United States: Avoiding the Trademark Pitfalls of a Start-Up Company

Prescription drugs are marketed in a rapidly changing environment. In years past, it was enough just to produce a better, more effective drug. Today, however, numerous alternative prescription drug therapies treat any one medical condition. A drug's commercial success may not lie only in its effectiveness but also in the effectiveness of its marketing program. Such programs encompass numerous considerations, but focusing on the proper use of a proprietary name - a trademark - can help a start-up biopharmaceutical company avoid some common pitfalls.

In the not-so-distant past, prescription drugs were marketed only to health-care workers--physicians, not patients, were considered the consumers. Because the target audience for prescription drug marketing consisted of highly qualified professionals, the advertisements were frequently technical and scientific. Although prescription drugs were marketed under proprietary names, those names were selected to appeal primarily to physicians. Patients frequently did not even know the names of the drugs they were taking. A catchy, memorable name was not a significant consideration in selecting a trademark.

Changes in the health-care system and in patients' attitudes have made them more proactive in determining the course of their medical treatment. Today's patients are better-educated consumers who can intelligently discuss medical treatments with their doctors and ask more questions. Furthermore, the proliferation of managed-health-care organizations, which in certain cases encourage doctors not to explore alternative therapies, has forced patients to be advocates for alternative treatments.

Perhaps the most significant factor affecting prescription drug marketing today is the advent of direct-to-consumer (DTC) advertising of prescription drugs, especially broadcast advertisements. Before 1997, broadcast ads were limited to "reminder" and "help-seeking" types. However, in August 1997, FDA issued a draft guidance concerning television and radio advertisements. Although that guidance did not change FDA's rules and regulations concerning DTC advertising, it did provide advertisers with guidance for complying with the existing ones. A newfound freedom of content for prescription-drug advertising has led to a proliferation of prescription-drug ads in the broadcast media.

DTC advertising. The target audience of DTC prescription-drug marketing programs is the patient rather than the physician. With a different target audience, the marketing objectives have changed markedly: to stimulate a potential patient's interest in receiving a drug treatment and to be sufficiently memorable for the patient to ask a physician if such a drug treatment would be appropriate. Central to those objectives is the patient's ability to remember the name of the new drug: If a patient cannot identify the new drug by name, the marketing program is ineffective.

Selection of a new prescription-drug name, however, must take into account FDA rules and regulations set forth in the Federal Food, Drug and Cosmetic Act, the Code of Federal Regulations for prescription-drug advertising and labeling, the United States Patent and Trademark Office (USPTO) rules and regulations set forth in Title 37 of the Code of Federal Regulations, and the general principles of trademark law, as well as requirements for registration and protection of trademarks established by the Lanham Act.

To obtain protection under the Lanham Act, a trademark must have certain qualities. It must not be the common name for the product with which it is associated; that is, the mark cannot be a generic term for the product or merely descriptive of it or one of its qualities or features. That rule seems easy enough to follow, and you would expect an advertising agency and/or corporate lawyer to know and understand it. But too frequently it is not known or adequately understood by the persons responsible for selecting and using the new trademark for an initial public offering (IPO) or private placement investment.

An otherwise protectable trademark can be rendered unprotectable merely by a sufficient amount of improper usage. Use of the mark must be controlled so that it does not become the common name of the product with which it is associated. Aspirin was at one time a trademark for acetylsalicylic acid. However, through common use the trademark became the generic name for that popular pain-relieving product. The term aspirin fell into the public domain and now cannot be protected as a trademark.

To protect a term as a trademark:

Use it as an adjective. To prevent a trademark from becoming a generic, unprotectable term, it must be used as a trademark. The first rule of proper usage is always to use the trademark as an adjective and never as a noun. For example, a proper trademark usage of Aspirin as an adjective would have been "ASPIIt1N pain reliever," "ASPIRIN analgesic" or "ASPIRIN brand pain reliever." Thus, advertising copy for the product might read, "Cure headache pain fast with ASPIRIN pain reliever."

Set it apart. The second rule of proper trademark usage is always to use the trademark in a way that sets it apart from the other text around it. In the illustrations above, the trademark stands out from the other text because it is printed in capital letters. Other techniques of distinguishing trademarks used in text are to use a different font, a bold-face type, italics, a larger typeface, and so on. Each of the following would be a proper trademark usage: "Aspirin analgesic provides quick relief for sore, aching muscles"; "Aspirin analgesic provides quick relief for sore, aching muscles"; "Aspirin analgesic provides quick relief for sore, aching muscles"; "Aspirin analgesic provides quick relief for sore, aching muscles."

Don't forget the symbols. Finally, it is recommended, though not a requirement of trademark law, to designate a trademark with either the TM symbol (for unregistered trademarks) or the ® symbol (for federally registered trademarks). Those symbols are traditionally placed to the upper right of the word mark; again, there is no rule of law governing their proper placement. Thus, the foregoing advertising copy would ideally read as follows: "ASPIRIN™ brand analgesic provides quick relief for sore, aching muscles," or "ASPIRIN^® brand analgesic provides quick relief for sore, aching muscles."

Use of the symbols is not required by law, and failure to use them will not result in the forfeiture of any legal rights. However, their use puts the public on notice that some entity is claiming trademark rights for the designated term. Consistent use of these symbols improves the chances that readers and viewers will recognize the designated term as a trademark and use it correctly.

For start-up companies that do not yet have products on the market, the delicate process of selecting and protecting trademarks for proposed prescription drugs must be handled with particular care. With no revenue stream, such companies approaching an IPO or private placement rely heavily on a portfolio - typically stocked with patents and/or patent applications - of intellectual-property assets to woo investors. However, a catchy trademark can be almost as valuable, if not more so, than a patent. A patent is valid for only a limited period of time, usually 20 years from its filing date, but with proper care a trademark can be renewed and protected in perpetuity. For example, even though patent protection for the drug Zantac may expire, the value of its trademark lives on. Over-the-counter sales of Zantac could meet or exceed prescription sales based on favorable name recognition alone.

At the IPO or private-placement stage, a catchy trademark sells the company to potential investors instead of attracting patients and doctors. But both markets are of great importance. The significance of a patent portfolio has been well appreciated by inventors, corporate organizers, underwriters, investors, boards of directors, and stockholders for years. However, the proper acquisition and protection of a trademark for a company's patented drug has not been as well understood and appreciated. To secure and protect a trademark starting at IPO or private placement and continuing through postpatent marketing, its proper control and use can spell success or doom. The following hypothetical case study demonstrates how easy it is to fall into common traps for unwary corporate managers.

A professor at a university invented a new form of pyridoxine for the treatment of Parkinson's disease. The university applied for patent protection on the new drug and its usefulness for treating Parkinson's disease. A group of local physicians heard about the new drug and decided that it had significant commercial promise. They formed a corporation - NuWay Biopharma - to test, manufacture, and market the new drug. NuWay licensed the patent rights from the university on the basis of an up-front payment and an ongoing royalty based on projected sales after FDA approval.

NuWay then put together a business plan to submit to various venture-capital groups in hopes of raising sufficient funds to take the new drug into Phase I trials, with the intent of filing a new drug application (NDA) with FDA. NuWay hired a consultant to help prepare the business plan. During discussions with that consultant, the board of directors for NuWay, which consisted of the physicians who had organized the corporation, decided on a name for the new drug: "Dopassist." The consultant knew that the trademark should not describe the drug, so Dopassist was a good choice because it was a coined word that did not simply describe the new drug or a characteristic of the drug.

The business plan described the new drug as follows:

Dopassist is a new drug designed to be used in combination with conventional L-dopa treatment. Dopassist is a cofactor for dopa decarboxylase that enhances the peripheral conversion of L-dopa to dopamine. Thus, less Ldopa crosses the blood brain barrier. NuWay plans to test, manufacture, and market Dopassist. Phase I clinical trials are expected to begin shortly. NuWay estimates that annual sales of Dopassist could exceed $1 billion.

NuWay received $10 million in venture capital and set up offices and laboratory facilities. It hired several research scientists, who began designing the testing protocol for Dopassist. Because the venture capital was insufficient to fund the company all the way through clinical trials, NuWay sought a strategic research partner by issuing a press release that included the following statements:

"NuWay's business strategy is to build shareholder value through the development and commercialization of high-value human therapeutic compounds. NuWay's Dopassist is targeted at treating neurological diseases and is currently in Phase I clinical trials. Initial test results show that Dopassist demonstrates very low levels of mammalian toxicity."

Simultaneously, NuWay found an underwriter and began the procedure of going public. NuWay's registration statement contained language similar to that in the press release above. The underwriter began distribution of the preliminary prospectus, which further echoed those statements. After the effective date, the broker handling the new issue distributed research reports, recommendations, and other literature touting the benefits of Dopassist. A financial reporter picked up on these reports and published a newspaper article that contained the following statements:

"A new treatment for Parkinson's disease is being investigated by NuWay Biopharma Ltd. of Secaucuc, New Jersey. Reports indicate that Dopassist enhances the efficacy of conventional L-dopa treatment by a factor of ten. Thus far, clinical trials have shown that Dopassist is not toxic to humans. Phase II trials of dopassist are scheduled to begin by the end of this year."

Those statements were published over the news wire services and reprinted in newspapers and magazines across the country. NuWay's IPO was a great success, and the capital it raised would fund NuWay's research for the next five years.

In a meeting with NuWay's corporate counsel, the subject of protecting the Dopassist name was raised, and it was decided to file an application for federal registration with the PTO. An application was prepared and filed, and after about six months, NuWay received an office action reporting the results. The examining trademark attorney at the PTO rejected the application for registration of the mark on the basis that it was the common name of the drug. As evidence of the name Dopassist becoming a generic term, the examining trademark attorney attached the results of an Internet search she had performed. Fifty-three articles discussing Dopassist and containing statements similar to those mentioned above were attached to the application rejection. Some were NuWay's own press releases. Even more embarrassing, a copy of NuWay's own site on the Worldwide Web was attached to the rejection, showing that the company used dopassist as a noun; not as an adjective. Thus, federal registration of the mark Dopassist was refused.

How could that rejection have been avoided?  Nuway should have followed the three rules of proper trademark usage in everything that it and its agents distributed to the public. The public relations officer for NuWay should have always used the trademark as "DOPASSIST™ pyridoxine adjuvant" so that press releases would be properly worded. NuWay's marketing manager should have properly used the trademark on NuWay's Web site. NuWay's underwriter and attorneys should have used the trademark properly in their SEC filings. And NuWay should have employed a news-clipping service to help keep track of articles that mentioned DOPASSIST. When the company found an article that did not properly use its trademark, it could have written the offending publisher and requested a printed correction.

The company also overlooked the use of another trademark - its own name. A product can be associated with more than one trademark. If NuWay had also applied its name to the product, it could have registered and protected both the trademark DOPASSIST and the trademark NUWAY. When using a company name as a trademark, the same rules of proper usage must be followed. Don't merely apply the corporate name and address to the product; the company name must be used as a trademark to be protectable. To distinguish the trademark from the company name, leave off words like "Company" or "Inc." (For example, use the word "NUWAY" on the product label, not the words "NUWAY BIOPHARMA, INC.") If you follow the three rules of proper trademark usage for your company name, it can be protected as a trademark.

Obtaining and maintaining a trademark involves more than just adopting a clever name and filing an application for registration. All managers of a company should be educated in proper trademark usage so that published statements from the company can be properly worded, and agents of the corporation can be alerted to the improper usage of the trademark. Equally important, a company must have a system in place to watch usage of its trademark by third parties. Ultimately, the public determines whether a trademark becomes generic. Therefore, it is the obligation of trademark owners to correct the public when their trademarks are improperly used. Those responsibilities are ongoing. If a trademark owner is not vigilant and aggressive in the protection of its intellectual property, that property can be lost.

In the confusion and rush associated with forming a new company, an IPO, or a private placement, care must be exercised to protect intellectual property. If the foregoing rules of proper trademark usage are followed, the problems faced by the fictional NuWay Biopharma will not happen.

(1) Intra-Agency Working Group on Advertising and Promotion, Draft Guidance for Industry: Consumer-Directed Broadcast Advertisements (FDA, Rockville, MD, 8 August 1997) www.fda.gov/crier/guidance/guidance.htm.

(2) United States Code, Title 21, Section 301, "Federal Food, Drug, and Cosmetic Act," 25 June 1938.

(3) Code of Federal Regulations, Food and Drugs, Title 21 (U.S. Government Printing Office, Washington, DC), revised 1 April 1998.

(4) Code of Federal Regulations, Patents, Trademarks, and Copyrights, Title 37 (U.S. Government Printing Office, Washington, DC), revised 1 July 1998.

(5) United States Code, Title 17, "Copyrights," revised 19 October 1976.

(6) United States Code, Title 15, Chapter 22, "Trademarks" (previously the Lanham Act). Br

The information contained in this article is not intended as legal advice or as an opinion on specific facts.