Rimon Law Blog
A Primer on Trademarks
What is a Trademark?
Choosing an appropriate brand name is one of the first tasks a business faces as it prepares to enter the marketplace. If the brand name is used in connection with the sale of goods or services, then it is called a trademark (or service mark). Registering your trademark with the federal government confers some important advantages.
What are some of the advantages of registering a trademark?
- Right to sue in federal court: Federal courts can issue injunctions with nationwide effect to stop infringers.
- Nationwide rights: The registrant possesses the exclusive right to use the mark nationwide in connection with the goods and/or services listed in the registration.
- Notice to the public: Publication on the federal register acts as a powerful message to would-be infringers that you are serious about protecting your legal rights to your trademark. Responsible businesses will be very unlikely to adopt a mark that would conflict with your prior registration.
What steps are necessary to register a trademark?
Registering your trademark involves three major steps: choosing a name, conducting a trademark search and finally, registering your trademark.
How do I choose at trademarkable name?
Not all names are entitled to federal trademark protection. Only names that are “distinctive” may be registered as federal trademarks. A mark can be distinctive if it’s coined or made up (such as Xerox or Lexus), is a real word used arbitrarily (such as Apple for computers or Orange for a cell phone company), or if it suggestively uses ordinary words in a clever manner (such as Coppertone for sunscreen). Our trademark attorneys will help you choose a name that will receive the strongest protection possible.
Trademark Searches
Most companies will need to conduct a trademark search to determine whether a mark is available for registration. If a “confusingly similar” mark is uncovered during the investigation, the proposed mark will not be available for use and registration. For trademarks filed in the United States, your attorney will conduct a comprehensive search of the federal register, all state registers, and for common law usages of the mark (marks that are in use but unregistered on either federal or state registers). Based on the results of this search, your lawyer will draft a letter advising whether the mark is available and whether it is likely to be registered.
Registering your Trademark
Once you’ve chosen a mark and after the results of a properly conducted trademark indicate the availability of your mark, it’s time to file the trademark application. Your trademark attorney will help you choose the proper class or classes in which to file your mark and complete the application. You will receive a receipt of your application immediately, but it could take up to a year-and-a-half before your application is registered.
What is pass-through/flow-through taxation?
In a pass-through (or flow-through) entity, the entity’s income and expenses “pass through” the entity and are treated as the income and expenses of its owners. LLCs and S-Corporations are pass-through entities. This differs from a C-Corpoartion (which is the default form of corporation) which is taxed a corporate income tax at the end of the fiscal year in addition to the personal income taxes and dividend taxes that its owners and employees pay. Federal corporate income tax is about 15% to 35% of profits, and most states also have corporate income tax. This means after a C-Corporation has paid its expenses for the year, it will be taxed at least 15%-35% of whatever is left above the amount the company started with that year. If the company is an LLC or an S-Corporation, there is no corporate tax, and indeed the owners can even apply losses of the company against their personal income.
Should my business be a Corporation or an LLC?
If your business only has a few investors and you do not anticipate receiving outside financing in the near future, an LLC is probably best for you because of its flexibility, simplicity, and pass-through taxation (see blog entry on pass-through taxation). However, if you want a board of directors that is distinct from the officers and/or shareholders of the company, or if you are looking for institutional investors, then a corporation is probably a better form of entity because of its more organized and established structure of governance.
What is the difference between an LLC and a Corporation?
A corporation is made up of three groups of people – the shareholders, the board of directors and the officers, although the same person can hold multiple positions. The board of directors is formally elected by the shareholders and represents their interests. It is the board of directors that hires the officers of the company, also known as the management. The management’s job is to oversee the day-to-day operations of the company. Major decisions, however, require the approval of both the shareholders and the board of directors. A corporate structure is thus a highly organized and rigid structure of governance that can often be quite burdensome. A corporation requires a slew of corporate governance documents that must be frequently updated. It also requires that annual meetings be held for shareholders and the board of directors.
LLC stands for “limited liability company”. Generally it provides the same legal protections from personal liability as a corporation, however it is governed more like a partnership than a corporation. Whereas a corporation’s owners are called shareholders, the owners of an LLC are known as members. An LLC does not require a board of directors or even officers and can simply be managed directly by its members, if so desired. It can also be structured more like a corporation, with managers that are distinct from its owners. LLCs allow for significantly more flexibility than do corporations. For instance, the owners of an LLC can allocate distributions in whichever way they see fit. Even if the ownership of an LLC is split 60/40, the owners can decide to split the profits 50/50 – something that is not possible in a corporation without a significantly more complicated structure.
Why form a limited liability entity (Corporation or LLC)?
A limited liability entity (a corporation or an LLC) provides both financial and liability benefits. The financial benefits include the ability to deduct more business expenses from annual revenue when calculating taxable income than would be possible without an entity. Forming a limited liability entity also helps protect your personal assets in the event of a lawsuit or from debtors in a situation where your business’s liabilities exceed its assets. This means that as the owner of limited liability company, your personal assets will not be placed at risk because of the actions of your company, as long as the company is kept separate from your personal assets. This requires the corporation or LLC to: 1) make sure the company is adequately capitalized (it has the money necessary to cover the reasonably predictable legal and business responsibilities of the business); 2) that the company keeps clean accounting books and has accounts that are separate from the personal accounts of its owners or employees; and 3) that all legal documents are adequately maintained and the company complies with corporate governance laws.
Also, forming a corporation or llc usually makes it easier for a business to borrow money and to sell all or parts of the business in the future. It is important to note that the longer a business operates without a legal entity, the more complicated and expensive it becomes to transform it into one. For this reason it is very important to form a legal entity as soon as feasible.
Legal Outsourcing
There are two types of legal outsourcing. One is outsourcing of document review to lawyers in countries like India. This form of legal outsourcing is growing rapidly and offers much promise as it allows for multiple checks of mass documents for a very low cost. The other form of legal outsourcing is using a virtual law firm model to allow for attorneys outside of expensive U.S. cities like New York or San Francisco to represent clients anywhere in the world. That is the model Rimon Law Group uses.
Legal outsourcing has especially grown rapidly after the ABA issued Ethics Opinion 08-451 in July 2008 dealing with the outsourcing of legal services. The opinion permits outsourcing assuming both the attorney and the outsourcees adhere to high standards of ethics and competence. Take a look at the ABA Journal article here: http://www.abanet.org/abanet/media/release/news_release.cfm?releaseid=435
How hi-tech start-ups can survive the economic crisis
The economic crisis has shaken up the start-up and hi-tech community, with the credit crunch squeezing the life out of many small companies. However, crisis is often a powerful breeder of innovation, and with the stimulus bill pumping $787 billion into the US economy, there are powerful openings for savvy start-ups to both survive and thrive.
It will not be easy, of course. While real estate and finance were the first to be hit, the crisis has hit hi-tech and retail with immense and obvious force. Most experts believe that this will only get worse as the next wave of retail slumps, debt defaults, bankruptcies and layoffs approaches. As the “Great Recession” spreads and people start worrying about another possible Great Depression, start-up companies are finding it harder and harder to find financing and grab the markets that seemed so large only a few months ago. To make it through the downturn, hi-tech start-ups should concentrate on the following rules of survival:
1. Innovate
Economic down times pave the way for future innovation. The limited resources characteristic of down economies in certain ways create a more competitive environment. Larger companies that would otherwise be trying to dominate the market are focused on mere survival, leaving room for smaller companies to edge in. Meanwhile, smaller companies and their shareholders tend to focus on the long term rather than simply seeking a quick exit.
Past recessions have caused companies like IBM, Sun Microsystems and Montgomery Ward to step back and make way for companies like Microsoft and eBay. Smaller companies that can survive, pick up a small market share and refine their product will be poised for fast growth when their target market rebounds. In short, when economies contract, companies with new ideas arise to supplant former giants that hurt most during economic downturns.
2. Lower costs without sacrificing quality
Whether you are self funding or searching for financing, this is a time to lower your company’s costs as much as possible without sacrificing quality. But cutting costs doesn’t mean cutting corners. If you reduce your company’s value, fail to protect your intellectual property or make your valuable employees feel their jobs are not secure, you will simply be unable to compete.
Look for waste wherever you find it, and consider alternative, less costly approaches to solving routine operating tasks. For example, I started a virtual law firm of top attorneys from the best law firms in the United States, but without all the overhead of a typical large firm. By removing all the waste and overhead, we are able to provide the same service of a premier law firm at a third of the price. We did this by keeping our most valuable asset – our highly skilled attorneys – and unloading the expensive office space, outsourcing labor where the location of the workforce was not material, and removing the high costs of redundancy, on-the-job training and recruiting.
Look for similar waste in your business with a fine-tooth comb and innovative strategies, but make sure you do not lose any talent or major assets in the process. This is not the time to let cash fall through the cracks, but it is also important that you stay competitive in the market place.
3. Reduce reliance on outside financing
Securing financing, whether through equity or debt, is extremely difficult. In this time of hight uncertainty, banks, venture capitalists and angel investors are holding on to their cash until they feel confident that the worst is behind them. For many businesses, this means depending solely on their own revenue to fund future growth. Consider focusing on a sector of your business that is particularly profitable or that generates the most value, and hold off on expanding peripheral sectors until you are in a more stable position.
Allowing a financial foundation to harden before building up might not instantly propel your company to great heights, but it’s preferable to collapsing the entire enterprise when you try to add a new level. This way you will achieve a higher return on investment in the short run, which will help you survive this economic slump.
That being said, venture capital firms and angels have not stopped investing altogether. Our firm is still helping our clients get angel and venture financing, and there are still many financial players looking for places to put their money. If you are looking for financing, look for venture capital firms and angel investors that invest heavily during economic down times. A great way to find such capital sources is to search out venture capitalist firms and angel investors who invested aggressively during the last recession. If a fund’s portfolio contains several investments from 2001, then it is probably more likely to invest during this current economic slump.
4. Take advantage of opportunities
An economic crisis brings new economic opportunities, including new demands in the market and government spending. In the market, businesses need solutions that will help them survive, and companies that best provide those solutions will be very successful. For example, software that reduces expenses, a service that helps companies more effectively find financing or a service that will help companies more easily renegotiate debt will find very open markets. At the same time, the entertainment sector is already seeing rising demand as the public seeks inexpensive ways to temporarily escape their economic worries.
Similarly, businesses tied to government projects are sure to experience a surge in business due to President Barak Obama’s economic stimulus plan, such as the clean technology sector. This is partly because the price of oil is expected to rise again, and partly because the Obama administration will create incentives for investing in clean energy.
So, although it seems that we hear nothing but bad news about the economy, start-ups and hi-tech companies will find there is still plenty of opportunity. By reducing wasteful costs and focusing on what your company does best while also increasing innovation and protecting your assets, your company can position itself well for the next economic upswing.