Recent Court Decision Creates Trademark Opportunity and Threat to Small Business

Tuesday, December 20th, 2016

It is often challenging and expensive for a small business to federally register a trademark, which is a product, service, or business name. That’s because it’s frequently hard to prove that the trademark is used in interstate commerce, which is required for federal registration.

A recent court decision effectively wiped out the interstate commerce requirement. Now small businesses should be able to federally register their trademarks without that expense and hassle. This creates an opportunity and threat for them.

Some background: You don’t have to register a trademark to have one. “Common law” trademark rights arise from just using your business, product, or service name.

If I sell hot dogs under the name “Fantabulous Franks” from a cart downtown, I would have common-law trademark rights to that name in my geographic market (probably several square blocks).

But if I can federally register my trademark, I get over 20 protection advantages for it. For example, I could expand my business across the country using its trademark-registered name. I would get “dibs” on using my business name in markets I haven’t yet reached.

The challenge, until recently, was proving to the Trademark Office that my hot-dog business operated in interstate commerce.

The Trademark Office has held that, to register a trademark for goods, the applicant must show that the goods were sold across a state line.

To register a trademark for the name of a service, you had to demonstrate how your provision of the service entered interstate commerce.

No more. The Court of Appeals for the Federal Circuit recently reversed a decision by the Trademark Office and wiped out those rules.

The Federal Circuit held that any commerce Congress can regulate meets the interstate commerce requirement for getting a trademark federally registered.

The courts have given Congress effectively unlimited power to regulate anything affecting commerce.

The Federal Circuit pointed to a case from the early 1940s in which the Supreme Court held that the federal government could penalize a farmer for growing more wheat than permitted by federal law. The Supreme Court held that, regardless of how the farmer used the wheat or whether he sold it only to in-state customers, producing that wheat affected the nationwide wheat supply and prices, which made the farmer’s wheat-growing something Congress could regulate under the Constitution’s Commerce Clause.

Because of the recent ruling, single-location businesses should be able to register their trademarks without the expense, hassle, and uncertainty of dealing with the interstate commerce requirement.

But this opportunity also is a threat to small business. There could be a small-business race to the Trademark Office.

The Trademark Office will not register any trademark that is likely to be confused with another registered trademark or one that was applied-for earlier.

Deciding what creates a “likelihood of confusion” largely depends upon looking at the similarity of the two trademarks and the similarity of the goods or services claimed in association with them. In trademarks, as in horseshoes and hand grenades, too close can kill you.

That means the small-business early bird will get the trademark registration worm. The first small business to register a trademark would block other small (and medium and large) businesses around the country from registering a confusingly similar trademark for the same or similar goods or services.

That registration worm could be valuable.

If you have a trademark registration, you can use it to expand your business and trademark use across the country and to shut down any unregistered trademark use you encounter along the way that creates a likelihood of consumer confusion.

For example, if I have a federal trademark registration for “Fantabulous Franks,” I could shut down use of similar names for restaurants and perhaps other food businesses as I grow across the country. Forcing another small business to rebrand could be fatal to it.

I could not shut down any trademark use that began before I applied for my trademark registration. But that other user would be locked into the geographic marketplace it served when I applied for my federal mark registration.

I could prevent that other business from expanding to new locations. I might be able to force it to retreat to a smaller geographic marketplace – to close locations.

There always has been a race to get to the Trademark Office first. Until now, many small businesses were blocked from entering that race because of the interstate-commerce requirement.

Now the race is open to everybody. There will be new winners and losers. Plan your race strategy accordingly.

Written on December 20, 2016

by John B. Farmer

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