A dozen reasons why startups, and their investors, seek federal trademark registrations

By Editor August 8, 2014

Engling Timothy, Michael BestBy Timothy Engling, partner, Michael Best & Friedrich, LLP

StartUp Beat readers are visionaries who appreciate entrepreneurship and innovation, but maybe not yet trademark law. Technology startups are frequently built with people, patents and pride. Protecting that pride has a price, and startups often must balance how to use their limited funds. From guarding goodwill built in the goods or services, to being collateral for a loan, registered trademarks can be a good value for startups and investors.

A trademark is that word, phrase, symbol, logo or design that sets your goods or services apart and distinguishes you from all the rest. The ‘loud and proud’ protection of goodwill being built in a mark serves many valuable purposes, such as avoiding costly litigation seeking to force you to change your brand or name.

As it turns out, the trademark process and ultimate registration have numerous important benefits:

1.) A registration is an asset that delineates the rights in a trademark by recording and securing exclusive rights to the registrant. A federal registration can be licensed or sold as property, and assignments, liens, and security interests can be federally recorded.

2.) The registration process reduces risk for use-based or intent-to-use applications in two stages: First with USPTO examination at about four months after filing and second after allowance with publication for public opposition. There is less risk in using a registered mark than one with untested and limited common law rights.

3.) Only federal registration permits use of the circled ‘R’ symbol, adding a professional appearance and showing that a mark is important enough to protect, enhancing your brand. Without federal registration, only ‘TM’ may be used, which is merely an assertion that the user believes it has trademark rights.

4.) Constructive notice, whereby the public is deemed notified and aware that the trademark is in use, begins the date the mark is federally registered. Constructive notice may hinder parties from challenging your registered mark by limiting excuses.

5.) With actual knowledge, competitors may avoid adopting conflicting marks. When adopting their own marks, competitors should search federal records or Internet search engines to avoid selecting confusingly similar marks from such results or would adopt new marks at their peril with inferior rights.

6.) A registration will block registration of confusingly similar marks. The Trademark Office should reject confusingly similar marks from later registration, protecting your image.

7.) Federal law allows for incontestability—the highest status of trademark protection. After five years of registration with proper conditions, no one can assert prior use, nor can the registration be challenged on numerous other grounds.

8.) Registration permits jurisdiction in U.S. federal court, where a judge may grant injunctions, award damages for infringement and—in some cases—recovery of legal fees and defendant’s profits.

9.) A federal registration is presumed valid in legal proceedings with other evidentiary benefits. It provides evidence of ownership and the owner’s exclusive right to use the mark on registered goods and services. It helps prevail in trademark disputes.

10.) Beyond federal court, a registration recorded with U.S. Customs may protect you by preventing the importation of infringing or counterfeit goods. Customs can seize counterfeit goods, impose fines and detain imported goods that infringe.

11.) A federal trademark registration can also serve as a basis for obtaining priority and registrations in foreign countries.

12.) Lastly, the cost is reasonable for these benefits. Typically, the cost for preparing and filing a federal trademark application in one class is about $1,200, and trouble-free prosecution through registration is about half that amount.

In my opinion, the value of registering a worthy trademark usually exceeds the cost.

When a company’s value is based on its technology, obtaining intellectual property protection is important. Often, most of a startup’s worth is based on its intellectual property. As such, it is important for technology-oriented startups to develop a sound strategy for protecting their intellectual capital as early as possible. Registering trademarks should be an early milestone in a prudent startup business model.

Trademark registrations may foster investment in a startup. Investors are generally more attracted to those companies distinguished by a favorable risk/reward profile and scalability. As noted above, risk is reduced with this trademark asset, which can help throughout the growth of the company and its sales.

Federal trademark registration is a value-added proposition for startups, and an area where investors evaluate risk, worth, and prudent company procedures. Thus, registering a trademark benefits both the startup and its investors.

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Engling is a business attorney for Michael Best, Chicago office. He focuses on all aspects of patent, trademark, copyright, trade secret, competition counseling, litigation avoidance, transactions, evaluation and procuring, managing and enforcing intellectual property rights for a competitive advantage.