Deciding to start a business is a major undertaking. It requires massive amounts of time, energy, money and a healthy dose of guts! According to the Bureau of Labor Statistics, only half of small businesses survive for five or more years, and only one-third will last beyond a decade. These statistics demonstrate just how challenging business ownership truly is.
Given these odds, every new business owner should avoid as many mistakes as possible, especially in the early days, and reserve their valuable resources for growth and success, rather than fights with naysayers and costly legal battles. While it isn’t possible to avoid all mistakes, it is possible to avert many by thinking proactively, doing a little research, and enlisting the right help.
One of the first and most important decisions a new business owner will make is developing a name for the business.
It can also be a costly mistake if you fail to do your legal homework.
As you build your business, your reputation by name - your “good name” among consumers - is one of the most valuable business assets you will have. It will forever be associated with your business name and brand name, so you want to choose wisely and get it right the first time. Selecting a business name that conflicts with someone else’s business name or brand name can be a recipe for disaster.
To be sure you have the legal right to adopt the name of your choosing, be sure to ask these two questions.
Once you get to YES, then you’re off to the races!
1. Is the name available for you to use as a business name?
Your business name is simply that – the name of your business.
It identifies your company on tax documents, official corporate documents, bank accounts, etc. and is registered with the Secretary of State in the state where you do business. You generally choose your business name when you choose your company structure, such as a limited liability company or corporation.
A name will generally be available for use as a business name so long as it is not identical to a previously registered business in your state only. This means that 49 other businesses, one in every other state, could potentially have the same name as your business, even if they’re competitors! The bottom line is that registering a business name does not mean that you have the right to use that name as anything other than a business name in your state.
Consider this: The business name Nike Apparel, Inc. is available for registration in Pennsylvania, the state where I live, as it is distinguishable from Nike, Inc., the famous sportwear company, also registered in Pennsylvania. The Secretary of State will not deny my request to register the name Nike Apparel, Inc. because it does not conflict with a previously registered entity, i.e., it isn’t identical to another business name.
However, if I opened a “Nike Apparel” store selling sportswear, consumers would likely believe that my store is affiliated with the NIKE brand, and I might enjoy a sales boost as a result. Undoubtedly, Nike, Inc. would discover this and demand that I cease-and-desist from using their name on the grounds it conflicts with their trademark, and I wouldn’t have any legal basis to defend my use of my business name in that manner.
2. Is the name available for use as a trademark?
Trademarks, commonly referred to as brand names, identify your business’s products or services in the marketplace and distinguish them from your competitors. They serve a different purpose than business names, as they are deemed property rights generated through commercial use of the trademark. They are secured through registration with the U.S. Patent and Trademark Office. Unlike business names, trademarks are enforceable nationwide through both the federal and state courts.
Here’s where it gets tricky.
Sometimes business names and trademarks are the same, but often they’re different. As illustrated with the Nike example above, just because a name is available as a business name does not automatically render it available for use as a trademark. If you also intend to use your business name as your brand name, or trademark, then you need to ensure it is legally available for that use too. The registration and approval process for trademarks is decidedly different than for business names, and you don’t want to skip this step.
Consider this: Nike, Inc., is the name of the famous footwear company, but NIKE is also the brand name for the products the company sells, i.e. NIKE brand shoes. Similarly, Starbucks Corporation is the legal name of the Seattle-based company and is also the brand name for its coffee shops and coffee products throughout the country. In common parlance, we state that we’re heading to STARBUCKS to grab a cup of coffee. STARBUCKS is the brand name!
On the other hand, CHILI’S is the trademark for a restaurant chain, but the mark isn’t owned by a company with the same name, but rather by Brinker International Payroll Company, LP, an entity whose name doesn’t mean anything in the marketplace. Likewise, the trademark for T.J.MAXX stores isn’t owned by “T.J. Maxx, Inc.,” but rather by NBC Fourth Realty Corp. In these instances, the business name and brand are unique. The business names are registered with the Secretary of State in each state where these entities do business, but the trademarks are registered with the U.S. Patent and Trademark Office, which offers nationwide protection.
To develop your business name the right way, and especially if it will be the same as your trademark, be sure to clear it with the Secretary of State in the state where you do business and as a brand name with the U.S. Patent and Trademark Office to avoid getting into hot legal water!
Most importantly, look before you leap! Many factors affect whether a name is truly available for use as a trademark. This is a complicated area of the law, and it would serve you well to get some legal advice before taking the plunge.