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Top 10 IP Mistakes: No. 6 Failing to Register Trademarks

istockPreviously we talked about the dangers of failing to police and enforce trademarks, but what if you never register your marks in the first place? Some of the problems with failing to register are obvious, but many may not become clear until it is too late.

A couple of years ago I personally encountered a classic example of what can happen when you fail to register your business name as a federal trademark. An Ohio company had been using a certain business name for decades but never federally registered it. They developed a loyal nationwide customer base and valuable name recognition, and had about 15 million in annual sales, which for this type of business was clear success. Probably recognizing their success, a new Michigan competitor decided to adopt the exact same name. The competitor organized a Michigan business entity and began operating under the Ohio company's name, but the Ohio company did not notice. The Michigan competitor even went as far as to register the name with the USPTO as a federal trademark, and since the Ohio company was not paying attention they missed their opportunity to oppose. After the competitor's trademark issued, the Ohio company could have moved for cancellation, but again they did not notice. So, not only did the Michigan competitor obtain a registration to the exact same business name as the Ohio company without any resistance whatsoever, they continued to use the name unopposed for five years at which point they actually obtained incontestable status.

If you are not familiar with incontestable trademarks, this is a special feature of federal trademark registrations that allows a trademark owner to foreclose any possibility of a challenge to their trademark rights. In other words, it would be practically impossible to challenge an incontestable trademark even if there previously were grounds to oppose it or have it cancelled. Incontestable status is analogous to an action to quiet title in land. Similar to the action to quiet title it is intended to bring certainty to ownership, so once it is obtained, it is final.

So, our Ohio company never noticed that its Michigan competitor had adopted the same business name. That is, it never noticed until shortly after the competitor's trademark reached incontestable status. Then the Ohio company finally noticed and realized they were losing millions in business to this second-comer through consumer confusion. Would-be customers were mistakenly buying from the Michigan company rather than them, and they finally notice that it was affecting their bottom line.

The question then became, what could they do about it? Answer: not much. The cards are stacked against them at this stage. They could try to litigate but that would have cost tens of thousands of dollars, and their chances of success were not good. At the end of the day, the best that the Ohio company could do was either co-exist and resign themselves to the fact that they would continue to lose money to their competitor, or rebrand and abandon all of the good will that they had accrued over decades of doing business. They chose to rebrand. It is a sad ending, most of all because it was so avoidable. The Ohio Company had opportunity after opportunity to change their fortune, but again and again they missed those opportunities failing to act until they were left with a choice between to terrible options.

If only the Ohio company had registered its business name as a federal trademark, this entire nightmare could have been avoided. Unfortunately for them, that option disappeared years ago, and their remaining options became more and more expensive, and less and less likely to succeed at each step removed from registration.

Stay tuned for more of the Top 10 IP Mistakes.

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