Trademarks - The Primary Assets of a Franchise System As a franchisor, you are almost certainly aware of the value and importance of the trademarks and trade dress associated with your franchise system. These intellectual property assets serve as a fundamental component to the foundation to your franchise system and are imbedded in all aspects of your system. However, many times, basic information and factors are overlooked when it comes to a franchisors intellectual property assets and many times, franchisors are forced to waste time and expense on unnecessary trademark litigation. When it comes to assessing and protecting the intellectual property associated with your franchise system, it is critical to understand the basics.
Some Intellectual Property Basics for Franchisors In this article I am addressing the minimum basics. The reason for doing this is because, in my opinion, the basics are often overlooked and, as a result, many times franchisors get involved in litigation or exposed to litigation without any real benefit or real goal. Many times, franchise counsel adopts a hyper aggressive approach to IP enforcement and commence litigation that should be avoided for strategic reasons. Some of the basics, include: Trademark Infringement Lawsuits involving trademark infringement are, most commonly, governed by federal law. The federal Lanham Act provides a federal cause of action for, among other things, trademark infringement. Franchisors possess claims for trademark infringement against any third party (including former and, possibly, existing franchisees) who use a "word, symbol or device" to "cause confusion" to cause confusion regarding the source of origin of the products or services. When assessing, a potential lawsuit involving trademark infringement, franchisors must consider the following:
Federal Trademark Registration is Critical but Not a Guaranty - As a franchisor it is critical to register your trademarks with the United States Patent and Trademark Office ("USPTO"). Federal registration affords a number of legal benefits and rights that will enhance your ability to protect and defend your trademarks. However, federal registration is no guaranty and, prior to commencing any litigation, you must evaluate with your franchise lawyers whether or not the prospective defendant claims any preexisting rights to the mark. Although unregistered, a third party's pre-existing use of a mark will serve as a defense to an infringement action. Also, this defense may weaken the strength of your mark and lead to many collateral issues. So prior to commencing any trademark litigation, it is critical to understand and evaluate any claims of pre-existing use.
You Must Prove That Your Trademark is Entitled to Protection - When faced with traditional trademark litigation, most commonly, a competitor or third party is utilizing a tradename or mark that you believe is similar to yours. However, utilizing a similar mark is not enough. To establish a claim for trademark infringement, franchisors must establish that (a) the franchisor possesses a mark that is protectable, (b) the defendant's use of an identical or similar mark is "likely to cause confusion" among consumers. Keep in mind that not every mark is "protectable" and, typically, unregistered marks that are descriptive will, more often than not, be unprotectable. Consider also, that even registered trademarks that turn out to be descriptive may also be unprotectable.
More often than not, issues of infringement are clear cut and are typically resolved effectively. However, in observing certain infringement litigation, I am a firm believer that some litigation is not only wasteful (economically) but also harmful from a trademark protection standpoint. So, faced with the prospect of future litigation, question (1) whether or not the defendant may claim a pre-existing use, (2) whether or not the defendant is operating within an industry similar to yours, (3) whether or not there is a likelihood of consumer confusion, and (4) the strength of your own marks.
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