BUSINESS PLANS

A Trademark Tale

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What's in a name? Not much, according to Shakespeare, but most businesspeople would tell you that a name is a valuable business asset, a vessel for a company's image and reputation, the core of its identity, and a vital link with its customers and vendors. A business name is so valuable that companies go to great lengths to nurture and protect theirs. That's why I sought and obtained a federal trademark on the name and logo of my first company, Prime Media Inc.

However, getting a trademark is only the beginning; protecting it may require deep pockets. In my case, a publicly traded, billion-dollar corporation used a variant of my company's name, and its resources outweighed what my company was able to spend on infringement litigation.

When Prime Media came into being in 1991, one of the things I contributed as a cofounder was the name. It reflected the company's stated purpose: to provide the highest-quality publishing, advertising, and design services to other companies. By 1997, when I applied for the federal trademark, I was the sole owner of the business, which had annual revenues approaching $2 million, more than half derived from its publishing activities.

How Exclusive Is a Trademark?

My business had begun to spread beyond the Kansas City metropolitan area to places like Dallas, Cleveland, Des Moines, and New York City. I was aware that several other companies throughout the nation had adopted the name Prime Media since mine had begun using it. Still, I felt a federal trademark was valuable because it would stake my claim to the name in all but a few local markets where these other companies operated and prevent them from expanding their use of it. None of them had sought, or obtained, a federal trademark on the name.

The process of obtaining a federal trademark takes a year or more and involves a public notice period when anyone can challenge the applicant's right to the exclusive use of a name. Prime Media was about five months into that process when I saw a newspaper announcement that another corporation was changing its name to Primedia.

This development was cause for concern because the company in question maintained its headquarters and most of its publishing operations less than three miles away from our offices. While the news brief didn't say so specifically, I knew it was only a matter of time before it would apply its newly adopted name to all of its publishing operations.

Defending While Pending

I immediately sent a letter -- reviewed by my attorney -- to the chairman of that company, informing him that I had applied for a federal trademark for the name Prime Media (as well as all phonetic equivalents) and that his company would be violating my trademark at such time as my application was granted. I asked that Primedia immediately stop using that name. A few days later, I received a reply from the competitor's patent and trademark attorneys telling me that the name was merely descriptive and therefore could not be trademarked. They intended to use it despite my objections.

Over the course of the next eight months, my competitor announced that it was indeed changing the name of its publishing subsidiary to Primedia, while the U.S. Patent and Trademark Office granted my company a trademark on its name for a variety of activities, including publishing. Throughout the public notice period, no one -- not even Primedia -- challenged the issuance of the trademark to Prime Media.

Next, we filed a lawsuit alleging trademark infringement and sought a temporary restraining order (TRO) preventing the other company from using that name until the lawsuit had been heard or settled. I thought long and hard about the wisdom of playing David to this Wall Street Goliath (whose annual revenues at the time were $1.6 billion). But my company already was detecting confusion in the marketplace, and I was convinced that if they kept the name, I would have to change mine. At the very least, I thought they should have to pay the rightful owner for the name they had appropriated.

Out of Pocket, Out of Court

My attorney confirmed that my small business did not have the money to fight Primedia in court. Our only hope was to get a TRO, which would force Primedia to deal with us on our terms. It didn't seem like such a long shot, but it happened to be our only shot.

Ultimately, after four days of hearings and three months of deliberation, the judge in our case ruled:

  • Yes, Prime Media owned a valid trademark.
  • Yes, Prime Media and Primedia are phonetic equivalents, and thus the latter is an infringement on the former.
  • Yes, both Prime Media and Primedia are engaged in the same business activity, namely publishing.
  • But no, a temporary restraining order was denied.

To obtain the TRO, we were supposed to demonstrate "irreparable harm." The judge never denied that Prime Media had sustained or was sustaining irreparable harm from the infringement. But he was concerned about the embarrassment and cost that a TRO might impose on the other company (that is to say, irreparable harm) should it later be determined that this publicly traded corporation had not violated our trademark.

Reading between the lines of the ruling, I got the sense that Prime Media would probably prevail if we were to prosecute our case vigorously at trial. All the key findings had gone in our favor. But we couldn't continue to challenge a company whose legal department had, in our estimation, an annual budget greater than our gross revenues. Ultimately, we settled out of court, receiving a monetary settlement that covered our legal expenses and a small bit of our time, plus a concession about the use of the name Primedia in our primary trade area.

Lessons from the Aftermath

More than a year after the settlement, we still were receiving misdirected phone calls, inquiries, and mail. Vendors confused us with them, and so did prospective employees, who called up the other company's Web site assuming it was ours. The experience taught me several things about trademark law and the legal system:

  • The U.S. Patent and Trademark Office issues trademarks, but it doesn't enforce them. That's the court's job. If the court disagrees with the rationale or procedure the PTO has used to grant a trademark, the trademark may be rendered less effective.
  • Consumer protection, not business protection, is the foundation of trademark law. Unless the element of consumer confusion is involved, the court has established no unequivocal prohibition against one company using another company's name.A lot of time can be spent arguing about who is a "consumer" and what is the meaning of "confusion" and how it is manifest.
  • Trademark law has evolved to protect large, well-known companies from having their names used by small, lesser-known companies ? and thus confusing the consumer. It was (and still is) unusual to have a small company challenge a large company in a trademark infringement case. From the court's perspective, the only reason to use another company's name is to confuse consumers and thus gain revenue. What, then, would a large company have to gain by using the name of a smaller, lesser-known company? In a sense, the greater the size differential between the small plaintiff and the big defendant, the less significant the case becomes.
  • Defending even a registered trademark can be complicated. To keep your trademarked name as strong and as defensible as possible, you must prevent other companies from using it. But there's no easy way of finding out if and when a company elsewhere in the country starts using your name, or one confusingly similar. A distinctive name is a safer bet.
  • Legal proceedings create a tremendous burden on a small company, diverting your attention from day-to-day operations and from the planning and business development necessary to ensure your continued success. Avoid them if at all possible. And if you can't, settling may be the best solution.

Fred Hron, founder and former president of Prime Media Inc., is currently principal of PS3 LLC, which provides marketing consultation and publishing services to businesses and organizations of all sizes.

Copyright © 2000 EntreWorld.org

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Last updated: Jun 1, 2000




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