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Failing to Conduct a Trademark Clearance Search Before Selecting Your Business Name Can Cost You

By Andrew Lycans

May 2, 2017

Starting a new business is exciting, and one of the more enjoyable aspects of that process can be selecting the perfect name for the business. Some names identify goods or services the business will offer. Others attempt to communicate some quality of the goods or services to be offered, such as accuracy or speed. Still others are entirely fanciful, having a name that was either coined by the business owner or which has nothing to do with the products or services to be offered. However, before finalizing the name of the business and investing in things like signage, advertising, or website design, it's important to determine whether someone else may have prior rights to the name.

 Anyone who uses a business name acquires what are known as common law trademark rights in that name. The common law was developed by the courts over centuries and is found in cases decided by the courts rather than statutes drafted by legislatures. Since common law rights arise through use, the rights generally only extend to areas where the business currently operates and consumers have had the opportunity to become failure with the business and the goods or services it offers.

 Business owners may also register their trademarks with the United States Patent and Trademark Office (USPTO) pursuant to a federal statute known as the Lanham Act. A federally registered trademark creates an evidentiary presumption in court that the trademark holder has the exclusive right to use the registered mark nationwide (with regard to the goods or services listed on the registration) to the exclusion of all others. While a competing business might be able to rebut that presumption by showing that they began using the mark in a certain area first and have common law rights to the mark in that area, a federal registration can nonetheless limit the prior user’s right to expand into new markets using the name in question.

 What does all this mean for someone selecting a name for a new business? First, even if you are not planning on applying for a federal trademark, it is important to conduct a trademark clearance search by reviewing the database maintained by the USPTO of existing trademark registrations and pending applications. Since the database is publically accessible, the courts have held that business owners have implied knowledge of what marks are federally registered and therefore unavailable to new businesses; courts will not recognize any common law rights that arise through use after someone else has already registered the mark with the USPTO. Second, even if a mark is not federally registered, a business owner should determine whether anyone is already using the same (or similar) mark in their target market, or a market the business way wish to expand into in the future. Such a competing business would have superior common law rights, and could bring a trademark infringement action or prevent the business owner from expanding into new markets.

 Failure to conduct a proper trademark clearance search can be costly. If the business owner selects a name which is confusingly similar to a trademark being used by an existing business, that competing business may demand that the business owner make costly changes to distinguish between the two companies, or even demand that the business owner stop using the mark entirely. The business owner may determine its only option is to select a new name, which results in additional costs in having new signs, advertising, websites, etc. prepared. Most importantly, the business owner will lose the good will and name recognition that it has built up in a name it can no longer use. A business owner who chooses to fight to keep its name could be in for a long (and expensive) trademark infringement lawsuit.

 Many business owners don't realize the importance of clearing the rights to the name of their potential business before investing in promoting that name to the public. Others don't want to invest resources in paying for a trademark clearance search. However, the potential costs involved in rebranding and/or defending against a potential trademark infringement suit are far greater than the costs of a trademark clearance search.

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