Avoiding Trademark Ownership Pitfalls
We help a lot of small businesses protect their trademarks and one issue that comes up frequently is identifying the correct owner. This is the very first entry you must fill out on the application, and it is easy to enter the information without giving it careful attention. But the correct identification of the owner is critical to avoid losing your rights.
Who Should Be Listed as the Owner on the Application?
A trademark application may only be filed by the owner of the mark. Normally, the owner of a mark is the person who applies the mark to goods that he or she produces, or uses the mark in the sale or advertising of services that he or she performs. If an applicant is not the owner, the application is void and cannot be amended, so it is important to get this right.
There are many different types of legal entities that can own a trademark. The most common that we see, and also the simplest, are LLCs and corporations. Usually, a LLC or corporation develops a mark to identify itself as a source of goods or services. Since it applies the mark to the goods or uses it in advertising, it (not its owners!) is the correct owner. Owning the mark allows it to license or assign the mark, recognize the value in the mark for accounting purposes, use the mark as a security interest, or enforce the mark against infringers. Company ownership also reduces the risk that a change in ownership of the company (such as the sale of the business, or the departure of an owner) will create a problem.
The next most common ownership arrangement we see is individual ownership. This usually occurs in one of two cases: (1) the individual is operating as a sole proprietor, or (2) the individual is filing an ITU, and has not yet used the mark or formed a company to use the mark. In the former case, the owner should seriously consider creating an appropriate business entity. In the latter case, the individual should usually be planning to do so before it begins to use the mark. If neither of these cases applies, there is a good chance that the correct owner of the mark is not an individual.
Partners, without a LLC or corporation, may have issues with trademark ownership!
Occasionally, we run in to more challenging ownership structures. For example, one situation that sometimes arises is multiple individual owners. A simple example of this would be a husband and wife operating a business as a sole proprietorship. Less frequently, a group of people might wish to own a mark. When this is the case, the attorney must go through a state-law specific analysis to determine the proper owner. For example, are the individuals operating as a partnership, or a joint venture? The answer will depend on the applicable state law.
Joint ownership is permissible in appropriate cases, but can be a red flag for possible risks down the road. Sales of the business will likely be more difficult, and, in some cases, it may be possible for one owner to enter into contracts regarding the mark without the knowledge of the others. An applicant considering listing multiple individuals as owners should think carefully about whether the individuals are in fact the correct legal owners, and whether that is the correct structure for the business in the long term.
Why Does Ownership Matter?
Ownership can be critical when it becomes time to enforce your mark. Only the registrant of a mark (including the legal representatives, predecessors, successors, and assigns of the registrant, or an exclusive licensee) has standing to sue for infringement. If a company is the correct owner of a mark, but the application identifies the company’s president individually as the owner, then the company will not be able to sue for infringement, because it does not own the mark.
In addition, a trademark registration can be invalidated if the person or entity claiming ownership is not the one controlling the nature and quality of the goods or services under the mark. One ground for cancelling a registration is that the owner is not, and was not at the time of filing, the rightful owner of the mark. If a company sues a competitor for infringement, but the company’s president owns the mark as an individual, the infringer may succeed in invalidating the mark.
It Pays to Get It Right
In some cases, such as simple business entities, identifying the correct owner is simple. In others, it can be a difficult question of state law. Getting it right at the outset can make the difference between having a valid mark and having no mark at all. A trademark attorney can guide you down the right path to avoid problems later.