Common Mistakes Businesses Make in Name and Brand Selection
Common Mistakes Businesses Make in Name and Brand Selection
The start of a new business endeavor is an exciting time, with grand plans and ideas for future expansion. But too many businesses ignore (or are unaware of) some of the more important aspects of business name and brand selection, and it ultimately costs them a great deal – in time, money, and a loss of consumer recognition. We’ve compiled what we consider the top four mistakes businesses can make at this juncture and offer solutions for best avoiding these common pitfalls.
Choosing a Generic or Non-Distinct Name or Brand
One of the most common traps business owners can experience is failing to secure a distinctive business name or brand. Long gone are the days of selecting “AAA Plumbing” in order to secure a spot at the top of the listings in the Yellow Pages. Online, nationwide – and even worldwide – marketing have resulted in a savvier consumer and in the name-game, the more distinctive the better. For one thing, it can be much easier generating goodwill and consumer recognition with a distinctive name. In the current market, the strongest and most easily recognized businesses and brands are highly distinctive like Apple® and Nike® or even a made-up word like Google® or Xerox®. Not only does a distinctive name or brand stand out in a crowded market, but it increases the likelihood of obtaining a federal registration, which can afford greater protection and ensure exclusive use nationwide.
Many business owners miss this important step, opting for a name or brand that tends to be largely descriptive of their goods or services or the expected quality of those goods and services, choosing names like “Speedy Garage Door Repair” or “EZ Electric.” Such names are not only more lost in a sea of competitors (at least initially), they are more likely to be rejected federal registration with the United States Patent and Trademark Office (“USPTO”) and are difficult to protect. The same result is often had when utilizing terms that are common to one’s industry. The smarter option is to select a name or brand wholly unrelated to and in no way descriptive of the goods and services you intend to offer. In the same way that Apple® has no inherent connection to computers or Nike® to sports gear and clothing, selecting a name or fanciful term that bears no relationship to the goods and services you intend to offer results in a stronger, longer lasting brand.
Failing to Conduct a Trademark Search Prior to Selecting a Business Name or Brand
Another big misstep is the failure to conduct a trademark search prior to selecting a final business or brand name. Failing to take this step prior to proceeding with signage, advertising, domain name selection, and website design can ultimately be very costly to a business.
Under federal law, trademarks can fall into two categories: common-law marks that are used in commerce but have not been registered with the USPTO, and those marks that have applied for and received federal registration. Common-law rights arise out of the use of a mark in commerce, have long been recognized by courts in the U.S., and are maintained by federal caselaw rather than any statute. Such rights are afforded limited protection. Federal registration of a trademark with the USPTO provides increased protection beyond the common law through a statute known as the Lanham Act (15 U.S.C. § 1114, et seq.). Federal registration creates various presumptions regarding the validity of and protection afforded a registered mark under the statute. Being the “first to register” can restrict prior common-law users to the specific geographic area in which they conduct business, essentially locking them into their current location and preventing any further expansion.
Under the Lanham Act, “any person who shall, without the consent of the registrant, use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive…. shall be liable in a civil action.” Importantly, the Lanham Act is a strict liability statute, meaning one does not have to have an “intent” to infringe on another’s trademark in order to be liable. In fact, courts have held that because the U.S. database of federal trademark registrations is publicly available, business owners have implied knowledge of which marks are registered and therefore are, or are not, available for use. And while any unauthorized use can result in liability (and an order to pay monetary damages) use that is determined to be willful (with knowledge of the registered mark) can result in much higher penalties.
Many business owners opt out of an initial trademark search thinking they are saving startup costs. In reality, the significant costs and damages to a business caused by a forced rebranding, or worse still defending a federal trademark infringement lawsuit, far outweigh the costs of an initial search. Because prior common-law use or federal registration of a name or brand can significantly derail a business, the more prudent approach is to conduct an initial search for both common-law and registered trademarks that are the same (or similar to) a proposed business name or brand. Conducting an initial search not only minimizes the risk of future conflict or litigation but can also ensure yours is a stronger mark within your target market and is not likely to be confused with a competitor.
One common misconception is that minor variations in a name can preclude trademark infringement with a similar mark or that the same name used in connection with different goods or services is permissible. This is not always the case. In this context, courts look to what is known as the “likelihood of confusion” analysis. Trademarks do not have to be identical, nor do goods and services have to be the same, for a likelihood of confusion to exist. Rather, the test is whether consumers would understand the marks to refer to the same source. The determination is made on a case-by-case basis such that other third party use of the same or similar mark may have little to no bearing on any given case. Generally speaking, federally registered marks are given a broad scope of protection and can prevent use of the same or similar name in connection with different goods that can be considered related or part of a normal “zone of expansion” for the owner of the registered mark. For example, one who registered the mark “Zone” for use in connection with the retail sale of nutritional supplements may be able to preclude another from using the same or similar name in connection with the manufacture of nutritional supplements, as consumers could reasonably conclude that the retailer and manufacturer are the same, or associated, sources of the goods and services when in fact, they are not.
Another common misconception is that there can be no issue if the owner of the registered mark cannot demonstrate any actual loss arising out of the alleged infringement. Yet, under the Lanham Act, owners of registered marks can secure both a finding of liability and injunctive relief even without evidence of any actual damages. Still further, there are some instances in which the act allows for statutory damages even in the absence of proven actual loss.
Overall, failing to secure an initial search of both common-law and registered trademarks prior to selecting a business or brand name and sinking significant costs into signage, advertising, domain name registrations, or website design can prove quite costly--and in some cases devastating--to a new business endeavor. And while there are some up-front costs associated with such preventative measures, those costs are far less than the potential costs should infringement (or claims of infringement) arise.
Failing to Investigate and Secure Domain Names and Social Media Handles
Another common misstep in the early stages of selecting a business name or brand is failing to investigate the availability of various domain names (.com, .org, .net, etc.) and social media handles. Business owners who wait to investigate and secure domain name registrations and social media handles after the name has been selected and significant amounts already spent in marketing and advertising may discover the relevant domain names and handles are not available--or can only be purchased at great expense. Domain names are available on a “first come, first served” basis. As the business of “domaining” (the buying and selling domain names) continues to explode, domain names consistent with a chosen business name or brand may not be available. The same is true for social media handles, or user names on social media platforms such as Facebook, X (formerly Twitter), Instagram, and TikTok. User names on these types of platforms are generally available to the first to secure them and most social media platforms will not force a user to give up a handle even in the face of alleged trademark infringement. Rather than potentially spending a great deal to secure domain names and handles that are already taken, the better practice is to include the availability of domains and handles in the initial name-selection process. Of course, the actual registration of a domain name or social media handles should occur after an initial trademark search in order to avoid potential conflict in that arena as well.
Failure to Confer with Intellectual Property Experts
It’s no secret the complications that can arise in matters involving intellectual property. As with most business endeavors, it can be significantly beneficial to confer with someone who is well-versed in intellectual property, and to do so early and often. Taking the appropriate steps to ensure the availability, strength, and enforcement of a proposed business name or brand prior to spending the significant costs often associated with the advertising, marketing and general formation of that business or brand is vital to establishing a strong foundation for efficient growth. These initial and important steps can go a long way toward avoiding costly mistakes that can derail a business or brand early in its development.
The startup of a new business or launch of a new brand is not for the faint of heart. Avoiding these common mistakes in business name and brand selection can help secure a healthy foundation for your business or brand and prevent significant issues (and expenses) down the road.
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This article has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2024 Klemchuk PLLC