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Business Law Today
Volume 19, Number 4 March/April 2010
What's in a Name? A Lot
Trademark and Brand Protection Strategies for Franchisors
By Marisa D. Faunce
and Benjamin B. Reed
To justify investing the money necessary to open a franchised business, franchisees look to
franchisors for certain value-adds including, perhaps most importantly, a license to use a brand
name that is recognized by customers and will drive customers to their new business. A priority of
a business owner considering franchising as a method of expansion is to determine which
trademarks the business will use and then to obtain federal registration of those marks with the
U.S. Patent and Trademark Office (USPTO) so that franchisees across the country can use the
federally protected marks. This article provides an introductory overview of the legal
considerations for selecting, registering, using, and protecting those marks, all of which are critical
to the viability and longevity of any franchise brand.
What Is a Trademark?
A trademark is a word, phrase, symbol, or design, or combination of words, phrases, symbols, or
designs, that identifies and distinguishes the source of goods of one party from those of others. A
service mark identifies services as opposed to goods. In the franchising context, a mark can
consist of a word that describes the trade name of the franchised business (MCDONALD'S), a
product (BIG MAC), a tag line or slogan (I'M LOVIN' IT), a symbol (GOLDEN ARCHES), a character
(RONALD MCDONALD) or a trade dress feature (the building design of MCDONALD'S restaurants).
Selecting a Strong Mark
Trademarks are categorized by how well they identify the unique products or services offered by
the brand owner. This strength of the mark ranges along a spectrum from generic (RESTAURANT)
and descriptive (SAM'S SUB SHOP for a sandwich restaurant) to suggestive (BLIZZARD for frozen
confections), arbitrary (APPLE for computers), and fanciful (EXXON for gasoline).
When selecting a mark, it is tempting for a franchisor to select a mark that describes the goods or
services being offered so that the public will know exactly what products or services the
franchised businesses sell. However, generic terms are never entitled to trademark protection, and
the USPTO will not register descriptive marks without a demonstration of "secondary meaning"
(i.e., that mark that has become identifiable in the minds of consumers as indicating a particular
source of goods or services rather than a mark that just describes a product or service offering)
through long and extensive use (e.g., THE LITTLE GYM, KWIK COPY, and EXPRESS OIL CHANGE).
In addition, by selecting a merely descriptive mark, the franchisor will have difficulty preventing a
competitor from using an identical or similar mark to describe goods and services offered by the
competitor. The burden for successfully pursuing an infringement action against an allegedly later
user of a merely descriptive mark is extraordinarily high.
Suggestive marks that require thought, imagination, and perception to reach a conclusion as to
the nature of the goods or services are entitled to trademark protection without a showing of
secondary meaning (e.g., COPPERTONE for suntan lotion, SALTY for sailing apparel). The greatest
trademark protection is afforded to arbitrary or fanciful marks that are generally made-up words
that are only associated with a particular product or company (e.g., SNAPPLE for drinks).
Accordingly, selecting a suggestive, arbitrary, or fanciful mark will enable a franchisor to obtain a
federal trademark registration far more easily, to build customer loyalty and strengthen brand
goodwill through a concentrated advertising program, to enhance brand recognition and distinction
in the relevant industry, and to prevent consumer confusion as to the source of the goods or
services.
Clearing a Mark
Federal trademark law is premised on the objectives of establishing rights with respect to
distinctive marks and avoiding confusion as to the source, origin, sponsorship, or affiliation of the
goods or services associated with those marks. In general, both the USPTO in reviewing
applications for registration of trademarks and courts deciding suits for trademark infringement
consider confusing similarity as to the appearance, sound, connotation, and commercial impression
of marks. Therefore, a franchisor's selection of a mark that is not confusingly similar to another
user's mark should be the primary focus of evaluating a proposed mark.
When selecting a new mark, a franchisor should first search the online records of the USPTO
(www.uspto.gov) to determine whether an identical, or confusingly similar, mark has already been
registered by another user for similar goods and services. The USPTO uses the International
Classification system that categorizes goods and services into 45 different classes. Thus, if a
restaurant company is interested in using the mark TAMA for a sandwich, it will be interested in
discovering whether another user has registered the mark TAMA in class 30 (which includes certain
food products such as sandwiches) or class 43 (which includes a variety of services including
restaurant services). The fact that another party has registered the mark TAMA in class 15 for
drums is unlikely to prevent the use and registration of TAMA for a sandwich, as there is little
likelihood of consumer confusion as to the source of the two products.
After determining whether a mark appears to be available with respect to federal registrations with
the USPTO, a franchisor should perform additional clearance searches over the Internet and
through domain name registries to determine if there are any other prior users of the mark that
may not have sought federal trademark registration. It is advisable to pay a vendor to perform a
full or comprehensive clearance search of state and federal trademark databases as well as
business listings, journals, industrial indexes, company names, domain names, web pages, and
yellow and white page listings to uncover unregistered or "common law" users of the proposed
mark. These services identify not only identical marks but also marks that are similar to the
proposed mark. The time and expense in clearing a proposed mark is money well spent,
considering the negative ramifications of developing a product or a service offering and discovering
a few years later that the mark violates the trademark rights of a prior user. A prior user,
whether discovered or not by even the most thorough search, has priority and can prevent
confusingly similar uses by a later diligent user.
One common obstacle business owners who are considering franchising face is the fact that
another business owner also may be using the same or a similar trademark or trade name for a
similar type of business. For example, if there is a TURTLES ice cream shop in the Southeast and
a TURTLES ice cream shop in the Northeast, which business has the right to use the mark and to
obtain a federal trademark registration? In the United States, priority is given to the first
TURTLES business that used the mark in interstate commerce. This is true even if the second user
of the mark was the first business to file an application to register the mark with the USPTO.
Accordingly, even if a business owner has already started using a mark, he or she should conduct
a trademark clearance search to determine whether anyone else is concurrently using the same or
a similar mark for similar goods and services, and, if so, the business owner will need to
determine who has priority as the first interstate user of the mark. If a prior user exists, then the
business owner should consider adopting a new mark to represent its goods or services.
Registering a Mark
In the United States, an owner of a mark acquires rights in the mark by using the mark in
commerce; registration of the mark at the USPTO is not required. However, federal registration
offers certain benefits, including
Legal presumption of ownership and the registrant's exclusive right to use the mark nationwide on
or in connection with the goods and/or services listed in the registration;
Right to use the (r) symbol, which provides constructive notice to the public of the registrant's
claim of ownership in the mark;
Ability to bring a lawsuit in federal court to protect a mark, to enjoin infringers from using the
mark, and to obtain a recovery of profits, damages, and other remedies not afforded under
common law;
Use of the registration as the basis for foreign registrations; and
Ability to file the U.S. registration with the U.S. Customs Service to prevent importation of
infringing foreign goods.
A brand owner may base an application for a federal trademark registration at the USPTO on
actual use of a mark or a bona fide intention to use the mark in commerce. It generally takes nine
to 18 months to prosecute an application at the USPTO and to obtain a trademark registration.
Within six months after filing the application, the USPTO will assign the application to an
examining attorney who will determine whether the application meets the statutory requirements
and whether the mark is entitled to registration. To be registered, the mark must be distinctive as
applied to the goods or services identified in the application and must not be confusingly similar to
another registered mark.
The USPTO's examining attorney may issue a statutory objection or question based on the
formality of the application in an "Office Action." The applicant must respond to the Office Action
within six months to avoid abandonment of the application. If the mark appears to be entitled to
registration after review by the examining attorney and any amendments to the application, the
USPTO will publish the mark in the Official Gazette to notify others of the pending registration. A
registrant of a conflicting mark (or any other party that has a valid basis for objecting to
registration) has 30 days to file a notice of opposition to the application. The USPTO can extend
this opposition period for additional periods not to exceed 180 days. If no one opposes the mark
in this period, the USPTO will issue a certificate of registration for marks that are in use or a
notice of allowance for intent to use applications. Upon receiving a notice of allowance, an intent
to use applicant has six months, which is extendable up to 36 months, to file a statement
demonstrating use of the mark, after which the USPTO will issue a certificate of registration.
A U.S. trademark registration is valid for a period of 10 years. Between the fifth and sixth years
after registration, the trademark owner must file a declaration of use to maintain the registration
or the mark will automatically be canceled. Subsequently, a trademark owner may renew its
registration between the ninth and tenth years after the original registration issued, and every 10
years thereafter. In addition, between the fifth and sixth years after registration, a trademark
owner may submit a declaration that establishes that the mark has been used continuously and
has become incontestable.
Protecting Marks on the Internet
In addition to applying to obtain a formal trademark registration for the brand name for the
franchise system, franchisors must simultaneously take steps to ensure that they secure rights to
their marks in cyberspace. As discussed above, part of the necessary due diligence prior to
selecting a mark is searching the Internet for preexisting uses of potential marks. Separate and
apart from this search, companies also should research the availability of possible names to use
as a web address (or domain name) for the company's website. There are a number of "WHOIS"
search engines on the Internet through which a company can search the availability of domain
names. And there are a number of companies that the Internet Corporation for Assigned Names
and Numbers (ICANN) has authorized as official domain name registrars from which a franchisor
can register domain names for a period of years.
Many common names (and derivatives or misspellings) are owned by persons or entities that
make a business of registering names and selling them to others. While an established franchisor
may have several avenues of relief to force these cybersquatters to turn over the domain name
registration, emerging franchisors often must deal with these cybersquatters by paying a premium
to obtain the domain name registration. Before choosing a brand
name, franchisors should make
sure that they can either obtain
Trademark and Domain Name Clearance Search
a domain name they want free
Resources
and clear or purchase it from a
Preliminary Searches:
cybersquatter for a reasonable
Google: www.google.com
price before launching their
USPTO: www.uspto.gov/trademarks
franchise program (which often
will result in having to pay more
Saegis: www.saegis.com
for the domain name
CT Corsearch: www.ctcorsearch.com
registration). In addition to
registering the ".com" domain
Comprehensive Federal, State, Common Law, and Domain
name, franchisors also should
Searches:
make an effort to register their
Thompson Compumark: www.compumark.thomson.com
domain name in the ".org",
".net," and other extensions and
CT Corsearch: www.ctcorsearch.com
should consider any possible
Corporation Service Company: www.cscprotectsbrands.com
derivative domain names
("BRANDsucks.com" or
Domain Name WHOIS Search:
"BRANDtogo.com," etc.) or
Network Solutions:
common misspellings of the
www.networksolutions.com/whois/index.jsp
brand name to avoid the
possibility of protracted
negotiation or disputes to obtain
those domain name registrations down the road.
Aside from domain name registrations, a franchisor should ensure that it has secured rights to its
brand name and slogans in other areas of cyberspace in which the company may eventually
choose to market. Securing the brand on Facebook, LinkedIn, Twitter, MySpace, and other social
media outlets at the outset will prevent headaches later on.
Proper Use of a Mark
After a company has selected a brand name and trademarks, the business focus shifts to building
goodwill under the marks. The legal focus, however, also shifts from securing rights to the marks
to maintaining those rights and protecting the goodwill. In order to protect its marks, a franchisor
should make sure that its franchisees and its own employees properly use each mark or the mark
can become generic of the product rather than its source (e.g., aspirin, super glue, cellophane,
escalator). Improper use of a mark also can dilute its value and weaken the owner's rights to
judicial protection. The following is a list of basic rules that every trademark owner should follow
in order to ensure the validity of its mark:
Use the mark in a consistent manner.
Use distinctive type by capitalizing the entire mark or use a particular font, italics, or bold type to
distinguish the mark from other words.
Use the mark as an adjective to describe the product ("POST-IT(r) notes," not "use a POST-IT").
Use the (r) symbol for a registered mark and TM or SM for an unregistered trademark or service
mark.
Don't use the mark as a noun, in plural form, or with different spellings ("hand me a SHARPIE").
Don't use the mark as a verb ("GOOGLE it").
Don't use the mark in a possessive form ("KITCHENAID's qualities are outstanding").
Don't abbreviate the mark.
Don't wrongly identify a mark as registered.
Monitoring Franchisee Use of Marks
For franchise companies, the key to maintaining the franchise brand starts with ensuring not only
consistent use of the marks by franchisees but also consistency of the quality of goods and
services the franchisees provide to consumers in association with the marks. Indeed, a franchisor
that fails to police the quality of goods or services offered under the marks risks losing its
property rights in the marks through legal abandonment. Thus, franchise companies typically place
contractual obligations on their franchisees to comply with certain operating standards, and
periodically inspect their franchisees' operations to ensure compliance and consistency.
Franchisors also should take steps to monitor and control their franchisees' use of the marks
beyond the physical operation of their franchised businesses. Having policies to govern
franchisees' use of the marks in marketing and advertisements—including over the Internet and in
social media—is critical to ensuring that the marks are not presented in a manner that could
damage the franchisor's goodwill. Such policies enable franchise companies and their franchisees
to utilize the web while at the same time protecting the goodwill and property interests associated
with the marks.
Protecting Against Unauthorized Users
Franchisors also must take steps to prevent third parties from unauthorized use of the marks. In
the past, franchisors focused their brand protection efforts on businesses that adopted the same
or a similar mark to operate their own business or advertising claims made by competitors that
cast the brand in an unfair light by making false claims. The ubiquity of the Internet and
proliferation of search engines and social media have made prevention of unauthorized use more
critical, and, at the same time, more complicated.
Many companies, recognizing that consumers use search engines to locate the websites of
companies and brands in which they have an interest, have begun to implement strategies that
will result in links to their companies' websites appearing more frequently and at the top of
returned search results. One method of "search engine optimization" is to pay to have search
engine providers such as Google and Yahoo! associate particular keywords (known as "ad words")
with a company's website so that when a consumer searches using those keywords, the company's
website will appear at or near the top of the search results returned for that consumer. While this
marketing method has advantages, problems arise when a competitor pays to have a company's
brand as one of its "ad words" so that a link to the competitor's website appears when a consumer
searches for the company's brand. While this use of the brand is not overt, it does enable a
competitor to make unauthorized use of a brand to steer customers to its website. Several court
cases have addressed this type of use, and Google has recently modified its ad words policy. This
is one example of how the Internet has both benefited brand owners (through increased exposure
for their brands) but also increased the potential for unauthorized use of their brand names.
The web presents numerous avenues for unauthorized use of a mark: in blogs, on social media
sites, through ad words, and domain name registrations. Franchise companies should develop
cohesive strategies for monitoring use of their marks on the Internet. Third-party vendors offer
monitoring services that are usually comprehensive (including monitoring formal applications to
register trademarks and domain names). An alternative is to use search engines periodically to
identify uses of marks in cyberspace (although this method will not likely identify new trademark
applications or domain name registrations). Companies also may employ automated searches,
such as Google Alert, to monitor when their marks are used on the Internet. And while not every
use of a mark can be controlled—a legitimate gripe site using the brand name is probably
protected as much as a newspaper article about a company would be—keeping track of potential
unauthorized uses of the franchisor's trade name and marks is important to protect the goodwill
associated with the brand and the validity of the trade or service marks associated with the
brand.
Since a franchisor's brand is often the most important aspect of a franchised business, careful
consideration in selecting, registering, and protecting the brand's marks is integral to a
franchisor's efforts to create a marketable commodity and generate value for the franchise
system.
Avoiding the Accidental Franchise Malpractice Traps
Audio CD Package
Your client wants to expand their business by issuing licenses or distributorships to
independent contractors who will invest their own money and hire their own
employees to sell your client's goods or services. After discussing business
objectives with your client, you draft the license or distribution agreement. A year
later, the client receives a demand letter from an unhappy licensee or distributor alleging that
the licensing or distribution program is really a franchise relationship which they now wish to
unwind. The licensee or distributor has also complained to its local consumer protection agency,
which has sent your client a demand letter inquiring into the specifics of the relationship. Your
client wants you to explain why the licensing or distribution program is not a franchise and
seeks advice on how to respond to the unhappy licensee or distributor as well as to the state
regulator.
This audio package examines the meaning of the "accidental franchise" and the implications to
you and your client for creating one.
Faunce and Reed specialize in intellectual property matters that impact franchisors at the franchise
law firm of Plave Koch PLC in Reston, Virginia. Their respective e-mails are
[email protected] and [email protected].
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