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American Bar Association

ABA Section of Business Law


Business Law Today

What's in a Name? A Lot
Trademark and Brand Protection Strategies for Franchisors
To justify investing the money necessary to open a franchised business, franchisees look to franchisors for certain value-adds including, perhaps most importantly, a license to use a brand name that is recognized by customers and will drive customers to their new business. A priority of a business owner considering franchising as a method of expansion is to determine which trademarks the business will use and then to obtain federal registration of those marks with the U.S. Patent and Trademark Office (USPTO) so that franchisees across the country can use the federally protected marks. This article provides an introductory overview of the legal considerations for selecting, registering, using, and protecting those marks, all of which are critical to the viability and longevity of any franchise brand.

What Is a Trademark?
A trademark is a word, phrase, symbol, or design, or combination of words, phrases, symbols, or designs, that identifies and distinguishes the source of goods of one party from those of others. A service mark identifies services as opposed to goods. In the franchising context, a mark can consist of a word that describes the trade name of the franchised business (MCDONALD'S), a product (BIG MAC), a tag line or slogan (I'M LOVIN' IT), a symbol (GOLDEN ARCHES), a character (RONALD MCDONALD) or a trade dress feature (the building design of MCDONALD'S restaurants).

Selecting a Strong Mark
Trademarks are categorized by how well they identify the unique products or services offered by the brand owner. This strength of the mark ranges along a spectrum from generic (RESTAURANT) and descriptive (SAM'S SUB SHOP for a sandwich restaurant) to suggestive (BLIZZARD for frozen confections), arbitrary (APPLE for computers), and fanciful (EXXON for gasoline).

When selecting a mark, it is tempting for a franchisor to select a mark that describes the goods or services being offered so that the public will know exactly what products or services the franchised businesses sell. However, generic terms are never entitled to trademark protection, and the USPTO will not register descriptive marks without a demonstration of "secondary meaning" (i.e., that mark that has become identifiable in the minds of consumers as indicating a particular source of goods or services rather than a mark that just describes a product or service offering) through long and extensive use (e.g., THE LITTLE GYM, KWIK COPY, and EXPRESS OIL CHANGE). In addition, by selecting a merely descriptive mark, the franchisor will have difficulty preventing a competitor from using an identical or similar mark to describe goods and services offered by the competitor. The burden for successfully pursuing an infringement action against an allegedly later user of a merely descriptive mark is extraordinarily high.

Suggestive marks that require thought, imagination, and perception to reach a conclusion as to the nature of the goods or services are entitled to trademark protection without a showing of secondary meaning (e.g., COPPERTONE for suntan lotion, SALTY for sailing apparel). The greatest trademark protection is afforded to arbitrary or fanciful marks that are generally made-up words that are only associated with a particular product or company (e.g., SNAPPLE for drinks). Accordingly, selecting a suggestive, arbitrary, or fanciful mark will enable a franchisor to obtain a federal trademark registration far more easily, to build customer loyalty and strengthen brand goodwill through a concentrated advertising program, to enhance brand recognition and distinction in the relevant industry, and to prevent consumer confusion as to the source of the goods or services.

Clearing a Mark
Federal trademark law is premised on the objectives of establishing rights with respect to distinctive marks and avoiding confusion as to the source, origin, sponsorship, or affiliation of the goods or services associated with those marks. In general, both the USPTO in reviewing applications for registration of trademarks and courts deciding suits for trademark infringement consider confusing similarity as to the appearance, sound, connotation, and commercial impression of marks. Therefore, a franchisor's selection of a mark that is not confusingly similar to another user's mark should be the primary focus of evaluating a proposed mark.

When selecting a new mark, a franchisor should first search the online records of the USPTO (www.uspto.gov) to determine whether an identical, or confusingly similar, mark has already been registered by another user for similar goods and services. The USPTO uses the International Classification system that categorizes goods and services into 45 different classes. Thus, if a restaurant company is interested in using the mark TAMA for a sandwich, it will be interested in discovering whether another user has registered the mark TAMA in class 30 (which includes certain food products such as sandwiches) or class 43 (which includes a variety of services including restaurant services). The fact that another party has registered the mark TAMA in class 15 for drums is unlikely to prevent the use and registration of TAMA for a sandwich, as there is little likelihood of consumer confusion as to the source of the two products.

After determining whether a mark appears to be available with respect to federal registrations with the USPTO, a franchisor should perform additional clearance searches over the Internet and through domain name registries to determine if there are any other prior users of the mark that may not have sought federal trademark registration. It is advisable to pay a vendor to perform a full or comprehensive clearance search of state and federal trademark databases as well as business listings, journals, industrial indexes, company names, domain names, web pages, and yellow and white page listings to uncover unregistered or "common law" users of the proposed mark. These services identify not only identical marks but also marks that are similar to the proposed mark. The time and expense in clearing a proposed mark is money well spent, considering the negative ramifications of developing a product or a service offering and discovering a few years later that the mark violates the trademark rights of a prior user. A prior user, whether discovered or not by even the most thorough search, has priority and can prevent confusingly similar uses by a later diligent user.

One common obstacle business owners who are considering franchising face is the fact that another business owner also may be using the same or a similar trademark or trade name for a similar type of business. For example, if there is a TURTLES ice cream shop in the Southeast and a TURTLES ice cream shop in the Northeast, which business has the right to use the mark and to obtain a federal trademark registration? In the United States, priority is given to the first TURTLES business that used the mark in interstate commerce. This is true even if the second user of the mark was the first business to file an application to register the mark with the USPTO. Accordingly, even if a business owner has already started using a mark, he or she should conduct a trademark clearance search to determine whether anyone else is concurrently using the same or a similar mark for similar goods and services, and, if so, the business owner will need to determine who has priority as the first interstate user of the mark. If a prior user exists, then the business owner should consider adopting a new mark to represent its goods or services.

Registering a Mark
In the United States, an owner of a mark acquires rights in the mark by using the mark in commerce; registration of the mark at the USPTO is not required. However, federal registration offers certain benefits, including

  • Legal presumption of ownership and the registrant's exclusive right to use the mark nationwide on or in connection with the goods and/or services listed in the registration;

  • Right to use the (r) symbol, which provides constructive notice to the public of the registrant's claim of ownership in the mark;

  • Ability to bring a lawsuit in federal court to protect a mark, to enjoin infringers from using the mark, and to obtain a recovery of profits, damages, and other remedies not afforded under common law;

  • Use of the registration as the basis for foreign registrations; and

  • Ability to file the U.S. registration with the U.S. Customs Service to prevent importation of infringing foreign goods.

A brand owner may base an application for a federal trademark registration at the USPTO on actual use of a mark or a bona fide intention to use the mark in commerce. It generally takes nine to 18 months to prosecute an application at the USPTO and to obtain a trademark registration. Within six months after filing the application, the USPTO will assign the application to an examining attorney who will determine whether the application meets the statutory requirements and whether the mark is entitled to registration. To be registered, the mark must be distinctive as applied to the goods or services identified in the application and must not be confusingly similar to another registered mark.

The USPTO's examining attorney may issue a statutory objection or question based on the formality of the application in an "Office Action." The applicant must respond to the Office Action within six months to avoid abandonment of the application. If the mark appears to be entitled to registration after review by the examining attorney and any amendments to the application, the USPTO will publish the mark in the Official Gazette to notify others of the pending registration. A registrant of a conflicting mark (or any other party that has a valid basis for objecting to registration) has 30 days to file a notice of opposition to the application. The USPTO can extend this opposition period for additional periods not to exceed 180 days. If no one opposes the mark in this period, the USPTO will issue a certificate of registration for marks that are in use or a notice of allowance for intent to use applications. Upon receiving a notice of allowance, an intent to use applicant has six months, which is extendable up to 36 months, to file a statement demonstrating use of the mark, after which the USPTO will issue a certificate of registration.

A U.S. trademark registration is valid for a period of 10 years. Between the fifth and sixth years after registration, the trademark owner must file a declaration of use to maintain the registration or the mark will automatically be canceled. Subsequently, a trademark owner may renew its registration between the ninth and tenth years after the original registration issued, and every 10 years thereafter. In addition, between the fifth and sixth years after registration, a trademark owner may submit a declaration that establishes that the mark has been used continuously and has become incontestable.

Protecting Marks on the Internet
In addition to applying to obtain a formal trademark registration for the brand name for the franchise system, franchisors must simultaneously take steps to ensure that they secure rights to their marks in cyberspace. As discussed above, part of the necessary due diligence prior to selecting a mark is searching the Internet for preexisting uses of potential marks. Separate and apart from this search, companies also should research the availability of possible names to use as a web address (or domain name) for the company's website. There are a number of "WHOIS" search engines on the Internet through which a company can search the availability of domain names. And there are a number of companies that the Internet Corporation for Assigned Names and Numbers (ICANN) has authorized as official domain name registrars from which a franchisor can register domain names for a period of years.

Many common names (and derivatives or misspellings) are owned by persons or entities that make a business of registering names and selling them to others. While an established franchisor may have several avenues of relief to force these cybersquatters to turn over the domain name registration, emerging franchisors often must deal with these cybersquatters by paying a premium to obtain the domain name registration. Before choosing a brand
Trademark and Domain Name Clearance Search Resources
Preliminary Searches: Comprehensive Federal, State, Common Law, and Domain Searches: Domain Name WHOIS Search:
name, franchisors should make sure that they can either obtain a domain name they want free and clear or purchase it from a cybersquatter for a reasonable price before launching their franchise program (which often will result in having to pay more for the domain name registration). In addition to registering the ".com" domain name, franchisors also should make an effort to register their domain name in the ".org", ".net," and other extensions and should consider any possible derivative domain names ("BRANDsucks.com" or "BRANDtogo.com," etc.) or common misspellings of the brand name to avoid the possibility of protracted negotiation or disputes to obtain those domain name registrations down the road.

Aside from domain name registrations, a franchisor should ensure that it has secured rights to its brand name and slogans in other areas of cyberspace in which the company may eventually choose to market. Securing the brand on Facebook, LinkedIn, Twitter, MySpace, and other social media outlets at the outset will prevent headaches later on.

Proper Use of a Mark
After a company has selected a brand name and trademarks, the business focus shifts to building goodwill under the marks. The legal focus, however, also shifts from securing rights to the marks to maintaining those rights and protecting the goodwill. In order to protect its marks, a franchisor should make sure that its franchisees and its own employees properly use each mark or the mark can become generic of the product rather than its source (e.g., aspirin, super glue, cellophane, escalator). Improper use of a mark also can dilute its value and weaken the owner's rights to judicial protection. The following is a list of basic rules that every trademark owner should follow in order to ensure the validity of its mark:

  • Use the mark in a consistent manner.

  • Use distinctive type by capitalizing the entire mark or use a particular font, italics, or bold type to distinguish the mark from other words.

  • Use the mark as an adjective to describe the product ("POST-IT(r) notes," not "use a POST-IT").

  • Use the (r) symbol for a registered mark and TM or SM for an unregistered trademark or service mark.

  • Don't use the mark as a noun, in plural form, or with different spellings ("hand me a SHARPIE").

  • Don't use the mark as a verb ("GOOGLE it").

  • Don't use the mark in a possessive form ("KITCHENAID's qualities are outstanding").

  • Don't abbreviate the mark.

  • Don't wrongly identify a mark as registered.

Monitoring Franchisee Use of Marks
For franchise companies, the key to maintaining the franchise brand starts with ensuring not only consistent use of the marks by franchisees but also consistency of the quality of goods and services the franchisees provide to consumers in association with the marks. Indeed, a franchisor that fails to police the quality of goods or services offered under the marks risks losing its property rights in the marks through legal abandonment. Thus, franchise companies typically place contractual obligations on their franchisees to comply with certain operating standards, and periodically inspect their franchisees' operations to ensure compliance and consistency.

Franchisors also should take steps to monitor and control their franchisees' use of the marks beyond the physical operation of their franchised businesses. Having policies to govern franchisees' use of the marks in marketing and advertisements—including over the Internet and in social media—is critical to ensuring that the marks are not presented in a manner that could damage the franchisor's goodwill. Such policies enable franchise companies and their franchisees to utilize the web while at the same time protecting the goodwill and property interests associated with the marks.

Protecting Against Unauthorized Users
Franchisors also must take steps to prevent third parties from unauthorized use of the marks. In the past, franchisors focused their brand protection efforts on businesses that adopted the same or a similar mark to operate their own business or advertising claims made by competitors that cast the brand in an unfair light by making false claims. The ubiquity of the Internet and proliferation of search engines and social media have made prevention of unauthorized use more critical, and, at the same time, more complicated.

Many companies, recognizing that consumers use search engines to locate the websites of companies and brands in which they have an interest, have begun to implement strategies that will result in links to their companies' websites appearing more frequently and at the top of returned search results. One method of "search engine optimization" is to pay to have search engine providers such as Google and Yahoo! associate particular keywords (known as "ad words") with a company's website so that when a consumer searches using those keywords, the company's website will appear at or near the top of the search results returned for that consumer. While this marketing method has advantages, problems arise when a competitor pays to have a company's brand as one of its "ad words" so that a link to the competitor's website appears when a consumer searches for the company's brand. While this use of the brand is not overt, it does enable a competitor to make unauthorized use of a brand to steer customers to its website. Several court cases have addressed this type of use, and Google has recently modified its ad words policy. This is one example of how the Internet has both benefited brand owners (through increased exposure for their brands) but also increased the potential for unauthorized use of their brand names.

The web presents numerous avenues for unauthorized use of a mark: in blogs, on social media sites, through ad words, and domain name registrations. Franchise companies should develop cohesive strategies for monitoring use of their marks on the Internet. Third-party vendors offer monitoring services that are usually comprehensive (including monitoring formal applications to register trademarks and domain names). An alternative is to use search engines periodically to identify uses of marks in cyberspace (although this method will not likely identify new trademark applications or domain name registrations). Companies also may employ automated searches, such as Google Alert, to monitor when their marks are used on the Internet. And while not every use of a mark can be controlled—a legitimate gripe site using the brand name is probably protected as much as a newspaper article about a company would be—keeping track of potential unauthorized uses of the franchisor's trade name and marks is important to protect the goodwill associated with the brand and the validity of the trade or service marks associated with the brand.

Since a franchisor's brand is often the most important aspect of a franchised business, careful consideration in selecting, registering, and protecting the brand's marks is integral to a franchisor's efforts to create a marketable commodity and generate value for the franchise system.
Audio CD Package

Your client wants to expand their business by issuing licenses or distributorships to independent contractors who will invest their own money and hire their own employees to sell your client's goods or services. After discussing business objectives with your client, you draft the license or distribution agreement. A year later, the client receives a demand letter from an unhappy licensee or distributor alleging that the licensing or distribution program is really a franchise relationship which they now wish to unwind. The licensee or distributor has also complained to its local consumer protection agency, which has sent your client a demand letter inquiring into the specifics of the relationship. Your client wants you to explain why the licensing or distribution program is not a franchise and seeks advice on how to respond to the unhappy licensee or distributor as well as to the state regulator.

This audio package examines the meaning of the "accidental franchise" and the implications to you and your client for creating one.

Faunce and Reed specialize in intellectual property matters that impact franchisors at the franchise law firm of Plave Koch PLC in Reston, Virginia. Their respective e-mails are mfaunce@plavekoch.com and breed@plavekoch.com.

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