Five-minute general counsel: A little trademark search saves a lot of headache

This WSJ article describes some of the problems that small businesses have faced with names. The most significant one, from my perspective, is the trademark lawsuit that cause the cookie company to change its name after being featured on the “Rachael Ray Show.” What a waste of potential marketing value!

Over the years, I’ve serviced two types of startup clients: those with a technology or product or service, and those with a whole brand.

Let’s be clear: that’s not to say that the “branded” folks don’t have tech; they almost always do — it’s just that their tech has matured to the point that they are ready to position it for customers. Those companies with consumers as customers typically have more critical branding issues than those who are B2B hardware vendors or sell enterprise software.

Most founders find names by thinking up some words they like, doing a few web searches for similar names, and then checking to see if the .com domain is available. That’s usually where the typical founder stops.

Some of the next steps are (1) checking to see if the name is available in the jurisdiction of incorporation (Delaware business entity search); (2) checking to see if the name is available in the jurisdiction where business will be conducted (business entity search pages for New York; New Jersey; and California); and (3) checking the USPTO website for the name (easier said than done — check the link for yourself).

I’ve certainly met some founders who believe that their trademark worries are over, or nonexistent, if the USPTO search reveals nothing that seems problematic.

Unfortunately, that’s not the whole story, and it’s barely the beginning.

I now regularly encourage all my startup clients to budget for a “knockout search” at a minimum. The knockout search is a limited search and limited review process, less expensive than a full trademark search, that can identify some likely sources of trademark problems for further study. How does a knockout search differ from a full trademark search? Three things: first, a full search covers far more, and different, databases of information that might contain references to common-law trademark rights (i.e., acquired by usage in the absence of formal registration); second, the restricted report is accompanied by a reduced analytical effort on the part of the trademark lawyer; and third, the results will not be communicated in a formal opinion regarding the likelihood of a successful registration, defense, or non-infringement of the proposed trademark.

Why is such a search still important? For many companies, the effort involved in changing the company’s branding can be very expensive, not because of the cost of a new $10 domain name but because any goodwill created with marketing dollars will generally disappear. It makes little sense for a startup to be penny wise but pound foolish. Put differently, your company doesn’t create value by under-investing in risk management.

Of course, the “best” approach is to simply do the full trademark search and eliminate the risk of later changes. But most startups don’t have the luxury of enough funding to eliminate all risk at the outset: they have to manage risk by allocating capital, including funds for legal expenses, in the right amounts at the right times. Using a knockout search is one way of wisely deploying capital to eliminate much of the unnecessary risk, even though a full search will have to be done down the road.