The Importance of Trade Name Clearance and Registration for Start-Up Businesses

Starting a new business is a difficult undertaking. There are many tasks a new company must undertake to enhance profitability and assure protection of its developing assets. One task that is often overlooked at the outset is selecting and securing all possible rights to your company name. Although most business owners understand the need for such protection, they often believe that registration of a company business name (or trade name) with the appropriate Secretary of State also secures trademark protection in the trade name they register. This belief is incorrect: registering a trade name does not give you trademark protection. Although the exact criteria may vary from state to state, the searches conducted by Secretaries of State are only concerned with prior use of the name by corporations in that specific state. Thus, a trade name registration with the Secretary of State does nothing to assure your ability to use the company name as a trade name in other states, or as a trademark generally.

There is a fundamental difference between a trade name and a trademark. Simply put, the trade name identifies the business while the trademark identifies the products and services of the business. A trade name is nothing more than the name under which a business operates. This name is used for various administrative purposes, including identifying the entity on stock certificates, bank accounts, invoices, letterhead, contracts and tax documents. A trademark, on the other hand, is a name, symbol or other device, or any combination thereof, used to indicate the source or origin of a particular good or service in the marketplace. Trademarks not only help to uniquely identify and distinguish your goods or services from those offered by others, but also assure consumers of consistency in the quality of the goods or services marketed under the trademark. The two can overlap: a trade name can become a trademark if the name is used as a source identifier of particular goods or services, but this does not happen automatically. For example, Dow Jones, Inc. is the trade name of the corporation that publishes The Wall Street Journal®, which is a trademark. Dow Jones® has in turn become a trademark that identifies the source of various financial products and services.

In order to determine whether you can use your trade name as a trademark, you need to conduct a trademark search. The search is used to verify whether or not someone else has acquired rights in the same or a similar mark, as you cannot use or register a trademark that would be likely to create confusion with an existing mark. A trademark search should be nationwide and go far beyond the limited search that the Secretary of State’s office may have done in allowing your trade name. Although trademark searches are not infallible, they are very useful tools to determine whether your proposed mark has already been registered by or is in use by someone else. If you proceed without a search, you may find yourself spending time and money developing a trademark that you do not own and, even worse, cannot use.

Because of the nationwide protection afforded to federally registered marks, a trademark search should include a search of the U.S. Patent and Trademark Office (“PTO”) database. While necessary, a PTO search is not sufficient clearance for the use of a mark because “common law” trademark rights can be acquired through use without registration. We do recommend an initial PTO search as a low-cost way to eliminate proposed marks that face obvious issues. But after your chosen mark has been preliminarily cleared, you should follow up with a comprehensive search that will include other, use-oriented databases and a more inclusive range of comparison terms that could be considered confusingly similar.

After your mark has been cleared, it is important that you immediately take steps to secure your legal rights in the selected mark. In the short term, the best way to do that is to use your mark in commerce. In the U.S., use in commerce creates common law rights that give you the right to exclude later users of the mark in connection with similar goods or services, even if you have not registered. However, common law rights have limitations, so we strongly recommend federal registration as soon as possible. Though the cost of registration is not trivial, you should view it as part of the basic cost of doing business.

Specifically, relying on common law rights can cause nationwide enforcement issues because such rights are limited to the geographic area in which you are actually using the mark. Federal registration provides you with the exclusive right to use the trademark nationwide in connection with the goods or services listed in the registration and, as a result, the right to stop others anywhere in the country from using the mark or a confusingly similar one in connection with similar goods or services.

Even if nationwide protection is not an initial concern for you, you need to consider your future use when determining if federal registration is necessary. Without the nationwide protection provided under federal registration, you may find that someone else has priority use of your mark in your desired area of expansion, thus barring your right to use the mark in that area. If, for example, you use an unregistered mark on a single restaurant in North Carolina, you will have exclusive rights in your local market, but you could find yourself sharing the name with restaurants in the rest of the country—a major problem should you want to expand. Therefore, unless you are certain that you will not expand outside your current geographic area, federal registration is recommended.

You also need to remember that common law rights are not acquired until your products or services are available in the marketplace, thus leaving you unprotected during any developmental period. In a competitive market, you could spend time and money developing a mark and then lose the right to use the mark if someone starts commercial use of the same or a similar mark before you officially launch your products. In order to avoid that risk, the PTO permits the submission of “intent to use” applications before actual use. Once you actually use the mark and finalize the application by presenting evidence of actual use, your mark will be registered and you will be deemed to have started using it on the date you initially filed the application. So if you file an intent to use application on Jan. 1, 2015, and then present evidence of actual use on June 1, 2015, the law will treat you as having commenced nationwide use on Jan. 1, 2015, with priority over all subsequent users as of that date.

Because of the factors discussed above, we strongly encourage you to contact us early in the development of your company so that we may assist you with the following essential steps: (1) the selection and registration of a unique and relevant trade name; (2) the determination as to whether or not your trade name will be used as a source identifier of your products or services; (3) the performance of trademark searches on your trade name, and any other trademarks that you may wish to use, to ensure that the names and marks are available for use as trademarks on a nationwide basis; and (4) the examination of your specific circumstances and future plans to determine the most efficient and cost-effective way to protect your trademarks. By taking these steps, you can assure maximum value and protection of one of your most valuable company assets.