By Ben Langlotz
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April 13, 2015
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Business, Firearms, Intellectual Property Advice
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0 Comments
Protecting the Value of Your Company: Is Fort Knox Empty?
In the wake of the recent financial crisis, people are thinking about what’s inside Fort Knox for the first time in a long time. Is there really enough gold there to back all the money being “printed” to fund all the bailouts and handouts? Even some politicians are calling for an “audit” of US gold reserves. Auric Goldfinger is probably perking up somewhere from his grave.
So imagine that you held the keys to Fort Knox, and owned everything inside. Imagine traveling to Kentucky to visit your stash, and perhaps just to sift through the bars with a forklift, just for fun. The massive doors swing open to reveal your gleaming pile of wealth, and you see…nothing!
Their Fort Knox was Empty
This Fort Knox story happened to one of my clients. Actually, it happens to some degree with most of my clients. Let me tell you the story. (All details are changed in this composite story to protect confidences. Any similarity to actual companies is entirely unintentional).
Last year, the owner of Brahma Firearms (call him “Bob”) gave me a call. “Ben, I’ve been reading your newsletter for a while now, and you’ve got my attention. We really need to secure our assets.” Brahma had been doing business for decades, and the owner and President helped his father build it up from scratch to one of the industry’s most respected businesses. I’d seen their giant banner flying over their SHOT Show booth for as long as I’d been attending. It’s always an honor to be asked to advise a respected industry player, so I was pleased to help. First, I asked if he had any valuable new inventions released in the past 12 months, because there’s a critical deadline to file patent applications. You snooze, you lose, and even if older inventions were lost forever, I didn’t want Brahma to miss out on valuable patent rights for anything they could still protect.
There weren’t any urgent patents to file, but I knew that Bob had bigger needs on the trademark side. While we were chatting about patent laws and deadlines, and I was giving the standard talk about his engineers keeping good records of their inventions, especially the dates of invention, I searched the online trademark database for everything owned by Brahma. I had another window open to Bob’s website, and was downloaded his catalog.
Bob told me that years ago, his father had hired a local law firm to protect the company brand. He thought they’d also registered the famous “angry bull” logo. Bob said that after reading our past few newsletter issues, he thought he’d better check up on his “most valuable assets.” He poked a little fun at the way we always refer to a company’s trademarks as “your most valuable assets,” with a comment about a breeding Brahma bull’s most valuable assets, but admitted that I was probably right about the need to check up on their trademarks.
After all, Bob knew that if he ever decided to sell his business to a big conglomerate, they wouldn’t be impressed by buildings and equipment that they could buy anywhere, or even with employees that could leave for another job. What a business buyer really pays for is the reputation of the company in the market, and trademarks (the company’s registered brands) are the only things that truly convey that reputation. Customers can’t measure the quality of the steel, or the precision of the dimensions, but they can read the label and see the company trademark.
It’s Time to Brand the Brahma!
My trademark search revealed that Bob’s company had only one valid trademark registration, and for an old version of the logo that could not be renewed, because they were no longer using it. They also had registered the name “Brahma,” but seven years ago, someone failed to renew it, and it’s been abandoned ever since. Meanwhile, Bob’s catalog and website were brimming with memorable brand names, most of them on the “bull” theme, with cattle and ranching terms that appealed to the buyers of Brahma’s old-fashioned western and modern “ranch” rifles.
I later counted over 30 brands that needed trademark protection. Bob told me that he wanted to make sure that his company had real value when he passed it on to the next generation (or sold it, if the right offer came along). So we made up a list of all Bob’s unsecured brands, and Bob looked it over. He added a few brands to the list, and scratched off a few he wasn’t planning to continue using. That left a list of 28 brands to protect. (As it happens, our firm record is about 60 trademarks for one new client with a deep catalog of valuable but neglected brands – we literally took them from zero to sixty!)
Even though the investment in securing his valuable brands was about the cost of a mediocre new car, Bob said that he realized that this was about catching up on work that should have been done over the decades. He was mostly relieved to learn that with trademarks, it’s never too late to catch up.
Poking Around in a Hornet’s Nest
Before I applied to register Bob’s trademarks, I searched each one to make sure no one else had already registered it. This helped to find a few that were real landmines, because they infringed on similar trademarks that were already registered, and in use longer than Bob’s. If I blindly applied to register them without first searching to see if other companies were using them, the applications would be like lightning rods to attract litigation. Bob’s brands had been lucky to stay under the radar, but when the US Patent and Trademark Office publishes them for opposition, the other owners of similar trademarks would likely be alerted, their lawyers attacking like a hive of angry hornets.
I told Bob that he’d been lucky so far not to be noticed, and that he’d be wise to quietly transition away from the “problem” trademarks to ones that kept him out of hot water. “How about I just keep using them for now, and make the change only if they notice?” Bob asked. I told him “It’s up to you: Do you want to make the change on your timetable, or on theirs, and maybe have to dump a bunch of infringing inventory?”
Bob also realized that it didn’t make much sense to invest in advertising a brand name you were simultaneously trying to hide from being noticed. Those brand names that he couldn’t register were assets of no real value. I reminded Bob that if Brahma was going to invest in a brand, they should make it one they could register.
A Legal Victory Made Needlessly Costly by a Needless Delay
There was one interesting thing I found in the “hornet’s nest.” Brahma had an African hunting rifle they’d been advertising for ten years as the “Zebu” rifle, named for the African ancestor of the Brahma bull breed. Our search found that Zebu had already been registered for hunting knives by the Johnsville Knife Company a few years earlier. Johnsville had only been using the brand for just a few years, but was quick to register it. And because hunting knives and hunting rifles are considered “related goods” by the US Patent and Trademark Office, I told Bob that Brahma would never be able to register it.
But here’s the difference in this part of the hornet’s nest: Brahma actually had the superior legal rights, because they had started using the Zebu brand six years before Johnsville. The problem was that a trademark examiner would still reject Brahma’s application, since they only look at filing dates (while courts look at first use dates.)
Now, Johnsville probably started using Zebu innocently, with no idea that they were infringing Brahma’s rights. Johnsville might even have been wise enough to have had his lawyer search the trademark before they started using it, to make sure it was safe, and the search would have come up clean. (I’m amazed at how often companies violate this first rule of trademarks: Search it before you use it. And we explain that a big benefit of registering your trademarks is that you’re there in the database for competitors – and trademark examiners – to find. Like a “Dangerous Bull” sign on your fence, a trademark registration tends to keep intruders off your turf).
So I explained to Bob that he had the right to go after Johnsville, and demand that they stop infringing Brahma’s rights. Of course, Johnsville was invested in the brand by now, and would likely put up a fight. We could apply to cancel their registration – at the cost of a nice car from Italy, if Johnsville fought tooth and nail to the end. But there was a better option. Bob really didn’t mind that Johnsville used the same brand for knives, because Brahma had no plans to expand into knife production. So we wrote a “carrot and stick” letter to Johnsville, offering them two choices. Carrot: Johnsville agrees to let Brahma register the Zebu name for rifles, and everyone coexists peacefully. Stick: We sue, we win, and Johnsville has to stop using the Zebu brand, losing all equity they’ve earned, and having to destroy inventory.
It was an easy choice for Johnsville, and they did the right thing. Time and again, we’ve written this type of letter for our clients. We even enclose a pre-written agreement with “sign here” Post-It flags, so the other guy can get it over with. Pretty much everyone signs, which makes sense because it’s our client (the one who used the trademark first, but delayed filing a trademark application) who is giving up legal rights, to avoid litigation they would win, but at great expense.
And I’m amazed at how often I have a new client tell me they need to get around to securing their trademarks, only to get busy and procrastinate the project for a few months or a year. Don’t get me wrong. The procrastination is normal, and unsurprising, considering how busy this industry is these days. What amazes me is that when I search their trademarks, someone else has recently applied for one of their marks (since my new client started talking to me!), and is now sitting in the driver’s seat.
My client can win with the negotiated strategy I use, but obviously it costs thousands of needless dollars in legal fees, not to mention that they have to live with a borderline competitor who has no real legal right to use mt client’s trademark, all of which could have been avoided if our client had filed first.
The Story of the Missing “Fort Knox Gold.”
After I conducted trademark searches for each of the listed Brahma brands I was to secure, I advised Bob about the materials and I said we simply needed an image of each trademark, and the date it was first used.
So Bob sent me a catalog, and some advertisements, showing images of all the brands.
Not good.
I told him that we needed images of the product or packaging showing how the trademark is applied to product as it goes out the door. Anything else is not considered trademark use at all! This is a VERY common problem.
Legally-speaking, about half of the “long-time Brahma trademarks” had never been used properly, and had ZERO trademark rights. Even though Brahma had spent a fortune on promoting these brands and assumed that they were company assets, like gold bars in a vault. In fact, as legal assets, they did not exist!
When Brahma bought a full-page ad in a gun magazine with a brand name or slogan prominently displayed, Bob thought he was investing in his trademarks. In fact, that expense wasn’t doing a thing for his trademark rights. The problem was that Bob left packaging to the production department, and no one told them to make sure that each trademark was printed on each package before it went out the door.
How We Helped Bob Refill the Vault with Gold
I’d been down this road before, and I had a plan to help Bob restore as much of his “gold” as he possibly could. Turns out, I think I restored it all (time will tell). I put Brahma on a crash course of proper product marking and labeling. I made sure that every trademark was actually being properly used. For starters, I advised the classic legal quick-fix: “Start printing stickers!”
The production department complained about how it added twenty cents to each gun, and added parts to inventory. But they did the job, and Brahma was able to send us digital snapshots of how each label looked on the package, and that was fine for our trademark filings. In other instances, I have advised clients to modify their black and white bar-code inventory control labels they print on the end of each box, and that is a perfectly fine legal solution, even if it’s not pretty.
Of course, it’s better to use your valuable brands prominently on product and packaging, so you’re increasing their recognition, and the association between them and your customer’s experience with their new purchase. But any trademark usage is better than none, just like a stack of dented gold bars is better than an empty vault.
The Nightmare Scenario: Did We Avoid It?
Imagine if some clever observer walked down the aisle at Cabela’s, and noticed that many of the Brahma products on display didn’t actually include their brand names they recalled from the catalog and ads. If this clever fellow were the type to grab gold bars from an open unguarded vault, here’s what he’d do: He’d hire an attorney to file a trademark application for each of the legally-unused, totally unsecured brands. Someone might even try to do it himself on the Internet, from anywhere in the world (maybe this is a new angle for the Moldovan Mafia?)
And by filing those applications, he’d secure rights as if he were the first one to use those trademarks, because Brahma has never actually used them. Our clever brand pirate would legally own the brands, and there’d be nothing we could do about it. The pirate could auction them off to the highest bidder (maybe Brahma’s competitor?).
Thankfully, even though the opportunity for this kind of piracy abounds in our industry, it hasn’t yet occurred. But even though Brahma dodged this bullet, they are still at risk. That’s because every one of those trademark applications we filed using the new labels has a “priority” date of when they started shipping with the proper labels. Even though they’d been advertising some trademarks since 1985, their rights actually began just last year. So if it turns out that some small gunsmith in Montana, or some obscure holster maker, or some other firearms-related business has been using one of the Brahma brands before then, and the conflict arises, the other guy wins, and Bob loses. And this can occur any time in the future, without limit. This sword will forever hang by a thread over the value of Brahma’s most valuable assets.
This is why I advise all my clients not to wait to search and secure new trademarks. One great benefit of the trademark application process is that it forces my clients to use their trademarks properly. It basically keeps you from leaving your vault door wide open, and protects your most valuable assets.
I invite my clients, and other readers to ask “Is Fort Knox Empty?” and contact me if you are interested in an analysis of your trademark usage and strategy. If your vault is missing the bricks of gold you thought were safely stored there, we should be able to provide some legal alchemy to “refill your vault,” and to restore your trademark assets to their full value.
