Three Trademark Mistakes that Can Cost Your Business Big Bucks

by Kelley Keller | Featured Contributor

The decision to start a business is not made lightly.  Business owners invest tremendous sums of money, time and energy (à la sweat equity) to get their companies off the ground, and then invest even more to grow them post-launch.  One of every business’s most important and valuable assets is its reputation – its own good name – in the marketplace.  A business name, flagship product name, and other forms of trade identity are selected right out of the starting gate.  Getting it right the first time is key to building good will with consumers and to paving the way for sustainable success.

After working with scores of small businesses – some new, some “oldies but goldies” – I began to see a pattern of pitfalls beleaguering them when it came to selecting and adopting their business names and products names.  By taking time to learning a little bit more on the front end, the ensuing headaches can be avoided.  Here’s a quick lesson.

Every time your business goes through a branding exercise, whether at startup or new product launch, you should be mindful to avoid making the following mistakes.

1.      Failing to Clear Your Business Name for Use as Trademark 

The business of naming your business is a serious one.  And to assume that registering a business name with your state corporation bureau “reserves” that name for use as a brand name is a serious mistake.

Clearing a name for use as a business name – or trade name – for your new company with your local department of state is just one piece of the puzzle.  A name will generally be available for use as a business name so long as it is not the same as a previously registered business name — in that particular state only.

Consider this:  If I wanted to open a clothing store name Nike Apparel in Pennsylvania, the corporation bureau would not deny my application since there is no other registered business with the identical name.  While there are at least 17 registered businesses with the word “Nike” in them, including Nike, Inc. (the famous company) in Pennsylvania, none would preclude me from adopting my chosen name as a legal business name since the names are distinguishable.  However, if I opened my new store and put “Nike Apparel” on the front door, I would be infringing on the famous NIKE® trademark under which a large line of sports apparel is sold.  Undoubtedly, consumers would be confused into thinking my little store was related in some way to the national NIKE brand and I would probably get great sales as a result.  But this type of freeriding is illegal – and uncool – and can cost you big bucks!

Your Takeaway:  Be mindful to clear your trade name as both a business name and brand name to avoid stepping into hot legal water!

2.      Assuming that Buying a Domain Name “Reserves” that Name for Use as a Trademark

This one is a doozie!  Far too often I hear from a frustrated client who thought that buying a domain name was akin to purchasing the exclusive right to that name.  One of the least understood issues in the Internet age is that registration of a domain name alone does not confer any right other than ownership of that particular domain name.  It is not until that domain name is connected to an operational website (not a placeholder page or sponsored links page) promoting goods or services does that name begin to accrue trademark rights and obtain commercial significance.

Consider this:  Let’s go back to my plan to open a clothing store named Nike Apparel.  I take a quick look at and grab up the domains <>, <>, and <>.  Upon checkout, I am the proud owner of three domain names with the identifier “nikeapparel” before the TLD (top-level domain) .us, .biz, and .info (<> is already taken).  Next up I design a website and begin to sell apparel on it under the NIKE APPAREL name.  Here also, I would be infringing on the famous NIKE mark and would be forced to shut my site down – among other penalties – in no time flat.  Once again, no free riders allowed.      

Your Takeaway:  Trademark rights in a domain name are only created by connecting that domain to an active website promoting/selling products and services.  So launch your site right away to be sure you acquire meaningful rights in your name.  On the other hand, if you don’t have the legal right to use your domain name as a trademark or brand name, put the brakes on before you launch your site and save yourself some big bucks!

3.      Using Another’s Trademark as a Personalized Username on Social Media Sites

You’ve heard it said that the social web is the new “wild west.”  Perhaps it is an overused analogy, but a good one nonetheless, as the rules of engagement are all new and can be difficult to navigate.  That said, being cognizant of some basic rules for avoiding trademark misuse in social media is a really good place to start.

It is becoming more widely understood that adopting a domain name that incorporates a third-party’s trademark is problematic and usually illegal.  This is called second-level domain infringement (the first-level domain or TLD is the .com, .org, .net, etc. – the second level is the designation in front of it) and there are reasonably good remedies for dealing with this type of trademark misuse such as filing a UDRP (Uniform Domain-Name Dispute Resolution Policy) complaint against the domain-name holder or infringing domain itself.  But when the third-party’s trademark is not part of second-level domain, but rather a personalized subdomain, e.g.[username], it’s a whole new ball game.  It is undisputed that illicit adoption of a competitor’s mark (or any well-known mark for that matter) in this way is wrong, but how we correct that wrong is undetermined.  Without predictable remedies, it can be quite painful to be on the receiving end of corrective efforts which usually include aggressive cease and desist demands along with demands to transfer ownership of the username to the trademark owner (usually on pain of litigation).

Consider this:  At the same time I open my Nike Apparel store, I register @Nike_Apparel on Twitter®.  Nike, Inc. already owns @NikeApparel (without the underscore).  When I start to promote my clothing store using this Twitter handle, I’m overstepping the line and opening the door to trouble with Nike, Inc.  Chances are that’s not a winning battle and I’ll be far worse for the wear than if I had come up with an original brand name to begin with.

Your Takeaway:  Be an original!  Choose names that are meaningful and authentic to you, stay on the right side of the law, and in the process save yourself some big bucks!

While this initial list assumes you are in a defensive posture, turn the tables and take solace in knowing that you have a number of arrows in your quiver when it comes to protecting your business name, your brand name, and your business reputation as well.  And if any of this is confusing to you, seek professional advice.  Paying for a couple hours of sound legal and business advice can save you a lot of heartache and hard coin in the long run.

Check back next month for more tips and tricks!


Keller Head ShotKelley Keller, Esq. is President of Circle Legal and a 20-year veteran of the intellectual property law field. As an intellectual property attorney, she has deep experience helping businesses of all sizes identify, manage, and protect their trademarks, copyrights, patents, and trade secrets, including many household brands like Toyota, Disney, and Verizon, which she worked with during her tenure at one of the largest IP law firms in Washington, D.C. At Circle Legal, she focuses on redesigning the legal experience for innovative companies, business owners, and their families by providing comprehensive services that build solid legal, insurance, finance, and tax foundations for her clients (their LIFT Foundations).

Kelley’s personable nature and ability to explain complex legal issues in simple terms set her apart from most attorneys. She is relentless in helping businesses, their owners, and their families mitigate risks and open the doors to new opportunities. You can hear her helping business owners every week on the Circle Legal Business Fix-It Show broadcasting on iHeartRadio.

You can find Kelley on Twitter, LinkedIn, Facebook, and Google+ and download her free ebook, 41 Steps to Start a Business and Build Wealth the Right Way.

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