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.
We see two key reasons why restaurants fail to take the simple step of seeking federal trademark registration. First, there is lack of knowledge. They do not realize the importance of federal registration or even know that it is available for a restaurant business. They may wrongly believe that trademark protection only applies to hot dogs and soap and other goods.
The second reason is fear. Fear that the process is difficult. Fear that it will be expensive. After all, they have heard that it costs thousands of dollars for inventors to file for a patent, and aren’t trademarks the same thing?
In reality, the trademark application process is much easier and cheaper than the process for obtaining a patent. The application process involves the completion of a short online form available at the U.S. Patent and Trademark Office (www.uspto.gov).
Legal assistance for filing and application is usually available for less than $1000, including the governmental filing fee charged by the Trademark Office. Additional fees may apply for responding to questions from the Trademark Office and for additional filings to obtain and maintain the final registration. All told, however, the cost is relatively small compared to the value gained by preserving the right to nationwide expansion and use of the new name.
To preserve your right to national expansion of your new restaurant brand, consider these best practices:
1. Select a distinctive name. Avoid names that are generic or merely descriptive if your goal is to create an exclusive national brand. From perspective of trademark protection, Jungle Jim or Monkey Bar and more distinctive and enforceable that New York Grill or Chicago Bar.
2. Conduct a clearance search. The purpose of a search is to determine if the same or similar name is already used by or registered to others. Simple searches can be done online using a search engine such as Google or Bing and by search the trademark registration records as the Trademark Office.
3. Obtain a matching URL. Once you’ve settled on a few goods names it is wise to obtain the matching domain names to avoid have others learn about your plans and seize the domain name before you do. Domain names are quickly and cheaply obtained through a registrar such as Go Daddy or Network Solutions.
4. File an Intent to Use application. You do not need to wait until later to apply for trademark registration. You can file early based on a bona fide intent to use the name. One of the benefits of early application is that federal registration provides nationwide rights back to the date of filing. This can be critical to your plans for expansion in the crowded restaurant field.
5. Maintain and renew your registration. Once registration issues there are several key dates in the future when you will need to show continued use of the name and renew the registration to avoid lose of your registered rights. Be sure to track those dates for future action. Otherwise your registration—and the nationwide rights that go with it—can be lost.
6. Enforce your rights. The exclusivity afforded by your registered trademark is valuable and should be enforced to protect your brand and reputation. Fortunately, enforcement tends to be easier and cheaper if your objections to similar names are back by a valid federal registration. Often a clearly worded letter from your attorney will be enough.
By following these practices, you can help protect your right to expand your successful restaurant operations nationally, preserve your potential to license and franchise your brand, and enhance the value of your business to potential investors and acquisition partners.
Mark Partridge is the founder of Partridge IP Law, a Chicago-based law and IP strategy firm. He has worked in intellectual property law for more than 30 years and was named one of the top trademark lawyers in the 2012 edition of The International Who’s Who of Trademark Lawyers.