July 30, 2009

Trademark Best Practices For Franchisors

Trademarks and service marks are an essential element of a strong franchise system. And if properly used and protected, they may become tremendously valuable assets. Here, we provide ten specific best practices franchisors should employ for developing, using and maximizing the value of marks.

1. Select a Strong Mark

A trademark is a word, phrase, design or symbol, or combination thereof, that identifies the source of the goods of one party and distinguishes those goods from the goods of others. A service mark identifies and distinguishes the source of services rather than goods. The term "trademark" is often used to refer to both trademarks and service marks. In practice, almost any "device" can be a trademark (or service mark), including sounds, smells, color, trade dress and moving images—limited only by creativity and acceptance as a source identifier in the marketplace.

In order to distinguish the goods of one party from those of another—and to function as a trademark—a word, phrase, design or symbol must be distinctive. A mark's distinctiveness determines, in part, the overall strength of a mark and the degree to which it can be protected.

Trademarks can generally be categorized into one of four categories of distinctiveness, from most to least distinctive: coined, arbitrary, suggestive and descriptive. Words and designs that lack any distinctiveness fall into a fifth category, "generic," and cannot function as trademarks.

  • Coined Marks. Coined marks are at the top of the scale in terms of distinctiveness and strength. A coined mark (also referred to as a "fanciful" mark) has no meaning at all apart from its association with a product or service-it is a "made-up" word (or design). Examples of coined marks are Kodak® for photography products and Google® for Web browser services.
  • Arbitrary. Arbitrary marks are second on the scale of distinctiveness and strength. An arbitrary trademark is a word that has an ordinary dictionary meaning, but has no special meaning in relation to the goods or services to which it is applied, other than its source-identifying function. An example of an arbitrary mark is Apple® for computers.
  • Suggestive Marks. Suggestive marks are not as distinctive as coined or arbitrary marks, but may still be considered strong marks. A suggestive mark hints at some function or property of the product or service, but does not directly describe it. A consumer is required to use a degree of thought or imagination to ascertain the exact nature of the goods. Suggestive marks often comprise words that embody desirable qualities or characteristics associated with a product or service-such as efficiency, speed, accuracy, comfort or elegance. Examples of suggestive marks include Greyhound® for bus services and Caress® for body soap.
  • Descriptive Marks. Descriptive marks are among the least distinctive and weakest marks. A descriptive mark is a word or design that directly describes the product or service in a manner that does not require any imagination.

    Franchisors may be tempted to use descriptive marks when they want consumers to immediately understand the product or service. However, descriptive marks may be difficult to protect and to register in the U.S. Patent and Trademark Office (USPTO) because they are not particularly distinctive relative to the product or service. Words or designs that start out as merely descriptive marks can acquire distinctiveness, or "secondary meaning," over time if consumers eventually learn to recognize them as trademarks. However, it may take five years or more and millions of dollars in advertising and promotion before consumers will recognize the words or designs primarily as trademarks rather than just ordinary words or designs with no special meaning. Examples of descriptive marks that have acquired distinctiveness include Computerland® for computer store services and Vision World® for optical store services.
  • Generic Terms. The generic or common name of a product or service can never function as a trademark. For example, the term "grocery store" can never function as a service mark for grocery store services. A generic term cannot be registered with the USPTO and cannot be protected. A word that initially functions as a trademark can lose its trademark significance and become a generic term if consumers improperly use the mark in a generic sense to identify a particular type of product or service regardless of source. The former trademarks "kerosene," "escalator," "aspirin," "linoleum" and "kitty litter" all met this fate.

2. Search and Clear Trademark Before Using It

Legal clearance of a new trademark is an important step in developing a strong brand and may prevent surprises and substantial costs in the future. Before a mark is adopted and used, an evaluation of its availability for use and if desired, federal registration, should be completed.

Legal clearance searches help assess the level of risk that may be associated with the adoption and use of a mark. Neither a preliminary nor a comprehensive search will guarantee that all relevant references have been located. However, the search process is a cost-effective method to manage the risk involved in adopting a new mark.

Trademark availability searches are typically conducted in two stages: a preliminary or "knock out" search followed by a comprehensive or "full" search. Depending on its future plans, a franchisor may also want to search in foreign jurisdictions. Consultation with a trademark attorney regarding the best approach is recommended.

3. Clearly Identify Trademarks

Trademarks should be clearly identified as such so that they do not blend in with surrounding descriptive text. Set a mark apart from any surrounding text by using all caps, initial caps, quotes around the mark, and/or a different font, size or color.

4. Use Trademarks as Adjectives

A trademark is not a noun or a verb. In advertising copy or other text, a trademark should be used as an adjective followed by a descriptor or generic term for the goods or services. For example, "I like the Google® search engine" is appropriate, but "I like Google®" or "I googled him on the Internet" is not and may ultimately lead to a weakening or loss of trademark rights.

5. Mark It

A trademark should be used with appropriate marking, either ®, TM or SM. In written materials, marking should appear with the first and most prominent use of a mark. The registration symbol, ®, should only be used with a federally registered mark when the mark is used on the goods or services recited in the registration certificate. It is not appropriate to use the registration symbol when a federal application for the mark is pending or when the mark appears on goods or services not covered by the federal registration.

The TM and SM designations may be used with a mark that is not federally registered, or when a federally registered mark is used in connection with goods or services not covered in the registration. These symbols can also be used with a mark that is the subject of a pending federal application.

6. Use Your Trademarks Consistently

  • It is important to use trademarks in a consistent manner. Consistent use of a trademark sends a clear message to consumers and competitors regarding the exact mark that is being claimed and may minimize possible loss of rights due to inadvertent misuse. For example:
    Always spell the mark the same way.
  • Always use the mark exactly as it appears in the registration certificate. Promptly seek advice from trademark counsel if the form of the mark changes in any way.
  • Always use appropriate marking, e.g., PERRIER® sparkling water.
  • Do not use the mark in possessive or plural form.
  • Use attribution statements in advertising , marketing materials and on packaging, e.g., "COKE® is a registered trademark of The Coca Cola Company."

7. Designate a Trademark Manager

To ensure consistent and proper trademark use, consider designating a person or group of people to monitor all advertising and promotional materials, packaging, Web pages, and other company communications. This person or group may also help identify uses of new trademarks that have not yet been searched and cleared, or new variations of existing marks that may need to be protected.

8. Register Your Trade or Service Marks

Federal trademark registration in the United States provides a number of significant advantages. These include the right to use the ® symbol with the mark, constructive notice to third parties of the registrant's trademark rights and the presumption that the registrant has exclusive rights to use the mark nationwide.

A U.S. registration is valid for an initial ten-year term and can be renewed for additional ten-year terms so long as the mark remains in use on the goods/services recited in the registration. The USPTO also requires the filing of a Declaration of Use between the fifth and sixth years after registration in order to confirm that the mark is still in use. This is primarily a mechanism to remove "dead wood" from the Register. If a mark is continuously used for a five-year period following registration, and certain formalities are met, a registrant may file a Declaration of Incontestability along with the Declaration of Use. The Declaration of Incontestability confirms the registration has achieved an "incontestable" status and can be challenged only on certain limited grounds.

Trademarks and service marks may also be registered in most foreign jurisdictions. Protection of a mark in connection with goods or services sold outside the U.S. may be beneficial depending on a company's business plans. Prompt registration in foreign jurisdictions of interest, even before sales begin there, can be particularly important because most foreign countries do not recognize "common law" trademark rights based solely on use of a mark, but rather, recognize trademark rights only upon registration. It is a good idea to consult a trademark attorney to develop an appropriate foreign filing strategy.

9. Register Domain Names

In addition to filing for trademark registration, consider registration of domain names that incorporate your important trademarks. Early domain name registration may prevent another party from registering the domain names and blocking you from using those domain names in your business. In some instances, companies will also register domain names that are similar to their trademarks or slight variations as a defensive measure to discourage cybersquatters and typosquatters who often seek payment for the transfer of such domain name registrations.

While it is possible to file a complaint to have a domain name transferred to the rightful trademark owner, it is typically much less expensive to register domain names early in order to "lock up" the rights.

10. Police and Protect Your Marks

In order to build and protect the value of your company's trademarks, it is important to police the use of the marks by authorized and unauthorized parties. For example, it is essential to monitor your franchisees to ensure their use is proper, does not damage the value of the mark and is within the parameters allowed by the franchise agreement. You should also make sure that authorized use by franchisees and other third parties is accompanied by an attribution statement such as "COKE is a registered trademark of The Coca Cola Company, Inc., used here by permission [or under license]."

It is critical to watch for, and take action against, unauthorized or infringing third-party use. For franchisors, it is essential to require former franchisees to de-identify completely.

Failure to take action against infringers may result in the loss of some or all of your rights. In some instances, it may be necessary to file suit in court in order to enforce your rights against a third party, and quick action may be required to obtain a temporary restraining order or a preliminary injunction.

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