Preserving the right to nationally expand your brand

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As outside counsel for successful start-ups in the restaurant industry, we see the problem far too often. The restaurant entrepreneur invests hours to prepare for the successful launch of a new restaurant. There is no limit on the creative ideas (except for money). Everything goes into the new concept—décor, menu, ingredients and advertising—with nothing left for legal formalities such as trademark registration. “We’ll deal with that later, if we’re a success.” This can be a serious mistake.

Consider the tale of Kate, the operator of a successful bakery café in the Chicago area. She and her partner created a strong regional business over a few years. Then they decided it was time to expand. Unfortunately, that expansion was halted by the fact that another business in another part of the country had the same name.  The difference, however, is that the second comer—a junior good faith adopter in a remote location—obtained a federal trademark registration for the name, giving it nationwide rights. Kate was safe in her local region. She was first and the second adopter could not stop her prior use in its original area. But, the second comer could stop her expansion to the rest of the country.  

This scenario plays out repeatedly in the restaurant trade, including widely publicize reports involving the original Burger King in Mattoon, Illinois, and the original Wiener King in Maryland. Each involves a successful local restaurant whose expansion was hindered due to the operations of a second comer with the same name who was the first to obtain nationwide trademark protection.

How does this happen? When a restaurant or other business begins operation, it selects a name that is typically registered with the state of operation or incorporation as a corporate name. The state will not register a name that is the same as another name registered in that state. But state registration itself does not create enforceable trademark rights against others. The false belief that it does is a common misconception and business mistake.

In the United States, enforceable rights in a new business name arise from the combination of use and distinctiveness. The name must be used in a manner that brings it to the attention of the relevant public. It must be distinctive, meaning that the name serves to distinguish the services of one business from those of others in the minds of the relevant public.  

The name Chicago Bar for a bar in Chicago fails to the distinctness test since the name is merely generic.  The Monkey Bar would be much better in terms of distinguishing one establishment from another, provided that it is not already in use by others. Rights arising from use extend only to the area of established trade and reputation, and thus can be quite limited in geographic scope.

All this changes when a business obtains federal trademark registration for its name. Federal registration provides nationwide rights going back to the filing date of the application for trademark registration. Applications can be filed based on a bona fide intent to use the name, even before the name is in actual public use. As a result, it’s possible to obtain nationwide rights in the new name that predate the actual use of the name. The application date becomes the key point in time. Any use of the same or similar name for similar good and services after the application date could be a violation of the nationwide federal trademark rights.

The outcomes created by this system can be surprising. Suppose Mary plans to use the name Jungle Jim for a restaurant chain headquartered in St. Louis. Months before opening, she files an application for federal trademark registration for that name. A few months later (but before Mary actually begins operations), suppose John opens a restaurant called Jungle Jim in Chicago. Mary then begins operations and gets her federal trademark registration. In this scenario, although John seems to be the first user, Kate has secured nationwide rights and is entitled to expand into Chicago and prevent John’s use of the same name. Under our federal trademark system, Mary’s application counts as first use and ultimately provides the basis for nationwide rights over John.   

Consider a different outcome from a slight change of circumstances. Suppose Mary does not file for federal trademark registration, but merely starts using Jungle Jim for a restaurant in St. Louis. Months afterward, John starts in Chicago and applies for and eventually obtains federal trademark registration for the same name. Then both businesses decide to expand into Seattle. Who has the right to do so? Although Mary is the first to use the name, it is likely that her rights will be limited to her original location of St. Louis, while John will have the nationwide right to expand elsewhere.

These scenarios illustrate the power of obtaining federal trademark registration to preserve the right to expand your restaurant brand on a national basis.