Trademark Law Fundamentals and Related Franchising Issues

• Author: Rupert M. Barkoff, Andrew C. Selden
• Pages: 1-49

1

I. Overview of Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. Trademarks and Service Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

C. Trademark Value and Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

D. Licensing and Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

II. Overview of Trademark Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A. Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

B. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

C. Use of a Trademark for Registration Purposes . . . . . . . . . . . . . . . . . 6

D. Protectability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

E. Summary of Trademark Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

III. Selection of Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A. Choosing a Proper Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

B. Factors That Bear on Legal Protectability . . . . . . . . . . . . . . . . . . . . . 8

C. Strength of the Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

IV. Types of Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

A. Words, Letters, and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

B. Designs, Shapes, and Symbols . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

C. Colors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

D. Combinations of Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

E. Slogans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 7

F. Trade Dress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

V. Clearance of Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

A. The Search Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

B. Preliminary Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

C. Why Conduct a Search? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Trademark Law Fundamentals and

Related Franchising Issues

CHAPTER 1

William A. Finkelstein and Christopher P. Bussert

Contents

2 Fundamentals of Franchising

D. Contents of the Commercial Search . . . . . . . . . . . . . . . . . . . . . . . . . 22

E. Avoiding Adverse Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . 23

VI. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

A. State Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

B. Benefits of a Federal Registration on the Principal Register . . . . . . 24

C. Obtaining a Federal Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6

VII. Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

VIII. Enforcement of Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

A. Causes of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

B. Proof of Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

C. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

D. Policing Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

E. Policing Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

IX. Trademarks and the Franchise Relationship . . . . . . . . . . . . . . . . . . . . 37

A. When a Trademark License Is Necessary . . . . . . . . . . . . . . . . . . . . 3 7

B. When a Trademark License Is Not Necessary . . . . . . . . . . . . . . . . . 37

C. The Role of Trademarks in Different Types of Franchise Systems . . 37

X. Trademark Licensing in the Franchise Agreement . . . . . . . . . . . . . . . 38

A. Important Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

B. Typical Licensing Provisions in Franchise Agreements . . . . . . . . . 40

XI. International Trademark Protection . . . . . . . . . . . . . . . . . . . . . . . . . . 44

A. Trademark Rights Are Territorial . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

B. Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

C. Registrability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5

D. Clearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

E. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

F. Recordation of Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

G. Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

H. Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7

I. Summary of International Trademark Protection . . . . . . . . . . . . . . . 4 8

XII. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

This chapter focuses on trademark law as it relates to franchising. Among the major

issues addressed are the types, selection, and clearance of trademarks; state and

federal registration; enforcement of trademark rights; trademark licensing in the

franchise agreement; and international protection.

Chapter 1 Trademark Law Fundamentals and Related Franchising Issues 3

I. Overview of Concepts

A. Trademarks and Service Marks

Trademarks and service marks are at the heart of the modern day marketing of

consumer goods and services.1 Trademarks can be symbols, words, numerals, pic-

tures, slogans, colors, configurations, sounds, scents, the appearance of three-di-

mensional objects, or virtually any other indicia that identify the goods or services

of a particular party—be it a manufacturer, merchant, or provider of services—and

that distinguish these from the goods and services of others. Simply put, trademarks

and service marks help consumers select goods or services by identifying those that

have been satisfactory in the past while rejecting those that have not.

By identifying the source of goods or services, trademarks convey valuable in-

formation to consumers while reducing the costs (i.e., time, trial and error, and

inconvenience) of acquiring information about particular goods or services, since

consumers can come to rely on a trademark and the brand image it conveys. More-

over, trademarks fix responsibility, thereby inducing higher-quality goods and ser-

vices, and provide a framework for effective advertising.

B. Trade Names

A trade name is a word, name, symbol, device, or other designation that is distinc-

tive of a business and is used in a way that identifies the business and distinguishes

it from others.2 Thus, a trade name is the name by which a legal entity does business

or is known to franchisees, shareholders, the public, suppliers, or creditors. It is

usually the same as a corporate name, although this is not always the case, espe-

cially in situations involving assumed names, partnerships, or sole proprietors. It

often, but not necessarily, contains the key trademark of the franchise system. For

example, contrast Marriott International, Inc., owner of the “Marriott” trademark for

lodging services, with Doctor’s Associates, Inc., owner of the “Subway” trademark

for restaurant services.

C. Trademark Value and Goodwill

A well-recognized and respected trademark can become a business asset of incalcu-

lable value, usually referred to as goodwill.3 Goodwill in a trademark develops as a

1. For simplicity, the broader terminology “trademark” will frequently be used to de-

scribe both trademarks and service marks. A trademark identifies products, while either “trade-

mark” or “service mark” can be used to identify services. Frequently the same mark is used as

both a trademark (e.g., “Taco Bell” for burritos) and a service mark (e.g., “Taco Bell” for restau-

rant services).

2. RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 12 (1995).

3. DAVID A. AAKER & ERICH JOACHIMSTHALER, BRAND LEADERSHIP 19 (2000) (value of Coca-

Cola and Microsoft brands were estimated to be $83.8 billion and $56.7 billion, respectively).