We’re a VC firm – we don’t sell consumer products – why do we need to care about trademarks?
For any business, one’s good name is one of its most essential assets. That is especially true in venture capital, where, according to a 2004 study[1], firms with high reputations are much more likely than others to have their startup funding offers accepted. A VC firm’s name or logo is a symbol of its reputation, and trademark law protects the goodwill those identifiers embody.
As more and more VC firms and other financial services firms come into being, protecting the uniqueness of their names has become increasingly important. Indeed, as of May 2020, there are over 5,000 applications or registrations with the U.S. Patent and Trademark Office covering venture capital services.
Having a name that stands out from the crowd and protecting that name by trademark registration can help a VC firm safeguard its valuable reputation and position in the industry.
Choosing a Unique Distinctive Name
One of the most critical steps in the formation of a new VC firm is choosing a name. A VC firm should have a memorable name that differentiates itself from others in its field. Bad things can happen when a firm chooses a name like someone else’s. If the other business is hit with bad publicity, the similarly named firm’s reputation may suffer from such confusion, or it may have to spend time and effort explaining that it isn’t the guilty party. If a firm chooses a name like another’s, it could also face an infringement suit costing $1 million or more to defend, which is also very time-consuming and distracting to management’s attention.
Once a name is chosen, trademark counsel should do a thorough search at the outset to help minimize the risks of confusion and infringement claims. What is “infringement” is notoriously subjective, and trademark searching is an art. An experienced trademark lawyer won’t just give you a list of trademarks that came up in a search – he or she should give you an assessment of the risk and, where applicable, strategies for reducing it. Using a “low-cost,” cookie-cutter search service is false economy, and often will cost more in the long run.
When a firm is fixated on a particular name – whether because of its meaning, for sentimental reasons, or because a desirable domain name is for sale – that can complicate the selection process and increase expense. Too often the name that seems “perfect” is unavailable – because someone else thought it was “perfect,” too. There are workarounds like coexistence agreements, purchases of trademark rights, and licenses, but they always cost money and the firm often ends up with a name that’s far from unique.
It’s best to avoid names that describe what the firm does, because the law generally doesn’t allow businesses to monopolize descriptive terms as trademarks. Descriptive names like “Biotech Partners” or “Bay Area Ventures” can’t be protected as trademarks – if at all – unless they have developed enough recognition over time to have “secondary meaning” as brands. Instead, choose a distinctive name.
What matters most is to select a unique and distinctive name that the firm can own exclusively. Keep in mind that the meaning of a business name is not the one in the dictionary – it’s the meaning the people who make up the business put into it by developing a strong reputation.
Logos and Tag Lines are Trademarks, Too
Distinctive logos and tag lines also identify a business and its products, and they can be protected just like word trademarks. Before investing in a logo or tag line, it’s important to do appropriate searching, and applying for registration as with the name to ensure that you are well protected.
Benefits of Trademark Registration
Once the searching is done and the firm chooses a strong and unique name, it should take advantage of the protection of federal trademark registration. While trademark rights in the U.S. come from using a mark to identify one’s goods or services, a federal trademark registration enhances those rights with a number of legal benefits. They include:
- The nationwide right to use the mark for the services listed in the registration, with priority as of the filing date. Unregistered or “common law” trademark rights only extend as far as the geographic area in which the business trades.
- A legal presumption that the mark is valid and the registrant is its exclusive owner. This usually makes it easier and cheaper to pursue infringement claims in court.
- A public record of the registrant’s rights, which can discourage others from trying to adopt a similar mark.
- A defense against others’ claims of trademark infringement. As noted above, infringement cases can cost $1 million or more to defend, and a registration can help a business defeat a claim early or dissuade others from claiming infringement in the first place.
- Protection against registration of similar marks. The Patent and Trademark Office will refuse registration of marks that it finds are likely to cause confusion with earlier-filed marks.
- Constructive nationwide notice of the registrant’s rights as of the registration date, which keeps later users from trying to claim that they adopted their marks in good faith.
- A basis for seeking foreign registration of the mark – important for any business that operates outside the US.
- Enhanced monetary remedies when suing infringers in federal court.
- The right to use the ® symbol, denoting a federal registration.
While it’s not necessary to have a lawyer file a trademark application, the process is filled with pitfalls and traps for the unwary, so it’s best to have experienced trademark counsel do it. After an application is filed with the U.S. Patent and Trademark Office, an examining attorney will review it and search for conflicts with earlier-filed marks. It’s not unusual for examiners to raise issues about the application. Examiners may flag problems that may not exist in the real world – for example, an examiner may refuse a VC firm’s application because of a similarly named hedge fund or wealth management firm. Experienced trademark counsel can help anticipate and avoid those issues or address an examiner’s concerns.
Registrations will protect a mark for defined goods and services. Because VC firms provide advice to their portfolio companies as well as capital, we typically apply to register their marks for business advisory services as well as venture capital services. Where firms offer other services, like incubator services, educational seminars in a particular field, blogs, or podcasts, the trademark application should cover those, as well.
Protecting Your Trademarks Abroad
If you plan to conduct business outside the U.S. or license your mark to others, it’s important to protect your trademark by registering it in all foreign jurisdictions in which you plan to operate. Otherwise you could be at the mercy of trademark squatters, infringers, and unscrupulous local partners. International trademark protection doesn’t have to break the bank if done according to a well-thought out strategy.
Policing Your Brand
Once you’ve invested time and energy in developing your good name, you’ll want to protect that investment. If others adopt names like yours, that can cause confusion or harm to your reputation. Your trademark counsel can subscribe to a watch service that will identify applications for similar trademarks so that your counsel can take appropriate and swift action to defend your marks.
Your personnel and their contacts are on the front lines of your brand protection, so it’s important that they know what to do when they see a possible infringer. There should be a point person to whom they can report possible infringements, and who can then alert counsel.
If someone is infringing your trademark, it’s important to take quick action. If you delay, and the infringer itself starts to become invested in the mark, it will likely be harder to get it to find a new name. Also, if two businesses use a similar mark over a sustained period of time without substantial evidence of confusion, a court may decide that the marketplace has sorted out the difference between the two, and decide there’s no infringement. As a result, the brand loses its uniqueness, and becomes less valuable.
In Conclusion
Because it embodies the goodwill and reputation that a successful business develops over time, a trademark – whether a word, a logo, or a tag line – is one of a firm’s most important and valuable assets. Choosing a distinctive trademark, searching to ensure others aren’t using it, and registering it are important steps for every VC firm to take.
[1] D. Hsu, What do Entrepreneurs Pay for Venture Capital Affiliation, The Journal of Finance (Aug. 2004), p. 1085 https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.2004.00680.x (“Offers made by VCs with a high reputation are three times more likely to be accepted, and high-reputation VCs acquire start-up equity at a 10-14% discount.”).
The authors
