Trade Names Don't Do Much to Protect Business Owners

Sometimes clients ask about trade name rights.

Trade names are formal company names. They can be registered with the Secretary of State, which will prevent another business in the same state from registering the identical name.

Beyond that, they’re not very useful. Indeed, business owners should forget about them when looking to protect their rights. They instead should focus on protecting their trademarks.

A trade name can certainly be a trademark. In fact, they often are. But it is the branding of goods and services with the name — and the reputation that follows — that creates trademark rights. The more a customer is exposed to a brand, the more rights that arise in the mark.

Registering a trademark is the best way to maximize one’s trademark rights. Registering a trade name hardly does anything.

For practical purposes, business owners can largely forget about trade name rights. Their place is on letterhead, business cards, contracts, and bank accounts. For example, Doctor’s Associates Inc. owns the SUBWAY brand. But the consuming public just knows the sandwich shops as SUBWAY. That’s the name that counts, and it’s the one Doctor’s Associates would rightly fight to protect.

Trade names serve their purpose, but they don’t do much in the realm of trademark law.

So You've Been Sued for Trademark Infringement

“A messenger just handed me some papers. It looks like I’ve just been sued for trademark infringement. What’s this mean?”

I get this question often enough that I thought I’d summarize my answer. Here are the highlights:

1. The plaintiff’s rights. If the plaintiff has a federal trademark registration, it is entitled to the presumption that it is the exclusive, nationwide, user of the mark in connection with the goods and/or services listed in its registration. The standard for trademark infringement is “likelihood of confusion,” which means that if ordinary consumers would think that goods or services associated with a later-adopted trademark come from, are approved by, or have something to do with the registrant, the earlier-adopter is entitled to have the later adopter back away from the confusingly similar mark. The standard is not “identicality,” so it does not matter if relatively trivial differences exist between the marks. And even if the plaintiff’s mark is not registered, it has common law rights that automatically arise through its use in customer sales/distribution. Unlike a federal registration, those rights are limited to the geographic areas in which the plaintiff makes sales or distributes product. However, its rights are perfectly valid as well.

2. The defendant’s defenses. That is not to say that all conflicting trademark use is infringing. A defendant can use descriptive words to accurately convey information about its goods or services regardless of the plaintiff’s trademark rights. This is a form of a fair use, and is readily recognized in the law. Another limitation is geographic remoteness, meaning that if an unregistered trademark is only used in Miami, for example, the trademark owner has no rights to assert against a competing trademark owner in Seattle. Indeed, this principle is good reason for trademark owners to obtain a federal registration. There are other ways for a defendant to push back, including that no likelihood of confusion exists because the parties’ marks are different; the goods/services sold with the marks are different; the target consumers are different; the parties advertise and sell through different marketing channels; and the parties have coexisted for a long period of time without consumers being actually confused. These are but a few of the possible defenses.

3. The merits may not matter. Having just touched on the merits of the parties’ positions, it is important to understand that, for practical purposes, the merits may not really matter. What instead may drive the result is which party has more money, or which is more motivated to see the case through to the end. If one side has the resources to devote to the lawsuit and the other does not, the side with the resources naturally will win. Regardless of the merits, the party with the resources and fortitude can win a war of attrition. In other words, it can spend the other side to death. It is sad but true, and is a reality that defendants with limited resources need to come to terms with as early in the dispute as possible. Doing so will enable them to devote their more limited resources strategically and help effect as favorable an outcome (often through settlement).

4. A lawsuit is a business problem. Besides being expensive, litigation can be disruptive. It takes an organization’s key decision makers away from serving customers, improving products, and making sales, and forces them to devote time and energy to the lawsuit. Trademark owners are often emotional about their marks and want to defend their rights (perceived or real) to the death. That’s often a mistake. Regardless of the size of the defendant’s business, there’s almost always a better way to spend time and money than in a lawsuit. Smart litigants view litigation as a business issue and deal with it accordingly. Emotional litigants do not make for rational litigants.

5. Neither damages nor attorney’s fees will drive the litigation. In trademark cases, the main remedy the plaintiff seeks is an injunction. In other words, the plaintiff’s main motive for filing suit is to get the defendant to stop using its confusingly similar trademark. Proving money damages can be difficult. And getting an award of attorney’s fees is rare. Therefore, effecting a name change usually is the plaintiff’s goal. Except for extreme cases, win, lose, or draw, both sides will pay their own way in the litigation. More often than not, no money in the lawsuit will change hands.

6. Most cases settle. The vast majority of lawsuits won’t go from start to finish. It’s just too expensive, and too risky, for most parties to see a lawsuit through to the end (which can be a year or more from the date the case is filed). What happens to those cases? Either one side gives up; one side wins before trial; or the parties agree to settle. It’s usually hard for one side to win before trial because the issues in a trademark case usually are too factually-intensive for a judge to declare a winner without the benefit of trial. That means most cases end in settlement. Settlement is voluntary, of course, and the terms of settlement depend on what the parties are able to negotiate. For a plaintiff to accept settlement, however, it usually needs to accomplish its goal of effecting a change in the defendant’s trademark. Sweeteners to help persuade a defendant to settle would include (obviously) dismissing the lawsuit; obtaining a release from liability; obtaining a phase-out period for stopping use of its trademark over time, rather than abruptly, as would happen through an injunction; and whatever other terms a defendant can negotiate based on the facts and circumstances of its particular case.

7. The defendant needs to answer. After being served, defendants generally have 21 days to file an answer in the lawsuit. Failure to do so risks having the court give the plaintiff a win by default. A default judgment not only means the plaintiff (usually) would get an injunction prohibiting the defendant from using its mark, but it also increases the risk the court would award the plaintiff damages and attorney’s fees. These hammers give the plaintiff extra bargaining power in settlement, which the defendant can (and should) avoid by participating in the lawsuit. Merely starting settlement talks does not stop the 21-day clock, so a defendant either needs to file a timely answer or get the plaintiff’s agreement not to move for default while the parties are discussing settlement. Even then, the court still could enter default on its own, though that usually does not happen without warning.

8. The defendant needs a lawyer. If the defendant is an LLC, corporation, or other corporate entity, it will need a lawyer to represent it in court. It’s not an option for the owners of such entities to represent their company pro se, or without a lawyer. While it’s never advisable for nonlawyers to represent themselves in court, it’s not even an option in most trademark infringement cases. Nor should defendants think they will get a free attorney appointed to represent them in court. Public defenders are reserved for criminal defendants who can’t afford a private lawyer. For these reasons, defendants need to find a lawyer on their own.

Trademark infringement lawsuits have many moving parts. Each case is driven by its own facts and circumstances. The issues described above are common, and hopefully this discussion is helpful to those who find themselves sued for trademark infringement. But, of course, it is no substitute for sound legal advice.

Trademark Registration Expands Localized Rights Nationwide

A trademark registration can be a valuable asset.

This was borne out for an East Coast-based client I recently represented. It had a federal registration for its business name in connection with its business’ core offerings. It obtained the registration from the U.S. Patent and Trademark Office years before they came to me with their trademark infringement problem, so good for them for maximizing their rights in their mark.

Their efforts paid off. After they applied to register their mark, a Washington company started offering the same services in connection with a substantially identical name. The Washington company wrongly believed that because my client was located on the East Coast, there was neither harm nor foul in copying my client’s brand. The Washington company didn’t listen to reason, and the case ended up in court.

Fortunately, the court didn’t waste any time granting judgment for my client. It found that because my client had obtained a federal registration, it was presumed to be the exclusive, nationwide user of the mark in connection with the services listed on the registration. It entered a permanent injunction against the Washington company, the scope of which the parties expanded in settlement. This wouldn’t have happened if my client hadn’t registered its mark. Again, good for them!

This case shows the benefits of federal registration. A trademark owner can expand its localized rights by registering its mark. Doing so yields national rights against later adopters of marks that are likely to cause consumer confusion with the registered mark. If you’re a Seattle business owner and don’t care if someone in San Francisco, New York, or Miami adopts a trademark that is identical or close to yours in connection with similar goods or services, there’s no need to get a registration. But if that situation would bother you, your ticket to stopping it is getting a federal registration.

New Supreme Court Case Affects Trademark Owners' Rights

The Supreme Court recently decided a rare trademark case, which trademark owners should consider when prosecuting or defending proceedings before the administrative law arm of the Patent and Trademark Office, the Trademark Trial and Appeal Board.

In summary, one no longer can get two bites at the likelihood of confusion apple.

In B&B Hardware, Inc. v. Hargis Industries, Inc., B&B filed an opposition proceeding against Hargis, arguing the PTO should deny Hargis’ application for federal trademark registration because it would cause a likelihood of confusion with B&B’s prior trademark.

The parties litigated the issue to conclusion, and the TTAB agreed that Hargis’ mark would cause a likelihood of confusion. Hargis did not appeal.

The parties separately litigated in court the parallel issue of whether Hargis’ mark infringed B&B’s trademark rights. In that action, B&B argued that Hargis should be prevented from arguing that its mark did not cause a likelihood of confusion because it took that position in the TTAB proceeding and lost.

The court disagreed, and the jury found for Hargis — that Hargis’ use did not infringe B&B’s mark because it did not cause a likelihood of confusion.

B&B appealed, and the case worked its way up to the Supreme Court.

The Supreme Court reversed. It found the doctrine of “issue preclusion” should prevent a trademark owner from re-litigating an issue that was fully litigated before the TTAB. Because the standard for denying an application for registration and the standard for trademark infringement are basically the same — likelihood of confusion — the Supreme Court found that Hargis should not get a second chance to undo the TTAB’s finding when it could have appealed that decision and didn’t.

This ups the ante for trademark owners who go the distance in an opposition or cancellation proceeding before the TTAB. They should expect the TTAB’s findings to follow them into court in a subsequent trademark infringement lawsuit if the issues in both proceedings are substantially identical. If the loser in a TTAB proceeding wants to avoid the decision from haunting them later, they need to appeal it — or avoid an adverse decision altogether by not pursuing a questionable case with the TTAB from start to finish.

The case cite is B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 191 L. Ed. 2d 222 (2015).

Posted on July 10, 2015 by Registered CommenterMichael Atkins | CommentsPost a Comment | EmailEmail | PrintPrint

Be Strategic in the Timing of Trademark Filings

Timing often doesn’t play a significant role in trademark filings. Because localized rights automatically arise through trademark use, an effort to expand those rights by obtaining a trademark registration is often driven by other factors.

In many cases, that works out fine. But in some, trademark owners should be more strategic — particularly with regard to timing. Here are three situations in which it pays to be smart about when to make trademark filings.  

1. Beat third-party filers. Before alerting third parties about your trademark rights (through a cease-and-desist letter or otherwise), make sure your trademark house is in order. Part of that effort may involve applying to register the trademark. Even if you used your mark first, complaining about a third party’s infringing use may motivate that party to get their trademark house in order, too. If they beat your trademark filing by even a day, their application will be considered first. That risks delaying and even blocking your application, even if you have superior trademark rights. (Less nefariously, the same is true if a third party randomly happens to apply to register the same mark as yours.) Overcoming this obstacle can be a time-consuming and expensive undertaking. It’s so much better to avoid it by filing first.

2. Outsmart cybersquatters. Cybersquatters — people who register domain names on spec and make money selling them to trademark owners — routinely register domain names based on new trademark filings. They know if someone registers a trademark, they already have begun to invest in that brand. Cybersquatters rightly understand that many brand owners will pay a premium to own a domain name reflecting their name, particularly with the .com extension. Don’t let them profit from this logic. Trademark filings are public. Before showing your cards to the world, register your target domain name. Doing so before applying to register your trademark will ensure that your preferred domain name is yours — without delay and without enriching a cybersquatter.

3. Frustrate bad actors abroad. The United States is in the minority when it gives trademark rights to owners automatically through use. In most countries, the only way to get trademark rights is through registration. Like cybersquatters, free riders can take advantage of this norm by registering your brand in their country. Indeed, there’s nothing legally wrong with their doing so. Fortunately, there’s an easy solution: registering your trademark first. Doing so in the countries in which you manufacture and sell can eliminate the irony of infringing the trademark rights of someone who did nothing more than register your trademark first.

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