Don't Ignore Brand Assets in a Bad Economy

Doing So Impoverishes Long-Term Legal Position and Goodwill

By Published on .

Eric Fingerhut
Eric Fingerhut
The dollar just isn't what it used to be. But that doesn't mean you can let your competitors and online "entrepreneurs" debase the value of your company's most priceless assets. When the chips are down, brand owners must shore up the foundation of what connects them most with consumers -- the brand -- and not let it crash and crumble in hopes of future -- and costly -- repair.

At times like these, it's much easier for others to knock off a brand's goodwill, which requires less effort, creativity and resources, to capture your market share. Obviously, the internet is an easy and virtually costless medium for misappropriating brand value by, for example, registering domain names, which use your brand to drive traffic and revenues to websites (not yours); misdirecting internet users by misspelling your marks ("typo-squatting"); providing false links about your company and products that, when clicked, generate fees ("pay-per-click" ads) and potentially lead to nowhere or, worse yet, a competitor's site or a porn site; and selling counterfeits of your products on auction sites. In the fourth quarter of 2008 alone, there were 450,000 instances of cybersquatting. Misappropriation and infringement of your brand -- and trademark, or mark -- cause marketplace confusion, usurp your reputation and steal sales.

Unfortunately, during an economic slump it's also easier to ignore brand infringement because it's cheaper to do nothing. Ignoring brand infringement, however, is not an option because widespread use of marks similar to yours means the trademark -- legally defined as any word, slogan, design, picture or any other symbol used to identify and distinguish goods and services --is weakened and potentially abandoned, and therefore entitled to little or no protection.

For example, years ago when Domino Sugar sued Domino's Pizza for trademark infringement, there were numerous competing trademark registrations and third-party infringing uses that Domino Sugar failed to challenge, and thus the court found that Domino's Sugar did not maintain its mark, did not police its mark, and was not vigilant in protecting its rights to the Domino name." Although Domino Sugar did not abandon its mark, the court found the mark was so weakened that the scope of protection encompassed only products that had already been sold under the mark (sugar, not pizza). Other brands compromised through inaction include Delta Faucet (to Delta Air Lines) and Cadillac automobiles (to Cadillac Pet Food), as well as numerous other examples.

Be vigilant, but choose battles wisely
Enforcement efforts to quell unauthorized uses of your marks -- sending demand letters to infringers, opposing attempts to register infringing domain names and trademarks, and suing infringers when necessary -- significantly reduce the risks of forfeiting brand value. This doesn't mean brand owners must pursue every potentially objectionable use of a mark or domain-name registration. For instance, when a defendant claimed McDonald's abandoned its "Mc" prefix mark based on many other uses of that prefix, the court concluded McDonald's exercised diligence in enforcing its mark by virtue of the fact that public recognition of McDonald's "Mc" prefix mark was not lessened by third-party uses. The point is that brand owners should be strategic and selective in targeting enforcement efforts, while ultimately exercising reasonable diligence to protect trademark rights from being narrowed or constructively abandoned.

Courts also may look at how much is at stake and demand more diligence by brand owners when, for example, the frequency of infringement or misuse increases. Indeed, last year a court critically observed that Tiffany's annual legal spend of $763,000 for identifying and reporting counterfeit jewelry listings to EBay was "sporadic and relatively meager." While Tiffany's rights were not abandoned, the court's comment was a wake-up call to brand owners. Courts care little about whether the economy is up, down or in the middle; they want to see evidence that a brand owner has consistently and appropriately exercised reasonable diligence to protect its trademark rights.

Even in hard times, brand owners must have a strategic enforcement program that diligently challenges brand infringement. If left unchecked, brand infringement will erode a brand's value in terms of strength and distinctiveness, and, as a result, in terms of commercial magnetism and the scope of legal protection it will be afforded. At worst, a brand owner will permanently lose all rights in a trademark through abandonment, which equates to a brand value of zero. Just as a company would not permit the theft and destruction of its physical assets during a recession -- or any other time -- it cannot afford to allow others to gradually destroy the intangible but significant value of its brands.

Eric Fingerhut is a partner in the Trademark Practice Group in the Washington office of Howrey LLP, a global law firm specializing in intellectual property, antitrust and global litigation. An avid cyclist, Mr. Fingerhut also is the founder of the International Cycling Law Association.
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