Attention Incorporating Professionals! When helping clients incorporate, one must take the time to clear the name the clients have chosen for their corporation not only as a corporate or trade name, but also as a trademark. To do so, one must not only clear the name with the State Secretary of the state in which the clients have chosen to incorporate in, but one should also commission a comprehensive trademark search. Failure to do so may lead to a whole host of problems that may severely affect the clients’ income and quality of life.

Anything can be used as a trademark. A trademark is a source identifier, i.e. a tool, which companies use in connection with their goods and services for the purpose of helping consumers distinguish their goods and services from those of their competitors. Famous trademarks include McDonald’s, Coke, Pepsi, Nike, Adidas, Tommy Hillfiger, Ferrari, BMW, Jaguar, Prudential, Century 21, and so on.

It is not unusual for clients to use their corporate name as a trademark, as soon as the corporation is formed and/or the domain name for the corporation is registered. Further, clients incur tremendous costs in connection with such use. Such costs can include the cost of (i) designing, developing and commissioning packaging for the clients’ goods or services; (ii) creating selling opportunities through various advertising media including but not limited to signs, brochures, catalogs, flyers, television, radio, internet, trade shows, seminars, and public demonstrations ; (iii) building up inventory to meet consumer demand; and (iv) attracting investors. As a result, the clients’ business begins growing nationwide, maybe even worldwide, attracting lots of attention along the way.

And then, it happens. The clients receive a cease and desist letter from another company, maybe a competitor maybe not (hereinafter “the sender”), informing them that their use of their company name as a trademark is confusingly similar to the sender’s trademark, and constitutes grounds for a lawsuit against the clients for trademark infringement and unfair competition. Furthermore, the clients’ failure to cease and desist from the use of their company name as a trademark will result in the sender’s initiation of a lawsuit against them in a court of law.

The threat of a lawsuit, the obvious need to stop using the corporate name as a trademark, and the clear necessity to adopt a new name and incur new costs in connection with the adoption and promotion of a new name, on top of the costs already incurred, has a significant negative impact on both the clients’ income and quality of life. The clients are first shocked, and then angry. Why should the clients have to change their company name? Did not the incorporating professionals clear it as a corporate name? Did they not search the state data base? And did not the web registrar clear it as a domain name? Was this not enough? The answer is no, it was not enough. Such searches do not clear the corporate name for use as a trademark. Only a full blown trademark search in data bases that comprise both registered and unregistered trademarks can clear the name as a trademark.

Further, who will compensate the clients for the past costs incurred in connection with the name that is supposedly infringing and who will reimburse them for the new costs they will have to incur in connection with new packaging, new advertising and disposing of the old inventory? It is not too difficult to see how the clients might blame the incorporating professionals and even bring suit against them, for their failure to clear the name or advise them to clear the name as a trademark.

A trademark search brings peace of mind that the clients have taken all reasonable business steps necessary to prevent capitalizing on, and misappropriating, the good will of any trademark that might precede them in the industry. It minimizes the chances of ever receiving a cease and desist letter of the type discussed above. Furthermore, in the event there is a lawsuit brought against them for trademark infringement, a trademark search absolves them of any damages, punitive or otherwise. Finally, it precludes their insurance company from denying them coverage for a trademark infringement suit, on the basis of bad faith. Most importantly however, it provides them with commercial leverage that gives them an edge in business, whether in trying to secure financing, or during a possible merger or acquisition.

Does this all make sense? If it does, then make it a habit to advise your clients that if they are going to use their corporate name as a trademark, they really, really need to commission a trademark search to make sure that their use of their company name is not confusingly similar to a trademark already being used in commerce by someone else.

It was mid Monday morning. We had just wrapped up a staff meeting and everyone was focused on their assigned projects and tasks. The entire office was quiet; so quiet that you could hear a pin drop. All of a sudden the phone rang. It was loud and it made me jump. I hoped that this was not a bad omen. The receptionist picked up. I heard her mumbling something. She put the phone on hold, and rang me. I picked up the receiver. “What is it?” I asked. She answered, “There is a really nice lady on the phone, but I cannot make heads or tails out of what she is saying. She is really upset. I cannot even understand her name.” I asked her to transfer the call to my office.

The lady was truly upset. Her words rushed and churned out of her mouth like the water in white water rapids. I listened carefully and helped her organize her jumbled thoughts, so that and little by little I pieced her story together, groaning inwardly. Once again I was dealing with a start-up entrepreneur who had not been fully informed or worse still may have been misinformed.

Early that morning, she had received a letter demanding that she immediately cease and desist from using her domain name in connection with her company’s website and business. The cease and desist demand identified the sender to be a large intellectual property law firm representing a client from California owning a domain name that was similar to hers; not identical but similar. Their client also owned a number of trademarks incorporating their domain name, all registered with the United States Trademark Office. The letter demanded the she immediately cease and desist from using her domain name and transfer her domain name to their client in California because her domain name looked the same, sounded the same, and conveyed the same commercial impression as their client’s domain name and trademarks.

“How could this be happening?” she asked. “When I incorporated my business six months ago, my accountant informed me that the name was available for incorporation. After that, I checked with one of the domain name registrars and determined that my own company name was available to use as part of a domain name. So, I went ahead and registered the domain with my company’s name. Granted my name is kind of similar to the California Company’s domain name and trademarks, but it is not identical! After all both my accountant and the domain name registrar said that it was available. And, we are in different states. So I took it. Since then, I have spent a lot of money building a website, and publishing and distributing marketing materials and products bearing my company’s name. Now, all of a sudden, I get this letter? Where does this law firm come off telling me that I am supposed to give up my domain name and transfer it to their client, after all that I have invested?”

So really, where did this law firm come off telling this woman that she was supposed to give up her domain name and transfer it to their client, after all that she had invested?” And how would you feel if all of a sudden you found yourself in the shoes of this caller?

By law, the term “domain name” means “any alphanumeric designation which is registered with or assigned by any domain name registrar, domain name registry, or other domain name registration authority as part of an electronic address on the Internet.” 15 USCS § 1127. “The Internet (or “World Wide Web”), in turn, is a network of computers that allows a user to gain access to information stored on any other computer on the network.” Sporty’s Farm L.L.C. v. Sportsman’s Mkt., Inc., 202 F.3d 489, 492 (2d Cir. Conn. 2000). “Information on the Internet is lodged on files called web pages, which can include printed matter, sound, pictures, and links to other web pages. An Internet user can move from one page to another with just the click of a mouse. These web pages must be designated by a domain name if they are to be accessed at all.” Sporty’s Farm L.L.C. v. Sportsman’s Mkt., Inc., 202 F.3d 489, 492 (2d Cir. Conn. 2000).

In other words, a domain name is nothing but a portal by which information on another computer can be accessed. A portal that is provided to anyone who pays the fee and enters a contract with a domain name registrant. Consequently, “Registration of a domain name does not itself automatically confer any trademark rights on the Registrant.” OBH, Inc. v. Spotlight Magazine, Inc., 86 F. Supp. 2d 176, 180 (W.D.N.Y. 2000); Washington Speakers Bureau, Inc. v. Leading Auths., Inc., 33 F. Supp. 2d 488, 491 (E.D. Va. 1999). “Anyone may register any unused domain name upon payment of a fee. Of course, this registration in no way trumps federal trademark law; registration of a mark or name with [Network Solutions, Inc.] does not itself confer any federal trademark rights on the Registrant. Accordingly, the mere registration of a domain name with a domain name registrar, by itself, is simply insufficient to confer trademark protection under the Lanham Act. Newborn v. Yahoo!, Inc., 391 F. Supp. 2d 181, 190 (D.D.C. 2005). Thus, a registered domain name does constitute any intellectual property at all.

So, it is clear from the above, that if an entity (individual) contends that someone has infringed its domain names, such a claim is wholly without merit, if the basis for such entity’s contentions, is solely the registration of the domain names by a domain name registrar. If however, the basis is the registration of the domain name coupled with a U.S. Trademark Registration, then the claim is a whole other story. Such claim may be totally meritorious.

And that is what happened in my callers’ case above. The California law firm was not making a contention based on just its client’s registration of its domain name with a domain name registrar. Rather, it was contending that its clients also owned, not one, but a number of trademarks incorporating its domain name, all registered with the United States Trademark Office. Clearly, then their claim were totally meritorious and their cease and desist demand had to be heeded carefully.

Regretfully, I explained all of this to my caller. Needless to say my words did nothing to alleviate her pain and unhappiness at the situation. Her anger and disappointment were palpable right through the phone. “Please don’t shoot the messenger,” I thought. Then I said, “But this is where the law stands, and the best that we can do right now is try to work together to make things better in a manner that makes the most sense under your circumstances.”

The first time I found out that folks like my client (see posting of November 6, 2010) are not the owners of the copyright to the software prepared on their behalf by their software developer, I was pretty bewildered too. I mean, “Come Ooon!” I am going to hire this guy or gal, I am going to pay them good money, I am going to share with them my ideas that I worked so hard to put together, I am going to educate them in my business and I am NOT going to own the software and the copyright that attaches to that software? You have gotta be kidding me! These guys wouldn’t have any work without me, in the first place! And they are going to own my software? This is just too much!

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A blast of cold, wet wind whipped my face as I opened the door to leave my new client’s office. It felt like the whipping we had just received from his software engineer. The sky was grey like the mood I was in and the raindrops that hit my face were the perfect cover for the tears that were threatening to spill from my eyes from the fatigue, frustration and anger I was carrying in me on behalf of my client. I opened my passenger car door, threw my briefcase on the passenger seat, slammed the car door shut and rushed around to get into the driver’s seat as fast as I could before the skies opened up.

I rested my head on the steering wheel as I sank into the driver’s seat and turned the engine on. The soothing vibrations of the car seeped through my tail bone and up my spine as the motor warmed up. Yet, they did nothing to dispel the disappointment I felt. My client’s eleventh hour meeting, for the purpose of convincing his software engineer to assign to him the software and its appurtenant intellectual property, so that my client could file a patent application in time and before the upcoming trade show, had turned into a battle of the wills and an absolute disaster.

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