Publications

Some Common IP Mistakes Businesses Make and How to Avoid Them

The commentary and materials that follow highlight some of the most common mistakes businesses make concerning creation and management of their intellectual property and tell you about the best practices to avoid each of them. The order of presentation is not intended to have any bearing on the frequency, the relative severity of, or the potential harm caused by, the “mistakes” discussed. They are all of equal concern and importance.

Initial Selection of Weak or Difficult to Protect Trademarks

In far too many instances, businesses tend to select trademarks for the goods or services they will provide that are inherently difficult for lawyers to protect and ill suited to performing the essential function of a trademark. The purpose of a trademark is to identify the source of the goods or services marketed under the trademark, even if that source is unknown to the consuming public, and distinguish those goods or services from the goods or services of competitors. Lanham Act § 45, 15 U.S.C. § 1127. It is important to select a trademark at the outset that will perform those functions well for the trademark owner and permit the trademark owner to prevent competitors from using trademarks that are close in sound, appearance and connotation and dilute the distinctiveness of the trademark.

Entrepreneurs, business executives and marketing consultants tend to choose trademarks that are descriptive of the goods or services or describe qualities, ingredients or attributes of the goods or services. The belief seems to be that the trademark itself should begin the marketing process and tell the consumers something about the goods or services that will appeal to them. This is a mistake. Descriptive marks are the weakest type of trademark and can only be minimally protected. They are difficult to register, if they can be registered at all, and often must be registered in a second class status known as the “Supplemental Register” until it can be demonstrated that the consuming public recognizes a connection between the trademark and the goods or services.

To appreciate the undesirability of descriptive trademarks and the handicaps they impose on a trademark owner, it is necessary to understand the hierarchy of protectability that the law – through cases decided by the courts – has established for trademarks. E.g., Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992); Cellular Sales, Inc. v. MacKay, 942 F.2d 483 (8th Cir. 1991); Abercrombie & Fitch Co. v. Hunting world, Inc., 537 F.2d 4 (2d Cir. 1976). There are four classes:

Arbitrary or Fanciful Trademarks—Arbitrary or fanciful trademarks are considered the strongest types of trademarks and the easiest types of marks to protect. They have no discernable connection whatever with the goods or services they represent. The strongest marks in this category are coined words that have no other meaning or significance than as a trademark for the goods or services they represent. However words with known meanings but no connection to the goods or services all make effective, strong trademarks. Some well known examples of arbitrary or fanciful trademarks include:

KODAK for cameras and photographic equipment;

  • ROLEX for watches;
  • CAMEL for cigarettes
  • EXXON for gasoline.

Suggestive Trademarks—Suggestive trademarks come next in the pecking order. Suggestive marks ”suggest” something about the goods or services in a subtle way but do not describe the goods or services or their ingredients or qualities. If a degree of thought or perception is required to discern a connection between the mark and the goods or services, the mark is suggestive. Stix Prods., Inc. v. United Merchs. & Mfgs., Inc., 295 F. Supp. 479 (S.D.N.Y. 1968). Examples of suggestive marks include:

  • HABITAT for home furnishings and home furnishing retail store services;
  • MISTER SOFTEE for frozen custard;
  • CONTACT for sticky paper;
  • PLAYBOY for a magazine;
  • SKINVISIBLE for limited visibility medical tape;
  • SNAP! (with a “broken” exclamation point) for a syringe with a needle that snaps off after use.

Descriptive Marks—As noted, descriptive marks describe the goods or services or indicate ingredients or attributes of the goods or services. A mark is descriptive if it forthwith conveys an immediate idea of the ingredients, qualities or characteristics of the goods or services. . Stix Prods., Inc. v. United Merchs. & Mfgs., Inc., 295 F. Supp. 479 (S.D.N.Y. 1968).

Examples of descriptive marks include:

  • FAST PRINT for a speedy reproduction service;
  • HONEY-BAKED for hams
  • ULTIMATE BIKE RACK for a bike rack
  • SNAP SIMPLY SAFER for a syringe with a needle that snaps off after use

Generic Marks—Generic marks are simply the name of the good or service. Examples include:

  • EATERY for a restaurant;
  • APPAREL AND ACCESSORIES for a retail store selling clothing and handbags;
  • SAFARI for hats and jackets intended to be worn on a safari;
  • LITE for low calorie beer;
  • TIRES, TIRES, TIRES for retail store services featuring tires;
  • URGENT CARE for drop in medical services;
  • Sometimes generic marks start out as arbitrary, fanciful or suggestive marks but become generic through misuse by the trademark owner. Examples include:
  • ESCALATOR, once a brand name for a particular brand of moving stairs but now the common name for moving stairs;
  • ASPRIN once a brand name for a pain reliever but now merely the name of a type of pain reliever;
  • CELLOPHANE, once a brand name for plastic wrap produced by du Pont but now a common name for a type of plastic wrap.

XEROX and KLEENEX are close to generic.

To avoid losing a valuable mark in danger of becoming a generic term it is important to associate another generic term with the mark to make clear that the trademark is a brand name for a broader generic good. A good example is Starbucks’ recent concern over its FRAPPICHINO trademark. Next time you visit a Starbucks notice how a FRAPPICHINO is now always referred to as a “FRAPPICHINO® blended beverage.”

Arbitrary, Fanciful and Suggestive trademarks are inherently protectable and automatically considered distinctive of the trademark owner’s goods or services. This is why they are a stronger and better choice than descriptive marks. Descriptive marks are only protectable if the trademark owner can show that the mark has acquired “secondary meaning” in the eyes of the relevant consuming public. Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159 (1965). Secondary meaning exists if the public has come to view the mark as indicating a particular source for the goods or services, in addition to conveying some information about them. E.g., Harlequin Enters., Ltd. v. Gulf + Western Corp., 644 F.2d 946 (2d Cir. 1891). Generic marks, including marks that have become generic over time, are never protectable.

Business owners will do themselves a great favor by making every effort to avoid selecting descriptive marks and channeling effort into creating and selecting arbitrary or fanciful marks or marks that are decidedly suggestive in a way that takes as much thought and perception as possible to see a connection between the mark and the goods or services. Tell consumers all about you product or service and its ingredients or attributes in your advertising and marketing materials and on your website. But it is a big mistake to try to use the trademark itself for that purpose.

Failure to Clear the Selected Trademark Properly

Far too many businesses select and adopt a trademark without making the necessary effort to determine first whether the mark is, in fact, available in the United States or the jurisdictions in which it is intended to be used for the intended goods or services. Such businesses subject themselves to the risk that they will make a significant investment in the mark and begin to accumulate goodwill in the mark, only to find that it, or a confusingly similar mark, is already in use by another business. This may, at a minimum, require a costly and embarrassing migration to a new trademark and could subject the business to very costly trademark infringement litigation.

The way to avoid this problem is to have intellectual property counsel conduct a proper clearance procedure and advise that the mark is available for the desired goods and services, or that any potential problems with the mark present an acceptable business risk. A proper clearance procedure consists of (1) obtaining a “full U.S. availability trademark search” report from a reputable search report provider, and (2) having experienced trademark counsel review the report and advise on availability. The cost for the report and the legal advice will likely be $1,500-$2,000. It may seem tempting to try to avoid this cost, particularly for a start-up business, but it is penny wise and pound foolish not to make this important investment in the chosen trademark.

There is no adequate substitute for proper clearance, as described above. In particular, the following, on which many businesses have relied to their detriment, are not adequate:

  1. A general belief that the mark must be available because those running the business know the market and are not aware of anyone else using it or a similar mark for similar goods or services;
  2. An online search of the U.S. Patent and Trademark Office’s database of registered marks and pending applications at www.uspto.gov. (To be sure, this can be a useful preliminary step to determine whether a registered trademark or pending application rules out availability of the mark, but it is not enough to support availability of the mark.);
  3. Internet search engine searches for the desired mark.

The above steps are inadequate because they will not include information contained in many of the sources that are included in the recommended full U.S. availability search report. In the United States, rights in trademarks can arise from use of a mark, even if it is not federally registered. The full search report includes information from a variety of sources, in addition to federal registrations and pending applications that may reveal actual or potential unregistered uses. These sources include state trademark registrations, internet searches, business name data bases, and Internet domain name registrations. It is necessary to review all of this information to determine availability of a trademark.

Avoid the expense and damage to your business that can result from failing to clear a new trademark adequately. Have counsel conduct a proper clearance procedure.

Not Properly Obtaining All Intellectual Property Rights in Materials that Third Parties Create for Your Business

Businesses commonly use consultants, independent contractors and other third parties to create various types of materials for promotion of the business’s products and services. Examples of such materials include logos, websites, website content, brochures and other advertising materials. Business executives commonly assume that if the business has hired and paid the third party to create such materials, the business, and not the third party will own the intellectual property rights, most importantly the copyright, in the materials. That is categorically incorrect. In fact, unless proper written documentation is in place to ensure that the business owns the rights, the intellectual property rights belong to the third party, which created the materials. Copyright Act § 201(a), 17 U.S.C. § 201(a). The business will likely have nothing more than an implied license to use the materials for the purpose contemplated at the time they were created. If the business later seeks to expand its use of the materials it may face a claim from the third party creator for additional compensation or an expensive lawsuit for infringement.

Ensuring that the business gets the rights it counted on requires a properly drafted written contractual provision containing three elements—

A work for hire provision—The first element is an agreement between the parties acknowledging that the materials in question are, and were intended to be, a “work made for hire” within the meaning of the United States Copyright Act, 17 U.S.C. §§ 101 et seq. If a work is a “work made for hire” under the Copyright Act, then the party commissioning the work owns the copyright in the work. Copyright Act § 201(b), 17 U.S.C. § 201(b). Otherwise, the creator of the work retains the copyright and the commissioning party obtains only limited rights.

A back-up assignment of all intellectual property rights—The second element is an assignment of all intellectual property rights in the created materials. The back up assignment is necessary because (a) not all types of materials are eligible to be works for hire under the Copyright Act and it is important to be sure that if the particular type of work involved cannot be a work for hire under the Copyright Act, the copyright is nevertheless transferred by assignment, and (b) important intellectual property rights other than copyright may be involved and the work-for-hire provision only applies to the copyright. The assignment must be in a signed writing to be valid. Copyright Act § 204(a), 17 U.S.C. § 204(a).

A representation and warranty of ownership of, and ability to transfer, the intellectual property rights involved—Finally, a properly drafted contractual provision must include a representation and warranty that the third party creator of the materials owns the intellectual property and has the right to transfer all rights to the commissioning business. The provision must include a warranty that either the materials were created exclusively by full time employees of the third party acting within the scope of their employment, or to the extent that others contributed to the creation of the materials, they have specifically granted all rights to the third party, or that agreements with such non- employees are in place that allow the third party to grant all rights to the commissioning party. An indemnification provision is also usually appropriate.

The following is an example of a properly drafted provision containing the above three elements:

It is acknowledged and agreed that the Work was and is intended to constitute a work made for hire as defined in the Copyright Act, 17 U.S.C. § 101. To the extent that for any reason the Work does not constitute a work made for hire, and in any event with respect to all rights relating to the Work other than copyright, for valuable consideration, receipt of which is hereby acknowledged, Consultant hereby assigns and transfers to the Company and its successors and assigns, all right, title and interest that Consultant may have in and to the Work, including, without limitation, any and all worldwide copyright, patent, mask work, trade secret and trademark rights and other intellectual property rights (collectively, “Intellectual Property Rights”) inherent therein and appurtenant thereto, together with the right to secure renewals, reissues or extensions of such intellectual property rights, which right, title, and interests shall be held to the full end of the term for which such intellectual property rights or any renewal or extension thereof is or may be granted, and the right to sue for any and all past infringements.

Consultant covenants with, and represents and warrants to, the Company that:

  • (i) Consultant owns all Intellectual Property Rights in and to the Work and that, to the extent any portion of the Work was created by any third person other than an employee of Consultant acting in the course of such employment, Consultant has obtained from such third person all Intellectual Property Rights such third person may have in or to the Work or otherwise has written agreement(s) with such third person sufficient to permit Consultant to grant the rights granted herein;
  • (ii) the Work shall not infringe or misappropriate any Intellectual Property Rights of any third party, and Consultant hereby agrees to indemnify, defend, and hold the Company, and all of its officers, directors, agents, and employees (the “Company Indemnitees”) harmless from and against any and all liability, loss, damage, cost, or expense, including reasonable attorneys’ fees and expenses, which may at any time be incurred by reason of any claim, suit, or action brought by any third party against any Company Indemnitees, arising out of any actual or alleged infringement or misappropriation of any Intellectual Property Rights by the Work.

Failing to be sure that you have the right to use all content on your websites or in your advertising and promotional materials

In addition to securing all intellectual property rights in materials specially created for your business, it is also critical to make sure that your business has the right to use any pre-existing material used as content on your website, or in your advertising and promotional materials. You need to be sure that either (a) the material is in the public domain, i.e., not subject to copyright protection, or (b) that your business has a license or permission to use the material, with or without payment of a license fee or royalty, and that it is documented in some fashion. Failure to do so can subject your business, and the individuals directly responsible for selecting the material, to liability for copyright infringement.

Availability of content on the Internet does not necessarily mean that it may be used for your business’s commercial purposes. That material is posted on so-called image databases or is returned in the “images” portion of search engine results is no assurance that a business can use it to promote its goods and services for profit. Even though a website appears to be offering its content for use without charge, it is still necessary to look carefully at the terms and conditions posted on the website. Often, the terms will grant a license to use the material for non-profit purposes only. Use for promotional purposes by a for profit business may not be permitted.

To avoid infringing the copyright in pre-existing material used as content on websites and in advertising, the best practice is to put one person in charge of clearing all such content and making sure that the content may be used. In cases where content is chosen by a third party, the agreement with the third party should contain an indemnification clause making the third party responsible for any infringement claims arising from use of content the third party chooses. If the business publicly displays infringing content, that a third party selected the material is no defense to the infringement claim.

Failure to know and observe the rules concerning public performance of musical works on business premises

United States copyright law grants the owner of the copyright in a musical work, with some exceptions, the exclusive right to perform the work publicly or authorize others to do so. Copyright Act § 106, 17 U.S.C. § 106. Thus, unless an exception applies, a business infringes the copyright in a musical work if it plays the work, including a recording of the work, on its business premises where its customers can hear the music. This includes musical works played alone or as part of the soundtrack of, for example, a television program. Businesses play recorded music for many purposes.

Music copyright owners typically assign the right to license the public performance of their works to performing rights organizations, such as Broadcast Music, Inc. (“BMI”) and the American Society of Composers, Authors and Publishers (“ASCAP”) to avoid the need to negotiate and grand individual licenses to their works. The performing rights organizations often approach businesses that play music on their premises and use direct or indirect threats of infringement litigation to attempt to induce business owners to purchase blanket licenses to perform the works that the organization controls. Whether such a license is necessary depends on whether the business’s use of the recorded music falls within an exception to § 106 of the Copyright Act. Accordingly, to avoid the cost of performing rights organization licenses and the possibility of infringement claims by performing rights organizations, a business needs to understand what uses of music on its premises fall within such an exception and govern its use of music accordingly. Failure to do so can be a costly error.

Section 110(5) of the Copyright Act, 17 U.S.C. § 110(5), provides an exemption (called the “homestyle exemption”) to the public performance right for music that protects businesses that observe its rather specific, and sometimes counter-intuitive restrictions. If a business tailors its public performance of music to fall within the homestyle exemption it does not need licenses from the performing rights organizations. If not, then a license is required to avoid infringement.

In general, the homestyle exemption protects from infringement liability anyone who merely turns on, in a public place, an ordinary radio or television receiver of a kind commonly sold to the public for private use. The exemption only applies to a single receiving apparatus of a type suitable for use in one’s home. However, a business my, within certain specified limits, connect multiple speakers and/or monitors to the single receiver. If the broadcast signal is received by a business with premises smaller than (a) 3,750 square feet for a food service and drinking establishment, or (b) 2,000 square feet for other types of businesses, there is no limit on the number of speakers or monitors that may be connected to the single receiver. For larger establishments, limits on the number and placement of speakers and the number and size of monitors are specified in § 110(5).

Several other restrictions apply:

  1. The business may not charge customers directly for listening or watching,
  2. The signal may not be retransmitted, and
  3. The broadcaster (including cable or satellite systems for audiovisual transmissions) must be licensed by the FCC.

The third restriction (FCC licensed broadcast) means that the homestyle exemption does not protect playing music over Internet radio services such as Pandora or Slacker because these services do not need FCC licenses. Although Internet radio stations would seem to fit the logic of the homestyle exemption, it is important to realize that they do not fall within it.

However, SiriusXM satellite radio is an exception, provided the business subscribes to the SiriusXM for Business service. For that service SiriusXM pays the royalties to the performing rights organizations so the business does not need to.

It is important to understand that the homestyle exemption applies only to music played for the benefit of on premises members of the public. It does not apply to music heard by remote customers, such a “music on hold” during telephone calls. Such use requires performing rights organization licenses held by either the business or the service that provides the music.

Accordingly, failure to know and observe the rules for playing music on business premises can be a costly mistake for any business that uses music as part of its operations.

For more information on the topic discussed, contact:


E-Alert is a quarterly newsletter that features the latest thinking from Tannenbaum Helpern's various departments.

06.01.2015  |  PUBLICATION: E-Alert  |  TOPICS: Intellectual Property  |  INDUSTRIES: Retail

Print
This Page