Western brand names (or their Chinese-character equivalents) in China.  Trademark squatters in possession of a Chinese registration for a Western brand name will often either: (1) hold the registration hostage and demand large sums of money for a trademark assignment; or (2) sell cheap knockoff goods under the pirated trademark, leading the Chinese consuming public to link the Western brand with inferior products.

Unfortunately, many Western companies and famous individuals have experienced firsthand the consequences of trademark squatting in China.  One example is Nike and Michael Jordan’s line of Air Jordan shoes.  In 1993, Nike registered to protect the trademark JORDAN in English in China but neglected to file for the Chinese-character transliteration “Qiaodan.”  Several years later, Qiaodan Sports registered the Chinese trademark Qiaodan and began operating retail stores offering shoes and athletic wear under the Qiaodan mark, including selling shoes with a basketball player’s silhouette, similar to the silhouette found on Air Jordans.[1]  Qiaodon Sports also registered and used other marks commonly associated with the basketball player, such as the number 23 (Michael Jordan’s Chicago Bulls jersey number) and the names of Michael Jordan’s two sons.[2]  Currently, Qiaodan Sports operates approximately 6,000 retail locations in China, with many of its customers believing that Qiaodan Sports is endorsed by or affiliated with Michael Jordan.[3]  Upon learning of Qiaodan Sports in 2012, Michael Jordan instituted proceedings against the Chinese company.[4]  The Beijing Intermediate People’s Court, in finding for Qiaodan Sports, held there was insufficient evidence to conclude that Qiaodan referred to Michael Jordan.[5]  This ruling was upheld on appeal to the Beijing High People’s Court.

Companies interested in expanding into China can prevent trademark squatting by registering their English marks (if the company plans to sell goods in China using its English marks) as well as the Chinese-character equivalents.  Registering both the English marks as well as the Chinese-character equivalent forecloses the potential avenues trademark squatters might use to financially benefit from a Western company’s brand.  Registration can be sought either through Madrid extension filings or through a national filing with the Chinese Trademark Office.  — Stephanie Martinez

 

[1] National Public Radio, The Trademark Woes of Michael Jordan (And Many Others) In China (Aug. 16, 2015), http://www.npr.org/2015/08/16/430998321/the-trademark-woes-of-michael-jordan-and-many-others-in-china.

[2] Id.

[3] Id.

[4] Eben Blake, International Business Times, Michael Jordan Loses China Trademark Lawsuit to Chinese Knockoff Brand Qiaodan Sports (July 30, 2015), http://www.ibtimes.com/michael-jordan-loses-china-trademark-lawsuit-chinese-knockoff-brand-qiaodan-sports-2032080.

[5] Id.

Trademark: A Rose By Any Other Name…

As published in the April 2016 issue of Virginia Lawyer.

It’s not often that trademark law faces a direct conflict with constitutional law. Yet recent cases have turned a bright spotlight on the tension between federal registration of disparaging marks and the First Amendment.

The Lanham Act provides for federal registration of trademarks that identify the source of goods or services. Trademark examiners at the United States Patent and Trademark Office (USPTO) review trademark applications and determine whether a mark is registrable. Section 2(a) of the act prohibits registration of immoral, scandalous, or disparaging marks. The disparagement provision states that a mark can be refused registration or cancelled if it may disparage “persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute.”[1]

Uneven application of the disparagement provision has been particularly problematic. For example, the USPTO allowed the mark “The Devil Is A Democrat” to register, but rejected “Have You Heard That Satan Is A Republican” as disparaging. “F*A*G Fabulous And Gay” was permitted to register, while “FAG Forever A Genius!” and “Marriage Is For Fags” were denied as disparaging. Other marks deemed disparaging include “The Christian Prostitute,” “Heeb,” “Amishhomo,” “Ride Hard Retard,” and “2 Dyke Minimum.” Compare these to the registered marks “Off-White Trash,” “Celebretards,” and “Dykes On Bikes.”

Though cancellation of the Washington Redskins’ trademarks may have dominated the discussion of disparaging trademarks among Virginians, recent major strides for deeming Section 2(a) of the Lanham Act unconstitutional have come from a groundbreaking case in the US Court of Appeals for the Federal Circuit involving the trademark “The Slants.”[2] After an arduous process, the Asian-American rock band The Slants succeeded in defeating the disparagement provision so the band can register its trademark.[3]

Initially, the USPTO rejected “The Slants” because the name was “offensive to people of Asian descent” and therefore disparaging under Section 2(a). The 2010 application included a specimen showing use of the mark that referenced Asian themes and culture, potentially adding to the trademark examiner’s impression of possible disparagement. The band abandoned the original application after receiving an initial rejection on this basis and refiled for the trademark using different specimens that did not reference the band members’ Asian descent. The application was once again denied under the disparagement provision.

Trademark registration provides important legal rights including presumptions of ownership and validity, nationwide constructive notice, and the ability to obtain US Customs assistance in combatting infringing or counterfeit imports, among others. Although a disparagement refusal does not ban use of a mark, the mark holder loses the benefits associated with federal registration and may therefore be discouraged from using such a mark. Throughout In re Tam, the court repeatedly underscored the numerous valuable benefits that federal registration bestows.

When examining potentially disparaging marks, the USPTO examiners consider two factors: (1) The likely meaning of the mark, considering not only dictionary definitions, but also the word in relation to other elements in the mark, the nature of the goods or services, and how the mark is used in the marketplace; and (2) Whether that meaning refers to identifiable persons, institutions, beliefs, or national symbols.[4] Once an examiner makes a prima facie showing under these factors, the applicant must successfully rebut the finding or the examiner will refuse to register the mark.

Disparaging mark refusals were fairly uncommon until the last several decades.[5] Notably, examiners who determine that a mark is disparaging do not have to consult a supervisor or take steps to ensure consistent application, as is required for marks deemed immoral or scandalous.[6]  Thus, one single examiner can determine the fate of an ostensibly disparaging mark. The potential for arbitrary application clearly exists.

In The Slants’ case, the examining attorney stated that the term “has long been a derogatory term directed towards those of Asian descent.”[7] The refusal also pointed out that an applicant’s intent to disparage the referenced group is not required. Thus, it is irrelevant that the band is attempting to “take the term back” and transform it into something positive.

On April 20, 2015, the appeals court upheld the denial of registration, following the precedent of In re McGinley.[8] McGinley permitted refusal of disparaging marks because the denial of federal registration does not prevent someone from using the mark. Thus, the court held that the First Amendment is not violated because “no conduct is proscribed, and no tangible form of expression is suppressed.” The court failed to cite legal authority for its rationale.

A persuasive dissent by Circuit Judge Kimberly Ann Moore questioned McGinley’s precedent and whether refusal of disparaging trademarks does in fact violate the First Amendment. Subsequently and apparently persuaded by Judge Moore, the US Court of Appeals for the Federal Circuit (CAFC) issued a sua sponte order vacating its own April opinion. On December 22, 2015, the court held in a 9-3 decision that precluding disparaging trademarks from federal registration violates the First Amendment.[9] Emphasizing that “the First Amendment protects even hurtful speech,” the court laid out its findings as detailed below, stating that, “Whatever our personal feelings about the mark at issue here, or other disparaging marks, the First Amendment forbids government regulators to deny registration because they find the speech likely to offend others.”[10]

Trademarks have an expressive character that is precisely what the First Amendment protects. The CAFC explained that the ban on marks that may disparage is based on the expressive nature of the mark. Government regulations that ban or burden private speech based on viewpoint discrimination are subject to strict scrutiny. The court noted that the basis for refusal of a disparaging mark “is always [the] mark’s expressive character, not its ability to serve as a source identifier,” and thus the disparagement provision does not govern commercial speech.[11] The disparagement provision not only regulates private speech based on the nature of a trademark’s message, but also discriminates based on the viewpoint of that message. To demonstrate the facial discrimination of the provision, the court cited previously registered marks that refer to particular groups in positive or neutral ways: “Celebrasians,” “Asian Efficiency,” “New Muslim Cool,” “Jewishstar,” and even “NAACP.” Moreover, marks that may seem disparaging can be registered if the applicant can show that the referenced group perceives the term in a positive way. For example, “Dykes On Bikes” registered after the applicant provided evidence that the relevant population uses the term with pride. The court held that such viewpoint discrimination based on the expressive aspect of a trademark is not permissible under the First Amendment. Furthermore, in light of the application of strict scrutiny, the court found that the government does not have a sufficiently “compelling interest in fostering racial tolerance.”[12]

Rather than harkening back to the misguided approach applied in McGinley — that refusal of a disparaging mark does not prohibit any speech — the CAFC highlighted the significant chilling effect that the disparagement provision has on private speech. Laws that burden speech, even indirectly, are just as problematic as laws that censor outright. Emphasizing the value of federal registration, the court explained that “[d]enial of these benefits created a serious disincentive to adopt a mark which the government may deem offensive or disparaging.”[13] The court expressed concerns that a disparagement refusal is dependent on the subjective view of a particular group, and that usage or meaning of terms may change over time or in different areas of society. Thus, a mark that has been registered for decades could later be cancelled after substantial investment (e.g., Redskins). Faced with this potentially severe penalty, applicants are unwise to select a mark that may become problematic in the future, contributing to the chilling effect. Most applicants denied registration under the disparagement provision abandon the application and change their name rather than forego federal registration or challenge the rejection.[14]

As support for its right to refuse to register disparaging marks, the USPTO argued that trademark registration (not the trademark itself) constitutes government speech.[15] The court disagreed, finding that trademark registration is merely a regulatory activity that does not transform a trademark into government speech. The court repeatedly pointed out that following the USPTO’s logic, copyrights registered with the federal government would convert the underlying works into government speech. The government could therefore censor copyrighted works that contain immoral, scandalous, or disparaging material — a clearly untenable idea.

In considering the argument that a trademark amounts to government speech, the court distinguished trademarks from the recent Supreme Court decision which found that specialty license plate designs constitute government speech.[16] The Sons of Confederate Veterans sought to sponsor a specialty plate that depicted the Confederate flag, which the Texas DMV denied as offensive.[17] License plates bear the state name, and the state requires and issues license plates, along with controlling their messages, design, and disposal.[18] Thus, the Supreme Court held that license plate designs are government speech, and that prohibiting certain messages is not a violation of a private citizen’s First Amendment rights.[19] While the Supreme Court found that “license plate designs are often closely identified in the public mind with the state,”[20] the court in In re Tam found that trademarks do not convey the same connection. Indeed, the court cited numerous marks which clearly have no government affiliation — religious and drug-related marks, as well as marks like “Capitalism Sucks Donkey Balls,” “Murder 4 Hire,” and “Take Yo Panties Off.” Moreover, the USPTO makes clear that federal registration is not an endorsement of any mark, product, or service. As the court stated, “There is simply no meaningful basis for finding that consumers associate registered private trademarks with the government.”[21]

The CAFC’s opinion was loud and clear. “It is a bedrock principle underlying the First Amendment that the government may not penalize private [nongovernment] speech merely because it disapproves of the message it conveys.”[22] For these reasons, the court found the disparagement provision unconstitutional, in violation of the First Amendment.[23]

The USPTO can appeal the CAFC’s decision to the US Supreme Court within ninety days after issuance. Commentators agree that the Supreme Court would likely consider the case.

Meanwhile, the battle rages on. The Slants band has asked the USPTO to proceed with federal registration of its mark. The USPTO has refused this request, stating in a letter to the band’s attorney that registration will be suspended until either the agency forgoes the appeal or the Supreme Court decides the case, as is consistent with USPTO policy following a federal circuit ruling.[24] Furthermore, the USPTO has stated it will generally suspend consideration of potentially disparaging marks until final resolution of these proceedings.[25] The USPTO has not sought a stay in enforcing the Federal Circuit’s determination that the disparagement provision is unconstitutional — only a thirty-day extension to file a petition of certiorari.[26] In light of the extension request, an appeal by the USPTO seems highly likely and could potentially block the registration of disparaging marks until a Supreme Court ruling. As of March 15, 2016, The Slants filed a petition for a writ of mandamus with the Federal Circuit, calling for an order that would require the USPTO to proceed with registration.[27] The court reacted within hours, ordering that the USPTO respond to the petition within one week and answer The Slants’s accusation that the agency has ignored the court’s ruling.[28]

As football fever slowly amps up again before the NFL draft at the end of April, the Redskins’ lawyers are also gearing up for the Fourth Circuit appeal centered on the cancellation of the team’s marks under the disparagement provision.[29] While The Slants’ case was based on First Amendment arguments for a trademark application, the Redskins’ case is based on both First Amendment[30] and Fifth Amendment arguments fighting the cancellation of six marks.

The Redskins team has been battling cancellation of its marks for a long time.[31] In 2014, the Trademark Trial and Appeal Board (TTAB) found the Redskins’ marks disparaging to Native Americans and canceled the registrations. The Redskins then appealed to a federal court in Virginia, claiming that the marks’ cancellation violated First and Fifth Amendment protections. On July 8, 2015, the district judge upheld the TTAB’s earlier decision, finding the disparagement provision constitutional. The opinion deemed trademark registrations government speech similar to the license plates in Walker, thus exempting them from First Amendment protections. Notably, this decision did not consider the seeming conflict between this interpretation and the problems that parallel application to copyright registration entail.

In November 2015, the Redskins appealed to the Fourth Circuit, which is not bound by the Federal Circuit’s ruling in The Slants’ case. In the meantime, the Redskins can still use the name, and claim extensive common law rights in the trademarks, but the marks no longer have the benefits of federal registration. Final briefs were due mid-March 2016. If the Redskins can make the crucial distinction between its case and Walker, the team may be able to obtain a reversal and resume its federal trademark registration rights.

If the Fourth Circuit’s decision emulates the Federal Circuit’s holding in In re Tam, the USPTO may see a flood of applications for marks that would have once been deemed disparaging. Moreover, such findings open the door for the parallel statutory provisions forbidding immoral and scandalous marks to be challenged as unconstitutional. Even with these cases, markholders with potentially disparaging marks may not get definitive answers for quite some time — until the US Supreme Court makes its determination on whether the disparagement provision is constitutional. — Pamela C. Gavin and Rina Van Orden

To view the full April 2016 issue of Virginia Lawyer, please click here.

 

[1] Lanham Act § 2(a).

[2] In re Tam (Fed. Cir. 2015).

[3] Id.

[4] TMEP § 1203.03(b)(i).

[5] Tam at 8.

[6] Compare TMEP § 1203.03 (including no further protocol to follow if examiner finds mark disparaging) with TMEP § 1203.1 (requiring examiners to consult a supervisor after deeming a mark immoral or scandalous).

[7] Office Action, THE SLANTS App. Ser. No. 85/472044 (January 6, 2012).

[8] 660 F.2d 481 (1981).

[9] Tam at 62. Two of the judges in the majority wrote a separate opinion that found the disparagement provision to be impermissibly vague as well, citing examples of inconsistent application. Id at 63-73.

[10] Tam at 4, 61.

[11] Id. at 23-24. The court also determined that even if the disparagement provision was found to address commercial speech, it would fail the applicable intermediate scrutiny test. Id. at 56-61.

[12]The court found that Bob Jones University v. United States addressed racially discriminatory conduct, not speech. Thus, the government has “an interest in combating ‘racial discrimination in education,’ not a more general interest in fostering racial tolerance that would justify preventing disparaging speech.”

[13] Tam at 29.

[14] See Id. at 33-34.

[15] The USPTO argued that the markholder’s use of the (R) symbol, the mark’s placement on the Principal Register, and Certificates of Registration issued to markholders are government speech.

[16] Walker v. Texas Division, Sons of Confederate Veterans, Inc., 135 S. Ct. 2239 (2015). The court considered only license plate designs, typically sponsored by organizations, and not license plate letters/numbers.

[17] The offensiveness standard applied to the license plates stems from a different area of law than the disparagement provision of § 2(a) of the Lanham Act.

[18] Id. at 2248.

[19] Id.

[20] Tam at 40 (quoting Walker at 2248) (internal quotes omitted).

[21] Id. at 41.

[22] Tam at 4.

[23] It is important to note that the holding applies only to the disparagement provision and not the rest of Section 2(a), which also forbids registration of immoral and scandalous marks.

[24] Bill Donohue, ‘Slants’ Trademark Suspended For Now, USPTO Says, Law360 (March 14, 2016, 3:58 PM), available at http://www.law360.com/articles/771166/slants-trademark-suspended-for-now-uspto-says.

[25] Id.

[26] Id.

[27] Bill Donohue, Fed. Circ. Orders USPTO To Explain ‘Disparaging’ TM Delay, Law360 (March 15, 2016, 11:28 AM), available at http://www.law360.com/articles/771742/the-slants-ask-court-to-make-uspto-comply-with-tm-ruling.

[28] Id.

[29] Pro-Football, Inc. v. Amanda Blackhorse, Case. No. 15-1874 (Fourth Circuit).

[30] The Redskins’ First Amendment arguments include a claim that the disparagement provision is impermissibly vague.

[31] In 2009, after 17 years of litigation, the Supreme Court of the United States denied certiorari, upholding a ruling that the Native American plaintiffs in that case did not have standing because they waited too long before attempting to have the Redskins’ trademarks canceled. See Pro-Football, Inc. v. Harjo, 415 F.3d 44 (D.C. Cir. 2005). A group of younger Native Americans brought the most recent case. See Pro-Football, Inc. v. Blackhorse, Case No. 1:14-cv-01043 (E.D. Va. 2015).

Fluid Trademarks

Fluid trademarks are trademarks that change over a short period of time — not a careful, measured brand evolution, but a dynamic, shifting depiction of an identifiable trademark. For example, Absolut Vodka frequently utilizes its distinctive bottle shape as a platform for marketing campaigns that task artists and designers with creating unique variations on the underlying trade-dress-protected bottle shape, resulting in advertisements depicting the Absolut bottle as an Easter Island statue or an hour glass, as well as labels embellished with abstract paintings of New York City or stylized drawings of superheroes. In the digital realm, an example of successful fluid trademark use can be found in popular logo variants like Google® ‘Doodles’ — unique versions of the Google logo that commemorate holidays, anniversaries, and historical and cultural events.

Trademarks ordinarily derive strength from consumer identifiability, meaning how uniquely a word or design links a particular product to the source or producer of that product. Traditionally, trademark owners are counseled to use their marks in a consistent fashion to enable customers to automatically identify those marks with their source and the goods related to them. Abrupt and unmeasured changes to a mark can potentially weaken, dilute, or destroy the mark, narrow the scope of its protection, or subject the mark to the risk of abandonment or cancellation due to non-use.

Despite the risks posed by abruptly changing a mark, fluid trademarks are an innovative, engaging way for brand owners to connect with their consumer base. Their novelty commands attention, and their use can spur public interest and deepen consumer loyalty. In order to properly balance adequate trademark protection against the dynamic nature of fluid trademarks, the following measures are recommended when adopting a fluid trademark marketing strategy:

1. Ensure the Underlying Mark Is Suitable

The ideal candidate for fluid trademark treatment is a mark that is readily recognizable to consumers and/or a mark that is “famous.” To use Absolut as an example, consumers must be able to recognize that the bottle beneath an embellished label or within a stylized advertisement is identifiably an Absolut bottle. Similarly, Google can substitute dynamic Doodles for its conventional logo on a regular basis because the underlying mark is strong and easily identifiable to consumers. Consumers visiting Google’s homepage are generally well-aware of the services Google offers in connection with its mark, regardless of whether the day’s Doodle commemorates national women’s day or Maria Montessori’s birthday. In addition, Google’s Doodles consistently appear in the same location as the underlying Google mark, giving Google a “homepage advantage” that enables users to readily associate a given Doodle with the underlying mark, even when the visual connection is attenuated, as when Google adopts highly stylized Doodles to commemorate birthdays of modern artists like Jackson Pollock or Wassily Kandinsky.

2. Ensure the Underlying Mark Is Protected

To ensure adequate protection for a fluid trademark, the underlying mark should be protected via trademark registration whenever possible. In most scenarios, the strongest form of protection is also the simplest: trademark registrations for word marks that make no claim to design elements, stylization of letters or numbers, colors, or size will arguably give you the greatest flexibility in using variants of your mark. To return to the Absolut example, because Absolut has the right to use the underlying, unadorned vodka bottle shape, the company can generally embellish the bottle as it pleases without forfeiting its rights in the underlying trade dress.

3. Ensure the Underlying Mark Remains in Use

Although the search engine frequently substitutes its homepage logo for Doodles, Google is careful to ensure that its underlying mark is discontinued on its homepage only for a brief period of time and remains in use concurrently with the Doodles. By doing so, Google keeps the underlying mark alive, prevents claims that it has been abandoned, and preserves the right to rely on the underlying mark’s priority dates. Like Google, you can use fluid iterations of your underlying mark without forfeiting your rights in the underlying mark if you ensure the underlying mark remains consistently in use.

4. Consider the Field of Use and the Protection Available for Fluid Mark Iterations

To ensure that the material you’re thinking of adding to your underlying mark does not violate the rights of a prior user, it’s advisable to preclear the material before you adopt it in connection with your underlying mark. In addition, the fluid renditions of your mark may be protectable in their own right under trademark law or copyright law — the unique design elements of an Absolut vodka advertisement depicting the bottle as a ski jump or a robotic dog might be protectable independently of the trade-dress-protected bottle shape it incorporates. An intellectual property attorney can assist you in preclearing fluid trademark material, determining what elements of your fluid trademark are independently protectable, and helping you craft a strategy to protect those unique design elements.

5. Be Prepared to Take a Non-Traditional Approach to Trademark Protection

Fluid trademarks are increasingly a public art affair and frequently inspire public participation and third-party creativity. As a brand owner, you must be prepared to craft a careful, non-traditional approach to policing trademark use that simultaneously protects your trademark rights and guards against the risk of alienating consumers.

By ensuring the underlying mark is suitable, protected, and adequately used, and by considering the field of use, the protection available for fluid mark iterations, and the need for a non-traditional trademark protection scheme, you can retain trademark protection for the underlying mark while adopting an innovative, engaging marketing strategy through use of fluid trademarks. — Mary Witzel

How Does Intellectual Property Add Value to Your Business?

Recently at a networking event, I was asked the simple question: “What do you do?” After responding that I am an “intellectual property attorney,” I received a brief look of confusion, and then the question: “Yes, but what does that mean?” This exchange (which is a frequent occurrence, I might add) illustrates a common issue — many business owners are missing out on the value of their intellectual property, often until it is too late to capture and exploit that value.

Studies referenced by the World Intellectual Property Organization say that 80-90% of a business’s potential value lies in its intellectual property.[1] Imagine being a business owner, earning $100 dollars from a sale of goods, and then leaving $80.00 on the table as you leave. If your business is not identifying, protecting, and maintaining its intellectual property rights, then you are one of those owners.

With this is mind, allow me to illustrate some ways to recapture that value. There are numerous types of intellectual property to protect and exploit, and in the following paragraphs we will deal with three of the most prominent types: 1) Trademarks, 2) Copyrights, and 3) Trade Secrets.

Trademarks

Trademarks are the most obvious aspect of intellectual property, and the most widely known. You see and interact with trademarks every day, whether it be through names (Google, Yahoo), logos (Nike’s “Swoosh”), slogans (McDonald’s “I’m lovin’ it”), or even sounds (Windows’ startup tune). Trademarks serve as an indication of source and quality for the consumer. Trademarks allow consumers to act on strong preferences on where they shop and what they buy. For example, some people prefer to buy groceries at Kroger, others Food Lion, and still others prefer Wal-Mart. Notice — when you read each of those names, you first recognized the name and then immediately had varying impressions of each pop into your mind, ultimately providing a conclusion of whether or not you would choose to shop there. This all happens in a split second. Each trademark leaves an imprint as to the quality and cost of groceries and the experience of shopping.

Not only do trademarks serve as a source and quality indicator, but they serve as a marker for the brand. This marker is extremely important if you want to sell your business for a profit. For example, the executives at Facebook (another well-known trademark) probably never said “We want to purchase Evan Spiegel’s smartphone app for $3 billion dollars.” More likely, they sat down and said “We want to buy Snapchat for $3 billion dollars.” The reason Facebook values Snapchat at $3 billion dollars is because Snapchat has developed its brand under a now widely-known trademark, and that trademark contains the goodwill of millions of consumers. Anyone can make an app that sends temporary pictures (see Mark Cuban’s CyberDust and Facebook’s Poke), but the value lies in the quality, experience, and goodwill already associated with the Snapchat trademark. Although Snapchat is an international brand, it began as a small app and as a small business. Building a brand begins somewhere — and protecting your trademark from the beginning can be key to building up your $3 billion dollar idea.

Copyright

Copyright is another facet of intellectual property that can easily add value to your business. Many people hear the word “copyright” and think of artistic creations such as books, visual art, or music. But consider how copyright translates into your marketing materials. Many businesses have valuable copyrightable interests in photography, product packaging, websites, commercials, or informational videos, to name a few. Establishing control of these assets through copyright protection allows you to harness the value of your business’s creative marketing approaches.

Additionally, some of the most valuable copyrightable materials include software code and data compilations. Copyrights on software code protect your proprietary information from direct copying and allow your company to stake out a claim in the market. Once your company harnesses control of that share of the market, then you are able to control the dissemination of your software through the marketplace. Because copyrights typically have a long duration, having a copyright for a useful piece of software may be extremely valuable when negotiating with potential customers or business partners.

Trade Secrets

One of the least understood areas of intellectual property lies in trade secrets. Most commonly, trade secrets are secret techniques or devices used by a company in manufacturing its products. You establish a trade secret by guarding a proprietary concept that has economic value simply because it’s not generally known and by taking measures to protect it (for example, through contracts). Many businesses have trade secrets but do not realize that the information they have constitutes a trade secret. If you have developed a unique and efficient way of producing results, you may have a trade secret. Alternatively, if the methods of producing a particular product are known only to your company, you may have a trade secret.

Coca-Cola provides one of the greatest trade secret examples. Coca-Cola tightly protects the formula that gives the distinctive and crisp taste associated with their leading beverage. If they did not protect their formula as a trade secret, then the Coca-Cola brand would not have the notoriety it has now. Other soda producers would be able to precisely replicate and recreate the Coca-Cola taste, thereby eliminating Coca-Cola’s uniqueness. By protecting their trade secret, Coca-Cola retains their exclusive market share which is extremely valuable. Although Coca-Cola is a famous example, every company has something that sets them apart in what they do. What you do to set yourself apart may be a valuable trade secret that you can protect.

Protecting your business’ intellectual property requires more than filing for trademarks, copyrights, and protecting trade secrets. Intellectual property protection requires marking your territory in the marketplace, making sure you have the biggest share you can have, and creating a clear impression of what your company offers to the consuming public. In the modern world, the primary value of a business no longer lies solely in the tangible assets it holds. The true value lies in growing and monetizing the intangible assets, which your company can protect as intellectual property. This turns intangibles into value, which then increases the overall value of your business. — Noah Downs



[1] Building and Enforcing Intellectual Property Value, An International Guide for the Boardroom, 2003 PriceWaterhouseCoopers.

 

Common Mistakes to Avoid When Naming a Business

Starting a business is exciting, as is picking out a name (or, in legal terms, a trademark) for your new startup. The possibilities may seem endless, or you may have one specific name that you have your heart set on. In picking a name, entrepreneurs may seize upon a certain theme or pun or just wait for a name to pop into their head. If you plan to offer products or services under your new business name, it is essential to carefully consider your options before you dive into branding. These same principles apply to choosing a trademark for a new product or service as well. No matter how you pick your new name, here are some common mistakes to avoid:

1. Descriptive Names. New business owners often want their business names to tell people exactly what products or services they are selling. Own a coffee shop? You might name it Beans and Brews. A convenience store? You might name it In-and-Out. The problem here is that such names are likely to be in use by many other coffee shops and convenience stores, meaning that consumers will find it more difficult to remember your name (because it is not catchy or distinctive) or to find you (and not a competitor) in an online search. Perhaps more importantly, you are more likely to receive a nasty cease and desist letter from a similarly-named company demanding that you stop using the name. Instead of having to completely re-brand later or face potentially substantial legal fees to fight such opposition, try to think of a unique and distinctive name — one that stands out from the crowd from the beginning. Then, if you want to include something descriptive, simply add a tagline.

2. “Borrowing” Names. Whether intentional or not, entrepreneurs sometimes pick business names that are incredibly similar to the name of a previous employer, a business across the street, or a company that caught their attention in the past. Searching for name inspiration on the Internet may lead to clever results, but it can also be risky if someone else is using the same or similar name. Not only might this be trademark infringement, but if proven, such “borrowing” could result in a willfulness finding, significantly increasing the amount of damages the other party can seek in a lawsuit. When thinking about a business name, do not emulate others. Instead, brainstorm distinctive names that will help your business cultivate its own individual brand.

3. Failing To Fully Research a Name. A preclearance search is the foundation on which to build your brand. Performed by trademark clearance experts, a preclearance search scours the marketplace (and not just Google) to find other businesses and products that use the same or similar names as your intended business name. An intellectual property attorney then reviews the report and assesses the risk associated with using your desired trademark. That way you will know up front whether to proceed with the name you have chosen or to avoid major conflicts and go back to the drawing board. Pre-clearing lets you rest easy, knowing that your brand is yours to build into an empire. — Stephanie Martinez