By Karen E. Klein Q: Recently, I incorporated as a limited liability company (LLC) after being in business for about a year. After incorporating, I did a Web search and noticed another company with a similar name, though it is not exactly the same. To top it off, the company is in the same business as I am, but they never incorporated. Should I be concerned? Doesn't the first-come, first-served rule apply? -- V.W., New York City
A: Business owners often think that registering a company name with their Secretary of State, or register their domain name on the Internet, secures exclusive rights. As many find out, however, this simply isn't the case. In order to obtain nationwide legal rights to a particular term or business name, you must register it with the U.S. Patent & Trademark Office (USPTO) and/or use it in interstate commerce.
When you register your company name when creating a formal business structure (such as a corporation or LLC), it means only that the state has authorized your use of that name, that no other company has been authorized to use an identical or very similar name, and that the state will accept your Articles of Incorporation when they are submitted.
Registering, however, does not give you exclusive rights to the name (either as a company name or trademark), nor it does not prevent others from registering the same name in other states. In fact, it doesn't even guarantee that your use of the name will not infringe someone else's rights, which means you could be hit with a trade name or trademark infringement suit.
UNPLEASANT SURPRISES. The same goes for registering a domain name online, says Connie Ellerbach, an intellectual-property specialist with the San Francisco law firm of Fenwick & West. Says Ellerbach: "Registration of a domain name merely enables a party to use that name as their address on the Internet. Domain-name registrars are not responsible for and do not take any steps to ensure, or for that matter even evaluate, whether registration or use of a domain will infringe another party's trade name or trademark rights."
"Many a domain-name holder has been chagrined to find out after obtaining the domain name that it represents a registered trademark of another, who then challenges the domain name and seeks to have it relinquished to the trademark owner," adds Ilse Harle DiPinto, of Irvine (Calif.)-based DiPinto & Shimokaji.
In order to develop trademark rights, you should register with the trademark office and use the it in connection with the sale of products and services in interstate commerce. Your rights will be limited to the type of products or services actually sold (there is some leeway for closely related products/services) and do not extend to all possible products or services. "Common law" rights (rights based on use alone) in the mark will be limited to the geographic area in which the products are actually sold or services are rendered, Ellerbach says.
WHO'S FIRST? If you have been using the mark to sell products or services in interstate commerce (across state lines or to another country) during the past year, the issue will be to determine who began using the name first, in what geographic area, and for what products. Your best bet is to consult a lawyer who specializes in intellectual property.
"This would be a priority battle with the first person to use the mark owning the rights to it," Ellerbach says. If you believe you were the first party to use this business name, you should immediately file an application with the USPTO in order to obtain nationwide rights and be in a position to stop others from using it, she advises.
If you have not yet begun selling products or services in interstate commerce and you haven't filed an application to preserve your claim to the trademark, the fact that someone else is already using the term in connection with directly competing products will likely mean that the rival outfit has already developed legally enforceable trademark rights in the term in their region, whether or not they have incorporated or registered their company with the local Secretary of State, Ellerbach says. "The party that begins 'using' the mark first, by which I mean selling products or services in interstate commerce, would have priority and could prevent [you] from using the term," she says.
Have a question about your business? Ask our small-business experts. Send us an e-mail at firstname.lastname@example.org, or write to Smart Answers, BW Online, 45th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally. Karen E. Klein is a Los Angeles-based writer who specializes in covering covered entrepreneurship and small-business issues.