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Phillip A. Nicolosi, J.D.

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Domain Names

6 Startup Branding Mistakes To Avoid!

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Startup Branding Mistakes

Undoubtedly, one of the most important aspects of any business is its branding. New entrepreneurs and startups have a laundry list of brand protection concerns to navigate in the beginning. Simply put, a startup can make catastrophic branding mistakes in the beginning that it may not recover from. The following branding mistakes are focused on brand protection from a legal standpoint and should be avoided by any startup or existing business trying to establish a new brand.

1. Not Choosing A Business Name That Functions As A Trademark 

Business trade names differentiate one business from another. They should not be confused with trademarks or service marks, which identify the actual goods or services in commerce. As a hypothetical example, Acme Holdings, Inc. may use the name “Acme Widgets” when holding itself out to the public. Acme Holdings, Inc. would be the legal name whereas Acme Widgets would be the trade name. Trade names are not eligible for state or federal registration since a trade name, by itself, cannot be protected. In fact, a clear distinction is made between trade names and trademarks by the United States Patent & Trademark Office (USPTO). A trade name which is used in commerce to identify the goods or services being offered is also a trademark and can receive state and federal protection and all the benefits that come with registration.

Businesses should generally choose a business trade name that functions as a trademark. In order to select a strong trade name, you need to know the characteristics of a good trademark. You basically need to know which names are protectable and the degree of protection certain types of names provide over others. Trademarks are grouped into four distinct categories: a) generic, b) descriptive, c) suggestive and d) arbitrary or fanciful. Only suggestive or arbitrary/fanciful marks receive automatic protection. Generic marks receive no protection while descriptive marks must acquire “secondary meaning” to  be eligible for protection. 

2. Forgetting To Search, Search, Search…

After you have settled on a brand name for your business or a separate product or service brand, make sure it doesn’t infringe upon the rights of an existing trademark or service mark holder. Brand names should obviously be as unique as possible anyways. But, misstep here can lead to your business receiving a cease and desist letter from a brand owner that has already been using the same or a substantially similar brand in commerce first. Your business will be forced to start from scratch and will have potentially wasted a great deal of time and money for a negative return.

The method for searching state registered trademarks will vary from state to state, but is generally handled through the secretary of state of each state. Federal searches can be conducted through the trademark Electronic Search System (TESS) provided by the United States Patent and Trademark Office’s (USPTO) official Web site at www.uspto.gov. Brand owners can perform a basic trademark search of words, designs or a combination of both using the TESS protocol.

You should also perform a common law trademark search. A trademark that has not been registered with the state or federal government is a common law trademark. The rule is first to use the mark in commerce has priority in the geographic location where the mark is being used. The first place to start of course is by conduction a comprehensive search engine review for competing or similar businesses using the mark.  Then, prominent business and trade directories, Dun & Bradstreet’s website (www.dnb.com), the Thomas Register (www.thomasregister.com), etc. should be thoroughly searched. See my previous post on the basics of trademark searches for more details.

However, these steps should really be skipped altogether by any business and a trademark attorney should be hired instead. There are also plenty of reputable companies out there that will perform a comprehensive search. An attorney will cost more, but you have the benefit of a legal opinion from a professional.

3. Assuming Business Organization Provides Trademark Protection

A big mistake startups make regarding choosing a business name is the false belief that business organization at the state level provides protection of the business name as a trademark or service mark. The state you organize under only does a name check to prevent the filing of multiple entities with the same name with that state. But, this does not secure any intellectual property rights to the business name. Startups should understand that even within the same state there may be different types of entities, such as limited partnerships and LLCs, as well as sole proprietorships or partnerships using the same name that do not show up on a corporate name check by the Secretary of State. Organization does not secure your right to the business name nor does it protect you from claims of infringement by a prior user of the name.

4.  Forgetting About The Domain Name(s)!

After the brand name is confidently deemed to be safe, the corresponding domain name should be selected, especially for the business’s trade name. Brand owners don’t necessarily need to worry about anything beyond obvious domains, such as the .com, .net and perhaps the .info versions of the brand/business name. Any obvious misspellings or plural .com versions of the domain should also be considered. What about .sucks and all the new top level domains? Generally speaking, securing every iteration of your brand domain is not cost effective or even necessary. 

Many domain names pointing to commercial websites do not function as trademarks or service marks. The United States Patent & Trademark Office (“USPTO”) has determined that use of a domain name as a reference directing traffic to a website does not amount to what is known as a “source identifier.” In other words, the USPTO will reject applications to register domain names as trademarks or service marks unless the domain identifies the source of some goods or services.

This means that in terms of brand identity and protection, you should consider using your business’s trade name as your website domain name. Of course, this is provided that your business trade name also functions as either a trademark or a service mark. In addition, confusingly similar domain names or other relevant names should be purchased and registered upon the formation of your business entity. It’s much better to spend a few more dollars in the beginning then losing business revenue down the road that will far exceed these extra costs. You should also register your domain as a .net and/or .info and also register any misspellings of your domain name that you think could frequently occur (the only other commercially relevant top level domain you may want to consider are .biz and .tv). Then, point all of these domains to your business’s main website in order to “catch” visitors who might use these other domain names.

SEO professionals might advise that you choose a domain name based on relevant and popular keyword searches. Having a domain name based upon keywords can be very powerful for SEO purposes. While SEO is far beyond the scope of my general knowledge, I felt this was worth mentioning so you understand that there are certainly pros and cons of choosing your domain name strictly with an eye toward securing a strong business trade name.

5.  Failing To Secure Intellectual Property Rights

The main rule all startups and existing business must understand is that If you are not the actual creator of a logo or other creative work, then the only way that you can acquire exclusive rights to the work is by having a signed and legally sufficient writing transferring some or all of those rights exclusively to you or your business.   Under the concept of a ‘work for hire’, all of the attributes of copyright ownership vest in the hiring party, not the creator or author. There are only two situations in which a work for hire exists legally: (1) a work created by an independent contractor; and a (2) work prepared by an employee within the scope of his/her employment. 

The question of whether a business owns whatever freelance contractors create is the critical legal concern with using these freelance providers. Using a freelance contractor found through Odesk (now Upwork), Elance or Fiverr creates a valid work for hire agreement. The short answer is that the terms of service contained on these popular freelance sites provide that the creator transfers copyright ownership to the hiring party upon job completion and successful payment in full. An agreement signed directly by the creator under a work-for-hire situation would obviously leave no doubt whether the creator intended to retain ownership of any work(s).

Your business should ask all freelance designers to sign a simple Work for Hire Agreement. A work for hire agreement should absolutely be signed by your freelance designers if they have not previously agreed to such terms directly through a freelance provider forum. 

What About Using Licenses Instead?

A copyright is essentially a bundle of rights. Thus, agreements involving the creator licensing various rights to use the work, but retaining all other rights, can be entered into.  You don’t have to sign a work made or hire arrangement legally. If the designer is not an actual employee, the parties have flexibility in the type of agreement that can be reached. Licenses to use the content in a certain way for certain periods of time and which includes other rights can be used freely. But, again, you should still try to secure the full bundle of rights by a valid work made for hire agreement.

6. Not Using Your Mark In Commerce Or Reserving Future Rights To Use

Once you have created your mark, you should prominently and continually use it in commerce, once you have begun conducting business. Ultimate priority of protection is given to whoever establishes the same or confusingly similar mark first in commerce. A trademark is not eligible for protection without actual use in commerce. However, when a business is not ready to use its brand in commerce, the USPTO permits “intent to use” the mark in commerce as the basis for federal registration. There are a variety of ways a business can properly establish use of any mark in commerce so that it is eligible for registration. Examples would include display of the mark on the product label or packaging, on business cards, letterhead or advertisements, on websites and social media pages, even on the goods itself. For service marks, examples may include use on business cards, letterhead, on websites and social media pages, brochures, flyers or advertisements. The bottom line is that brand owners should either use the brand mark in commerce as soon as possible or file an intent to use trademark application with the USPTO, or risk losing the right to use the brand in commerce before even getting started! 

2 ICANN Domain Name Policies Affecting Brand Owners

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ICANN Domain Name Policy Concerns

As an attorney representing businesses with a robust online presence, I have seen both the good and the bad from ICANN. In case you are unfamiliar with ICANN, it is the non-profit organization that governs domain names and the Internet. I generally think the organization does a great job and we clearly need some regulatory oversight in place to protect brand owners and ensure a fluid and free Internet. However, there are some ICANN domain name policies that negatively affect the business community and brand owners in particular. I have kept track of my own thoughts based on past experiences filing Uniform Domain Name Dispute Resolution Policy (UDRP) complaints and dealing with other domain related issues.

The following is a summary of 2 important domain name issues that brand owners should be informed about.

1. The threshold to demonstrate UDRP ‘Bad Faith Registration’

The current UDRP fast track process, which is a crucial domain recovery tool, gives brand owners no recourse much of the time. The argument for allowing trademark or service mark owners the unfettered right to the corresponding domain or confusingly similar domain are pretty clear cut. However, in order for a trademark or service mark holder to recover a domain name via a UDRP action, it must show both bad faith registration and use of the domain. This hasn’t always been easy to do.

The domain would not likely have value but for the efforts of the holder of the underlying mark. Brand owners are essentially being punished for not being first in time to secure the corresponding domain name when they have been the only ones to develop the brand in commerce. If a brand owner can demonstrate legitimate and continuous use of the corresponding mark in commerce qualifying for brand protection under existing U.S. law, the brand owner should be presumed to have an exclusive interest in and to the identical or a confusingly similar domain. The evidentiary burden could then should shift to the respondent to demonstrate legitimate use made in good faith. In other words, it would help brand owners if UDRP rules eliminated showing bad faith registration entirely.

Recently, arbitration panels have begun to be persuaded by “retroactive bad faith registration” arguments. This has certainly helped more brand owners recover their domains. But, this has not been consistent. What happens to the businesses that have carefully cultivated their brand in commerce, yet cannot recover the corresponding domain name from a host provider due to the inability to demonstrate bad faith registration? The domain in this case is registered and never used in any capacity by the registrant prior to the establishment of the brand in commerce. The brand owner may be forced to file a federal lawsuit under the Anticybersquatting Act, which also requires a showing of bad faith. 

What about when an a disgruntled employee or ex-spouse or girlfriend registered your small business’s domain and listed herself or himself as the registrant? The domain may not have been registered in bad faith at the time or used in bad faith now other than a refusal to cede control, and proving this could be difficult. Of course, even a UDRP suit filed by a qualified attorney will cost on average $2500-$5000. Resorting to filing a federal lawsuit to recover the domain would likely be far more expensive.

Search engine ramifications along with general branding dilution are big concerns to all businesses. The UDRP policy, while an excellent solution, is not without some flaws and understanding the issues that surround domain name branding can prevent a ton of future problems.

The lesson to brand owners is pretty simple: secure your domain as early as possible and maintain control as the registrant at all times.

2. The creation of so many new gTLDs

I wrote about this in an earlier post. ICANN has sanctioned many new generic top-level domain names (gTLDs) that have had the cumulative effect of diluting a given brand. Brand owners who have spent capital and cultivated the brand face a dilution of their brand online. The brand can now have numerous top level endings, such as yourbrand.guru, yourbrand.sucks, yourbrand.attorney, etc. The list is expansive and there is seemingly no end in sight.

There are sunrise registration periods for registered trademark owners to reserve and secure a new top-level domain before they are released. The “Sunrise Period” is the time during which a trademark owner who has registered their mark(s) in ICANN’s Trademark Clearinghouse can register a corresponding gTLD first. After the Sunrise Period closes, registrations will be on a first-come/first-served basis. This means that trademark registration will not prevent some third party to register it before the brand owner has the opportunity to do so. But, it may be too late for many unregistered mark holder to register in time and take advantage of any sunrise periods.

The resources and energy spent policing the Internet and determining how to prevent or address dilution and infringement will certainly not be cost-effective for many small to medium sized businesses. The market has already dictated that .com has been the gold standard in gTLDs and while there is certainly room for other gTLDs, releasing a new gTLD seemingly every week is a bit much.

The bigger problem lies with the availability of gTLDs such as the .sucks and .porn top-level domain names. The implications of allowing yourbrand.sucks to be registered by a third-party are obvious.  Using the domain in a legitimate, non-commercial manner would likely be considered to be free speech, not infringement of a brand owner’s mark. Under the current UDRP process, an offending domain does not necessarily have to be used in commerce to demonstrate bad faith on the part of the registrant. However, the element of bad faith must still be shown and using the domain as a critical forum won’t rise to that level. Such use diminishes the underlying brand. It was extremely expensive to reserve a . sucks domain during the sunrise period ($2499 for the standard option). Not to mention that the underlying mark must also be a registered trademark or service mark. This certainly places small to medium sized companies at a disadvantage. (This is why I actually recommend not purchasing yourbrand.sucks for most clients and focus that money and energy on building a great brand instead. Spending less money on some other much cheaper top level variations depends. It may make sense for the recording studio to secure its company name with a top level domain such as .music or a law firm to secure .attorney, for example. )

On the other hand, some of my clients view the onslaught of so many new gTLDs as marketing opportunities. Specific niche top level domains such as .music or .attorney to provide unique advertising and branding opportunities. But, the onslaught of so many top level domains cannot be considered to have an overall net positive effect on established brand owners.

Transition of U.S. oversight of ICANN

The Obama administration has set out to cede oversight of ICANN to a global multi-stakeholder body. Any attempts at reforming ICANN to better serve overall U.S. commerce (and global commerce) must begin with a concentrated effort to keep it under U.S. control. Proponents of ceding control argue that the fragmented system we have in place now doesn’t benefit anyone. With all do respect to other nations, its hard to imagine that an organization so critical to global commerce would be better off being controlled by anyone other than the U.S. exclusively. Even President Clinton has recently defended our continued control over ICANN and has pointed out that the U.S. “has been by far the country most committed to keeping the Internet free and open and uninterrupted.” Our First Amendment freedoms and culture of anti-censorship may put the U.S. in the best position to benefit the global community. Should the rest of the world desire to fix what isn’t broken in terms of oversight? Reforms should be made, but the economy that leads the world and is impacted the most by the ICANN policies from many different standpoints should remain squarely in control.