Using and Protecting Trademarks

By E. Scott Johnson

In Brief

How to Safeguard a Valuable Intangible Asset

Buyers depend upon brand names to differentiate product and service preferences in the marketplace; sellers depend upon brand names to serve as a repository for customer goodwill. Trademarks link the unique identities of products or services with their source and thereby protect the public from deception and confusion. To fully ensure their protection, trademarks must be registered with the U.S. Patent and Trademark Office. This process entails introducing the product in the marketplace or filing an intent-to-use notice with the PTO and a thorough examination process that ensures the mark is registrable. Once a trademark has been successfully registered, protection can last indefinitely.

Product names, logos, and slogans can become valuable assets, attracting purchasers who have come to rely on the quality of brand-name goods and services. The Big Four have established valuable goodwill in their firm names and have even branded specific services they provide. For example, Ernst & Young has federally registered more than 140 trademarks, including Futurewealth, From Thought to Finish, Growth Works, Value Journey, Ernie Trendwatch, and many others, including, of course, Ernst & Young. The recent experience of Arthur Andersen illustrates how, despite a long history and solid reputation, a company’s public goodwill can be very fragile.

Trademarks generally have little or no value initially, but can dramatically appreciate in value through successful use. Unlike copyrights and patents that expire after a set term, trademark rights can last as long as the trademark remains in use. Because a trademark is an appreciating asset with a potentially perpetual life, it is important to choose trademarks carefully and protect them through federal registration and controlled licensing.

What Is a Trademark?

A trademark is any word, symbol, design, or combination of words and design (each a mark) that identifies and distinguishes one seller’s goods from another. For example, “Coke” and “Excedrin” are both trademarks, as are the Ralston Purina checkerboard square design and the hourglass-shaped Coca-Cola bottle. A slogan, such as Nike’s “Just Do It,” can also be a trademark.

When used to identify a service, the mark is called a servicemark. For example, McDonald’s is a servicemark for restaurant services, as is the golden arches design. “Reach Out and Touch Someone” is a servicemark for AT&T’s telephone services. Some marks function as both trademarks and servicemarks. For example, Lexus is both a trademark for automobiles and a servicemark for automobile repair services. Because trademark law is based on the idea that a trademark serves as a source-identifying badge of quality, legal protections exist both to protect the public from deception and confusion, and to protect the mark owner’s goodwill.

Trademark Clearance

Before registering a prospective mark with the U.S. Patent and Trademark Office (PTO; www.uspto.gov), a trademark search should be undertaken to determine whether any other entity can claim prior rights in the mark. Comparable in some respects to a real estate title search, the trademark search reveals prior users that could prevent registration of the mark or could assert a claim of trademark infringement.

Business owners sometimes mistakenly believe that because their state’s corporations division has accepted their corporate charter or trade name filing, this name can be used for any products or services the business promotes. In fact, the acceptance of a corporate name, trade name, or limited liability company name by a state agency has no bearing on whether that same name might infringe a federal trademark or servicemark, or common-law trademark rights that another might possess. State acceptance of a corporate name or trade name generally means only that no other entity within that state has incorporated or registered to do business under the same name.

A low-cost, online search of PTO records should be conducted first, followed by a full trademark search. Several companies conduct full trademark availability searches; the cost generally ranges between $400 and $800, depending upon the type of search and speed of delivery required. Full trademark searches include the records of registered marks and pending applications in the PTO, as well as state registrations, Dun & Bradstreet listings, American Business Information listings, trade journals, domain names, telephone directory listings, and various other compilations of data. The trademark search should reveal whether another user or registrant of the same or a similar mark has established superior rights in the relevant field of goods or services.

Logo designs require different strategies. It is impossible to search designs as thoroughly as words. Typically, the search firm confines its review to a search of similar designs in the PTO records.

Trademark search reports provide raw data that must be interpreted and evaluated. For example, a potentially conflicting mark may not be identical (marks need not be identical to infringe), the conflicting mark may be used for different kinds of goods or services, or a pattern of inter partes oppositions (a type of litigation) may show up in the PTO file history—all of which need to be evaluated to determine whether a proposed use poses real risks.

Establishing Rights in a Mark

Trademark rights can be established simply by being the first to use a mark in commerce. Regardless of whether the mark is registered, the law generally affords the first to use a mark (the senior user) legal protection against infringement within its trading area. Trademark rights are infringed when a second party (junior user) applies a confusingly similar mark to the same or related goods or services, which use creates a likelihood of confusion in the relevant marketplace. An additional cause of action for dilution of trademark rights is available for certain “famous” marks, even when the mark does not cause confusion or is used for unrelated goods or services. Registration with the PTO is the easiest way to achieve maximum legal protection for the mark. It is also advisable to file an intent-to-use application before the mark is even used.

Once it is determined that a trademark is available, actual use should commence or an intent-to-use application should be filed. Regardless of whether the federal application is based on use or intent to use, what is ultimately required to secure federal registration is a “bona fide use of the mark, in interstate commerce, in the ordinary course of trade.” For purposes of establishing a date of first use and qualifying for registration of a trademark, trademarked goods must be shipped to an independent recipient in another state. The qualifying use for a service mark could be an advertisement in a national publication or a direct mailing across the country.

It is a good idea to use the ™ symbol in all uses of unregistered marks. This symbol provides notice of the user’s claim of proprietary rights. The ™ symbol is commonly used by an applicant while the federal registration process is still pending. Once the federal registration is obtained, the ® symbol should be displayed in all uses of the trademark. Premature use of the ® symbol can impair the federal registration or the maintenance of an infringement action.

Trademarks can be licensed to third parties, but care must be taken in drafting licensing agreements. A trademark license must contain provisions that control the use of the licensed marks and the quality of goods or services sold under the marks. Trademark rights can be lost through “naked” or uncontrolled licensing practices. When this happens, the mark ceases to serve as a source-identifying badge of quality, and the owner’s rights are jeopardized.

Benefits of Federal Registration

Even though certain legal rights (common-law rights) attach based merely on prior use of a mark, federally registering a mark provides important enhancements of such common-law rights, including the following:

The Federal Application Process

Trademark applications are examined by PTO examining attorneys, who search the PTO’s records to determine whether any other registered or pending mark is similar to the applicant’s mark and whether other statutory criteria have been met. The examination process normally takes about one year, depending upon the nature and extent of any objections raised by the examining attorney. Marks that are not “merely descriptive” and otherwise meet the requirements of U.S. trademark law are registered on the PTO’s Principal Register. Descriptive marks can be registered on the Supplemental Register. Although it does afford certain rights, including the right to use the ® symbol and bring an infringement action in federal court, registration on the Supplemental Register does not provide the full scope of remedies accorded to marks registered on the Principal Register.

Unlike copyrights and patents, trademark rights can last indefinitely, as long as the mark continues to perform a source-identifying function. The initial term of a federal trademark registration is ten years, indefinitely renewable in ten-year terms.

Generic terms like apple for the fruit—as opposed to Apple computers—cannot be protected as trademarks, because one may not claim trademark rights in the generic words that name a product or service. Descriptive marks like After Tan (tanning lotion) and Food Fair (grocery store services) are not initially protectable, but they are eligible for trademark protection after acquiring “secondary meaning.” Secondary meaning, as opposed to primary, “descriptive” meaning, exists for those marks which, while descriptive, also become associated in the relevant purchaser’s mind with a certain source or sponsorship of the goods or services, usually established through long use and advertising. A descriptive trademark in continuous use without adverse adjudication of rights for five years is generally presumed to have acquired secondary meaning and may then enter the Principal Register.

For many years, trademark owners were required to use a mark on goods actually shipped or services advertised and rendered in interstate commerce before a federal registration application could be filed. Current law now permits intent-to-use reservation of rights in a mark based on a bona fide intention to use the mark in interstate commerce. Enforceable rights do not mature, however, until actual use of the mark has begun.

If words and design elements, such as a logo, are presented together, the combination can be registered as a composite mark. Nevertheless, because infringement analysis requires trademarks to be evaluated as a whole, less is more when deciding what to register. In evaluating infringement of a logo combined with words, the words would be considered integral to the logo design. If the logo was substantially copied but other words or no words were used in the copy, the registrant’s infringement claim could be substantially weakened by the inclusion of the words in the registration. Therefore, separate registration of design and word elements is recommended, although there are advantages to registering composite marks in addition to their constituent elements.

Domain Names

Internet domain names may be federally registered as trademarks or servicemarks if they meet the statutory criteria and function to distinguish the products or services of one entity from another. Trademark searches should include a review of registered domain names, because entities launching a new brand name generally register in advance one or more domain names based on that name. Trademark rights are not established or reserved by the mere registration of a domain name; such rights are established through actual use or reserved through an intent-to-use filing in the PTO. Unlike the marketplace, wherein many companies sometimes concurrently use the same name on unrelated products, each domain name is unique. If 50 different companies in 50 different industries offer a product under the name ABC, only the first to register the “abc.com” domain name will be entitled to use it. A distinctive or easily identifiable domain name can be a valuable trademark asset.