By: Gabriella Falcone
March 2018
Creating a name for a startup company is a daunting task for entrepreneurs. With such a decision comes countless hours of research, efforts to incorporate the business entity, and securing intellectual property rights to ensure that others will not use the same name. For the entrepreneur, trademark registration of a company name symbolizes a weight lifted from their shoulders, as it officially signals that the name is theirs. What they do not realize, however, is that the name will not remain theirs if trademark trolls have the final say.
Trademark Trolls Explained
Unfortunately for startups, many large companies with deep pockets often engage in needless litigation to prevent anyone and everyone from using even remotely similar trademark names. There are two common tactics utilized by trademark trolls to beware of. The first tactic is more opportunistic and involves companies who register trademarks with no intent to actually use them. Such companies use the trademark as leverage in keeping an eye out for companies using similar marks in an attempt to charge them licensing fees. The second tactic, which is more concerning for startup companies, involves large companies who threaten to sue anyone using a similar mark for trademark infringement. [1]
To anyone with a basic understanding of intellectual property law, the idea of trademark trolling is absurd, largely because in the eyes of the law, there is no merit to many claims that the simple use of a word in a completely unrelated market infringes the rights of another holder of rights in that word. The right to sue for trademark infringement exists to protect owners’ rights and to protect the public from unfair competition. However, for startup companies, the threat of such frivolous litigation can be catastrophic. Startups often do not have the funds or legal resources necessary to combat the litigation, and are forced to allow the large company trademark trolls to bully them into cessation of using the name.
USPTO Study
In a recent study, the United States Patent and Trademark Office’s Report to Congress on Trademark Litigation Tactics defined a trademark troll or bully as a trademark owner who uses its rights to harass or intimidate other businesses beyond the scope of what the law is reasonably interpreted to permit. [2] In this study, the USPTO acknowledged from data gathered by attorneys, professors, and businesses of all sizes that aggressive litigation and pre-litigation tactics by trademark bullies are often targeted at small businesses. [3] Such aggressive tactics include threatening cease and desist letters alleging that use of a name infringes the accuser’s trademark, as well as the filing of lawsuits. In many instances, these tactics scare the smaller businesses away from continuing to use the name in fear of retaliation by the larger trademark owner. This fear largely stems from the lack of resources available to fight back against the accusing party.
The Problem with Proving Infringement
From the perspective of a lawyer who can comprehend what is necessary to establish and fight a trademark infringement case, trademark trolls do not pose a major legal threat simply because their allegations often do not hold much strength. Under the Lanham Act, in order to prove trademark infringement, a trademark holder must show (1) that they have a valid trademark; (2) that someone else used their mark in commerce; and (3) that such use is likely to cause confusion to consumers as to the source of the goods or services of the mark. [4] Factors relevant to whether a trademark is likely to cause confusion include the strength of the mark being infringed, how similar the two marks are, evidence of confusion, etc.[5] The element of confusion is where trademark trolls will often fall short. Many trademark trolls sue or threaten to sue anyone who simply uses a singular word present in their trademarks. In instances where they sue companies completely outside of their relevant industry or market, it seems highly unlikely that confusion could be possible.
To illustrate this problem, many point to companies like Monster Beverage as a classic example of a trademark troll. Monster has filed more trademark infringement suits than most companies in the United States. They take their tactics to the extreme of suing anyone who attempts to use the word Monster. For example, Monster recently sued MonsterFishKeepers, an online forum that allows users to discuss fish. A rational person would likely never confuse an aquarium-oriented online forum with a corporate giant known for its energy drinks just because the two happen to have the word “Monster” in their names. Nevertheless, Monster Beverage persisted with aggressive cease and desist letters and threatened litigation to make them stop using Monster in their name. [6] Additionally, in January 2018 alone, Monster sued at least five companies for use of the word Monster in trademark applications. Two of these applications include “Mini Monster” in the restaurant industry, and “Monster Equipment” in the auto industry. [7]
In addition, Travelers Insurance is known for its bullying of companies who use umbrellas in their logos. Though they belong to the property and casualty insurance market, Travelers has gone so far as to challenge the use of umbrellas in marks by software companies, as well as health and nutritional based companies. It is highly unlikely that a consumer seeking to buy a nutritional supplement from a small company could potentially be confused into thinking they were buying said supplements from a large property insurance company solely because both companies have umbrellas in their logos. [8]
The Effect on Startup Companies
On the surface, receiving a cease and desist letter to stop use of a trademark because it could potentially infringe on someone else’s mark may not be concerning to most, especially if the infringement allegation has no merit. Additionally, larger, deep-pocketed companies with access to legal resources can afford to fight back against such claims. However, it is not the merit of the case that poses problems for entrepreneurs and startup companies; it is the cost involved in proving that such accusations are meritless. The legal fees associated with doing so can start as high as hundreds of thousands of dollars depending on the profile and duration of a case. The American Intellectual Property Law Association estimates that such litigation can cost a company up to $25 million to dispute. [9] For a startup company just getting off the ground, legal fees this high are enough to put them out of business before the business even takes off.
There is unfortunately no concrete answer as to how to ease the entrepreneurial concern of being retaliated against by a trademark troll. With this in mind, the best advice to give to an entrepreneur starting a business is to trademark a name and logo that is as unique as possible, and try as hard as possible to ensure that nobody has ever used it before. Obviously, this is easier said than done.