10 Legal Considerations for Entrepreneurs – Part 4

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In Part 3, we covered business licenses and permits, working with employees and contractors, and the importance of written agreements. In this last part of the series, we’ll discuss other issues you should consider to help your business grow

9. Develop a System and Stay Organized.

Although this isn’t technically a legal tip, being organized and having a system in place to handle the operational aspects of your business can save you time, money, headaches and legal issues down the road. Ideally, your business affairs will always be in order so that someone could step in to run if for you if necessary. (Additionally, the more organized you are, the less time your professional team will have to spend sifting through shoeboxes to find crucial information.)      

Have a method to process orders, pay bills, pay employees, pay taxes, maintain your licenses, etc. Set up an accounting and record-keeping system so you can properly account for all business disbursements, payments received, invoices, accounts receivable/payable. Speak with an accountant about the taxes your new company is responsible for paying, and get copies of the IRS’s Tax Calendar for Small Businesses and Publications 334, Tax Guide for Small Business, and 583, Starting a Business and Keeping Records.  Keep important company documents in a safe place and have backup systems in place should anything happen to your physical work space or your electronic record systems.

10. Other Issues to Consider.

Business Plan. A business plan is not only a good idea to help you clearly outline your goals and ferret out potential opportunities, costs and obstacles, but it may be required if your business intends to seek a loan or venture capital funding.  The SBA and organizations specific to your profession/industry can provide helpful planning resources.

Insurance. As an entrepreneur, you should expect the unexpected.  You’ll want (and may be required) to obtain certain types of insurance for your business.  General business policies can cover everything from product liability to company vehicles.  You may want to obtain health and disability insurance for yourself and your employees.  You might also consider a personal umbrella policy.  You and the entity should both be named as insureds on any general liability insurance for the business, and the entity should also be the named insured on all property insurance covering any property owned or leased.  Contact an insurance agent or broker to answer questions and give you policy quotes.

Intellectual Property. Intellectual property — copyrights, trademarks, domain names, patents, trade secrets — can be some of the most valuable assets a company has.  Make sure that any intellectual property you create (or hire someone to create for you) or utilize in your business is properly protected.  You also want to make sure that you’re not infringing on a third party’s intellectual property rights. Consult with an intellectual property attorney to learn more.

Marketing. Getting your business legally sound is very important, but unless you get the word out about your new venture, customers won’t know what you offer or be able to find you. The more professional you look, the more likely customers are to feel comfortable working with you and your new business. All stationary, bills, invoices, etc. should be in the name of the entity rather than in your personal name. You should not use the stationary of the company for personal needs. You may want to have a logo created for your business, and you’ll want to make sure it’s not confusingly similar to anyone else’s logo and that you own the logo if someone else creates it for you. You’ll likely also want to have a website for your company. You should have an agreement with the web designer to ensure that you own the site and content (and domain name). You may also need to include Terms of Use, a Privacy Policy, and/or a Disclaimer on your site. If you are creating promotional materials, you’ll want to be sure you have the right to use images and other content you may want to include. You may want to create a marketing plan to help you develop business and perfect your image.

Support Team. Your new venture will be much more successful if you have a great support team around you. From family, friends and business partners to mentors, advisors and professional service providers, your team can make or break your endeavor.  These people will be your sounding board, your cheerleaders, and remind you that you’re not alone.

Starting a business is a thrilling and slightly overwhelming undertaking, but with a bit of planning (and some key professionals to help advise you), you could be up and running and playing by the rules in no time.

Can My Company Say “Super Bowl” in Our Super Bowl Ad?

football-player-260556_1280-2By now, you’ve probably seen and heard countless promotions mentioning “The Big Game”…but maybe you’ve never considered why they don’t just come out and say the actual name of the game.  Well, the term Super Bowl is a registered trademark owned by NFL Properties LLC.  And with advertisers spending $5 million or more on 30-second commercial spots for the Super Bowl, it’s little wonder that the NFL is so protective of its trademarks and copyrights.  (And, even if the price tag for an ad isn’t quite as high, the same is true for other big events and recognizable brands, such as the World Series, the Oscars, March Madness and the Final Four, the Emmys, the Grammys, and the Olympics.)

You might remember hearing about the Indiana church that received a cease and desist letter from the NFL related to its plan to project the game on a big screen and charge admission for a Super Bowl party in 2007.  Although it may seem harsh to go after a church, the letter (which had as much to do with the church’s use of the Super Bowl mark as it did with the church’s plans to show the game on a big screen) resulted in that church — as well as other churches that got wind of the letter — to cancel their plans.

Trademark owners have a duty to police their marks in order to avoid losing rights in the marks.  In other words, mark owners are legally required to protect against unauthorized uses of their marks, or they risk diminishing the value of their brands, damaging their goodwill, and weakening their marks and the value attached to those marks.  It would be pretty hard to justify the sponsorship fees and ad rates that “official” sponsors and advertisers pay if any of these mark owners allowed anyone else to benefit without having to shell out for that privilege.

And although sportscasters and news providers can say “Super Bowl” to talk about the game (thanks to a trademark fair use exception for criticism and news reporting), unless you are an approved, official sponsor, you’ll need to get creative instead of using the “Super Bowl” mark (or hashtag, for all you ambush marketer wannabes) to promote your products, services, or sales.

So, enjoy “The Big Game” and all of the “Star-Studded Red Carpet Events” during “Awards Season,” because “The Battle of The Brackets” in March will be here before you know it!

 

Social Media Terms of Use – Is Your Brand Following the Rules?

Advertisements and promotions on social media channels are a daily occurrence.  In addition to complying with traditional advertising rules and regulations, brands need to comply with each social media channel’s Terms of Use and advertising-specific rules.

NBC recently ran afoul of Facebook’s rules when it posted a three-minute clip from the latest episode of Saturday Night Live that began with a five-second ad for Subway.  The rules state that “Third-party advertisements on Pages are prohibited, without our prior permission.”  In other words, video clips with ads not sold by Facebook are not allowed…unless a brand enters into an agreement similar to typographic-poster-design-i-have-read-and-accept-the-terms-and-conditions_GJfTZN_dFacebook’s deal with the NFL that allows brands to run ads after clips are shown and gives Facebook takes a piece of the ad revenue.  Earlier this year, Facebook launched Anthology, which connects brands and digital media publishers (like Funny or Die, The Onion and Oh My Disney) to create branded content to be targeted and optimized through Facebook.

The Terms of Use and related policies for each social media channel (Twitter, Instagram, Facebook, etc.) can differ greatly and tend to change frequently. The Terms of Use often contain guidelines or rules for advertising and hosting contests, sweepstakes and other promotions through the social media channel, ownership and (restrictions on) use of content, rules (and prohibitions) for using native functionality (e.g., “share on your Timeline to enter”), and other important information. Some social media channels, such as YouTube, require you to obtain written permission from them before you can post ads or product placements.

Before your brand posts content on a social media channel, be sure to check the rules on each channel to make sure you’re in compliance.

 

What’s in a (Brand) Name?

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Choosing a name for your company, creative project, product or service is just as important as (and often more difficult than) naming a child or pet. Brands are so important that many big companies spend hundreds of thousands of dollars and months or even years on research, focus group testing and the like in attempts to find just the right name or logo for a new product or service.

Your brand distinguishes your products and services from your competitors’ products and services. But a brand is much more than just a name or logo.  Your brand also serves as a symbol of the quality, value, and reputation which customers and fans expect in products you sell and services you provide…not to mention the emotional connection customers and fans can develop with your brand.  For example, if we’re talking about driving a Beetle or listening to The Beatles, you probably don’t just think “car” or “band.”  Instead, you likely have thoughts and emotions related to your experiences with and perceptions of those brands — whether positive or negative.

With so much at stake, choosing a name that will resonate with your customers and fans and convey information about your product or service is important.  When brainstorming a name for your company, creative project, product or service, remember that not all brands are created equal … particularly when it comes to trademark protection.

Brands — also known as Trademarks (used on products) and Service Marks (used in connection with services) — include any word, name, symbol, or device, or any combination of these, used, or intended to be used, in commerce to identify and distinguish the goods or services of one entity from those sold or provided by others, and to indicate the source of the goods or services. Trademarks can include entity names, product names, logos, domain names, 800 numbers, slogans, phrases and tag lines, character names, band names, jingles, and trade dress, such as product configurations, color, packaging and store designs.  

The best marks are memorable, appealing and elicit desired responses.  The ultimate goal should be to find a mark that is uniquely yours — a mark that is not confusingly similar to an existing mark used for similar products or services (i.e., someone else beat you to the punch), one that suggests some connection with another organization or famous person, or one that consists of a person’s last name.  And it can take a village of marketing, artistic, business and legal types to find that perfect mark.

While searching for that perfect mark, you should keep in mind that some marks are stronger than others…

  • Generic terms are common names for products or services, such as SALT when used in connection with sodium chloride or THE CHOCOLATIER for a store providing chocolate candy.  These terms can never be protected as trademarks.
  • Descriptive marks describe an ingredient, quality, characteristic, function, feature, purpose or use of the product or service, such as SALTY used in connection with crackers or DALLAS.COM for a website providing tourism information about Dallas.  These marks are not initially protectable unless the owner can show that the mark has gained “secondary meaning” or “acquired distinctiveness” (proof that the mark has become distinctive of the mark owner’s goods or services) in the marketplace over time through extensive and substantially exclusive use.
  • Suggestive marks suggest some characteristic or nature of the product or service and require imagination, thought or perception to reach a conclusion as to the nature of those products or services, such as COPPERTONE for suntan lotion or BLOCKBUSTER for a video rental store. Although there can be a fine line between descriptive and suggestive marks, suggestive marks are automatically protected as trademarks because they are “inherently distinctive.”
  • Arbitrary marks are very strong marks because they have no relation to the product or service, such as APPLE for computers.   However, because these are real words, other companies may have also adopted the words as marks, such as APPLE VACATIONS.
  • Fanciful/coined marks are the strongest marks because they are made up words, such as XEROX for copiers or EXXON for gasoline, and consumers only associate the mark owner with selling that service or product.  

From a trademark protection perspective, fanciful/coined, arbitrary or suggestive marks are preferable to descriptive (protectable with acquired distinctiveness) or generic (never protectable) marks.  Many company, product and service names tend to be descriptive or suggestive because business owners attempt to quickly choose names that help consumers easily identify their products or services.  However, the more creativity you use in the naming process, the stronger the mark and the more likely you are to prevent third parties from being able to use the same or similar mark on similar (or even unrelated) products and services.

Before using or registering a name for your services or products, you should, at the very least, perform a quick “knockout” availability search to see if a third party may already be using the same or similar mark in connection with the same or similar products or services.  You should:

  • Check for entity names and state trademark registrations with Secretary of State Offices where business will be done.
  • Search the U.S. trademark database.
  • Perform a Google search to determine whether third parties have common law rights to the name.
  • Perform a WHOIS search to determine whether domain names are available (as brands typically want a corresponding web presence).

A mark is one of the most important words, phrases or designs you will use to represent your products or services to the world.  Although selecting a name may seem simple, trademark law is very nuanced and is often much more complex than it appears. Therefore, I believe it is a wise investment of resources to engage a trademark attorney to perform more sophisticated searches to determine whether your mark is available and inform you as to the potential risks associated with use and/or registration of your proposed mark.  (Note:  You can save yourself some time and money by performing knockout searches for your potential marks before asking an attorney to search a particular mark more thoroughly.)

Choosing a mark that’s already being used by a third party can result in cease and desist letters and trademark infringement lawsuits…potentially requiring you to abandon use of the mark, destroy all products and materials that depict the mark, and potentially even paying the third party mark owner profits gained from infringing uses of a mark as well as damages the mark owner may have incurred from such infringing use.  The last thing you want to do after spending a bunch of money to print business cards, stationery, packaging, advertising and goodness knows what else emblazoned with your mark is having to scrap everything and start from scratch with another mark.

Hiring a lawyer to guide you during the mark selection process can save you (potentially hundreds of) thousands of dollars and several headaches down the road.

 

Endorsements and Testimonials: Are You Following the Rules?

Does your company use endorsements or testimonials to promote its products or services on its website or in its advertising or marketing materials?  Do you allow customers to post on your social media pages or website?  Are you a blogger who reviews products or services?

When most people hear the words endorsement or testimonial, they likely imagine a celebrity or expert getting paid big bucks to talk about an “amazing” product or service.  And, they would be right.

However, if you answered “yes” to any of the questions above, then you likely need to comply with the Endorsement and Testimonial Guides issued by the Federal Trade Commission (“FTC”).

Examples of messages that constitute endorsements include a film critic’s review of a movie used in Excellent result on survey on blackboardan advertisement for the film, a well-known athlete using a certain brand of sporting equipment in an ad for that brand, and a positive product review posted by a consumer on her personal blog where the consumer received the product free as part of a network marketing program.

The Guides reflect three basic truth-in-advertising principles:

  1. Endorsements must be truthful and not misleading;
  2. If the advertiser doesn’t have proof that the endorser’s experience represents what consumers will achieve by using the product, the ad must clearly and conspicuously disclose the generally expected results in the depicted circumstances; and
  3. If there’s a connection between the endorser and the marketer of the product that would affect how people evaluate the endorsement, it should be disclosed.

In other words, endorsements:

  1. Must reflect the honest experience or opinion of the endorser (there are different rules for consumer, celebrity and expert endorsements, as well as for endorsements by organizations);
  2. May not contain representations or claims that would be deceptive, or could not be substantiated, if the advertiser made them directly; and
  3. Must disclose any material connection between the person endorsing a product or service and the company selling the product or service that might materially affect the weight or credibility of the endorsement (employee, relative, paid, etc. – even small incentives, such as free product for bloggers to sample, must be disclosed).

Although the Guides don’t mandate the specific wording of disclosures, the Guides states that disclosures “must be clear and conspicuous on all devices and platforms that consumers may use to view the ad”…even if there are only 140 characters available for the entire message.  For example, paid spokespeople must disclose that they are sponsored (#sponsored or #ad) or explicitly mention that they are working with the brand/company (e.g., I’m teaming up with [brand/company] to do X) on social media platforms, such as Twitter.

If you are a brand owner, use caution before you follow, friend, like, or engage with a celebrity, third-party trademark or brand. Do not imply that there is an affiliation between the brand/company and the user/celebrity/trademark/etc….especially when such a relationship doesn’t exist. (Most consumers will assume there is a relationship between the brand/company and the user/celebrity/trademark.)

For more information, see the FTC’s FAQs about endorsements and testimonials.

 

Unusual Trademarks Hiding in Plain Sight

Most people usually think of a trademark as a word, slogan or logo associated with a specific company, creative project, product or service (and often the quality of the products or services).  For example, some people strongly prefer consuming soft drinks labeled 220px-Pepsi_logo_svg  as opposed to coke-logo-1, while others would only buy tennis shoes marked with Nikeinstead of Adidas_Logoor logo_REEBOK_ICON_1 , and some may prefer this band  Rolling-Stones-Wallpaper-classic-rock-17732124-1024-768 to this one grateful_dead_bear-265x300.  However, a trademark can consist of almost anything that is used to identify and distinguish the goods or services of one entity from those manufactured, sold or provided by others. You might have a mark worthy of protection and don’t even realize it.  Perhaps your mark:

Sounds like a trademark…

There are registered marks for chimes, sayings associated with animated characters, and even theme songs.  Universal TV LLV has a registration that consists of “two musical notes, a strike and a rapid rearticulation of a perfect fifth pitch interval, which in the key of C sounds the notes C and G, struck concurrently” used in connection with the “entertainment services, namely, a series of on-going dramatic television programs”…although you probably know it better as the NBC Chimes.

Whether or not you eat carbs, you are likely familiar with the Pillsbury Doughboy.  If you’re reading this blog, you would likely recognize Yahoo!  And you might get excited when you hear this from your computer.  If you use a sound in connection with your products or services that (1) does not serve any functional purpose in connection with the products or services, (2) is not a natural by-product of the products or services, and (3) is not used by competitors or applicant’s industry in connection with the goods or services, you likely have something distinctive that consumers will associate with your products or services.  For more examples of sound marks, click here.

Smells like a trademark…

If Smead Manufacturing made apple cider, peppermint, vanilla, peach, lavender, and grapefruit scented lotion, they probably couldn’t protect the fragrance because it would be considered to serve a utilitarian purpose and be functional in connection with the product…but it’s a different story when those scents are used in connection with “office supplies, namely, file folders, hanging folders, paper expanding files.”  And, if you don’t like the smell of regular “medicated transdermal patches for the temporary relief of aches and pains of muscles and joints associated with arthritis, simple backaches, strains, bruises and sprains,” then you may want to try some that have “a minty scent by mixture of highly concentrated methyl salicylate (10wt%) and menthol (3wt%)”.

Looks like a trademark…

I don’t know of many women who wouldn’t immediately recognized a box or bag in a specific “shade of blue often referred to as robin’s-egg blue” as coming from the famous jeweler Tiffany & Co. The color pink for “foam insulation for use in building and construction” is registered to Owens-Corning Fiberglas Technology Inc. Of course, Coca-Cola has protected its iconic bottle designCoke_Bottle for decades…and the Oscar award statuetteAcademy_Award_trophyis also protected.

Feels like a trademark…

American Wholesale Wine & Spirits, Inc. has a mark which consists of “a velvet textured covering on the surface of a bottle of wine” for use in connection with wines.

Tastes like a trademark…????

Not yet…and potentially never.  The Trademark Trial and Appeal Board has observed that it is unclear how a flavor could function as a source indicator because flavor or taste generally performs a utilitarian function, and consumers generally have no access to a product’s flavor or taste prior to purchase.  In re N.V. Organon, 79 USPQ2d 1639 (TTAB 2006) (affirming refusal to register “an orange flavor” for “pharmaceuticals for human use, namely, antidepressants in quick-dissolving tablets and pills,” on the grounds that the proposed mark was functional under §2(e)(5) and failed to function as a mark within the meaning of §§1, 2, and 45 of the Trademark Act.).

Obtaining registration for some of these more unusual marks (usually categorized as trade dress) are more likely to require a showing of evidence of “acquired distinctiveness” (proof that the mark has become adequately associated in consumers’ minds with the mark owner’s goods or services) than more traditional marks.  However, don’t let that discourage you.  By opening your mind and looking for marks outside of the traditional name, logo or slogan categories, you just may find a sound, color, scent or other sensory trigger that strongly appeals to your customers or fans and turns out to be something that helps you stand out from the crowd and gets you a step ahead of the competition.