When you are building a startup, you have more than enough things to worry about. Often, teams push off thinking about their intellectual property (IP), such as trademarks, copyrights, and patents, until they have established product-market fit and gained some traction. However, there are a number of reasons why it’s important to think about your IP from the start.
First, over the past 40 years, there has been a dramatic shift in valuing businesses. Whereas the bulk of a business’s value used to come from its tangible assets and real property, now approximately 85% of a business’s value comes from its intangible assets (trademarks, copyrights, patents, trade secrets, competencies, etc.).
Second, as a corollary to the first point, by protecting your IP, you demonstrate to potential investors that you understand the value of your IP, which in turn, can drive a higher valuation for your business.
Third, evaluating your IP will ensure that you are protecting your business’s key IP. Businesses generate substantial amounts of IP, but not all IP is of equal value. If you are not selective in what you are protecting, you will waste valuable resources on less valuable IP.
Fourth, by protecting your IP, you are setting yourself up for success should you have to file a lawsuit or defend against one.
Fifth, protecting your IP is an investment into your startup and doesn’t have to cost a lot. For example, in the U.S., many trademark practitioners provide many services on a flat fee basis.
This is the first in a series of posts concerning a startup business’s intellectual property from a U.S. perspective. Although U.S. law is different from Icelandic law, this information generally is applicable in Iceland.
What is a trademark?
A trademark is a type of intellectual property right, established by use or registration. It can be a word, phrase, symbol, or design (like a logo). It also can protect the appearance of a product or its packaging (i.e., its trade dress).
Why trademarks matter
Trademarks are valuable assets because they perform two related functions: first, trademarks indicate the source of goods and services, and help a business to establish a strong brand identity, whether that’s a visual logo or a name, or both; and second, trademarks allows customers to distinguish a business’s goods and services from a competitor’s goods and services (i.e., distinguish their brand from another business’s brand). Thus, trademarks distinguish one business’s goods and services from a competing business’s goods and services.
Customers use trademarks to identify which goods and services from which business they wish to purchase (e.g., Pepsi® vs. Coca-Cola® soda). Customers further associate trademarks with a business’s reputation, and as a proxy for the quality of a business’s goods and services. For example, Super Valu® grocery stores have a different reputation from Whole Foods® grocery stores. Similarly, the Yugo® mark is associated with poor quality automobiles.
Choosing a trademark
Choosing a trademark can be difficult, but choosing a mark that already is taken is generally inadvisable. Startups sometimes select a mark that they like without ensuring that the mark isn’t already registered or being used by another party within the competitive market. Using another party’s trademark opens a business up for future legal troubles. The original trademark owner may ask you to change your branding at a critical stage of your venture or the owner could sue you for damages. In either case, you lose the goodwill associated with your mark (brand) that you worked long and hard to create.
First, you want to create a list of proposed marks that have appeal for you and your customers, are distinctive for your business’s goods or services, and, of course, are available.
When choosing a trademark, you want to pick a mark that is distinctive for your business’s goods or services. A distinctive (or strong) mark is easier to register and protect than a non-distinctive (or weak) mark. The following graphic shows how marks are categorized on the distinctiveness (or strength) scale.
You want to choose marks that are towards the left side of the graphic. A fanciful mark is an invented word. An arbitrary mark is a common word being used in connection with goods or services unrelated to that meaning. A suggestive mark suggests the nature of a good or service or one of its attributes without actually describing the good or service. A descriptive mark merely describes a good or service or an attribute of such good or service. Moreover, laudatory terms are not registrable. Finally, a generic word or phrase (“clock”) cannot function as a trademark.
Unfortunately, businesses tend to choose descriptive marks because such marks tell potential customers what goods or services are being sold. Descriptive marks, including laudatory marks such as “best” or “quality”, generally cannot be registered because every competitor should be able to use such a mark to describe their goods and services. Moreover, people tend to conflate the purpose of a trademark with the purpose of advertising. A trademark should be distinctive. Advertising, on the other hand, should connect the mark to the goods and services.
Second, after you have selected some proposed marks, you will want to perform a trademark clearance search to see if someone has registered that mark or is using that mark in a country you are selling or intend to sell your goods or services. A basic search should examine, at a minimum, the identical mark in the target country’s or countries’ trademark offices’ and various internet searches. For instance, you can use the Trademark Electronic Search System (TESS) on the U.S. Patent and Trademark Office website to perform a basic search. Additionally, beyond looking for an identical match, you will want to examine if your proposed mark is too similar to an existing mark. This is an important consideration: even if your mark is not per se taken, it may be too similar to an already existing trademark. For more comprehensive searches, we recommend that you consult an attorney who can help you identify similar marks that might pose an issue.
Third, you want to verify that the trademark is available as a domain name. Go to a domain name registrar’s website (e.g., Godaddy.com) and perform some searches for potential domain names. If you find a domain name that is available, you may want to proactively register it to prevent someone else from purchasing the domain name because there are businesses that specifically buy domain names to resell them at higher prices. Even if you only want to use a .com domain name, you may want to consider purchasing other top-level domains to prevent this from happening (.org, .net, .io, .co).
Protecting your trademark
To protect a proposed mark, you have to use it or register it. For more information on using your mark correctly, please see this related post.
If you choose not to register your mark, you may still have some rights, known as common law rights, through the use of a mark. However, common law rights are limited and harder and costlier to enforce.
Thus, we suggest you promptly register it with your country’s trademark office (Einkaleyfastofan in Iceland, and the U.S. Patent & Trademark Office in the U.S.) because registration offers substantive and procedural advantages.
Moreover, if you intend to market your goods or services abroad, you should consider consulting an attorney about registering your mark in your target countries. Each country has its own rules concerning the scope of the description of goods and services identified in the application. For example, in an E.U. trademark application, you can list the class headings; however, in a U.S. application, you cannot. Additionally, the attorney can advise on how best to register your mark abroad, such as potentially using the Madrid System.
While you may be able to register your trademarks on your own, having an attorney assist you can be valuable to ensure that your trademarks properly protect your goods and services. In some instances, such as in the U.S., if the Trademark Examiner from the U.S. Patent and Trademark Office raises an objection to your mark, you will need a U.S. attorney to respond on your behalf.
In the next post, we’ll explore copyrights.
Henry Park is the founder of The Law Office of Henry Park, PC a boutique law firm specializing in intellectual property law, corporate law, entertainment law and gaming law; and with offices in New York, New Jersey, and Switzerland.
Jessie VanderVeen carries 15 years of experience in engineering, law, and technology, most recently serving as CMO of Tempo, a B2B SaaS company in hyper-growth. She has registered trademarks in Iceland and worldwide. She and Henry were attorneys at the New York law firm, Willkie, Farr & Gallagher, where she focused on corporate and financial services, and Henry worked in IP litigation.
