If it’s the trade name of your business – the answer to that question may be “everything!” For many business owners who have toiled for years to establish long-term client relationships and a brand identity for their closely-held enterprise, the value associated with their company name, logo, and/or domain name may represent the single most valuable asset that the client owns. It is, after all, the brand equity or goodwill in a business that frequently yields closely-held business owners the biggest return on their investment if and when they elect to sell their business to a third party. For that reason, business owners cannot afford to be presumptuous and simply assume that they have, and will continue to have, the right to use their current trade name, logo, and/or domain name.
Unfortunately, when I meet with new clients who are business owners and ask them about what specific steps they’ve taken to protect their business trade name (and all of the potential goodwill related thereto), I am frequently met with confused looks and/or blank stares. In most cases, I hear that the client (or their advisor) has only placed an initial call to the Secretary of State to make sure that the name was available for purposes of filing their initial entity formation documents. Beyond that, the clients usually have nothing further to report in the way of trade name due diligence. For clients who believe they have considerable goodwill associated with their trade name, logo, and/or web site domain name (or who intend to invest considerable time and money into building goodwill in these types of intangible assets), this lack of due diligence can be a costly oversight that could take years to overcome.
Consider, by way of example, a business owner who spent years building and operating his specialty manufacturing company in the greater Dallas-Fort Worth area. The owner’s trade name was selected by he and his wife, and the only advance due diligence that the owner performed with respect to the name was a call to the Secretary of State to confirm that the name was available. With clearance from the Secretary of State, the business owner formed the LLC and began several years of hard work, which ultimately resulted in steady growth and considerable prosperity for the regional manufacturing business. During the 3rd year of operations, the owner received written notice from an attorney stating that another manufacturing business (operating in an entirely different region of the country) had been using the same name for the past sixteen (16) years. This other party was a significant going concern business, and had the foresight to register its trade name with the United States Patent and Trademark (“USPTO”) office in Washington D.C. Armed with its federal trademark registration in hand, the out- of-state manufacturer and its lawyer were now demanding that the local business owner cease and desist its continued infringement of the registered trademark. It is at this point that the local business owner first contacted an attorney for assistance.
Much to the chagrin of the business owner, he had very few attractive options at this juncture. Because he had failed to properly perform his due diligence at the outset of his name selection process years earlier, he was wholly unaware that another business owner’s first use of the same trade name pre-dated his own first use of the name, and that the other business owner had in fact obtained a registered federal trademark of the trade name in the very same industry in which he operated. In accordance with federal law, the owner’s lack of actual knowledge with regard to a previously registered trademark was no defense to enforcement, and ultimately his best option (other than costly and protracted litigation) was to undergo a name change transition over an agreeable period of time, at considerable expense, to say nothing of the business interruption this caused.
For clients looking to start a new business, or for existing clients who don’t want to be surprised at some point down the road, conducting a trademark analysis now can be an extremely helpful way to avoid making the same missteps described above. Undertaking this exercise in the near term will alert the business owner in advance to any potential problems with the trade name, logo, or domain name, and thereby allow him or her to develop a strategy in advance of any dispute, which, from our experience, is far preferable to having to manage a crisis after receiving a cease and desist letter. Being proactive in this regard offers the business owner: (i) the time to properly analyze the risks related to continued use of the same name, (ii) if a name change is necessary, the time to properly select a suitable new name, (iii) if a new name is necessary, the ability to introduce and transition to that new name over a period of time that is suitable, and in a way that does not result in lost business or customer confusion, and (iv) if a change is necessary, the ability to control the messaging related to the change-over so as to allay any concerns that customers, vendors, suppliers, or lenders might otherwise have.
For new or existing owners who want additional assurances that they will continue to enjoy the right to use their trade name into the future, and also have the right to prevent others from using the same or similar trade names within the same industry on a nationwide basis, it might also make sense to discuss registering the trade name with the USPTO.
If you have an interest in better protecting your valuable intangible assets, please contact our office to set up a time to discuss this matter in more detail.