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Trademark Considerations in Naming a Corporation: Needle & Rosenberg

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What’s In A Name?
Trademark Considerations in Naming a Corporation
Bernie Zidar, Esq.
TJ DoVale, Esq.
Needle & Rosenberg, P.C.
www.needlerosenberg.com

The name of your newborn company can include the first and probably the most important trademark your company will ever own. Unfortunately, misconceptions about the right way to choose, secure and protect that valuable piece of intellectual property often land young companies in a tough situation: Change your corporate name or face an expensive and distracting legal battle to keep it. By following a few simple and inexpensive steps, you can avoid that disruption and gain valuable peace of mind.

Here is a common scenario: When forming a new company, the entrepreneurs pick a name and tell the corporate lawyers to make the details happen. The Secretary of State is the lawyer’s first stop. If no other companies are listed by that name in the state, the Secretary of State will accept your fee and your Articles of Incorporation. The business is now incorporated. Naturally, with that task accomplished, your team’s attention turns to other matters. You reserve a domain name, order store-front signage, business cards, advertising material, and other collateral displaying the newly formed business’ name. Once the company receives publicity or enjoys success, you may get a cease-and-desist letter from a company you didn’t know existed, claiming infringement of that company’s trademark.

This can be a very costly problem. You may be forced to change the name of the business, including all signage, printed material, etc. You may even be liable for money damages to the trademark owner. The costs can run into the many thousands of dollars.

The Secretary of State merely ensures that your chosen name is not identical to any other corporate entity’s name registered in that state. The permission does not necessarily give the applicant the right to use that name nationwide in commerce. Prior Federal or state trademark rights may have been granted in all or some part of your chosen name to another entity.

You can drastically reduce the risk of trademark infringement by following these basic steps in choosing, securing and protecting your trademark before incorporating: 1) Choose several distinctive names that fit with your business; 2) Check the availability of the proposed names with the Secretary of State’s office; 3) If the company is going to have an online presence, check the availability of the domain name; 4) Conduct a comprehensive trademark search for marks that are close to the proposed company name; 5) Choose from the remaining names on the list; and 6) Pursue a federal trademark registration.

By taking this approach, you will reduce the risk of possible infringement liability. You will also put the company in the best position to develop a valuable asset – a federally registered trademark – by using a distinctive mark as part of your corporate name.

Choosing a Name
Choosing a business name that includes a word that is capable of receiving trademark protection is important. Typically, the company should not seek to register its entire business name as a trademark (e.g. “The Toro Company”), but instead the component of the corporate name that it will apply to its products and services (e.g. “TORO” for outdoor landscape equipment).

The basic principle behind choosing a trademark may seem counter-intuitive: The strongest marks are those that bear no immediate relation to the products or services the company offers – they are “fanciful” or “arbitrary.” These marks lack an immediate connection to the company’s products or services that a “descriptive” mark might bring. But, “fanciful” and “arbitrary” marks are far more likely to receive a federal trademark registration, and the payoff in terms of trademark rights protecting the mark can be dramatic.

Courts and the U.S. Patent & Trademark Office categorize trademarks into five categories: fanciful, arbitrary, suggestive, merely descriptive and generic. The category in which a term falls is dependent upon its context. For instance, the term “brilliant” would be merely descriptive for diamonds, suggestive for furniture polish, and arbitrary for applesauce. The amount of protection available for marks in each category is a sliding scale with marks in the fanciful category receiving the most protection and marks in the generic category receiving no protection at all.

Fanciful marks are afforded the most protection because they are inherently unique. Examples of fanciful marks include Xerox, Exxon, Clorox and Polaroid. Similarly, arbitrary marks are given a high level of protection because they are unique within their field. They are generally words that are not linked in any way to the product or service that they promote, such as Command hair gel, Shell gasoline, Apple computers, and Guess? jeans.

Suggestive marks are just that; suggestive of the product or service offered. Examples of suggestive marks include Coppertone tanning products, 7-Eleven retail stores, Stronghold nails, and Woolite wool cleaner.

The weakest marks are in the merely descriptive category. Merely descriptive marks are generally not afforded trademark protection unless the owner of the mark can show that the mark has obtained a secondary meaning to the consuming public. Secondary meaning can be proven through consumer surveys showing that consumers recognize the mark as a brand, as opposed to a descriptive term. Examples of merely descriptive marks that have achieved secondary meaning include Chap-Stick lip balm, Shear Pleasure beauty salons, Beef and Brew restaurants, and Hour After Hour deodorant.

Generic terms will never become trademarks, even if they are advertised so heavily that secondary meaning arises in the mind of consumers. The reasoning for categorizing certain terms “generic” is that no manufacturer or service provider should be given an exclusive right to use words that generically identify a product. Additionally, a valid mark may, with improper use, become generic. Prime examples of this phenomenon are “aspirin,” “cellophane,” “linoleum,” and “cornflakes.” Current trademarks that were once in jeopardy of being genericized include Xerox, Q-tips, and Kleenex. In recent years, Xerox has launched an ad campaign to salvage its mark by reminding the public that the term “Xerox” is a proper adjective that modifies the noun “copier.”

By choosing an arbitrary, fanciful or suggestive mark, your chances of successfully securing a federal trademark registration increase dramatically. In turn, your chances of excluding others, especially competitors, from adopting a similar company name or trademark also increase dramatically. Your mark can become an asset and a competitive tool for the company.

Check the Availability of the Proposed Names in the State
This is a necessary step, but not the end of the process. Most states make it very easy by providing a search engine on the Secretary of State’s website. The standard in most states is that the name cannot be the same as any other corporate entity’s name registered in that state.

Check the Availability of a Domain Name
A difficult task for any business owner is finding an available domain name. There are literally millions of domain names that have already been taken. You can use the search tools at www.networksolutions.com to check for availability. While availability of a domain name is a good sign, it doesn’t necessarily mean that the name is clear. Your domain name is at risk if it is the same as or very similar to a trademark that already exists. It is important to complete a trademark search to ascertain the level of risk.

Do a Thorough Trademark Search
Though there are public databases that can help you search for trademarks, this is a step you should entrust to a qualified attorney. There is no single free database capable of conducting a complete trademark search. Internet searches using Google, AltaVista, Yahoo, or other search engines may enable you to quickly discover conflicting third-party uses of some names on your list. The Trademark Office website is another good, free resource. A search of the Trademark Office records can be conducted on-line at the Trademark Office website by utilizing the Trademark Electronic Search System (Tess). Go to www.uspto.gov and click on “Search” under the heading “Trademarks.”

Ultimately, however, fee-based professional search services are a necessary step in clearing a trademark or company name. Your intellectual property attorney can access search products offered by vendors such as Thomson & Thomson, CCH-Corsearch and others to complete the most reliable search of Trademark Office records, and also state trademark registrations, printed directories, online usages, and other usages that can be relevant to the availability and protectability of a trademark in the United States .

If the company plans to conduct business abroad, the trademark and service mark records of those countries should also be searched. The same vendors listed above offer search services in foreign countries. Your intellectual property lawyer may also recommend associating a foreign attorney to assist with clearance and registration in the foreign countries that are most critical to your business plan.

Once these searches are complete, your attorney will analyze and organize the results and present the “clear” names for your consideration. As a general rule, if the terms in corporate name you want to use (or one similar) do not show up in the search results, you can move forward.

Choose From the Remaining Names
If your search results uncover unregistered usages or state registrations that are the same as or very similar to your chosen mark, you have a business decision as to whether to proceed. You may be precluded from using that mark in the geographic region in which the conflicting use already exists.

By contrast, if the search results uncover a Federally-registered mark that is the same or similar to your proposed corporate name, you should, in most cases, interpret that as a stop sign. That being said, there are instances when you can proceed even though the mark is already Federally-registered by another. For example, if the registered mark is applied to automobile parts and is registered specifically in that field, you can, in most cases, use (and even register) the mark for use with products or services completely unrelated to automobiles. The reason is that the standard for infringement with most marks is whether a potential consumer would likely be confused as to the source or origin of the product or service.

It goes without saying (but we’ll say it anyway) that choosing an already well-known or “famous” mark, even from a completely different market segment, is a bad idea. For instance, including “Nike” as part of a corporate name (even though you may not overlap with Nike’s product lines) is a mistake. Owners of famous marks are afforded far broader protection than owners of non-famous trademarks.

Apply for a Federal Trademark Registration
If you have chosen an arbitrary, fanciful, or suggestive mark and have successfully navigated the clearance process, you have drastically increased your chances of receiving a federal trademark registration. You should file an application to register the trademark portion of your corporate name. By securing a registration, you achieve public notice to the world of your stake in the mark, and you get access to improved enforcement mechanisms to attack infringers and protect your rights.

Lawyers will tell you that the practice of law is not an exact science. We can never, with 100% certainty, tell our clients that they will never be sued for trademark infringement. However, by following the steps above, you can be comfortable knowing that the risk has been minimized. You should expect to invest roughly $1000-$3000 per mark for searching and $1500 per mark to pursue federal trademark registrations. Compared to the risk of litigation or a name change, this is money well spent for peace of mind.