Perhaps not quite as significant as Harrison Ford’s character’s choice in Indiana Jones and the Last Crusade, choosing a name for your new business nevertheless is an important decision. If you choose wisely, your name will resonate with your customers, build goodwill for years to come and avoid conflicts with third parties — the Holy Grail of name immortality. If you choose poorly, you may find yourself on the receiving end of a cease and desist letter demanding that you change your name on short notice.
After spending substantial time and money building a reputation under your name, the disruption and cost associated with changing your name after 3 months, 1 year, 3 years or even longer can be devastating for a new business. So, what does it mean to choose wisely?
For a new business name, it means searching at least the Secretary of State business entity records in the state in which the business entity will be formed (additional searches, such as for assumed or fictitious names, also may be appropriate depending on the state). But it also means conducting trademark searches for the new name. (Note: although there is a technical distinction between trademarks, which are used for goods, and service marks, which are used for services, for ease of reference this article refers to both trademarks and service marks as “trademarks.”)
Conducting trademark searches is important for two main reasons. First, the standards used by Secretaries of State to approve business entity names differ from the standards used to determine trademark infringement and unfair competition. Secretaries of State often require only that two names be distinguishable from one another in order to coexist as business names. Trademark and unfair competition laws, on the other hand, are designed to prevent customer confusion. If two names or marks are likely to cause confusion, then the junior user is considered to violate the rights of the senior user.
Because of these different standards, it is quite possible for a Secretary of State to approve a business entity name that violates someone else’s rights. In other words, it is possible for two names to be distinguishable while still likely to cause customer confusion. If a violation does exist, it generally is not a defense to claim that the Secretary of State approved the name.
Second, Secretaries of State generally do not search trademarks as part of approving a new business entity name. This means that, unless an independent trademark search is conducted, there again is a risk that use of a business entity name approved by the Secretary of State could violate someone’s rights. The following story illustrates these risks (the names, trademarks, and products are fictitious; no identification with actual people, businesses, names, trademarks, or products is intended or should be inferred).
Let’s say my business partner and I have a great idea for a new business — we plan to develop and sell a line of unique interactive children’s games. We would like to call the business ChestFine Toys, LLC, and we would like to form the company in the fictitious state of West Dakota. We search the West Dakota Secretary of State database of business entity names and find no identical names. We therefore complete the necessary paperwork and submit it to the Secretary of State.
After receiving our paperwork, the Secretary of State conducts its own search of existing business entity names in West Dakota and identifies a prior company name Chest Fein, LLC. However, because ChestFine Toys, LLC and Chest Fein, LLC are distinguishable from one another, the Secretary of State approves our name and forms our company.
Unbeknownst to us, Chest Fein, LLC was formed a year ago but has kept a low profile while it works to develop a line of children’s stuffed animals. It has no website or social media pages. However, Chest Fein, LLC has filed a federal trademark application based on its intent to use the mark CHEST FEIN TOYS for its line of stuffed animals. Because my business partner and I have not conducted a trademark search, we are unaware of Chest Fein, LLC’s trademark application.
A year later, we have launched our products and sales are on the rise. We have gained traction in the marketplace and developed a name for ourselves in the industry. Out of the blue, we receive a cease a desist letter from an attorney for Chest Fein, LLC. The letter alleges that our sales of children’s games using the ChestFine Toys, LLC name violates Chest Fein, LLC’s rights under its recently issued CHEST FEIN TOYS federal trademark registration covering stuffed animals. The letter claims that the parties’ names, marks and products are similar enough to create a likelihood of confusion. The letter includes a demand that we immediately change our name.
While this story may seem farfetched, similar situations arise in the real world more often than one might think.
So be sure to choose wisely when selecting a name for your business by conducting a trademark search. And, if you will be using the name in interstate commerce as a trademark or brand, apply to register the name as a trademark in the US Patent and Trademark Office to establish nationwide trademark rights. To achieve name immortality, as the old saying goes, “an ounce of prevention is worth a pound of cure.”
Marc Fineman is a partner in the Intellectual Property Group at Levenfeld Pearlstein, LLC, with experience in all facets of patent, trademark, industrial design and copyright law. Marc’s ultimate goal is to use practical and strategic intellectual property advice to help clients achieve their goals while striking the proper balance between risk and reward. Marc has a particular interest in working with businesses preparing to go to market to add value and reduce transaction costs by proactively addressing common IP issues. Addressing these issues in advance of a potential deal makes the business more attractive to potential buyers and helps avoid surprises and distractions during the sale process.
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