2017 shows South Carolina businesses experience upward trend in trademark litigation

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By Douglas W. Kim, McNair Law Firm, P.A.

South Carolina federal trademark litigation filed in 2017 continued its 10-year upward trend, while trademark litigation nationally has generally declined.

As reported in its 2017 Trademark Litigation Report, Lex Machina national trademark case filings have generally declined between 2009 and 2016. Conversely, South Carolina trademark litigation cases have had an average increase of 22 percent year-over-year from 2008 to 2017. In fact, South Carolina trademark litigation has declined only twice, year-over-year, in the past 10.

Additionally, the length of time that these cases are pending is rising, meaning that the parties are in court longer. From 2008 to 2017, the average pendency has increased 31 percent year-over-year.

This means the parties to South Carolina trademark litigation are in court more often and staying in court longer; in fact, the number of cases in South Carolina filed in 2017 is at a 10-year high. Since this is contrary to the national trends, we looked at the 2017 cases to determine why South Carolina trademark infringement is trending upward and discovered a few practices that may be to blame.

First, it seems that businesses are not effectively using trademark searches to avoid trademark infringement. A federal search discovers pending applications or existing registrations and helps you determine whether any are “confusingly similar” to your trademark. This type of search is by far the most important for startups, new ventures, and middle-market companies. In looking to the cases of 2017, we see that many of the defendants, had they performed a proper federal search, should have discovered the conflicting federal applications or registrations of the plaintiffs and, presumably, would have selected a different name.

Second, about 10 percent of the 2017 cases overlap with commercial issues that include disputes about business ownership, distribution agreements, franchise agreements, and false advertising. Because the trademark issues stem from the underlying commercial issues, business disputes that involve company names or trademarks have a high risk when it comes to litigation.

In these cases, it is more important to properly negotiate and sign agreements, as what would normally be a contract dispute becomes a federal lawsuit over trademark, as well.

Third, trademark rights involve geographic issues that are not necessarily clearly understood by businesses. Without a federal registration, trademark rights are only in the market area where you can show that you are using the mark. This means that other companies outside your market area can also use your mark on the same or similar goods, even when you adopted the mark first in your area.

The problem arises when one of you crosses into the other market, or worse, you both enter into a market or adjacent markets at about the same time. In this case, it takes a court to determine who has rights. However, if you secure a federal registration having a filing date prior to the other company, your rights should be superior. Failing to understand the benefits of a federal registration have caused some companies to find themselves in litigation to determine who has superior rights when the companies are expanding their markets.

Fourth, it seems that companies could have a better understanding of what makes a strong mark, as these are the most protectable. From strongest to weakest, mark categories are fanciful, arbitrary, suggestive, and descriptive.

Fanciful marks are created with the exclusive purpose of being a trademark and have no other meaning (“Xerox”). Arbitrary marks have a generally understood meaning, but that meaning is unrelated to the associated goods or services (“Apple” for computers). Suggestive marks “suggest” a quality or characteristic of the goods and services (“Microsoft” suggests software for microcomputers). Descriptive marks merely “describe” the services, goods, or component (“Cold and Creamy” for ice cream).

Selecting fanciful or arbitrary marks can provide many benefits, including an easier ability to enforce your rights, decreased likelihood that someone will “accidentally” use your name, and increased value of your trademark asset. Working with a marketing agency to develop fanciful or arbitrary marks is recommended to reduce the risks that can accompany attempting to enforce a “weak” mark.

A knowledgeable and trustworthy trademark attorney can provide you with a legal opinion that can outline the risks associated with using and registering your trademark. With this information, you can assess risks and make decisions that will keep you from being in the 2018 trademark litigation statistics.

Reducing Litigation Risks

  • Perform a federal trademark search.
  • Understand the relationship with trademarks and your business relationship.
  • Understand the geographic issue with trademark rights.
  • Select a strong mark.
  • Consult with a knowledgeable and trustworthy trademark attorney.
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