Recently in Trademark Category

When Can A Franchisee Continue

United States Court of Appeals for the Seventh Circuit, Decision of 9 July 2012, No. 11-3920, Sunbeam Products, Inc. v. Chicago AM. MFG. LLC, and United States Court of Appeals for the Eighth Circuit, Decision of 30 August 2012, No. 11-1850, In Re Interstate Bakeries Corp.

The U.S. Courts of Appeal for the Seventh and Eighth Circuits came to different conclusions in deciding the right of a trademark licensee to continue using the licensed mark after rejection or attempted rejection of the trademark license by a bankrupt licensor.

U.S. bankruptcy law allows a bankrupt licensor to reject an executory trademark license, i.e. where the parties have continuing, material obligations. Trademark licenses typically are considered executory due to the continuing obligations of the licensee to pay royalties and of the licensor to control the quality of the goods produced or services offered under the licensed mark.

Previously, courts followed a Fourth Circuit decision, Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. 756 F.2d 1043 (4th Circ. 1985), which held that after rejection, the former licensee would lose its right to use the mark and be left with only a damages claim.

Three years after the Lubrizol decision, Congress amended the bankruptcy Code to add Section 365(n) to protect the right of intellectual property licensees to continue using licensed copyrights and patents after rejection, but not trademarks.

In the Seventh Circuit's decision in Sunbeam Products, the court did not follow the Fourth Circuit's Lubrizol decision and found that the rejection of the agreement did not terminate the licensee's right to continue using the licensed mark, LAKEWOOD for ceiling fans.

The court determined that the rejection was a licensor breach, but that the breach should be treated as other breaches, with the licensee's rights not ending.

The decision did not address how and whether the licensor could continue to exert the quality control that is necessary to prevent abandonment of the licensed mark.

Shortly thereafter, the Eighth Circuit came to a contrary conclusion in In re Interstate Bakeries Corp. Even though the trademark license at issue, for use of the SUNBEAM BREAD and BUTTERNUT BREAD marks, was a prepaid, perpetual, exclusive license granted as part of the sale of the related business, the court agreed with the district court's determination that the license agreement was executory in light of the licensee's continuing standard of quality obligations. The court followed the Lubrizol rule and deemed the license terminated by the rejection of the license.

These decisions highlight the continuing risks of relying on a trademark license rather than ownership of a mark.

If a license must be used, a useful strategy is to structure the licensor-licensee relationship to maximize the likelihood that the license would be deemed fully performed (non-executory) and, thus, not subject to rejection.

In the context of a sale of a business, the closer the license grant is tied to the overall sale, the higher the likelihood that the overall arrangement will be deemed fully performed in material respects. In jurisdictions following In re Interstate Bakeries Corp., however, even that strategy does not assure the right to continue using a mark owned by a bankrupt licensor.

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

Sometimes business owners want to exercise their First Amendment right and publicly express their religious beliefs. While this is admirable in a free society, it has potential to be costly to franchisees who are directly affected by the perception of their franchisor's brand. Franchise systems are usually organized to protect the franchisor from a number of potential liabilities.

One of the most important assets to be protected is the company's brand or trademark. Thus, trademarks are often held within a namesake holding company, only to be licensed to a similarly named franchising enterprise. The franchising enterprise then sub-licenses the trademarks to franchisees through a franchise agreement.

Franchise agreements are very detailed in nature, particularly when discussing the franchisee's obligation to uphold the franchisor's brand or trademark. Between the mandatory adherence to the franchise agreement and the franchisor's operating manual, franchisees are required to remain in lockstep with orders that may be as detailed as the size, color, and exact placement of the company's logo. These top down rules also may delineate other specific guidelines such as approved advertising, company promotions, store design, uniforms, or even where supplies can be purchased.

This corporate exercise is perpetually performed by franchisors to insulate their core brand from future risks. Meanwhile, consumers are oblivious about the myriad of corporate entities and rigid structure comprising a franchising system. The silent and seamless cooperation between franchisors and franchisees is the back bone to rapid growth and success of a franchising system.

Nevertheless, as history has shown, great strengths have the potential to become great weaknesses. The silent nature of the franchise partnership is precisely what places franchisees in grave danger when their franchisors go off script. If an owner or executive of a franchising business makes controversial statements in public, those statements can have a ripple effect across the franchise system, as angry consumers who wish to boycott the particular brand do not discriminate between franchisor and franchisee operated enterprises.

Chick-fil-A experienced this after its president Dan Cathy stated the company strongly supports the biblical definition of the traditional family, thereby being in opposition of same-sex marriage.

Naturally, given today's hypersensitive socio-political climate, controversy ensued, embroiling Chick-fil-A in one of society's most contentious issues. The immediate negative effect to the Chick-fil-A brand was obvious. A New York based market research firm estimated that Chick-fil-A's perception rating declined by 25 percent soon after the story broke. Supporters of the LGBT movement picketed Chick-fil-A restaurants. The company lost some of its marketing deals and business partners. Chicago mayor Rahm Emanuel, Boston mayor Thomas Menino, and other politicians pounced on the opportunity to speak out in opposition to the restaurant.

And, of course, many news organizations covered all of the juicy, flame broiled Chick-fil-A controversy in primetime.

While it is clear that any corporation could be negatively affected by the public actions of its leadership, the potential damage to investors in a franchise system is unique from that of shareholders in publicly traded companies. In publicly held corporations, shareholders are chiefly concerned about the overall health of the enterprise, as risks are diversified and gains and losses are shared proportionately.

Whereas, when franchisees invest their life's savings into a franchise, they are heavily dependent on both the success of their individual store and the perceived goodwill of the franchisor's brand within the franchisee's individual market. This phenomenon explains the contrast between the reactions of investors in large, non-franchising companies such as Starbucks, Microsoft, and Amazon, to that of franchisees in Chick-fil-A regarding publicly expressed positions on same-sex marriage made by executives of their respective companies.

Starbucks is a quick service restaurant perfectly akin to Chick-fil-A, and Starbucks's leadership has made a number of statements that openly express the company's support of same-sex marriage. During a shareholder meeting, investors in the coffee giant merely posed questions as to the economic consequences of such statements, but there were no reports of Starbucks shareholders actively contradicting the company's stance or expressing fear of possible repercussions.

In the Chick-fil-A scenario, some franchisees were eagerly giving interviews to local and national media, and posting ads on social media websites disassociating themselves from the beliefs of Dan Cathy. One franchisee even enrolled his Chick-fil-A as a sponsor of a pride fest in New Hampshire.

Meanwhile, other franchisees refrained from distancing themselves from Cathy, likely because their customer demographics dictated that their restaurant would be better suited if it were tacitly aligned with his comments. These contrasting responses demonstrate the divergent interests of franchisee business owners operating underneath the same brand.

Amidst the controversy there was some reprieve from the storm provided by former Arkansas Governor Mike Huckabee's Chick-fil-A Appreciation Day. Huckabee and other conservative politicians encouraged people who stood for the biblical definition of marriage to patronize Chick-fil-A in support of their cause. The company stated that it achieved record sales during the event but did not release any store or region specific information.

Although Chick-fil-A has over 1,600 locations throughout America, the restaurant chain is deeply rooted in traditionally conservative states; therefore, it is not hard to determine by location which franchisees likely benefited from the Chick-fil-A Appreciation Day wave of conservative support and which franchisees did not. In fact, if the company tracked the locations that did not receive a boost in sales during the Chick-fil-A Appreciation Day, that list would likely encompass the franchisees that were most negatively affected by Dan Cathy's statements, because the respective markets are probably split along the same socio-political fault lines.

On the face of this situation, it appears that some franchisees legitimately could argue that they suffered financial damages due to Dan Cathy's public, religious statements, and that Chick-fil-A should compensate them because Cathy knew he had a reasonable duty to protect their business interest when acting on the company's behalf. However, in law and in life, there are always exceptions to the rule. Here, the notable exception is notice.

The operation of a notice exception is most easily illustrated in the homeowner liability context. For example, virtually every state in the U.S. has laws governing injuries to visitors in the homes of its residents. Homeowners have a legal duty to protect their visitors from reasonably known dangers within the home. But homeowner liability can be nullified in virtually every situation where the visitor is given proper notice of a potential danger in advance of any incidents. The reasoning behind the notice exception is that once a visitor becomes reasonably aware of the risk, they can freely decide how to proceed and should no longer be able to look to the homeowner for damages from any resulting injury.

The same holds true in the Chick-fil-A situation. It would be understandable if franchisees were totally blindsided by Dan Cathy's comments, but nothing could be further from the truth. Before they purchase a franchise, Chick-fil-A franchisees receive ample notice that the company is and always has been rooted in the Christian faith and operates on biblical principles.

S. Truett Cathy, founder of Chick-fil-A, maintains that franchisees don't have to be Christians to work at Chick-fil-A, but he asks that they base their business on biblical principles because those principles work. A Forbes.com article even playfully described Chick-fil-A as a cult because it found its practices to be a little odd and extreme vis-a-vis its competitors.

Chick-fil-A's corporate mission, as stated on a plaque at company headquarters and often by S. Truett Cathy, is to glorify God. It is the only national fast-food chain that requires all of its locations to remain closed on Sundays. Company meetings and retreats include prayers, and the company encourages franchisees to market their restaurants through church groups. They screen prospective operators for their loyalty, wholesome values, and willingness to buy into Chick-fil-A's Christian credo.

The company requires applicants for operator licenses to disclose marital status, number of dependents, and involvement in social, church, and professional organizations. S. Truett Cathy believes that if a man can't manage his own life he can't manage a business, and thus family members of prospective operators are often interviewed so the company can learn more about the candidates and their relationships at home. Fifty employees and one franchisee grew up in one of 13 Christian foster homes in the U.S. and Brazil run by a nonprofit organization Chick-fil-A funds, the WinShape Foundation. Sixteen others were in Sunday-school classes Cathy teaches at First Baptist Church in Jonesboro, Ga.

From a business standpoint, the most obvious of Chick-fil-A's Christian practices is the company's mandate for all locations to be closed for rest on Sundays. It does not take a certified forensic accountant to understand that Chick-fil-A and its franchisees have foregone millions of dollars over the years in observance of this blatantly Christian tradition. Yet, franchisees made the decision that it was well worth investing in a Chick-fil-A franchise nonetheless. This is likely because even withstanding the "short week" disadvantage, Chick-fil-A remains the second largest quick-service restaurant chain in the nation based on annual sales, operating at an average of $2,500,000 in sales per unit.

Looking back on all that has taken place since Dan Cathy's comments on same-sex marriage somehow created a firestorm, it is likely that Chick-fil-A conducted a cost-benefit analysis of the situation and made some determinations. The company has since stated that its tradition is to treat every person with honor and respect regardless of their belief and sexual orientation, and that going forward they intend to leave the policy debate over same-sex marriage to the government.

It has been reported that the company has also decided to discontinue its donations to anti-gay marriage activists groups, but that has yet to be confirmed.

Nevertheless, given that Chick-fil-A has no real reason for concern about its ability to weather this socio-political storm due to its proliferation in conservative regions, and that the Cathy family will obviously maintain its biblically based views and corresponding activism, it is reasonable to conclude that while the company might not make many more socio-political statements, it will definitely continue mixing religion with the foundation of its franchise system because it works.

And any franchisees that do not share that vision cannot cry foul in times of tribulation, as they had full notice of Chick-fil-A's Christian tradition from the moment each franchisee arrived on the scene.

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

The Bankruptcy Code in the United States is generally intended to give honest but unfortunate debtors the opportunity for a fresh start. This includes the honest but unfortunate franchisee who attempts to start a franchise but ultimately fails. Generally, if a franchisee files a personal bankruptcy case, the personal liability of the individual who filed bankruptcy is discharged and that individual has the opportunity for a fresh start.

However, there is an exception to discharge that can come into play. Section 523(a)(6) of the Bankruptcy Code provides that debts for a "willful and malicious injury by the debtor to another entity or to the property of another entity are not dischargeable."

In one recent case, the bankruptcy court found that the continued use of a trademark after the termination of the franchise agreement amounted to a willful and malicious injury under Section 523(a)(6). In In re Gharbi, 2011 WL 831706 (Bankr. W.D. Tex. Mar. 3, 2011) aff'd, 2011 WL 2181197 (W.D. Tex. June 3, 2011), the franchisee continued to use the "Century 21" mark after the termination of the franchise agreements. Specifically, the franchisee intentionally used websites with "Century21" in the domain name and intentionally used the "Century 21" mark on a website. The franchisee continued these infringing activities for a significant period of time after the termination of the franchise agreements.

As a result of the infringement on its trademark, Century 21 filed a lawsuit in the bankruptcy court against the franchisee. Century 21 prevailed on its infringement claims and was awarded damages of $75,000 and attorney's fees of $147,996. The bankruptcy court specifically found that the franchisee could not discharge these debts because they were the result of a willful and malicious injury by the franchisee against Century 21.

This case highlights the potential negative consequences of the continued use of a trademark following the termination of a franchise agreement. Although bankruptcy can generally provide a fresh start for individuals, that fresh start can be greatly hindered, or completely lost, if one of the debts is the result of a willful and malicious trademark infringement.

Mr. Carey's practice is focused in the area of bankruptcy and creditors' rights.

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

Many of our start-up business clients ask whether they should spend part of their limited resources on obtaining a federal trademark.

The answer: it depends on the type of business you will have an where you plan to practice that business. Understand that trademark rights arise automatically by operation of law based on a company's use of the mark in a geographic area--registration, itself, does not create any trademark rights and, therefore, is not a prerequisite for obtaining protectable trademark rights.

There are many benefits of registration of a mark on the U.S. Patent and Trademark Office's principal register, though, not the least of which is nationwide priority over all later, conflicting marks.

Our advice, then, is that federal registration often makes sense for businesses that hope to distribute their goods or services outside of their immediate local area. Further, we recommend that our clients make that investment before they start building significant brand equity in their company or product name.

After all, no one wants to spend years establishing and growing a business, only to discover that someone else in another part of the country where you hope to expand adopted your business name and can use it to compete with you in that region.

Even if you don't--or financially can't--pursue trademark registration initially, it is an essential part of your start-up due diligence to investigate whether your proposed name or mark infringes on someone else's existing trademark.

An experienced trademark attorney can assist you in this effort and help avoid the situation where you invest resources in a brand, only to receive a trademark cease and desist letter from a party with prior and superior trademark rights in your name, requiring you to abandon the brand you have worked to establish.

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

Kathleen Hart is a Georgia attorney, focusing her practice in corporate law, including intellectual property and franchise matters.

Her firm, Andersen, Tate & Carr, P.C., works with all manner of clients in business and personal matters, providing "big firm" sophistication with suburban law firm attention and service.

Website: www.atclawfirm.com

Blog: www.andersentatecarr.wordpress.com

Copyright © 2012, Kathleen Hart & Andersen, Tate & Carr, P.C.

For franchisors, the benefits of trademark monitoring can be substantial and the costs relatively low, as I wrote about the benefits of trademark monitoring programs.

Here are four real-world examples of how trademark monitoring has helped (or could have helped) franchisors and other business owners maintain control of their brands online.

*While the following examples are based on real cases, facts have been modified to maintain complete confidentiality with respect to the actual matters involved.

1. The Franchisee Who Never Paid

A new franchisor was subject to financial assurance in certain registration states, and had opted to defer collection of initial franchise fees. A new franchisee signed a franchise agreement, received training and certain materials, but then never opened for business--and never paid the initial franchise fee.

It appears that they had intended to do so--as trademark monitoring revealed they had set up a website and commented on forums using the franchisor's trademarks (in violation of the franchise agreement). But then he went silent (and apparently changed his address) when it came time to pay.

Through monitoring the franchisor's trademarks online, we were able to keep tabs on the "franchisee's" conduct (and use it to the franchisor's advantage) while termination and other enforcement remedies were pursued.

2. The Sudden Competitor

In a case where an effective monitoring program would have significantly mitigated damages and the scope of the parties' dispute, a new client came to me after a significant amount of damage had already been done. The client owned a registered trademark for use on apparel and in connection with retail services, but someone else had previously registered the corresponding ".com" domain name and kept it dormant for years.

The client operated successfully under similar domain names (e.g., "trade-mark.com" and "trademark.net"), until she started receiving complaints and comments that were wholly unrelated to her website and products. As it turns out, shortly after she launched her business, the ".com" owner launched a commercial site that was causing confusion and misrepresenting the client's brand.

Fortunately, we were able to make a strong argument for bad faith that helped produce an efficient settlement, but the settlement costs and loss of business likely could have been reduced substantially if the alleged infringer had been identified and targeted much earlier in the process.

Given actual prior knowledge of the domain name, this would have been a particularly easy issue to address through trademark monitoring.

3. The USPTO Registrant

In another case where trademark monitoring would have saved significant costs and headaches, a new client came to me after delaying in filing for initial trademark registration. He had been using his trademark online for close to a year, but had simply put off registration with the USPTO.

In performing the trademark clearance research in connection with the application, I discovered that someone else had filed for registration of an identical trademark for use in connection with substantially identical professional services only a month and a half earlier. A month and a half may not sound like much, but for small business owners (and bad faith infringers), this is plenty of time to put lots of money and effort into building a new online brand.

Somewhat fortunately, again, this appeared to be a case of bad faith, and that helped expedite a favorable settlement (withdrawal of the competing USPTO application), but the potential damage if we had not reached a settlement was substantial. Had the business owner been engaged with an effective trademark monitoring program, it is likely that (i) the bad faith user would have been spotted before they applied for registration, or (ii) at the very least, the competing application could have been addressed much sooner after its initial submission (of course, the issue may have been altogether moot if the client had just timely sought to register his trademark).

Either way, the risk of loss and paralyzing uncertainty likely would have been mitigated substantially through effective trademark monitoring.

4. The Unauthorized Reseller

Finally, in another case where trademark monitoring served its purpose, an author of business publications was able to discover that an unauthorized individual was re-selling digital copies of her publications online - using her name to promote them - without her authorization. While we could not immediately track down the infringers, being aware of the problem, we were able to make effective use of the Digital Millennium Copyright Act to get the infringing copies removed from the Internet in less than a week.

The client will need to continue to monitor to make sure that the infringer does not resurface on some other ISP, but under the circumstances trademark monitoring allowed her to protect her reputation and maintain exclusive control over the distribution of her works for only marginal additional fees.

Conclusion

As these examples demonstrate, for franchisors, the benefits of trademark monitoring can be substantial. Not only does trademark monitoring allow franchisors to promptly address instances of potential third-party infringement, it also allows them to (i) monitor franchisees' representations of their brands, and (ii) identify and address possible unauthorized disclosure and redistribution of their confidential and copyrighted materials. This day in age, franchisors (and really all companies) shouldn't be without a strategy for protecting their trademarks online.

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

What Can Apple Teach Franchisors About Being Distinctive?

| 2 Comments | 0 TrackBacks

Franchise systems, like businesses in general, no doubt recognize that today's ever-increasingly competitive marketplace means taking those extra steps to ensure brand recognition.

For retail businesses, this translates into creating familiar impressions which pass the drive-by-look test. In other words, will the typical consumer driving or walking down the street see a storefront and recognize it as an indicator of the source of goods and services provided by that establishment?

Undoubtedly, the brand managers and marketing gurus reading this post are now saying...DUH!

But my point is not that brand recognition matters--my point is that the means employed to capture that consumer recognition should be well crafted, meticulously developed, consistently applied, and zealously protected.

For trademark lawyers and others familiar with these ideas, this likely brings to mind the U.S. Supreme Court's decision in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992), where the Court recognized the nature of "trade dress" and its consequent capability of being protected as a source indicator.

The history and debate of trade dress disputes since theTwo Pesos case is a topic which would take far longer than this post is intended to address.

But suffice it to say that obtaining protection for trade dress is ordinarily much easier said than done.

To that point, however, enter the company which has played (at least) some role in the decision-making process of virtually every semi-informed user of technology in the modern era...APPLE.

Just as it has been successful in launching new product after new product--and following more than two years of explanation and opposition--Apple has successfully obtained protection of the design and layout of its retail stores under U.S. Trademark Registration No. 4277914.

The mark protects, among other things, the "clear glass storefront surrounded by a paneled facade consisting of large, rectangular horizontal panels over the top of the glass front, and two narrower panels stacked on either side of the storefront."

On the interior, the mark covers "rectangular recessed lighting units [which] traverse the length of the store's ceiling . . . cantilevered shelves below recessed display spaces along the side walls, and rectangular tables arranged in a line in the middle of the store parallel to the walls and extending from the storefront to the back of the store." The mark also describes the familiar "Genius Bar" and its "oblong table with stools located at the back of the store, set below video screens flush mounted on the back wall."

Apple's success was based on its ability to create a look, feel, and appearance in its retail stores which have a distinctive character in the collective mind of consumers.

In legal terms, the trade dress has "acquired distinctiveness" and is, therefore, worthy of trademark protection.

In practical terms, Apple's successful battle to obtain registration of its trade dress provides a model for crafting, developing, and applying design and layout elements which are unique and aimed at capturing consistent consumer recognition.

It is critical for brand owners to monitor and protect their trademarks on an ongoing basis.

While Nike and Best Buy have been in the news recently for their trademark monitoring and enforcement efforts, trademark monitoring is not just for the mega corporations--all business owners need to monitor and protect their trademarks.   Trademark monitoring is especially critical for franchisors, whose business models - and franchisees - rely heavily on the strength and reputation of their brands. ;

There are four benefits to an ongoing trademark monitoring program.

Benefit No. 1: Identify and Address Potential Infringers Before they Create Problems for Your Business

One of the primary functions of trademark monitoring is to discover and proactively address both active and would-be infringers who adopt trademarks or purchase domain names that are confusingly similar to your own.

Federal law protects valid trademarks from unfair competition caused by consumer confusion, and monitoring the web for both knock-offs and unintentionally similar trademarks serves to protect and maintain a business's exclusive trademark rights.

In addition to being highly important from a legal perspective, preventing consumer confusion is also crucial to maintaining the business generally and to protecting the value of the brand. Trademark infringement disputes can easily value into the millions of dollars where one company's use of an infringing trademark siphons business from the rightful trademark owner. Even where litigation results in recovery of damages for lost profits, the damage from infringement caused by loss of opportunities and a reduced customer base can continue to have debilitating effects for the business as a going concern.

Importantly, consumer confusion can result not only from the presence of identical competing trademarks, but also from the presence of trademarks that are confusingly similar or that appear related. As a result, a broad and strategically-planned trademark monitoring strategy is necessary to protect your business.

Business owners have to stop infringement before it starts, and this purpose can be served through ongoing trademark monitoring. Infringers may be more likely to comply with simple cease-and-desist demands if they haven't already spent tens or hundreds of thousands of dollars promoting a brand they thought was theirs for the taking.

Benefit No. 2: Addressing Consumer Reactions and Competitors' Representations

Consumer Reactions

By instituting a formal and comprehensive monitoring program, brand owners can keep tabs on and promptly respond to consumer sentiment expressed in forums, complaint sites and social media.

This applies to both positive and negative references.

On the positive side, an effective trademark monitoring program allows business owners to take advantage of positive consumer feedback to further develop their product/service lines and marketing strategies in line with demand. On the negative side, active monitoring can be critical to combating widespread circulation of damaging comments. The response should be different for valid and invalid comments, but either way a response is critical to protecting the value and goodwill of your brand.

From a legal perspective, this is important for a number of reasons, ranging from avoiding claims of "abandonment" of the business's trademarks to building a record in the event that a legal claim is filed.

Competitors' Representations

With regard to competitor representations, trademark monitoring serves a number of important functions as well.

These representations can take the form of comparative advertising, negative "reviews", domain names, social media accounts, and PPC advertising keywords that show their websites instead of yours. Each of these constitute means by which a competitor can seek to either (i) damage your brand directly through negative imagery, or (ii) damage your brand indirectly by usurping (in many cases, improperly) the goodwill of your brand to their own benefit.

No matter the situation, by regularly monitoring this type of conduct, brand owners can maximize their ability to protect the value and goodwill of their brands.

Benefit No. 3: Monitoring Licensees and Franchisees

"Licensees" can take a number of forms: franchisees, as well as, online affiliates, independent sales representatives, retailers, and distributors to name a few others. Generally speaking, anyone who a business allows to represent or sell their products in the marketplace is going to be a "licensee."

Federal law requires trademark owners to monitor licensees' use of their trademarks (it's true, and few small business owners know this), and failure to do so can actually lead to a determination that the trademarks have been "abandoned." Once a trademark is deemed abandoned exclusive rights are lost, and the possibility of regaining exclusivity is next to none.

Within this framework, monitoring of licensees serves a number of important functions--both legal and business.

First, trademark owners must make sure that licensees are making proper use of their trademarks. Generally speaking, trademarks must be used as adjectives--not nouns or verbs (legally speaking, trademarks are "indicia of origin," and as such must modify the product or service description, as opposed to constituting the description itself).

Allowing licensees to use trademarks as nouns or verbs can lead to a determination that the trademark is merely a generic or descriptive term, which can ultimately lead to a finding of abandonment.

Second, trademark owners must monitor franchisees, affiliates, sales reps and distributors to make sure that they are not engaging in misleading advertising, are not disparaging your trademarks in favor of a competing brand, and are also taking adequate measures to promote the brand.

The contracts with these individuals should impose limitations and obligations in these regards, and trademark monitoring serves the companion purposes of making sure licensees are both meeting their contractual obligations and otherwise conducting their campaigns in an appropriate manner.

Other situations where trademark monitoring serves similar purposes are where a trademark owner grants "certifications" and needs to make sure certified entities or individuals are meeting their obligations, and in franchising.

Among the host of obligations franchisors and franchisees have to one another, proper use and promotion of the franchisor's trademarks is in the forefront.

Benefit No. 4: Keeping Tabs on Competitors

While the first three benefits of brand monitoring that I discussed focused on protecting and maintaining the value of a brand owner's own trademarks, this benefit turns its eye toward the trademarks of your competitors.

Traditional trademark monitoring techniques can also be used to monitor the innovations and marketing strategies of your competitors. Monitoring their trademarks, domain names and social media activity (in addition to your own) allows you to keep abreast of recent updates and future releases for their product/service lines, and also lets you know what strategies they are using--either effectively or ineffectively--to promote their brands. This, obviously, can be extremely valuable information.

In addition, monitoring competitors' trademarks can also turn you on to other, less direct references and comparisons to your brand. If a competitor makes reference to "the other guy" or "the green and orange brand," and "the other guy" or "the green and orange brand" is actually (and apparently) you, this is something you are probably going to want to know about.

While not indicative of trademark infringement, these references may be part of false or misleading advertising claims that you do not want to let go unchecked. However, these sorts of indirect references are likely to go undetected unless you are monitoring your competitors' trademarks.

Conclusion

In summary, trademark monitoring services are critical to protecting, enforcing and maximizing the value of your company's brands. A sound and comprehensive trademark monitoring strategy will allow you to:

  • Spot and promptly address instances of actual and potential infringement;
  • Promptly respond to consumer reactions and competitor representations online;
  • Make sure distributors, affiliates and other licensees are making proper use of your trademarks; and,
  • Keep tabs on the competition and identify indirect references to your company's products or services.

Armed with this information, your company will be better positioned to protect its interests and, ultimately, maximize the value of its trademarks when it comes time to sell.

This guest post  is provided for informational purposes only, and does not constitute legal advice. Always consult an attorney before taking any action that may affect your legal rights or liabilities.

Jeff Fabian is the owner of Fabian, LLC, a boutique law firm that assists business owners in protecting their brands so that they can stay focused on running their businesses. Visit eTrademarkSolutions.com for more information, or follow Jeff on Twitter @jsfabian.

Search for Articles

Follow Us

About this Archive

This page is an archive of recent entries in the Trademark category.

Government Relations is the previous category.

Find recent content on the main index or look in the archives to find all content.

Authors

Archives