This is Tech

Friend and colleague Aaron Hendelman offered to write this guest post on trademark issues in selecting the perfect company name.  Aaron Hendelman is a nationally recognized expert on trademark and advertising issues.  As a Partner at WSGR, works with some of the firm’s most well known clients on issues of branding, and is the most knowledgeable person I know on the topic.

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Selecting and Protecting A Company Name

Among the most important tasks in the founding of a new company are the selection, clearance and development of a company name. Because rights associated with company names are “first in time,” the sooner a founder takes steps to select and protect a company name, the better.

Founders should consider their choice of a company name as carefully as they would develop core technology or select key hires. A company’s name makes a company’s first impression, and the name selected can pay dividends or create unnecessary roadblocks over time.

As founders head to the whiteboard to brainstorm potential company names, they should continually keep a number of questions in mind. What is the name’s desired effect? Should the name say something significant about the company or its product, or just serve as a convenient handle? How clear an impression will the name make? Will it be easy to say and spell? Will the name allow the company or product lines to grow? Is it prone to (good or bad) manipulation? Thinking about your company’s long-term marketing strategy is an important part of the naming process.

Founders should also understand that, legally speaking, some company names are stronger than others. Made-up names (e.g., Exxon or Google) or those that have no literal connection to the company (e.g., Apple for a computer company) are well-positioned to establish strong intellectual property rights. Names that require a slight leap of logic or merely suggest a company’s products or services (e.g., Titanium for a travel bag company, suggesting strength and durability) are protectable and often strike the right balance between developing strong brands and educating the public about the company. On the other hand, names that describe what a company does (e.g., Online Advertising, Inc. for company that sells Internet ads) tend not to be initially protectable. Founders often gravitate toward descriptive names—wanting the public to immediately understand the company’s business. However, choosing a descriptive name can adversely impact a company’s long-term bottom line. For example, it may be impossible to stop a competitor from using the same name, a descriptive name (which, by its nature, may be similar to others’ names) may require additional marketing spend to differentiate it from a crowded field, and there may be additional expenses caused by the increased burden of “policing” others that want to use similar names.

Founders should understand that there are a host of legal and business issues as part of the company naming process.

One set of legal issues concerns availability of the name under state law relating to entity names. In the case of corporations or limited partnerships, this involves checking with the Secretary of State of the states where they are formed and where they must “qualify” to do business (usually where they have offices or resident employees or a sales force).

The Secretary of State checks the state records to ensure that there is no other corporation or limited partnership with an identical or closely similar name; if one is found, the new name is generally not permitted. This happens even if the two companies are in vastly different lines of commerce; the sheer similarity of the name bars the second name. (On some occasions, consent of the earlier company or a relatively minor alteration of the name, such as “Ultigra, Inc.” to “Ultigra Software, Inc.” may increase the chances that the state will allow the new name.)

Another set of legal issues concerns trademark law. The Secretary of State’s approval of a business name does not grant trademark rights or authorize a company to use a particular business name in commercial activities. (Nor does registration of a corresponding domain name result in any significant legal rights.) A company may have incorporated under a name but find itself liable for trademark infringement or dilution — with potential risks of an injunction, disgorgement of profits, payment of damages, and more — for use of the name.

Trademark infringement occurs when a person or company uses a name or mark in a way that causes a likelihood of confusion with another person or company with respect to source, sponsorship, or affiliation of products, services, or commercial activities. Thus, “McCoffee” may infringe upon the marks of McDonald’s Corporation by leading the public to believe that “McCoffee” is a product or an affiliated company of McDonald’s. A company also may be liable for trademark dilution by using the famous mark of another company even if there is no competitive overlap or likelihood of confusion. For example, the name “Pentium Petroleum Corporation” may well dilute the PENTIUM trademark of Intel Corporation. It therefore is important to assess the potential trademark law risks of a name before adopting it as a company name.

The fact that a company still has a low public profile, or does not yet have products on the market and does not yet have a website, does not immunize it from challenges. From time to time companies have been sued for allegedly causing confusion through their financing activities or for use of a pre-release code name for a new product.

Some companies, in a rush to form a company, devise names in a hurry and do not clear them for trademark purposes. Often, they consider the name a “place holder” until a later time when they can invest the money and effort to attend to a new name. This creates a number of risks. First, there is the risk of liability. Second, management may “fall in love” with the placeholder name and become unwilling to give it up later. Third, the company may develop goodwill under the placeholder name that will be lost upon a name change. Fourth, the company may incur significant legal and administrative costs when it later undergoes a name change.

Founders should always do some initial trademark investigation on their own. Founders can poke around online to try to uncover third party names that would pose obvious problems. Online search engines and the U. S. Trademark Office database are useful tools for identifying companies that may already be using similar names. Of course, the availability of a corresponding domain name is often critical, so domain names need to be considered hand-in-hand with a company name.

Founders should ask counsel to check the availability of the name with the Secretary of State for the relevant states; if the name is available with the Secretary of State, it should be reserved pending full trademark clearance. The Secretary of State availability check and reservation cost only nominal fees.

Founders should also have counsel perform a trademark availability search. Counsel typically runs an initial trademark scan to eliminate names that have obvious problems and, if clear, orders an in-depth trademark search from an outside search company. The in-depth search examines federal and state trademark registers and a large number of sources of unofficial information about company and product names in relevant fields. Counsel reviews the report carefully for potential conflicts and confers with the founders about the availability of the name.

Once a company is comfortable with the level of risk of its chosen name, it is important to find ways to protect the name. If the name will be used on products, or in connection with the advertising or promotion of services, it often is a good idea to file an application for federal registration of the name based on the company’s intent to use the mark. This will help establish rights to the name; as importantly, it gives early notice to others who might otherwise overlook the company’s name when they do searches to develop their own names.