By Steven Howard Roth
Starting a business is often an exciting and fulfilling endeavor. Perhaps you came up with an amazing new, innovative or revolutionary product or service that you’re absolutely sure will be a huge success, or you’re simply acquiring an already existing business or its assets with the desire to grow its value.
Regardless of the reason for the new venture, there is one thing that is for certain: starting and owning a business takes a lot of time, effort, and money.
While most new entrepreneurs are committed to putting in the time and effort to make their businesses successful, a well-intentioned desire to keep expenses low often leads to massive headaches and greater costs later on down the road.
To that end, many entrepreneurs frequently try to cut out the expense of retaining the services of necessary and invaluable professionals, such as attorneys and accountants and only invest in things that will provide them with a tangible return on their investment, such as inventory, product development, advertising and marketing, and branding.
Taking this approach, however, is an extraordinarily bad idea that could eventually bring down your entire business.
Starting a business is like building a home
Starting a business (or acquiring an existing business) is a lot like building a home. The foundation of a home is crucial to the strength and ultimate success of a house. It is the base of the home’s structure, upon which every other part of the home rests.
If you try to save money by using cheaper/inferior concrete than you should or take other shortcuts with the foundation, the foundation may fail, or, at the very least, will have serious flaws that lead to unbearably costly repairs in the future.
For a business, the foundation is the collection of actions/steps the company’s owner(s) take when it is first formed, including, but not limited to, the selection of the state of its formation, determination of the company’s organizational structure, drafting of the organizational documents (i.e. operating agreement, bylaws, close corporation agreement), election of the appropriate taxation option, and procurement of all requisite or advisable licenses and permits.
Failing to address all of the aforementioned items appropriately will cause cracks in your company’s foundation, which will only expand as the company grows, and eventually cause the foundation to break and cause everything you built to come tumbling down.
It may not happen next year or in five years, but it will eventually happen, and the longer the foundation is neglected, the worse the cost of rebuilding it will be when it fails.
Is your name/logo/symbol trademarked or infringing on one?
One area of a company’s “foundation” that almost always gets overlooked in the grand scheme of things is the company’s name.
Since a company’s name is such a big part of its identity and is one of the first things that entrepreneurs decide upon, it is ironic that it is such a huge pitfall.
People spend an extraordinary amount of time coming up with the perfect name, logo/symbol, or combination thereof to build a company’s identity around.
Unfortunately, the name decision-making process rarely takes into consideration whether the name/logo/symbol may be trademarked, how strong the trademark would be if it is eligible to receive protection, and whether the mark infringes upon another company’s mark.
Typically, the selection of a company’s name or the name of a new product only involves checking to see if it already exists by doing a brief internet search, which is only one of the many resources that should be utilized.
Taking this approach is a recipe for disaster, and frequently results in unintentional trademark infringement, because trademark infringement isn’t simply determined by whether you are using another company or person’s exact mark; it’s much more complicated.
The ‘McDonald’s vs. McDowell’s’
Ever seen the movie Coming to America, starring Eddie Murphy and Arsenio Hall? If so, you probably remember Cleo McDowell, the guy who owned the restaurant named McDowell’s, where Eddie Murphy’s character, Akeem, worked.
You may also remember that at one point in the film, Cleo mentions to Akeem and Semmi (Arsenio Hall’s character) that he has a little “misunderstanding” with the people at McDonald’s.
As Cleo explains, McDonald’s has the Golden Arches, whereas McDowell’s has the Golden Arcs. Likewise, McDonald’s has the Big Mac, and McDowell’s has the Big Mc.
While McDowell’s is slightly different than McDonald’s, the two restaurants are extremely similar, and there is certainly a reasonable likelihood that consumers would confuse the two brands as being the same thing, or, at the very least, affiliated.
Thus, even though McDowell’s is not using the McDonald’s name, its exact logo, or exact menu items, the company would still be liable to McDonald’s for trademark infringement.
Although the scene in the movie is extremely funny, it is fairly evident that Cleo McDowell knew what he was doing, which was hanging on the coattails of the McDonald’s brand.
Ignorance is not a defense to trademark infringement
In reality, most entrepreneurs don’t set out intending to or knowingly infringe on another company’s trademark.
Most often, it’s simply a result of lack of understanding and taking shortcuts when starting their business, such as trying to save money by not retaining knowledgeable business professionals, such as attorneys.
The cost of trademark infringement can be much more than damages alone
Ignorance, however, is not a defense to trademark infringement, so the consequences can be costly.
The issue with trademark infringement, especially for established companies, is that it’s not just a matter of potentially being liable for damages in connection with the trademark infringement itself; it’s the exorbitant cost of having to rebrand and the potential loss of goodwill, brand loyalty, and brand recognition that come with it.
Retain appropriate counsel at the outset and save yourself trouble down the road
Starting and building a business is a lot of work and requires a great deal of planning and investment, both in terms of money and time.
One of the most important, but often overlooked parts of that process, is selecting the name for the new company or product.
Failing to carefully evaluate and retain appropriate counsel from the very beginning is a potentially costly mistake that could leave a company in financial ruin later down the road.
Trademark law is extremely complex, so it’s imperative to set your company up for success by investing in it properly from the start.
The information presented in this post is not legal advice and does not form a lawyer/client relationship. Laws and circumstances can differ and change.
Please contact us for a personal review of your situation