Category: Arts Law

Trademark Research and Trademark Clearance – A Primer

We previously discussed trademarks in general and how they are used by businesses to distinguish their brand of product or service.  In this post, we will discuss the trademark clearance process.

Trademark Clearance

Trademark clearance is the process of evaluating potential brand names against existing brand names or designs that are in use in commerce.  Trademark clearance is important for two main reasons.  First, it is of no use to a new brand to overlap with the brand name of another business that is already being used in commerce.  This will tend to lead to consumer confusion about who makes your product.  Second, if another business is already using a particular mark, you run the risk of nasty letters from that business’ attorney, and potentially a lawsuit for infringement and/or dilution of that mark.  If you have already committed substantial money to develop and market a particular brand name, then discover that your mark is already in use by another in the same market area, not only will you lose the money invested in your marketing, but you could be sued.

You should always talk with an attorney licensed in your state before making decisions about your brand or design mark.

Market Research

Generally, a person starting out in business should conduct some research on similar or competing businesses that are already established in the market place.  For example, if you wanted to start a new information technology company that virtualizes physical servers, you would want to find out if there are other businesses with that kind of technology.  VMWare and Microsoft are major players in this market.  You would then want to take a look at the brand names that these companies use to distinguish their software for virtualization.  For example, Microsoft uses a brand name, “Hyper-V” or “Hyper-V Server” for this product offering.  VMWare uses a number of individual brand names for its suite of products.  You will note, however, that each one of these names begins with a lower case “v.”  This business also uses “VMWare” itself as a brand name when you peruse their marketing materials.

From this preliminary research, you would likely rule out a product name that included “Hyper-V” or “VM” or “VMWare” in your name.  You will also note that a lot of the literature on virtualization uses the marketing concept of “cloud” or “cloud computing.”  It is possible that there are companies that develop virtualization software that include the word “cloud” or “cloud computing” in their brand name.  For example, a google search for “cloud computing” turns up a paid ad for Oracle, HP, and a link to IBM’s web site.  So, “cloud” may also not make sense to be a part of your software’s brand name or identity.  You might also rule out starting out your product branding with the lower case letter “v,” as VMWare may enjoy “family of marks” protection.

Knowing what’s in use in the market can help you start thinking about how to describe your product, and how you want to distinguish your software from the existing companies that make this kind of software.  Understanding the words that are commonly used by customers or businesses that offer similar services to your new business will help you to get into the mindset for branding your company’s product or service.

Potential Brand Names

From here, you would want to work on developing a list of potential brand names for your product.  As you may be aware, the law recognizes varying degrees of protection for marks on a sliding scale.  Brands or marks that are merely descriptive of a product or service generally cannot be registered, except under specific circumstances (that the brand has been used in commerce for long enough to develop a secondary meaning).  Also, marks that are generic, which is, that tend to represent a category of goods (think “Thermos” which about 100 years ago was a trademark that became so effective that everyone called their hot drink carrier a thermos) cannot be registered.  These two groupings of marks will generally condemn the mark to little or no protection should another start using that mark with his or her goods.  (For a general discussion of trademark protection, take a look at the case of Abercrombie & Fitch v. Hunting World, Inc., 537 F.2d 4 (1976)).

However, a mark that is “suggestive” or is “arbitrary and fanciful,” which is a fancy way of saying that the mark is distinctive, will receive more protection from infringers.  For example, “Coke” or “Coca-Cola” are trademarks for a very well known brand of soft drink.  The word “coke” literally means a fuel that is derived from coal.  I doubt that one would say that this word would, in a literal way, have much of anything to do with a carbonated soft drink, but you could see why this might be suggestive – the caffeine in this soft drink powers many a late night programmer (along with pizza) to hack out some code for a morning deadline!

Clearance

Coming up with a list of potential names is a challenge for many businesses.  However, after you get the creative juices flowing and have a list, the next step is to work with a Trademark attorney to review your list to help narrow the field.  An attorney can help you to identify “generic” or merely descriptive proposed marks that are unlikely to be accepted for registration.  In addition, an attorney can perform a preliminary search to see if there are existing marks already registered that are the same or very similar to a proposed mark.  These steps will reduce your list of potential marks.

After this hurdle, you can identify what potential marks you want to pursue.  If appropriate, an attorney can order a more comprehensive search from a trademark search business to identify, more broadly, those marks already in use in commerce that may overlap with the proposed mark.  The attorney can then help you understand your chances at a successful registration of a proposed mark.

Note: Marks mentioned in this article are the property of their respective owners.  Use of these marks is not meant to imply endorsement of this article.

Baltimore Bead Society – Intellectual Property Presentation

On March 13, 2012, I presented a primer on intellectual property to the membership of the Baltimore Bead Society.  Below you will find the presentation file embedded as a quick time movie.

IP Overview (for online) medium

The membership had a number of questions about intellectual property issues, particularly the controversial “Hon” trademark dispute.  Look for additional postings later on some of those questions and issues.

Entertainment Contracts for Businesses

Entertainment businesses operate like many other business enterprises: ultimately, the business must make a profit in order to survive.  One way to help sustain and protect an entertainment business is to document the business relationships through written entertainment contracts between parties that participate in the providing of services to clients.

Ownership Contracts
For example, if several people are business owners, having a written agreement between those owners is an essential ingredient to the business’ success.  Such an agreement will vary based on the business entity, but generally, the agreement should describe each owner’s ownership interest, how management decisions are made, how owners join and depart from the organization, and how the business finances will be managed.

The forms of these agreements will vary based on the kind of business.  If the entity is unincorporated and there are two or more owners (“partners”) who share in the profit or loss of the business, the entity is likely a general partnership and would be governed by a partnership agreement (and, in its absence, state law for partnerships).  If the entity is an incorporated limited liability company, the owners (“members”) would typically enter into a membership agreement.  If the entity is a corporation, the owners (“shareholders”) would enter into a shareholders agreement.  The absence of such written agreements can make things much more expensive later should disputes arise among the owners.

Agency Contracts
For entertainment businesses that act as a booking agent for performers, having a written agency agreement with the performer is an important document.  This contract would clarify the procedures for scheduling and booking performances, might determine whether the agent is exclusive for the performer, what geographic area the agent would book the performers within, how the agent is compensated, among other considerations.

Performer Contracts
Also important to an entertainment business are the individual performers that work for the entertainment business.  Whether or not these performers are employees or independent contractors is an important distinction with substantial legal and tax implications for the business.  Employers understand that an independent contractor can potentially be less expensive than a full time employee because employers can avoid paying certain payroll taxes for independent contractors (shifting the tax burden to the contractor).  However, if the business mistakenly determines a staff member to be an independent contractor, the business may quickly face some very costly back taxes and penalties.

Independent Contractor vs. Employee
Determining whether a performer is an independent contractor or employee is highly fact specific.  There are a series of factors that are used to determine this distinction; these factors may vary by state and by the regulating entity.  However, at its roots, an employee is a person over whom the employer controls both the results of the work performed, and the methods and tools to achieve the result.  According to IRS Publication 1779, the IRS looks at three basic areas to determine if a staff person is an employee or independent contractor: (a) behavioral control, (b) financial control, and (c) the relationship of the parties.

Generally, the more control the business exercises over how the job is done (not just what results are expected), the more the staff person is likely to be viewed as an employee.  With regards to financial control, if the staff person can incur a profit or loss from his/her activities, you have a significant investment in the work that you do, and/or you pay your own business expenses, you are more likely to be viewed as an independent contractor.  And on the relationship of the parties, if the business pays benefits for you (like health insurance, pensions, and paid time off), and there is no written agreement between the parties, the IRS is more likely to view you as an employee.[1]  Independent contractors typically are able to work for several businesses providing similar services within their field.

In Maryland, the Department of Labor and Licensing also considers whether the business retains the right to discharge the staff member, and whether the business provides the tools, materials and the place to work for the staff member.  Typically, the independent contractor would have his/her own tools and materials, and would work from his/her own office or location.  DLLR also indicates that independent contractors are usually in a business that is different from the hiring business; professionals like lawyers, dentists, and public accountants are commonly independent contractors in business for themselves.

There may be other factors to consider besides the ones noted above.  In the entertainment business, musicians are may be independent contractors because they (a) have their own tools (e.g., instruments), (b) they may work for more than one business or band, (c) they typically have a fair amount of time and money invested in their education and equipment to be musicians, (d) the business they work for tends to exercise control over the result (the performance), rather than the specific methods of how the work is performed, and (e) typically organizations that schedule or coordinate performances are in a different business from the performers.  In some cases, performers take a percentage of ticket sales, and won’t get paid if either no one shows up for the event or if the event is canceled.  In those cases, a performer is more likely to be viewed as an independent contractor.

However, there are also factors that might tend to make a performer an employee: (a) benefits for the performer like paid sick or vacation time or health insurance, (b) the exercise of control by the busiess over practice times and location and how a particular musical piece is performed, and (c) the lack of a written agreement between the parties, suggesting that the business may terminate the relationship at will with the performer, without further obligation.

If you aren’t sure if the performer is an independent contractor or employee, you can request that the IRS provide a private letter ruling through filing Form SS-8.  An attorney in your state may also be able to advise you on the state-specific factors and your circumstances.

Other Contracts
There may be other relationships for an entertainment business (such as licensing and royalty agreements for the licensing of copyrighted works, contracts with merchandise distributors, record label and publisher agreements, venue agreements, just to mention a few).  The more that can be documented, the more likely it is that you will get paid and the less likely it is that parties will have disputes.

Documenting relationships in the form of formal, written agreements at the beginning of the relationship can help save headaches and costly mistakes down the road.  Consulting with an experienced attorney can help you to craft effective and binding agreements.

[1] In close cases, the written agreement may determine that the staff person is an independent contractor.

Second Life: Virtual World Meets Real World Copyright

Second Life, (click here for their main web site) an online virtual worlds system, has become the center of a recent copyright controversy involving, yes, virtual sex toys.  Apparently, there are not enough legitimate or inexpensive sex toys for all the denizens of Second Life, so some residents have elected to make knock-offs.  Just like the real-world controversies surrounding real-world goods made by companies like Tiffany and Louis Vuitton, Eros LLC has filed suit against the alleged infringers and Linden Labs, for housing and supporting the alleged knock-offs.  (See Wired Article)

Vicarious and contributory liability for copyright infringement are recognized by the courts as a cause of action under federal copyright law.  This kind of liability has been raised in recent years against the various music file sharing services that came and went, such as Napster (originally a file sharing service without any copyright licensing from the music companies that owned the music being shared), Gnutella, and Limewire.  Each of these services were held to be liable for the file sharing of their users, in part based on the notion of vicarious liability.  Cases prior to Napster et al. that addressed this kind of liability have developed along two lines: landlord-tenants where the landlord exercised no control over the leased premises, and dance-hall cases where the operator of the hall controlled the premises and obtained a direct financial benefit from the infringing performances.  Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996).  Under common law, landlords have not been held to have copyright liability where dance-hall operators have infringed the copyrights of others.

In Fonovisa, the defendant Cherry Auction operated a swap meet where it rented stalls to individuals who were selling unlicensed copies of bootlegged music owned by the plaintiff.    For the swap meet operator to be liable, the plaintiff had to prove that the operator controlled the marketplace and obtained a direct financial benefit from the sales of infringing works.  The Court sided with the plaintiff in Fonovisa, even though the defendant Cherry Auction did not receive a commission from the sales of the infringing materials.

Unlike the auction house in Fonovisa, Second Life does allow users access to their information system without making a payment.  Anyone can download a copy of the Second Life client, establish a username, and log in to the system.  Users start to rack up fees when they purchase virtual real estate within the system.  In addition, Linden Labs provides a virtual currency of Linden Dollars that allow for the exchange of virtual goods within the system.  Linden Dollars can be exchanged for U.S. dollars using the credit card or paypal account associated with your Second Life account.  As a result of this connection with the physical world, there are a number of users that make an actual living in Second Life producing virtual goods for their fellow Second Life denizens.  The last time I visited, about 17 million worth of linden dollars were exchanged into real dollars on the Linden Labs exchange system in a day.  Linden Labs is generating a significant amount of commerce in spite of the national recession.

According to Eros Products LLC, his SexGen products line has sold about 1 million (that’s U.S. dollars) of product within Second Life over the past five years.  (A copy of the Complaint is here).  Competition being fierce in the digital world, others have been making sex toys that look a lot like Eros’, with some likely being copied straight from the source and resold.  This is possible in Second Life because Second Life provides “builder” tools to its users.  Included in the toolkit are functions to allow for the upload of image files.  In addition, there are apparently tools available from other software makers that allow a Second Life user to copy images within the system.

Assuming that Eros Products LLC (and other plaintiffs that may join the suit should the court certify this as a class action) can prove that they are the valid owner of the copyrighted works, the question for the court is whether Linden Labs can meet the standard for contributory liability.  Linden Labs is a virtual landlord in the sense that users of Second Life pay an annual subscription in order to own virtual real estate within the virtual world.  The right to own this virtual property is limited by payment of the subscription.  You will note, however, that there are plenty of users that do not acquire any virtual real estate in Second Life – and for them, there is no fee to participate.

However, Linden Labs also charges fees for the conversion of Linden Dollars into U.S. Dollars through the Linden Exchange.  For infringers seeking to sell pirated works in the virtual world, the real benefit to them is the ability to take the proceeds of those sales and convert them back into hard currency for use in the real world.  Approximately 250 Linden Dollars are worth a U.S. Dollar (the trading in this currency fluctuates).  In order to convert Linden Dollars back to U.S. Dollars, Linden Labs charges a fee of 3.5% of the value of the transaction.  So, indirectly, Linden Labs benefits from the sale of infringing goods every time that the infringer converts his Linden Dollar proceeds to hard currency.

There is a question, however, of whether Linden Labs is merely a landlord who relinquished control to his infringing tenant.  Eros Products LLC claims that Linden Labs did exercise control over the activities of its users because all of the virtual worlds within Second Life are ultimately housed on servers controlled by Linden Labs.  Pl.’s Complaint at ¶ 127-128.  And furthermore, Linden Labs has ultimate control over its software that operates Second Life, and I suppose that Linden Labs could alter its software to prevent copyright infringement if it wished to do so (how, exactly, is another story).  Factually, however, I think this is going to be tough to prove.  Unlike Grokster, who marketed itself as the successor to Napster for those looking to willfully infringe on the copyrights of others, Linden Labs has not marketed itself as a safe haven for willful copyright infringers.  On the contrary, Linden Labs gave some thought to copyright in its license agreement, granting its users rights in the works they create in-world.  (See Terms of Service here at section 3.2)