When you start a business, you must decide

Starting and Running a Small Business:

Naming Your Business & Products

Naming your business and products may not be as simple as it first appears. For one thing, you need to comply with legal procedures mandated by state law. If you incorporate, for example, or form a limited liability company, you must choose a corporate or LLC name acceptable to your state’s business filing office. And all businesses—corporations, LLCs, partnerships and sole proprietorships—must comply with laws dealing with the registration and possible publication of assumed names or fictitious names.

Other legal procedures having to do with business names are not mandatory, but it nevertheless makes good sense to follow them. For example, before using a cool sounding name—especially one that will also be used to identify your products and services—it’s extremely smart to find out whether someone else already has rights to the name and, as a result, can legally limit how you use it or tell you not to use it at all. This normally involves at least two steps. To avoid a claim of unfair competition, your first step is to do a local name search to make sure that no local business in your field uses a similar name. Don’t start Jimmy’s French Laundry if there’s already a Jenny’s French Laundry a few miles away.

Step two involves making sure you gain maximum protection for your trademarks or service marks—names you’ll use to identify your products or services. Especially if you’re looking for comprehensive protection for a trademark or service mark, you’ll want to first carefully check and then register the mark under federal and state trademark laws.

Just how much effort and expense should you sensibly invest in protecting the name of your business, product or service? The answer depends on many factors, such as: the size of your business, the size of the market that you’ll operate in, the type of product or service and your expectations for growth and expansion. As a general rule, the more customers your business will reach, the more you need to be sure you have the exclusive right to use your chosen name within your business or product niche. For example, if you’re starting a local computer repair service, you won’t need as much business name protection as if you were planning to sell a new line of low-fat salad dressings in all 50 states. But be aware that because of the Internet and other electronic communication methods, the number of small businesses that compete with one another is rapidly growing, meaning the need to do in-depth name searches and to consider the implications of trademark law is also rapidly growing.

Business Names and Trademarks: They Are Not the Same

Legally, there are two main types of business names:

• the formal name of the business, called its trade name (Apple Computer Inc., for example), and

• the names that a business uses to market its products or services, called trademarks and service marks (Macintosh brand computer, for example).

Use of either type of business name can raise legal issues, but the most serious lawsuits tend to focus on the trademarks and service marks a business uses to market its products or services.

By being the first to use and register a trademark or service mark, a business can prevent another business from using the same or very similar mark. Laws that protect the integrity of trademarks and service marks are intended to prevent consumers from being unfairly confused about the source of products and services. A buyer should be able to rely on the fact that the source of a computer bearing the trademark “Macintosh” is Apple Computer Inc., which has registered Macintosh as a trademark.

Obviously, if you’re choosing a name to use as a trademark or service mark, you need to conduct a full search to make sure no other business is already using that name as a trademark or service mark. What may be less obvious is that you need to make exactly the same kind of search if you plan to use your business name to identify your goods or services—as when Ford Motor Company markets cars under the brand name (trademark) Ford.

For a thorough discussion of business names, see Trademark: Legal Care for Your Business & Product Name, by Stephen Elias and Kate McGrath (Nolo). That book discusses in great depth how to choose a legally protectable name and offers step-by-step instructions on how to file a federal trademark registration. Also check out the Nolo website (http://www.nolo.com) where you’ll find extensive legal information on patents, copyrights and trademarks.

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A. Business Names: An Overview

Complying with the few mandatory legal procedures for naming your small business is relatively simple. For some very small, local businesses, meeting these requirements and doing nothing more may be adequate.

EXAMPLE: Jeff wants to start a local word processing service called “Speedy Typing for All.” He’ll be a sole proprietor. Since his is a small, unincorporated local business, he is probably safe enough if he registers the name as an assumed or fictitious name. In most states, he will register it at the county level, but some states require registration at the state level and also require publishing the name in a newspaper. Jeff probably doesn’t need to spend time and money to register the name as a state trademark or service mark. With a descriptive name and a small local business, there’s little likelihood that the customers of any other business would be misled so there’s not much to protect. However, Jeff should check to be sure there are no other word processing services in his area using the same or a very similar name. If there are, Jeff should change his name or risk a claim of unfair competition. If Jeff wants to go the extra legal mile, he should check his state’s Trademark Register and the Federal Register to see if other “Speedy Typing” businesses are registered.

Until quite recently, a wide range of local businesses—small retail stores, repair services and craft studios, for example—didn’t need to worry about registering a trademark or service mark. And to avoid possible claims that they were unfairly using another business’ name, they could feel relatively secure if they checked for possible name conflicts in state and local business directories and Yellow Pages with no need to do a more formal state or federal trademark search. But today, the rules of the game are dramatically different. The reason is that in the world of the Internet, mail order and rapidly growing national chains, the idea of “local” isn’t what it used to be. Today, even modest-sized businesses must consider taking name protection steps that used to be the sole concern of larger, more expansive enterprises. For example, you might think you have no problem if you’re choosing a name for a shoe store in a small town. Think again. If you happen to pick a name that’s similar to a shoe store that sells on the Internet, you are very likely to be accused of trademark infringement and probably forced to change your business name, even though the online store is located 2500 miles away.

Doing Business on the World Wide Web

Like many other business owners, you may decide to operate a website. If so, you’ll need to select a domain name—a unique address that computers understand and customers can use to find you. The issues involved in choosing a domain name range from getting your hands on an available one to avoiding trademark lawsuits based on your choice of name.

A good domain name should be memorable, clever, and easily spelled. Unfortunately, many of the best names are already taken. To see if the name you have in mind has been registered, go to http://www.networksolutions.com/cgi-bin/whois/whois. This site allows you to search for a particular name. For example, if you are starting a speed typing business, you might check “speedy.com.” If you find that speedy.com is already taken, the http://www.networksolutions.com website offers a function called “MyNameFinder” that allows you to peruse other possibilities. After you enter relevant keywords (such as quick, speedy, and typing), MyNameFinder will return a list of related names that are still up for grabs.

Once you’ve found an available name, you’ll need to make sure it doesn’t conflict with someone else’s trademark. If your choice will cause customer confusion between your company and another, you’re safer choosing another name. This is true even if the other business is halfway across the country. Once you’ve established a Web presence, you are in competition with businesses around the globe, and must address trademark issues equally broadly. A generic name such as “coffee.com” will keep you safest from lawsuits, but will also leave you unable to protect your name from use by other businesses—you’ll need to strike a balance.

After you’ve chosen an appropriate domain name, you can register it online with a service such as Network Solutions, at the website mentioned above. Some businesses register under more than one name, or register common misspellings of their names.

Courts are still grappling with the issues
surrounding domain names and trademark law, and there’s much more to know than I can cover here. For detailed and up-to-date information on choosing and registering domain names, as well as avoiding domain name conflicts, check out Nolo’s free Internet Law Center at http://www.nolo.com/category/ilaw_home.html. Also read Domain Names: How to Choose & Protect a Great Name for Your Website, by Stephen Elias & Patricia Gima (Nolo).

These days, about the only time you might be able to ignore thinking about trademarks and service marks is if you have a tiny, local business that uses your own name—or a very common name—to market goods and services locally. In short, if you plan to sell services using your own name (Harvey Walker Roof Repair) or if yours will be a one-person, home-based business such as a graphic design service (A+ Design), you’re not likely to have a trademark problem. But if your business is just a little bigger, such as a large camping equipment store (Wilderness Outfitters) or sells goods or services beyond a very local or industry-specific niche (Lamps.com Online Lamp Store), you really should take time to understand the basics of trademark law—and conduct a name search to see if someone else in your field is already using your proposed name.

The reason to be absolutely sure you have the legal right to use your chosen business name is simple: You don’t want to invest time and money in signs, stationery and ads for your business and then get a nasty letter from a large company that claims a right to the name you’re using and threatens you with a trademark infringement lawsuit. Just defending such a case in federal court can cost you upwards of $100,000, meaning that even if you’re sure that you’re in the legal right, you’ll probably wind up changing your name just to duck the lawsuit—no fun, given the investment you’ve already made.

If you decide that you want the protection of federal or state trademark registration, see Trademark: Legal Care for Your Business & Product Name, by Stephen Elias and Kate McGrath (Nolo). You can probably handle the registration process yourself, but if you prefer to use a lawyer, the book will make you better able to take advantage of your lawyer’s assistance.

Relying on a State-Filing Search May Not Be Adequate

When you form a corporation or LLC, the state filing office will check to see if your proposed business name is the same as or confusingly similar to one already on file. If so, your name will be rejected. But just because your name is accepted by the state filing office doesn’t mean your business name is safe to use. That’s because these offices don’t check state or federal trademark registers. In short, even though a name may be available in your state to identify your business, you may run into costly trademark infringement problems if you use it to also identify your products and services.

EXAMPLE: Tony and Lars form a corporation that will design state-of-the-art sound systems for restaurants and jazz clubs. Their name—The Ears Have It Inc.—has been cleared by the secretary of state for their state. Can they now safely use this name as a service mark to market their services? No. When the secretary of state cleared the corporate name, it simply meant that the name didn’t duplicate the name of another corporation in that state. Another company may have already been using the name as a trademark or service mark. This wouldn’t show up in the secretary of state’s corporate name records.

Since Tony and Lars are hoping to market their services in several states, they (or a name search company they hire) should do a thorough search, including checking federal and state trademark registers. If they don’t, they may inadvertently find themselves in conflict with a company that’s already using the name. If they find that their proposed name is clear, they should think about registering it as a federal trademark or service mark.

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B. Trademarks and Service Marks

A trademark or service mark consists of two parts. In reverse order, they are:

• The noun that specifies what kind of product or service you’re talking about. Examples: automobile; health plan.

• The word or words that function as an adjective to identify a product or service as being different from all others. Examples: Buick automobile; Saab automobile; Blue Shield health plan; Kaiser health plan.

Think of these as the first and last names of products and services. The last name identifies the group; the first name uniquely specifies a member of that group. As such, the trademark is used as a proper adjective and is always capitalized.

Trademark law is the main tool that businesses use to protect the symbols and words that identify the origin of services and products. The basic premise is that the first user of a distinctive (that is, creative or unusual) name or symbol gets the exclusive right to use it. If you’re the first user, you can make that right easier to enforce if you register the name or symbol with the federal trademark agency. The principal purpose of registration is to protect rights that already existed because you used the mark first. But registration can also confer other rights. For example, if you’re using an unregistered mark without knowing that someone else used it first, federal registration can give you priority in areas outside the first user’s market territory.

The twin goals of trademark law are:

• to prevent businesses from getting a free ride off the creativity of others in naming and distinguishing services and products, and

• to prevent customers from being confused by names that are misleadingly similar.

From a legal protection standpoint, the best trademarks are coined words, such as Kodak or Yuban, or arbitrary words such as Arrow for shirts or Camel for cigarettes, which have nothing to do with the product. Nearly as good are suggestive trademarks—ones that hint at some aspect of the product. For example, Talon suggests the gripping power of a zipper.

Trademarks that consist of creative, unusual or otherwise memorable terms are called “distinctive” and “strong.” If you’re the first to use such a name or symbol, you can legally stop others from using it in most situations.

Trademarks that consist of ordinary terms are called “weak,” and competitors are free to use them. Merely descriptive words (such as Easy Clean for a cleanser) generally are not legally protectable. These weak marks can, however, become strong if they acquire a secondary meaning through prolonged usage. If that happens, they may be federally registered and may also be protected under the law of unfair competition if there’s a local conflict with a similar mark.

You can’t acquire any rights in the name of the product itself; this is called a generic name. This means you can’t adopt Bicycle or Refrigerator as your trademark for your version of those products. You can use the words as part of a distinctive name.

The law doesn’t allow a business to claim the exclusive right to use descriptive words and generic names because competitors also need to describe their products. If you could tie up key words for your own exclusive use, your competitors would be unduly restricted in describing their goods. Also, descriptive terms aren’t particularly memorable and don’t further the purpose of trademarks and service marks.

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C. Strong and Weak Trademarks

As noted earlier, with very few exceptions, only strong trademarks or service marks have the full protection of federal and state trademark laws. Remember, too, that trademark laws don’t automatically protect a business name (the name of your company); to be considered a mark, a business name must be used to identify a product or service in the marketplace.

A trademark is considered weak when others can use it (or something similar) on products or services that don’t compete directly with yours. Most ordinary trademarks are weak. Examples: Liquor Barn, Cuts Deluxe, Charlie’s Auto Parts, 10-Minute Lube.

A trademark is considered legally strong when others can’t use it or anything similar on related goods or services. There are two kinds of strong trademarks: ones that contain distinctive terms and ones that contain ordinary terms that have acquired distinctiveness through use.

1. Distinctive Terms

Distinctive trademarks are memorable, evocative, unique or somehow surprising—for example, 7-Up, Lycra or Cherokee apparel. The words themselves have little or no descriptive function; they serve to set the product or service off from others.

So if you’re naming a service or product and want a strong mark, try for a name that is either unusual or used in an unusual way. A judge is likely to treat a distinctive name as a trademark or service mark and protect it from use by others—unless someone else has used a similar trademark on the same type of product or service first.

EXAMPLE: “Buick” distinguishes a line of cars from others, and the name means nothing apart from its trademark use. It’s a distinctive name. Conversely, “Dependable Dry Cleaners” merely tells you something about the business; it doesn’t help you distinguish it from rivals who might also advertise their services as reliable or efficient. So the name would probably not qualify for trademark or service mark protection unless it had been in use for a long time and developed a sizable following—that is, a secondary meaning.

2. Ordinary Words

Generic terms can’t be protected by trademark law; original and distinctive words can be protected. But what about other words used to identify products and services—ordinary words that are neither generic nor distinctive? This category covers place names (Downtown Barbers), surnames (Harris Sales), words that describe the product or service (Slim-Fast Diet Food) and words of praise (Tip-Top Pet Shop). Ordinary words receive limited legal protection as trademarks. It’s more difficult to keep others from using them or something similar.

Even a weak trademark can acquire limited protection under unfair competition laws. For example, an ordinary name (a weak trademark) can be protected from someone else using the name in a confusing way. The law of unfair competition is generally based on state law (statutes and judge-made law) that supplements federal and state trademark laws. Owners of weak and unregistered names can get some relief from a rival’s use of the identical name on the identical product or service in a competing market.

Weak trademarks can become strong ones through long use and extensive public familiarity with the mark. A trademark that starts out being ordinary or otherwise weak (like Dependable Cleaners) can sometimes, over time and through use, become identified in the public’s mind with a specific product or service. When that happens, it can be transformed into a strong trademark.

EXAMPLE: Chap Stick brand of lip balm was originally a weak trademark. It simply described the condition the product was designed to cure: chapped lips. But it became strong as advertising and word of mouth helped the public develop a clear association between the name and a specific product. Over time, the name developed distinctiveness based on familiarity rather than any quality inherent in the name.

Lawyers describe a trademark that has become distinctive over time as one that has acquired a “secondary meaning.” McDonald’s is another good example of a weak mark that developed a secondary meaning over the years—and now qualifies for broad protection.

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D. How to Protect Your Trademark

What do the words aspirin, escalator, cellophane and shredded wheat have in common? They are all former trademarks that have entered our language as product names. These words have lost their status as trademarks and are now generic terms. Other examples of former trademarks include harmonica, linoleum, raisin bran, thermos and milk of magnesia. In each of these cases, a business lost its exclusive right to use a valuable trademark.

Here are some steps that your business can take to prevent this from happening to your trademark.

• Use your trademark as a proper adjective that describes your product. You’ll notice that ads refer to a Xerox copier, Jell-O gelatin and Band-Aid adhesive strips. If people continue to use the words Xerox, Jell-O and Band-Aid alone, these marks can easily go the way of other trademarks like nylon, mimeograph and yo-yo.

• Always capitalize the first letter of your trademark. And at some place on each ad or package, say specifically that the trademark is owned by your company.

• If your trademark has been placed on the federal trademark register, consistently give notice of that fact by using the ® symbol. If a trademark isn’t federally registered or is registered only by a state, you may use the letters “tm” or “sm” to give notice of your claims. You may not use ® unless your mark is in fact on the federal register.

• Take prompt legal action if other businesses use your trademark without permission. A trademark may become weakened or even generic if others use it to describe their products and you do nothing about it. You or your lawyer should send a letter by certified mail (return receipt requested) demanding that the infringement cease. If your demand is ignored, be prepared to go to court to seek an injunction—but first do a careful cost/benefit analysis to satisfy yourself that it’s worth the expense.

• If you discover that a newspaper or TV program has improperly used your trademark, send them a letter. Keep a copy in your records as proof that you have consistently enforced your trademark rights

Excerpted from the “Legal Guide for Starting and Running a Small Business”, by Fred S. Steingold