Wednesday, May 12, 2010

Victor’s Secret: How Early Branding Due Diligence Can Save You Millions

Victor’s Secret:
How Early Branding Due Diligence Can Save You Millions

By Leon D. Bass, Esq.
Of Counsel, Chester Willcox & Saxbe, LLP

Trademarks may not exactly be “sexy”, but as David D’Alessandro, former CEO of John Hancock Financial Services, once stated, “[a] business based on a brand is, very simply, a business primed for success.” Often times a business’s brand or trademark is its single most valuable asset. However, as Victoria’s Secret has taught us, just as easily can a brand be a business’s biggest liability. Businesses sometimes get burned by jumping the gun on their use of business names, logos or taglines.

Victor and Cathy Moseley learned this first hand when Columbus, Ohio headquartered Victoria’s Secret sued them over their use of “Victor’s Secret” for their Kentucky-based lingerie and adult novelty store and website. The Moseley’s were forced to expend significant attorney’s fees defending the 10-year case that reached the US Supreme Court and ultimately still found themselves facing a costly rebranding effort with respect to their store and website. In the end, the Moseley’s, who first changed the store’s name to Victor’s Little Secret in response to a cease and desist letter from Victoria’s Secret attorneys, were sued and ultimately were forced to stop using Victor’s Little Secret as well because the court found that Victor’s Little Secret would “dilute” the Victoria’s Secret famous trademark. Regrettably, the Moseley’s could have prevented not only ten year’s worth of attorney’s fees and court costs, but the costs of two rebranding efforts and web domain changes as well as the loss of goodwill connected with the loss of a trademark.

Many new businesses fail to conduct simple due diligence before launching a new branding concept (including a logo, name, tagline, domain name, etc.) with the potential consequences of a complete rebrand, losing website, incurring significant attorneys’ fees and potential large liability awards. Also, a court might determine that the entrepreneur knew about the trademark registration and this could cast the user as a “willful infringer.” Willful infringers can be held liable for large damages and payment of the registered owner’s attorney fees. For large companies the costs of a rebrand could exceed millions or even hundreds of millions of dollars. Businesses that are served with the infamous “cease and desist” letter regarding their company name or logo are faced with a “Catch 22” decision: either (1) change their name or product mark after investing substantial funds over time building goodwill in a logo; or (2) litigate the issues of trademark rights at substantial cost and with no guarantee of successful results. The costs of changing a business name can be enormous and difficult to quantify. For example, imagine that a fast food chain with 500 restaurants was forced to change its name. If the average cost to change the fancy electric signs on each restaurant was $10,000, this amount to total cost of $5 million for just signs alone. In addition to signage, significant costs would be incurred for new uniforms, packaging, menus, and marketing the new name and website domain. In addition, the damage in terms of lost goodwill that had been generated over time could be worth more than the hard costs. In some cases, a change of a name may even effectively mean the end of a business.

Best practices prior to launching a new branding or marketing concept such as a new name, logo, or tagline, include the initial step in retaining an attorney to perform a trademark search, legal analysis and opinion. The search and analysis will determine whether another business is already using a trademark that is identical or similar to the one the business owner wants to use and whether or not a proposed trademark can even be afforded legal protection. Marks that are not identical but similar can still infringe on existing trademarks, especially if the two marks are used to market goods or services that are in related industries.

If the search and opinion are favorable or the owner is comfortable with the risks involved, the informed business owner should apply for state and federal trademark registration. Federal trademark registration is a crucial element in a business’ intellectual property protection strategy because a registered owner is presumed to have exclusive nationwide rights to use any mark that is confusingly similar to their mark. This allows the owner to enforce its right against other businesses that are trying to pass off similar goods and services as that of the registered user. In addition, after a period of five years from the date of registration, a registrant has the right to declare the mark “incontestable,” further protecting the user against attacks from unknown users. Once incontestable, it is almost impossible to cause a registered mark to become canceled. Without incontestable status, a trademark user that used a similar mark prior to a registered user’s mark could seek to have the registered user’s registration cancelled.

In general, a search and registration can be relatively inexpensive especially when compared to the cost of potential infringement litigation and/or future name change. Given the complexity of issues surrounding trademarks and their relative importance to a business, the advice and guidance of an experienced trademark attorney can be invaluable.

Leon Bass, Esq. is Of Counsel to the Columbus, Ohio based law firm of Chester Willcox & Saxbe, LLP and practices in the areas of Trademark, Copyright, Entertainment and Business law.

Contact Leon at