United States: Trademark Basics

A trademark need not be a word, a group of words, or a visual design. Trademark protection is granted to trade dress-the packaging or overall "look and feel" of the trappings accompanying a business's product or services. Product configuration-the particular shape or design of a product itself-may also merit trademark protection, if it serves as a source-identifier, rather than performing a purely utilitarian function. A color or a sound or series of sounds may be protected as a trademark (think of the Intel Corporation's four-tone "logo" in its television commercials). Efforts have been made to seek protection for a particular texture or odor as well, where those serve a source-identifying function-that is to say, if they serve to alert the public that the product comes from one and only one specific source.

A trademark is not the same thing as a trade name. "Trade name" is simply the term given to the name by which a business entity is known. The entity itself may be a sole proprietorship, a partnership, or some form of corporation. The name under which it does business is called its trade name. When the entity is a corporation, its trade name must be registered as a corporate name in the state in which it is registered. This is not the same thing as registering a trademark, and does not provide the same protection or confer the same rights. Many trade names are also trademarks; but separate regimes of protection apply. The easiest way to remember the difference between a trade name and a trademark is to recall that a trademark distinguishes its owner's goods and services from those of others, while a trade name merely identifies the company by name.

"Trademark" is not a verb. There is no such thing as "trademarking" a word or phrase. When you choose a name under which you will provide a particular line of goods or services, you are adopting a trademark. You obtain rights in that trademark by using the mark in commerce in connection with the sale of goods or with the promoting and providing of services. You can have no rights in a trademark without actual use of the mark. You do not have to register a mark to have rights in it; in fact, in some cases registration may not even be available.

A trademark that is used in commerce acquires common law rights. Its owner may invoke those rights to stop others from using the same or a closely similar mark in connection with the same or similar goods or services in such a way that the use of both marks would tend to confuse or deceive consumers as to the source of the goods or services. Such common law trademark rights are limited to the geographical area in which the mark's owner has used the mark.

Trademark rights are tied to specific goods. The same mark may be used by several different companies if it is used by them for goods and services sufficiently different that no consumer would be confused as to source. The mark EAGLE has been used-and registered-by completely different owners for, among other things, bicycles, automobiles, insurance, shirts, pencils, pretzels, hardware stores and condensed milk. None of the owners of any of these marks may stop the owner of another of them from using the same mark. This is because the products and services are sufficiently different to avoid consumer confusion. No reasonable consumer is likely to think that Eagle pretzels come from the same folks who make Eagle pencils.

Although trademark rights are protected at common law, and trademark infringement is recognized as a common law tort, governmental entities have enacted regimes of trademark protection. Trademarks used in U.S. interstate commerce may be protected under the federal trademark statute, known as the Lanham Act, 15 U.S.C. 1051ff. The US government has a trademark registry, maintained by the US Patent and Trademark Office ("PTO"). Anyone who uses a mark in US interstate commerce is entitled to seek registration for that mark on the Principal Register of the PTO. Use in interstate commerce means actually selling goods or providing services under that mark in two or more states, or between the United States and a foreign country.

Federal registration of a trademark entitles its owner to the presumption that the registrant has the exclusive right to use the mark in US interstate commerce with respect to the goods or services recited in the registration. This presumption can be a powerful weapon in trademark disputes. Moreover, after five years' registration, a trademark becomes incontestable, and its registration may be canceled only for very limited causes.

Businesses whose use of a mark is wholly intrastate are not entitled to federal registration, but may benefit from state registration. Every state has a trademark statute and a trademark registry. Washington state's trademark statute is found at RCW 19.77. (For purposes of comparison and contrast, the state's trade name statute is found at RCW 19.80.) The benefits of state trademark registration are intrastate in nature, and thus state registration is of little value to businesses that are using their marks in interstate commerce.

The term "trademark" refers generally to four different types of mark. It also refers specifically to one of those four types. A trademark, in the specific sense, is a mark used on goods. A service mark (two words, not one) is a mark used in connection with promoting and providing services to others. You are not entitled to claim trademark rights in a service mark if your "services" are provided solely for your own benefit, not for that of others. Thus, for example, a business that uses the mark DAZZLE for a line of clothing, and that also creates its own advertising for its clothing, may not claim that DAZZLE is also a service mark used in connection with advertising services. Only if the advertising services are prepared for others can the company be said to be using its mark for "advertising services."

The law recognizes two other types of trademark, which are less common. A certification mark is used by parties other than its owner, with the owner's permission, to show that the parties' goods or services have been certified by the mark's owner as meeting specific standards of quality or safety. Familiar certification marks include the Good Housekeeping "seal of approval" and the Underwriters Laboratories UL mark certifying electrical safety. A collective mark is a mark used to show membership in an association or collective group. Familiar collective marks include the mark FLORIDA ORANGE GROWERS and the often-seen labor union "bugs."

Trademarks are protected-whether by common law, the administrative law of trademark registration, or the decisional law of the civil court system-according to their strength. Strong trademarks are accorded greater protection than weak ones. The law recognizes five degrees of trademark protection (or non-protection). At the low end of the scale are generic terms. A generic term can never be a trademark. It simply designates a kind of goods or service, and is incapable of distinguishing the goods of one user from those of another. Whether or not a term is generic depends, of course, upon how it is used. The term APPLE is generic if used in connection with flavors of pie or scents of shampoo; but it is not generic when used in connection with sound recordings or computer products. A term is generic if it merely identifies the kind of goods or services it is used with.

Generic terms are not given trademark protection because they are incapable of functioning as trademarks. A term may be generic to begin with (words such as "shoes," "soap," or "beer" are generic by definition). However, an initially strong trademark may become generic-and thus unprotectable-if its owner uses the mark, or encourages others to use it, as a generic term rather than as a brand name. Examples of once-strong trademarks that lost protection because their owners allowed them to become the generic term for a kind of goods include ASPIRIN, CELLOPHANE and ESCALATOR. Examples of trademarks that are still protected, but whose owners fight a continuing battle to keep their marks from becoming generic, include KLEENEX (for tissues), ROLLERBLADE (for in-line skates), and VELCRO (for hook-and-loop fastening systems).

Next up from generic terms are descriptive terms. These are words or phrases that merely describe the goods or services, or some feature, characteristic, or purpose of the goods or services. Descriptive terms are not initially capable of trademark protection, because they do not initially serve to distinguish their owners' goods or services from those of others. Rather, they merely describe those goods and services. They tell us something about the goods and services, but do not act as source indicators.

It may be said that generic terms answer the question "What kind of thing am I?" and descriptive terms answer the question "What am I like?" or "What do I do?", while trademarks answer the question "Where do I come form?"

However, unlike generic terms, descriptive terms are capable of distinguishing the goods and services of their owners from those of others. To do so, they must acquire distinctiveness-in other words, through continuous use in the market, they must come to be recognized by the consuming public as source-indicators rather than as merely descriptive phrases. This acquisition of consumer recognition as a brand name rather than as a descriptive is called "secondary meaning."

Descriptive terms are not initially protectable as trademarks because they are terms that must be made available to competitors, who may need to use the same or similar words to describe their own goods. Because trademark law exists to maintain a competitive economy, it would be unfair to allow one business to gain a competitive edge by permitting that business the exclusive right to use a particular descriptive term and to stop his competitors from using it. For example, it may initially be unfair to allow one and only one competitor in the coffee market to claim that its product is "Seattle's Best Coffee." However, if through continuous and unchallenged use, the term SEATTLE BEST COFFEE comes to be recognized by consumers as a brand name rather than a claim of superiority, it has achieved secondary meaning and is entitled to trademark protection.

While generic terms are never trademarks because they can never be distinctive, and descriptive terms may become trademarks by acquiring distinctiveness, the remaining three degrees of strength apply to trademarks that are inherently distinctive. That is, they are capable of functioning as trademarks from the moment they are first used, and are therefore protectable from the very beginning.

Suggestive marks are not "merely descriptive," but tell us something about a product or service by suggesting something about it. The name NIKE-name of the Greek goddess of victory-suggests something about the quality of athletic gear. Arbitrary marks are dictionary words that have real-world meaning, but whose meaning has nothing to do with the product or service with which they are used. APPLE has nothing to do with computers. At the highest end of the scale are fanciful marks, which are wholly invented words that have no meaning at all apart from their function as source indicators for their owners. Such marks are the strongest and most protectable. Examples include EXXON for petroleum products, KODAK for cameras and film, and XEROX for photocopiers.

The "strength" of a trademark is important in resolving trademark disputes by determining the degree of protection to which a given trademark is entitled.

Trademark conflicts may arise in two ways. (1) Registration: A party applying to register a trademark is denied registration either because the PTO finds the party's mark confusingly similar to a previously-registered mark, or because the owner of another mark believes it will be harmed by registration of the party's mark and therefore opposes the application. (2) Use: The owner of a trademark brings action against the user of a similar mark, claiming that the "junior user" is engaging in activity that violates the trademark rights of the "senior user." The terms "junior" and "senior" are commonly used to designate the later user and the prior user of the conflicting marks. The decisional law of trademarks is based on the adjudication of registration cases by the Trademark Trial and Appeal Board, and its reviewing authority, the Court of Appeals for the Federal Circuit; and on use cases brought in civil courts. Most trademark use lawsuits are brought in federal court, under the Lanham Act.

There are two main theories of trademark protection. The first, as already suggested above, is that trademark protection is important in order to protect consumers from being confused or deceived. This theory regards trademarks as a kind of information. Protecting trademarks from being imitated by others in ways that could deceive consumers preserves a healthy economy by ensuring that consumers receive reliable, non-deceptive information regarding the goods and services they purchase. Similarly, by refusing to allow one competitor to gain an advantage over others by gaining exclusive use of a purely descriptive word or phrase, trademark law ensures that competition remains fair and on a level playing field. The underlying assumption is that competition keeps prices down and quality up, and gives consumers choice and variety.

Another very different theory of trademark protection is that trademarks-at least those that are inherently distinctive and have become well known-deserve protection purely by virtue of being the property of their owners and the result of creativity, labor, and expense. Under this theory of trademark protection, consumer confusion or deceit is unimportant; the good that is to be protected is the trademark owner's inherent right to his own property. But proponents of this theory acknowledge tat such protection should be available only to distinctive and famous marks. Thus, this theory, too, serves an economic purpose, by rewarding those who select distinctive marks and work hard to make them famous. This incentive is another way of seeking to maintain a healthy economy by ensuring clarity in the information consumers receive.

Under the current state of trademark law, there are three ways a trademark may be harmed: infringement, dilution, and cybersquatting.

A. Infringement

Infringement arises under the first theory of trademark protection, which regards trademarks as information. Infringement occurs when a junior user uses a mark for goods or services identical or closely related to those of a senior user of an identical or closely similar mark. The test of infringement is likelihood of confusion. Likelihood of confusion is the probability that a reasonable consumer in the relevant market will be confused or deceived, and will believe the junior user'' goods or services come from, or are sponsored or endorsed by, the senior user, or that the two users are affiliated. Infringement thus is analogous to the tort of fraud.

Likelihood of confusion is tested by application of a series of factors. Each circuit has its own leading case on trademark infringement, from which a set of factors arises. In the Ninth Circuit, the factors for testing likelihood of confusion are found in the case of AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979); see also E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280 (9th Cir. 1992). While actual confusion is not required to find a likelihood of confusion, it is, of course, the best evidence that confusion is likely. Examples of other factors include the similarity of the marks in appearance sound and meaning; the proximity of the parties' goods and services; the trade channels in which each party provides its goods or services; the relative sophistication of the purchasers; the strength of the senior user's mark; and the motive of the junior user in adopting its mark.

A trademark owner who successfully shows likelihood of confusion is entitled to both injunctive relief and money damages from the infringer.

B. Dilution

Dilution arises under the second theory of trademark protection, which regards a trademark as a property right. Dilution thus is analogous to the tort of trespass.

Dilution has been defined as the "whittling away" of the selling power of the senior user's mark, because the mark no longer uniquely identifies only the senior user's goods and services, but also those of another party. Confusion is not a factor, and the two parties need not be competitors. A maker of completely different goods can still dilute a senior user's mark, even if there were no likelihood of consumer confusion. No consumer would think that a coffee shop called The Xerox Coffee Center meant that the Xerox Corporation had gone into the coffee business; yet such a use would dilute Xerox's trademark rights in its strong, distinctive, and famous mark XEROX.

A mark may be diluted in two ways: (1) "Blurring" is the aforementioned "whittling away" of the mark's selling power. (2) "Tarnishment" is damage to the mark that results from associating it with either (a) poor-quality goods or services, or (b) unseemly subject matter, such as hate or pornography.

To be entitled to a remedy for dilution, an owner must show that its mark is famous. The federal dilution statute, which became law barely four years ago, sets forth several factors by which a mark may be determined to be famous and therefore to merit protection against dilution. Courts, however, have been highly flexible in their application of these factors, resulting in seemingly contradictory findings. The law is in a state of confusion as to what constitutes a "famous" mark for dilution purposes.

Courts have also reached contradictory findings as to whether the federal dilution statute requires a dilution plaintiff to show actual dilution or merely a likelihood of dilution, in order to obtain relief. A successful dilution plaintiff, under the federal statute, is entitled only to injunctive relief, unless it can show that the dilution was intentional.

C. Cybersquatting

Because neither infringement nor dilution causes of action proved entirely effective against opportunists who registered domain names identical or confusingly similar to the trademarks of senior users, Congress adopted the Anticybersquatting Consumer protection Act in late 1999, to provide an additional remedy.

While the test of infringement is likelihood of confusion, and the test of dilution is the loss of the mark's selling power, the test of cybersquatting is the bad faith of the defendant. If the domain name incorporating the plaintiff's trademark was adopted and used by the defendant without a legitimate interest, but solely for the purpose of profiting from the goodwill of the plaintiff's mark, then a cause of action for cybersquatting may be made out. A successful cybersquatting plaintiff is entitled only to injunctive relief, not to money damages.

The federal anticybersquatting statute has been used comparatively little, since at the same time it was enacted, the Internet Corporation for Assigned Names and Numbers (ICANN) introduced its Uniform Dispute Resolution Policy (UDRP)-an international arbitration system for the speedy, low-cost determination of whether a domain name registration harms a complainant's trademark rights. A successful complainant under the UDRP is entitled only to transfer of the domain name registration, not to injunctive relief or money damages.

In addition to domain name disputes, the rise of Internet commerce has created other interesting challenges to trademark jurisprudence. Questions that have been asked in federal courts include: Does use of the trademark of a competitor in the metatags (hidden text) of a Web site constitute infringement? When may the trademark of another legitimately be used in a different party's domain name or in the url of a different party's Web site? Is it trademark infringement when a search engine sells advertising space to a party based on the use of that party's competitor's trademark in a computer user's search request? Such questions-and newer ones appearing every day-are keeping trademark practitioners on their toes, and trademark law on the cutting edge of e-commerce jurisprudence.

Trademark protection is on a country-by-country basis. The trademark owner wishing to use and protect its trademark internationally is well advised to pursue registration in multiple nations. Some groups of nations, such as the European Community, the Andes Pact, and groups of countries in Central America and Central Africa, have banded together to create group protection, whereby a single registration entitles the owner to protection in every country of the group. In addition, under the Madrid Protocol, registration in any member country, accompanied by an appropriate application for extended protection, will entitle the owner to protection in other member countries. The United States is expected to ratify the Madrid Protocol in the near future, which could simplify the process of obtaining international trademark protection for US trademark owners.

Like other intellectual property rights, trademarks, trademark registrations, and trademark registration applications are assets that may be assigned or licensed to others. Because trademark rights embody the goodwill of the trademark owner, trademarks may not be transferred without transferring the goodwill as well. Thus any assignment of trademark rights-such as in an asset transfer or a merger or corporate acquisition-must expressly recite the transfer of the attendant goodwill. Registrations and pending applications may also be transferred in such transactions. However, an application filed on the basis of an intent to use the mark, rather than actual use, can be transferred only with an acquisition of the applicant company, or that portion of its business with which the mark is intended to be used. That is because a mark that is not yet in use embodies no goodwill, and cannot be transferred "in gross."

Similarly, a license to another party to use a trademark must be contingent upon the licensor's right to control the quality of the goods and services provided under licensee's use of the mark. A trademark owner who licenses his trademark to others with no regard to quality control risks losing his trademark rights, since such "naked licensing" tends to dilute or altogether destroy the cumulative goodwill the trademark has come to represent.

It is critical for business attorneys to conduct careful trademark due diligence before an IPO, an asset transfer, or a merger. The marks to be acquired need to be carefully identified, along with any registrations or pending applications, any existing licenses, and any encumbering security interests. It is also crucial that security interests or changes of ownership in registered trademarks or pending applications be recorded in the PTO or the appropriate state registry. Trademark records should be scrupulously kept up to date as to the correct corporate identity of the mark's current owner, in order to assure a valid chain of title in the event of an acquisition.