Trademark Law and Your Business—Protecting Your Brand

Suppose that you begin using a trademark in connection with your new business, but you fail to clear the mark first. As a result, another business who owns a federal trademark registration for similar goods or services sends you a letter and demands that you cease-and-desist in your use of the same or similar trademark. What are your options?

The first option is to stop using the mark as demanded. Under federal trademark law, you may be liable for significant damages if you continue to use the mark in violation of the registered trademark owner’s rights. The trademark owner only needs to show, essentially, that he has a valid trademark and he hasn’t given you permission to use it. It’s a bit more complicated than that, but you should know that intent is not an element of trademark infringement. That means that your lack of intent to infringe the mark is irrelevant to the issue of whether or not you infringed or not. Intent only makes a difference in awarding more damages to the trademark owner. If you willfully infringe another’s trademark, then the trademark owner may be entitled to a larger damage award.

Another option is to contact the current trademark owner and ask permission to use the mark concurrently with the trademark owner. The current owner may require you to pay for a license to use the mark, but, if your business and the current owner’s business are geographically far apart, you may be able to persuade the trademark owner to concurrent use of the mark.

A third option includes filing a declaratory action in federal court. As noted in my previous post, a declaratory action does not come without risks. First, you can only file a declaratory action if the trademark owner threatens litigation and even then the court can decline to hear the matter. The advantage, though, is that you get to litigate in your home venue, which reduces your litigation costs.

What option you choose depends on your particular situation. If you receive a cease-and-desist letter, you should contact your attorney who can help you make the right business decision.

The law grants certain rights to an owner of a registered trademark. These rights include the ability to exclude others from using similar marks that are likely to cause confusion with the source of goods and services associated with your mark. As a business owner and owner of a trademark, you have a duty to enforce your mark against ne’er-do-wells and others who wish to trade off of the goodwill built up in your mark. The law also provides remedies for owners whose rights have been infringed.

The most obvious remedy is that of damages. As a trademark owner, you may be entitled to collect money damages from those who use your mark in violation of your rights. Under the Lanham Act, trademark owners may collect actual damages, or the amount of money that they can show the infringer actually damaged the trademark owner’s business, or statutory damages. Statutory damages allow a trademark owner to recover when they have difficulty showing how much they have been actually damaged. This often occurs when infringers fail to keep records of their use of your mark.

Another powerful remedy is injunctive relief. An injunction is an order by the court that either tells someone to stop doing something or tells them to start doing something. In a trademark infringement case, the trademark owner wants the infringer to stop using the mark and asks the court to enter an order to that effect. The standard for obtaining an injunction can be difficult to meet, but, if you can meet it, then an injunction can serve to stop the infringer from further violating your rights. As part of your injunctive relief, you might also ask the court to order the freezing of the infringer’s assets or to order the seizure of the infringing materials. These remedies are not typical, but are available in certain cases.

As a business owner, then, you need to be aware of new startups or existing, related businesses who may want to use your mark for their own purposes. When that occurs, you should be aware of the remedies that you may have available under the law.

Oftentimes, people become new business owners by purchasing an existing business. Current business owners may also buy businesses to expand their line. The assets from these sales may include trademarks from the business. As such, business owners need to be aware of a few items before signing the purchase agreement.

First, business owners should be aware of what marks they are actually buying. Sometimes, the seller will transfer a mark that has no relationship to the business to be sold, but the mark just happened to get listed in the schedule of assets because, well, it’s always been that way. Other times, the house mark—the main mark used by a business–gets transferred, but a subsidiary mark gets left out. To remedy this, business owners should insist on separate schedules to the sales agreement that list the intellectual properties being sold with the business.

Second, because trademarks are a bundle of rights similar to real or personal property, the marks may be encumbered by security agreements. For each trademark listed on the schedule of assets, you should clear the chain of title of each mark to ensure that the mark is free of any security interests.

Third, business owners should be sure to get an assignment of each individual mark from the seller. Trademarks are assigned to new entities all the time and the process is very simple, but, because of this, this step is often overlooked. Once the schedule of trademarks is confirmed, you should ask your trademark counsel to begin drafting assignments for each mark to be signed at the closing.

There are many other important factors for business owners to take into account when buying a business and the associated trademarks including representations and warranties, licenses, and valuation. Check with your trademark counsel early in the process to avoid headaches after closing.