Trademark Basics and How to Spot Potential Issues for In-House Counsel
Trademark Basics and How to Spot Potential Issues for In-House Counsel

At times, corporate stakeholders may consider IP due diligence as slowing down business instead of creating and preserving value. However, pro-active trademark portfolio development and management can often streamline business resources, help jumpstart new brand initiatives, generate added asset valuations, and minimize downtime when expanding into new territories. This article discusses important trademark basics as well as common questions and issues in-house counsel often encounter during due diligence or IP audits.

What is a Trademark?
At a very high level, a trademark can be any word, phrase, symbol, design, smell, sound, etc., or a combination of any of those, that acts as a source identifier for a business’s goods or services. If something is recognizable by consumers as representing the goodwill of a business, that can be a trademark. The terms trademark or mark and “brand” are sometimes used interchangeably.

Are Trade Names the same as Trademarks?
No. Trade names are not the same as trademarks. Though there is often overlap, trade names focus on a company’s corporate identifier as registered with a particular jurisdiction. Many times, companies are misled into believing a trademark is clear to use because they were able to register their proposed mark as a trade name with their local state.

Local state business registries do not check for the clearance of a proposed trademark within intrastate or interstate commerce. Such registries merely check for identical trade names that are already reserved by another business within that registry. Therefore, for example, the company Widget LLC could register that name even though another business already registered Widgets LLC last year in the same state. A particular state corporate registry also does not check against other foreign state registries and therefore does not know another company named Widget LLC opened in the neighboring state three months ago. Such registration at the state business name registry does not equal a trademark clearance at the state or federal register.

What are state trademarks or federal trademarks?
State trademark registrations can provide notice of a trademark within the state where the mark is registered and can provide public notice of a priority of use for that trademark. Depending on a particular state, local registration can also provide enhanced remedies in case of infringement.

Federal trademark registrations protect a trademark nationally and provide constructive notice of a priority of use of the trademark throughout the United States. Among other benefits, after five or more years of registration, no third party can seek to cancel a trademark based on earlier use. Therefore, federal trademark registration provides significant risk mitigation in the long term for the continued use of a trademark.

What are common law marks?
Common law marks are unregistered trademarks. As a common law legal system, the United States provides trademark rights upon first use of a trademark in commerce. There is no formal requirement to secure registration. Common law rights extend to the geographic area where a trademark is actually used with goods or services. As such, if a business has a legacy brand but never secured any registration, the business will still have common law rights to the mark in case of any need to enforce against third party infringement in the relevant geographic area. The geographic area limited can be an issue in connection with expansion. For example, if a company has a legacy brand in the Northeast, they might have problems enforcing their common rights against potential infringements that occur in other areas such as the Southwest. Should any such enforcement need arise, proving priority of use, or a right to expand into another area, will often be more expensive in the long run versus securing a federal trademark registration that gives federal priority rights.

If a company only sells products in the U.S., does the company need to worry about foreign trademark issues?
Yes. Trademark rights and registrations are generally enforceable on a jurisdiction-by-jurisdiction basis. If a business is having products or materials brought in from overseas, there can be conflicting trademark rights. Often, businesses believe that just using the trademark or having a U.S. registration will protect against international use. However, while the United States has a common law trademark system, many countries do not. For example, China is a civil law system where trademark rights are based on registration. This is colloquially referred to as a “first-to-register system,” and it is not uncommon for third parties to register U.S. trademarks in China to negotiate a sale of the brand back to the U.S. owner. If a business manufactures and packages its products in China, a business might be uniquely at risk of such trademark “squatting.” Protective and proactive trademark filings in China can help protect products from being held up at the border.

The business does not expect to launch this product line for at least two years, should it worry about this now?
The United States Patent and Trademark Office (USPTO) allows for intent-to-use (ITU) trademark filings. This means a business can file for the trademark before it is in use to create a public record of an intent to use such mark. Once it goes through examination, the application will be published for opposition and, assuming no oppositions are filed, the application will be “allowed.” A business will now have up to three years to show use of that trademark and perfect the application into a registration.

For that three-year period, you are able to provide a reasonable level of assurance to stakeholders because the trademark has already been examined and was not opposed by third-parties. The priority for such an intent-to-use trademark filing will be the date it was filed, even if use begins 3 years later. This mark, though pending, can also be a useful asset within a brand portfolio.

On the other hand, if you were to file such a trademark application and it was refused based on third party registrations or opposed by a third-party, it is easier to re-brand or otherwise mitigate risk earlier in the process, before significant resources have been allocated. This can save a business significant time and resources to engage in such process before marketing and sales push the brand to market.

In any new brand venture, IP counsel will recommend a clearance before adopting a trademark, or filing an application. Often, a brand can be rejected at the ground floor if it fails to make it through clearance. And if the proposed trademark makes it through an initial clearance, there is no guarantee the trademark will not be refused or opposed at the USPTO; however, in the case of clear risk, this process helps streamline resources.

The Marketing team loves this new brand and they do not want to wait for clearance, what should in-house counsel do?
For all new launches, consider asking Marketing to always come up with at least three names as a matter of course for clearance before making a final choice.  If possible, try not to get too excited about a particular trademark before it is cleared. If there is a time crunch, IP counsel should be asked to provide a quick turnaround on clearance and securing an initial filing. It is not recommended to skip clearance if at all possible, since a written opinion prior to filing a trademark application is a significant shield against a later charge of willful trademark infringement, should such claims ever be made by a third party.

The business is divesting a business unit; do we need to worry about that business unit’s trademarks?When divesting a portion of the business, make sure the brands divest appropriately as well. If a company has lateral branding efforts between brands that will now be split, consider integrating requirements into the divestiture that specifically discusses what to do with those brands that may potentially need to coexist in the market. For example, if a business always includes the same logo with its trademarks, including the trademarks being divested, there should be a requirement that such logo not be used following the divestiture.  

In addition, if trademark registrations are being transferred, trademark assignments will need to be filed and recorded with the local trademark registries where the marks are registered. For example, if a business is transferring a portfolio that includes registrations in the U.S., Canada and Mexico, a trademark assignment will need to be filed in each of these countries. Different countries can have different assignment requirements. For example, in Mexico, such assignment may need to be in both Spanish and English. This can often result in lingering responsibilities after the transfer is finalized. IP counsel may recommend trailer or “further assurances” clauses in all such agreements to ensure a signatory remains available to sign “Confirmatory Assignments in the future. Having assignments pre-drafted and attached as Schedules to final agreement documents for signature at the time of closing is highly recommended. This can save significant time and resources in due diligence.

After the transfer is finalized, there can often be a blackout period where a business remains responsible to maintain the value of the assets being transferred. All deadlines should be monitored during this period so no rights are lost.

Trademark issues for corporations can present unique risks. Risks can be mitigated through pro-active clearance, registration, and maintenance at the federal and international levels. With a pro-active approach, trademarks can remain a long term, valuable corporate asset.

Reprinted with permission from the February 20, 2024 issue of The Legal Intelligencer ©2024 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.



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