Malcolm J. Chisholm Jr.

 


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BUSINESS RISKS OF USING THE INTERNET, OR, DONíT LET THE CYBER COPS ARREST YOUR BUSINESS GROWTH

A small but rapidly growing business called "BOXERS" was carving out a niche in sales of humorous boxer trunks out of a retail kiosk in Bostonís famous Quincy Market. Several enterprising young women had leased the winning location and sub-licensed manufacture of fanciful menís underwear boxer trunks that were selling to honeymooning tourists and gift-giving folks. Manufacture of the underwear could barely keep up with demand during the first tourist season from mid-spring to mid-fall, but sales fell off as winter approached. BOXERS decided to sell their best-selling trunks through their internet web-site, and featured their fastest-moving product called Boxer-1 right on their home page. Boxer-1 included across the back of the underwear trunks a split hamburger bun, and between the split bun was the phrase "HOME OF THE WHOPPER".

Within a month BOXERS received an extremely scary letter from the BURGER KING Corporation insisting that BOXERS immediately cease and desist from all sales of the Boxer-1 trunks; provide identification of all recipients of sales of those trunks; provide full accounting records of all sales activities of BOXERS of any nature; and pay BURGER KING an amount of damages well in excess of $100,000.00 for damaging their famous trademarks "HOME OF THE WHOPPER", and their "Split-Bun" logo. Cyber Cops had BOXERS in their arresting cross-hairs.

A young couple had over five years experience as chefs in the most exquisite resort in Berkshire County, and decided to open an up-scale restaurant in Great Barrington, MA. Wanting to use a trademark for their new business that immediately suggested a natural grains, beans and vegetarian approach to healthy cuisine, the couple called their new restaurant "GARBONZOS", referring to the famous little "chic-peas" well-known to all. GARBONZOS quickly soared to the top of the Great Barrington popularity charts, and the couple decided to put together a web-site to let the world know where good cuisine could be found. Within a month, a five-restaurant franchise in Louisiana called "FAT GARBONZOS" employed a New York City trademark specialist law firm to deliver to a "cease-and-desist" scary letter to GARBONZOS insisting upon immediate cessation of use of the word "GARBONZO"; and substantial money damages for infringement of their federally registered trademark "FAT GARBONZO'S". Cyber cops had struck again!

These imaginary fact patterns are quite similar to many problems some of my clients have faced through ignorance of trademark laws. In the days before widespread usage of the internet, such problems were rare, and only arose upon facts quite different than those recited above. Let's call those easier, simpler times "pre-e-world". In the pre-e-world, opening an enterprise of strictly regional scope rarely if ever "bumped into" ownership rights of faraway businesses. A small, local gift or restaurant business would grow slowly, and develop a specific reputation, known as "good will", in relation to their selected trademark, whether they chose "BOXERS", "GARBONZOS", or "LEGACY". If the enterprise succeeded, and the owners elected to expand beyond a regional horizon, the enterprise would likely then decide to substantially enhance their exclusive rights in their trademark through registration of the mark with the U.S. Patent & Trademark Office. If one successfully achieves such federal registration, one is then entitled to use an ďRĒ in a circle as a superscript after the mark, and we have all seen many such famous trademarks. Federal registration also results in many other valuable rights. The application process includes an examination by Trademark Examining Attorneys of known marks to make sure the applicantís mark is not "confusingly similar" to any well-known or previously registered marks. If no such conflicting marks are found, the applicant's mark is then "published for opposition" in the "Official Gazette" of the U.S. Patent & Trademark Office.

Perhaps you're asking, why is this important? It is because the opposition process has laid the foundation for the modern-day cyber police on the internet. For thirty days after an applicant's mark has been published for opposition, a third party may oppose registration based upon the party's conclusion that the applicant's mark would be confusingly similar to a trademark of the third party. This process gave rise to an entire industry of trademark monitoring agencies, that have now mushroomed into the cyber police that can rock your boat. In the pre-e-world, larger businesses and their legal counsel delegated to trademark monitoring agencies the responsibility to "police their marks". For example and as actually happened, if a small, local and growing concern sought to register a trademark "TIFFANYS" for restaurants, the owner of the famous "TIFFANYS" jewelry store in New York City could have employed a trademark monitoring firm to alert the jewelry store of the Registration Application, and the jewelry store could elect to oppose the registration. Even worse, alerted to the attempted registration, the jewelry store could also file a civil action seeking damages from the restaurant for past infringing activities.

In the pre-e-world, these types of disputes were typically quite limited, because trademark owners had limited access to knowledge of potential infringers. The law of trademarks includes affirmative incentives for owners of trademarks to actually undertake such policing activities. That is because an underlying policy of trademark law is to protect the consuming public from confusion. For example, if a group of business travelers are required to stay exclusively at a specific chain of lodging facilities, such as "BEST WESTERN", they depend upon the trademark of the facilities to indicate a consistent level of services. However, if the travelers find themselves booked into a trademark infringing motel calling itself "BEST WESTERN" with dramatically sub-standard services, the public has thereby been confused to a substantial disadvantage. But, if an owner of a trademark permits such infringement, the owner has to a certain extent facilitated the deceit, because only the owner of the mark may bring an infringement suit to stop the confusion. Even worse, if the owner of a trademark continues to fail to take action to stop an infringement, the infringer gains an ever growing defense of "laches", or as is often said, "if you sleep on your rights too long, you may loose your rights". Consequently, vast fortunes hinge upon effective policing of trademarks, and in the true American spirit of innovative capitalism, ever more clever trademark monitoring entities have found ways to search the commercial landscape for intentional, black market, pirate infringers, counterfeiters, as well as the innocent, unwitting entrepreneur, caught in a legal spider web of truly dire consequences.

Moving now out of the pre-e-world into the present internet global community that facilitates greater ease of access to information with each passing nanosecond, it becomes immediately apparent how the internet has made the job of trademark policing dramatically easier and more potent than ever. Using the various available internet search engines for identification of words and phrases on-line gives rise to identification of potential infringers with remarkable ease. Think in particular, of how the money side of such an opportunity may work. Imagine the XYZ Trademark Law Firm of New York, NY, with 200 plus hungry, ambitious, talented trademark counsel looking for some productive work to fill the firms coffers, while representing twenty "Fortune 500" companies. It doesn't take much to see how "picking off" some small players are "win-win" situations. The typical scenario may involve a "BOXERS" type of entity slammed with a "cease-and-desist" letter with five demands. The infringer will very likely be informed by its own lawyer (for a fee!) that there are literally no meaningful defenses and therefore BOXERS should cordially negotiate out of usage of the trademark and perhaps the trademark owner will settle for only two of the five demands. XYZ not only gets its lawyers' fees paid by the infringer, the happy "FORTUNE 500" company gets a track record of successful enforcement of its trademark, which is valuable evidence to throw before a court if a subsequent infringer has the resources to push such a dispute into a court. While some defenses may arise for infringers in peculiar circumstances, the cost of trademark litigation is an additional and very substantial burden. Thus, such situations are both increasingly common, and increasingly lucrative for large trademark law firms. The trademark cyber cops are bad!

How can one avoid the cyber cops and nightmares related thereto? First, if your business is regional, and has no capacity or plans to expand substantially beyond Berkshire County, BEFORE putting a web-site on the internet, carefully explore potential trademark issues. One valuable resource for this is the trademark database available on-line by the U.S. Patent & Trademark Office at www.uspto.gov. Second, if your business is in the planning stage, or is planning to introduce new products or services under new trademarks, take great care in selecting a trademark that you can both own and enforce. Such an undertaking will uncover marks that your new mark may infringe, and you can thereby avoid investing in an infringement law suit. Third, if you have been using, or intend to use a mark that has acquired or should acquire substantial good will, endeavor to register the mark with the U.S. Patent & Trademark Office. If one can successfully register their mark, they will acquire the best possible protection against infringement concerns, and will best be able to exclude others on a regional, national and international basis from infringing their own mark.

While the internet has the potential to be a remarkable asset to most all businesses, it has also become in many ways a trap for the unwary. I know of a significant number of circumstances wherein a modest sized business from a remote location insisted their business would someday soon be nation-wide, and relying upon a federal trademark registration successfully constrained a smaller entity, when in fact the probability of any actual consumer confusion was exceedingly remote. So before showcasing your successful enterprise on-line, undertake a little work to make sure your on-line presence will truly advantage you, rather than the waiting and watching cyber cops and their trademark lawyer pals!

Copyright 2005, M. Chisholm

Attorney Malcolm Chisholm has been practicing patent, trademark and copyright law since 1992 in his Main St., Lee office, and has been an Adjunct Professor of Intellectual Property Law at Western New England College School of Law since 1989. He may be reached at www.mjcpatents.com