Entrepreneur, the Magazine That Sues Entrepreneurs
May 19 (Bloomberg BusinessWeek) -- Entrepreneur Media Inc. sells the idea of the self-made little guy getting ahead. Based in Irvine, Calif., EMI, as the company is known, publishes Entrepreneur, a monthly magazine with a circulation of 607,000 and a colorful history. According to newspaper reports, the periodical's founder and former owner, Chase Revel, once tried robbing banks for a living. Today, EMI conducts seminars revealing "business success secrets" of a more mainstream nature. It markets instructional CDs and sells advertising to package deliverers, health insurers, and franchisers such as Wahoo's Fish Taco restaurants. In other words, EMI caters to all things entrepreneurial. Strangely, it also smashes the dreams of the self- starters it aims to serve.
Daniel R. Castro, a serial entrepreneur in Austin, Tex., received a stern letter from EMI's lawyers last September ordering him to "cease and desist" using his new website, EntrepreneurOlogy.com. In his day, Castro, 50, has started a law firm, a mortgage company, and a real estate-lending outfit. He employs a half-dozen people full-time and coordinates the work of a platoon of brokers. He also delivers motivational speeches to other business owners and hopes the new website will provide an online home for a workshop series. "I was dumbfounded," he says of the cease-and-desist letter. Like a lot of people who work for themselves, he doesn't like to be told what to do. "Their problem," he says of EMI, "was that they didn't know who they were picking on."
An attorney with the corporate law firm Latham & Watkins informed Castro that EMI owns the U.S. trademark for the word "entrepreneur." With 2,000 lawyers in 31 offices around the world, Latham polices EMI's intellectual property aggressively. The firm even instructed Castro to surrender his domain name to EMI. "If you fail to abide by these demands," the letter said, "Entrepreneur Media will have no choice but to take appropriate action to prevent continued use of an infringing mark and domain name."
The archetypal trademark—for McDonald's (MCD) or Xerox, say—prevents competitors from using a distinctive word that might cause consumers to assume they were buying a product made by the mark holder. To Castro and others, "entrepreneur" seems different. "How can you trademark a commonly used word, derived from the French, that's hundreds of years old?" he asks. And more to the point, "why would the publisher of Entrepreneur magazine be bullying entrepreneurs?"
Since the early 1980s, EMI has sued or threatened to sue scores of businesses and organizations it claims infringed its trademarks. EMI won't provide a tally of its targets, but it almost always prevails.
Scott Smith, a public-relations man in Sacramento, Calif., fought back and paid the price. A federal judge ruled in 2003 that he had to drop EntrepreneurPR as his firm name, stop publishing a quarterly compilation of press releases called Entrepreneur Illustrated, and pay EMI more than $1 million in damages and attorneys' fees. "They crushed me, and I had to file for personal bankruptcy," says Smith, who is still contesting what he owes the publisher.
EMI goes after a broad spectrum of businesses, ranging from Internet startups to a fledgling clothing manufacturer. In 2001 it persuaded the nonprofit Donald H. Jones Center for Entrepreneurship at Carnegie Mellon University to change the title of its quarterly alumni newsletter, The Entrepreneur. In 2004 it stopped 3Entrepreneurs, a San Diego apparel company, from putting the phrase "Entrepreneur Generation" on T-shirts, sweaters, and hats. At present, EMI is skirmishing with the Entrepreneur Hall of Fame and Museum, a one-man website based in Glen Cove, N.Y., with aspirations of someday occupying a brick-and-mortar facility. "Entrepreneur is the enemy of entrepreneurs," says the hall of fame's proprietor, Mitch Schlimer, who began his career selling New York-style soft pretzels from a street cart with his grandfather.
Demonized by those it pursues, EMI's legal strategy benefits from the momentum of a larger judicial trend. "The point of federal trademark law is to prevent consumer confusion," explains Mark A. Lemley, an intellectual property scholar at Stanford Law School. "In recent decades, though, courts have expanded the idea of consumer confusion so much that you have businesses like Entrepreneur Media stifling other, smaller businesses whose goods or services just aren't likely to interfere with consumers making well-informed decisions." In EMI's case, the professor adds, "it's particularly ironic because the trademark holder is in the business of helping the kinds of people and businesses it's suing."
EMI sees no irony, let alone bullying. In an e-mail, the company's lead attorney at Latham, Perry J. Viscounty, says his client "vigorously enforces its trademark rights in appropriate circumstances, when a third-party use is likely to cause confusion in the marketplace." In a separate letter, the company adds: "EMI has been forced to take action against individuals, small businesses, and large businesses." EMI asserts that the action against apparel maker 3Entrepreneurs was appropriate because the publisher has also produced clothing with its trademarked "entrepreneur" logo. "EMI has taken no action against unrelated applications and uses," the company continues, pointing to the example of Brother International's use of "Entrepreneur" on sewing machines. Viscounty notes that Bloomberg LP, owner of Bloomberg Businessweek, also "has a history of taking action, where appropriate, to protect its rights when consumer confusion is likely." He ticks off several examples, including Bloomberg LP v. Bloomberg Mortgage, a successful suit filed in federal court in New York in 2002, and ongoing efforts to protect the company's Bloomberg Launchpad trademark for computer programs and software.
While Viscounty is correct that many intellectual property owners enforce their rights to the fullest extent of the law, the comparison with Bloomberg or any other corporation has a flaw: Unlike EMI, most companies don't make a practice of suing the very people they hope to attract.
Chase Revel, who started Entrepreneur in the early 1970s, was a leading purveyor of goods and services related to the swift acquisition of wealth. His published works include 184 Businesses Anyone Can Start and Make a Lot of Money and 168 More Businesses Anyone Can Start and Make a Lot of Money. Revel's ideas ran the gamut from the seductive and legal to the nefarious and illegal. In 1966 he was sentenced to four years in prison under his given name, John Leonard Burke, for attempting to rob four banks in Houston in one day, according to articles published 20 years later by the Los Angeles Times. Revel (then Burke) hired helpers to deliver letters warning bank tellers that their children had been kidnapped. (Revel researched which employees had school-age kids.) The notes stated that the children would be returned only if the tellers surrendered large canvas bags stuffed with cash. In fact, no children had been snatched, and the scheme collapsed almost immediately.
Settling in Los Angeles after his release, Revel started Entrepreneur and, in 1979, registered the trademark for "entrepreneur." He promptly began to enforce the mark—for example, by having his attorney send a cease-and-desist letter to the Entrepreneur Assn. at the University of California's Graduate School of Management in Los Angeles in November 1980. In 1987, Revel sold a majority stake in Entrepreneur to an investor group led by businessman Peter J. Shea and later offloaded the rest. The trademark went along with the magazine.
After moving on to other pursuits, Revel continued to have scrapes with the authorities. As recently as 2006 he denied wrongdoing and paid $27,500 in a settlement of civil allegations by the Federal Trade Commission that he created false advertising for Gero Vita dietary supplements. According to public records, Revel, now 74, owns a home in Oceanside, Calif. A man who answered the phone there hung up immediately, and a message went unreturned.
In its letter, EMI asserts that "while Mr. Revel has an interesting history, he and his alleged actions have no relevance to EMI's operations or efforts to enforce its intellectual property rights." Revel, the company adds, "has had nothing to do with, and no contact with, EMI for almost 30 years." Shea, the company's current owner and chief executive officer, has no desire to talk to "a competing publication" about his magazine's distant past or its trademark enforcement policies, the letter states. In an interview with the magazine World Trademark Review in 2009, Shea, who earlier made a fortune marketing a simulated version of stained glass, said: "Basically, we're trying to protect our brand."
Smith, the Sacramento public-relations man, counters that EMI protects its brand by rolling over tiny capitalists and using lawsuit damages as a source of income revenue. He presents himself as the quintessential victim of what he calls EMI's maltreatment. "There's no way my little firm representing small businesses would be confused with a national magazine," he complains. "This is a scam."
The federal courts disagreed. In 2003 a U.S. district judge in Los Angeles found that both Smith's company, EntrepreneurPR, and Entrepreneur magazine "printed publications geared for small businesses." Testimony showed that some of Smith's clients "were under the mistaken belief that there was an affiliation between Entrepreneur and EntrepreneurPR," the judge added. In 2004 the U.S. Court of Appeals for the Ninth Circuit in San Francisco affirmed the ruling of willful infringement. Smith has changed the name of his company to BizStarz, laid off his half-dozen employees, and works out of his home.
"Smith's own actions caused the demise of his business," EMI says in its letter. "Rather than focusing his remaining resources on his rebranded company and half-dozen employees, Smith squandered the company's time and money on an ill-advised appeal."
Castro, the Austin real estate broker, also doubts anyone would mix up his website EntrepreneurOlogy.com with Entrepreneur. "I mean, how is 'entrepreneurology,' a word I have to admit you can barely pronounce, going to cut into their business?" he asks. EMI's main website is entrepreneur.com. It also has a Spanish-language site called entrepreneurenespanol.com.
In addition to selling residential real estate, Castro has a law license and courtroom experience. He responded to EMI's cease-and-desist letter by preemptively suing the publisher in federal court in Austin. "It was Castro who leapt to litigation," says EMI. In April a federal judge dismissed 12 of Castro's 14 claims but said he could continue to pursue his allegation that EMI's core trademark is invalid. As described in his court papers, Castro's argument is that "the public has not come to associate the word 'entrepreneur' exclusively with EMI's products or services." The word, he adds, "is a generic noun that is in the public domain."
"Generic" is a crucial term of art in intellectual property law. A judicial determination of generic status ordinarily dooms a trademark. Even distinctive marks that become generic can lose their legal protection; cellophane and aspirin are but two examples.
EMI argues in its court filings in Austin that "Castro's entire argument miscomprehends and misstates" trademark law. In connection with business media, "entrepreneur" is not generic, EMI contends; it has acquired "secondary meaning," another term of art that refers to a seemingly ordinary word that has come to be associated with a particular company's products. "Time," for example, has been trademarked to identify a magazine, even though the word also refers to hours and minutes, EMI maintains. Castro can make use of "entrepreneur" in its descriptive sense ("Hello, my name is Daniel Castro, and I am an entrepreneur"), but he may not use the word as the name for a communications business, EMI says.
To prevent a trademark from deteriorating, cellophane-style, into a generic term, courts encourage mark holders to protect their interests. "EMI has the right and obligation to police and enforce its trademark rights, or risk diminishing or altogether losing those rights," the company argues in its court papers.
In the litigious precincts of intellectual property, the aggressor inevitably finds itself chasing its own tail—and EMI and its lawyers have actually tried to use the "generic" argument to their advantage. In 2008, Ernst & Young, one of the Big Four accounting firms, sued EMI in federal court in New York, alleging that the publisher violated its trademark for an Entrepreneur of the Year award. The dispute over the prize dates to 1994, when Ernst first sent EMI a cease-and-desist missive aimed at Entrepreneur's similarly named award. EMI fired back in a lawsuit in California that Ernst's award trademark cannot be infringed because "entrepreneur of the year" is a generic term. In the end, Ernst and EMI settled their differences confidentially and out of court. EMI changed its award name slightly (nominations for "Entrepreneur Magazine's Entrepreneur of 2011" are now open), while Ernst is celebrating the 25th anniversary of its trademarked Entrepreneur of the Year program.
This year, as in years past, the real winners don't even have to enter. They are the many lawyers who profitably stoke the perennial flames of intellectual property antagonism. They may not be entrepreneurs, but EMI has certainly bulked up their bank accounts.