Article originally published on February 1, 2008 By Nevada Business Magazine

Perfume seller Jacqueline Tran of San Jose discovered the hard way that trademarks can be the most valuable asset a company owns. Wanting to cash in on the popularity of online commerce back in the late 1990s, Tran set up several Web sites using versions of the words “perfume” and “bay” as domain names. When she applied for a trademark for Perfumebay with the United States Patent and Trademark Office (PTO), however, she quickly found out that the road to online riches could be filled with dangerous potholes. Online auctioneer, eBay, learned of her application and filed legal opposition stating that perfumebay.comwould infringe upon its company trademark. Founded in 1995 by Pierre Omidyar, eBay has become one of the most recognizable trademarks in the country. With business conducted exclusively on the Internet, the company depends upon customers using that trademark name to connect with its Web site, ebay.com. As a registered trademark of the business, the mark eBay has become a household word that specifically identifies Omidyar’s online business.

Late last year, the United States Court of Appeals for the Ninth Circuit upheld rulings in favor of eBay noting that Tran could not use the mark Perfumebay because it could confuse customers into thinking that it was part of eBay. In protecting its trademark all through litigation, eBay was doing the appropriate thing, according to attorneys who specialize in intellectual property rights. “The brand only exists in the mind of the consumer, but it can be a company’s most valuable asset,” said Lauri Thompson, a shareholder at the law firm of Greenberg Traurig in Las Vegas.

What is a Trademark?

A trademark is a word, symbol or phrase used to identify a specific seller’s or manufacturer’s products from another. It makes it easier for a consumer to discern the origin of a producer and to have confidence in the results of its purchase. For example, an apple on a computer is a pretty good indication that the machine is manufactured by Apple Computer, Inc. and not by Dell Computer. Trademarks can be arbitrary, suggestive, descriptive or generic, but must be distinctive in their capacity to distinguish the product they are associated with. Arbitrary marks, such as Exxon, Kodak or the Nike swoosh, bear no logical relationship to their products but still serve to specifically identify them. Suggestive marks, such as Coppertone, hint at the product without actually naming it. Descriptive trademarks describe a characteristic of the product, such as All Bran or Holiday Inn. Generic marks describe the general category of the product, such as computer or stereo. Any trademark can become generic over time if it becomes the synonymous identifier of a particular type of product, such as Xerox (copiers) or Kleenex (facial tissue). While the first three categories of marks are protected in varying degrees by trademark laws, generic marks are not, because they are colloquial terms that are in general used to describe a type of product.

Trademarks were originally protected by state common law, but in the late 1800s the federal government stepped in with legislation that has steadily expanded over the years. Probably the most comprehensive body of law is the Trademark Act of 1946, also known as the Lanham Act, which defines rights to use marks, outlines the process for registering them, and enumerates the penalties for infringing upon them. “Trademark law exists to avoid confusion among consumers,” said West Allen, partner at Lewis and Roca LLP. “It arises out of the need for consumers to use recognized marks and symbols, such as an indication of source, quality and protection against false endorsement,” he added. Even though the law has been modified a number of times since its inception, more legislation is needed to reflect modern business practices, especially since the advent of the Internet. “Laws are always trailing behind technology,” explained Michael Stein, a partner at Snell & Wilmer law firm in Las Vegas.

Considering how valuable a trademark is to a business, it’s critical that the company do whatever it can to protect it, according to Susan Pitz, an associate with Hale Lane law firm in Las Vegas. Pitz reached a client that, after five years in business, experienced infringement of its trademark when another, competing business appeared with a very similar name. The second business was able to poach customers from Pitz’s client through the confusion that resulted from the similar names and services. “They [the second business] clearly went about using a similar name to trick consumers,” she said. Luckily for her client, Pitz was able to prevent further damage through a cease-and-desist letter, and thus, avoid expensive litigation.

When litigation does occur in cases of infringement (although attorneys admit that it’s rare), the primary standard is to determine whether confusion as to the source of the goods or services has resulted on the part of the consumer. Courts will consider the following:

• Strength and similarity of the marks;• Proximity of the goods;

• Similarity of marketing;

• Evidence of confusion;

• Defendant’s intent.

Although these factors are valuable tools for making a determination, intellectual property cases, such as trademark infringement, can be complex and unique. “It’s a mental challenge because cases hinge on such subtleties,” said Stein.

Aside from infringement, trademark owners can also sue for dilution because of blurring or tarnishment of their mark. A trademark can be blurred if it is used to identify a dissimilar product such as Polaroid shoes or Ralph Lauren cigarettes.

It can be tarnished if it is used in association with an inferior or objectionable product, such as a Bellagio brothel. “Where we have the most risk is because of our privileged gaming licenses referring to other gaming uses or objectionable content online,” Thompson said.

Counterfeiting and Piracy

Some of the largest and most egregious cases of trademark crime involve the overseas manufacture of such products as cigarettes, clothing, jewelry and watches which are branded with well-known trademarks, such as Coach, Rolex or Marlboro, and are then sold abroad or in this country as legitimate goods. “This is becoming more and more of a problem,” according to David Merrill, a partner who specializes in counterfeiting and piracy at Las Vegas-based Bailey Kennedy law firm. “Terrorist groups are using counterfeiting of trademarks to finance terrorist activities,” he said. When consumers buy knock-off goods at a fraction of the expected price, they support the proliferation of this type of crime. “You’re basically stealing from the trademark owner,” Merrill said. If a deal seems too good to be true, it probably is. “The everyday person just thinks that it’s a good deal but there’s a further reaching impact of this,” Merrill cautioned. Trademark counterfeiting and piracy have become ever more sophisticated in recent years, accounting for billions of dollars of revenue worldwide. Aside from eager buyers searching for bargains, the illegal enterprises are emboldened by insufficient law enforcement and the deficit of cases prosecuted under anti-counterfeiting laws. By contrast, the war on drugs is given much more oversight, according to Merrill.

Merrill recalled a typical case of his in which his client was a legitimate cigarette manufacturer whose trademark was being used on counterfeit cigarettes. Although he said that tracking down the people involved is often a difficult undertaking. “I accompanied the U.S. marshal to seize the goods,” he said. Counterfeit goods are often found at swap meets and, in the case of tobacco products, at small cigarette retail establishments. Although Merrill was able to get civil relief for his client without litigation, it represents just one case of many. This type of crime is likely to continue because the profits are large and the penalties almost nonexistent.

Cybersquatting and the Internet

With the proliferation of commerce on the Internet, the bar was raised on both the level of sophistication and the physical reach of trademark infringement. “Nobody realized the extent to which the Internet was going to change business,” Pitz said. “You didn’t think about protecting your rights back then.”

The Internet has expanded the world of trademark law by exposing marks to worldwide marketing channels and consumers in a manner that was previously impossible, according to Allen. The simplest form of infringement is cybersquatting, which is registering, selling or using a domain name in order to profit from somebody else’s trademark. Selling the domain name to the owner of the trademark at a large profit was considered a savvy business move in some circles years ago. The Anti-Cybersquatting Consumer Protection Act of 1999, however, clearly defines this as an illegal activity. As more and more businesses become aware of the value of domain names, this type of infringement is expected to decrease.

More insidious and sophisticated than cybersquatting is the practice of burying trademark names within the meta tags found in the HTML code of Web sites. Invisible to the Web page viewer, the tags contain information that is used by search engines to describe or index a page so that Internet users will be directed there based upon the information included in its description. Although designed to provide such necessary and innocuous information such as who created the page, how often it is updated and which key words represent the content, meta tags have also been used to misdirect Internet users to the wrong sites. If Pepsi were to bury “CocaCola” in the meta tags for its Web site, for example, users of some search engines could be directed to Pepsi when they were intending to go to CocaCola. “It’s no different than changing a sign on the freeway to misdirect people,” said Duane Frizell, as associate with Callister & Reynolds law firm in Las Vegas.

Trademark Protection

Because the risks of trademark infringement and dilution are very real to many businesses, attorneys emphasize the importance of protecting marks because they are a vital company asset. Ideally a business should first consult a trademark attorney before undertaking the investigative process of adopting a trademark. By doing an extensive search, the attorney can assure the client that the potential mark will not infringe on any others that are already in use. Once a mark is found to be suitable, it should be used in commerce and then registered with the PTO. Initial registrations are issued for 10 years, but in order to avoid cancellation after five years, the business must file an affidavit saying that the trademark is still in use. From then on, attorneys recommend businesses take the following steps to ensure the proper care and feeding of a trademark:

• Give public notice of your trademark rights by using the registered symbols recommended by the PTO.

• Use the mark as an adjective such as Kleenex facial tissue.

• Create a distinct style for the mark through bolding, underlining and capitalization to distinguish it from surrounding text.

• Affix the mark to the products and physical materials related to the business.

Trademark owners need to take responsibility for maintaining their marks by being vigilant against any potential cases of infringement. This is most easily accomplished through a watch service that will regularly check for improper uses online and also monitor new registrations. Business owners should make the effort to educate themselves about their Web pages, rather than leaving all the decisions to their Web masters. To discourage the proliferation of infringement, mark owners should also be willing to enforce violations, even if it means litigation.

For business startups, it makes sense to consult intellectual property specialists as part of the initial business planning process. New enterprises have the advantage of doing things properly by following the rules that will protect their assets and keep them out of court. Having the foresight to plan ahead is critical, according to Pitz. “We try to do things on the front end so you don’t end up in litigation,” she explained.