Common Law Trademark Rights Explained

If you run a business but haven’t gotten around to filing a federal trademark application to protect your intellectual property, you may not have to worry about someone stealing your mark. Even if you never file that application, you may still have trademark rights. This is often referred to as having an unregistered mark. A cross-town competitor likely can’t just start using your mark without consequence.

(A cross-country competitor might, though, but we’ll deal with that matter in a moment.)

Had the trademark system been based on registrations alone, we’d have chaos. Courts often recognize the validity of unregistered trademark rights, affecting legal presumptions in disputes. Trademarks would have been rendered meaningless long ago. Legitimate businesses would have crumbled. Instead, the trademark system is based on usage of marks in the marketplace. The process of establishing a common law trademark begins not with the application process, but rather through the actual use of a trademark in commerce. Once you sell a product or service using a name and logo, you acquire certain trademark rights. (Unless your mark infringes on an already existing mark, of course.) These are termed “common law” trademark rights.

How do you establish a trademark? By using the mark in commerce. This also answers the common question of how to trademark a name for free. Just use it to identify products and services in the marketplace. This also raises the importance of conducting a common law trademark search to ensure your unregistered mark is unique.

If you can establish trademark rights for free, then why would you pay for a federal registration? There are many benefits of trademark registration unavailable to common law trademark holders. While common law trademark protection offers some benefits, a registered trademark provides a higher level of security. Federal registration provides the greatest level of protection for your brand and your business.

If you choose to establish a common law trademark, rather than register the mark with the United States Patent & Trademark Office, your rights will be limited.

Additionally, it’s important to note the use of the unregistered trademark symbol (™) can be used to indicate an unregistered mark, distinguishing it from the registered trademark symbol (®).

The pros and cons of common law trademarks

Let’s review a few of the benefits and downsides to unregistered trademarks.

Downside: Geographic limitation in trademark law

Let’s say you open a shop in downtown San Antonio, Texas, selling custom area rugs. You call your business RICKY’S RUGS. Once you open your doors for business, you have established trademark rights. No one can open a shop on the next block and call it RICKY’S RUGS (or RICKY’S AREA RUGS or any name that might cause consumers to confuse their brand for yours).

The same does not hold for a company in New York City. An entrepreneur in SoHo could potentially open up a shop called RICKY’S RUGS without infringing on your trademark. As long as the owner didn’t see your shop and blatantly steal the name — and that’s hard to prove even if it is the case — she has trademark rights just like you. You can both continue operating despite using the same name. What if one of you wants to expand nationwide? Perhaps you set up another RICKY’S RUGS outlet in Houston. Successful there, you move to New Orleans, to Atlanta, and then up the East Coast. Finally you open up your RICKY’S RUGS outlet in New York City, but a few weeks later receive a cease-and-desist letter. The owner of the RICKY’S RUGS in SoHo asserts her prior common law trademark rights.

As a common law trademark owner, you need to be aware of the nuances of common law trademark protection. This can be crucial in legal disputes where the registered trademark symbol (®) carries significant weight.

The owner is right, inasmuch as it concerns New York. You can continue expanding your empire of RICKY’S RUGS outlets, but in New York you would not be able to use that brand name. Someone else has trademark rights there, even though you established the RICKY’S RUGS mark first in San Antonio. Since you relied on common law trademark rights, which protects you in local geographic areas where you actually do business, you cannot prevent someone in a different geographic area from using the same mark. These common law rights are based on a first-to-market rule, often referred to as “prior use”. This means that, in most cases, the business that starts selling products or providing services first within the territory will have priority over anyone else who tries to use the same mark. Since the RICKY’S RUGS in SoHo began selling in New York City prior to your entry into that territory, they’ve effectively established priority through prior use, and would win a trademark dispute in the vast majority of cases.

Had you received a federal trademark registration for RICKY’S RUGS before the New York company opened its doors, you could not only use the mark in New York City, but you could prevent the New York owner from using the mark. With a federal registration you have more fully established more exclusive and defined rights to use the name RICKY’S RUGS.

A federal trademark registration more fully protects your brand on a nationwide basis. Common law trademarks are limited to the geographic location(s) in which you actually do business. Accordingly, for most businesses, it makes good sense to attempt to acquire a federal trademark registration on the Principal Register, which would grant the trademark owner nationwide trademark rights regardless of their business location.

Benefit: Works for companies outside the US

Even foreign businesses can establish common law rights to a mark by virtue of actual use of the mark in commerce in the United States through the same prior use priority. However, if a foreign-based business is not actually using the mark in commerce in the United States, but still wants to acquire U.S. trademark rights, then they can simply apply for an extension of protection through the Madrid Protocol, which does not actually require use of the mark in the U.S. (but does require registration of the mark in the foreign business’s home country – more on the Madrid Protocol and trademark registration for foreign-countries in this article: US Trademark Registration for Foreign Companies).

Downside: No notice of ownership

Imagine you are a small brewery that distributes on a nationwide basis. You call one of your beers EUPHORIA. For whatever reason, you don’t file a federal trademark application for the beer. You brew a dozen at a time, and sometimes you cease brewing some of them. Trademarking each one could prove costly for your small business.

Not long after you release your EUPHORIA line, another small brewery releases a beer called EUFORIA. A trademark attorney advises them to file an application, which they do. But they don’t only file a trademark application for EUFORIA. The attorney advises them to also file an application for EUPHORIA, the correct spelling. Within a few months, the second brewery has obtained federal trademark rights for EUFORIA and EUPHORIA.

Their first order of business: send you a cease-and-desist letter. They own federal trademark rights to “EUPHORIA” for beer, after all. Won’t they be surprised to learn that since you were first to market, your trademark rights actually trump theirs. It will be a costly surprise for both of you, of course, and it could have been avoided at the outset.

Had you filed a federal trademark application for EUPHORIA when you started brewing it, you would have prevented the second brewery from filing an application in the first place. When performing a trademark search they would have seen the status of your application. Unless they wanted to spend $350 plus attorney fees to file an application that the USPTO would surely reject, they’d go back to the drawing board.

The fees for filing a federal trademark application might seem high, and the registration process might seem daunting, until you consider the potential cost of litigation over trademark infringement. In a way it’s like insurance: you don’t realize how valuable it is until you actually need it.

The difference, by the way, between this case and RICKY’S RUGS? This case is drawn from the real-life trademark dispute between DuClaw and Ska breweries.

Downside: Difficult legal protection for common law trademarks

Because their rights are established in a federal registry, federal trademark owners have an easier time prosecuting those who infringe on their marks. Furthermore, they have avenues to recoup legal costs stemming from infringement cases. The same is not necessarily true for common law trademark holders.

In many cases, common law trademark holders can sue other companies for infringement. They have a much higher bar of evidence to clear, though. They also might not be able to recoup legal fees from defendants if they are successful.

Chances are it cost Ska and DuClaw a significant amount of money to resolve the above-described trademark dispute. Even though Ska emerged victorious, they probably didn’t recoup any legal fees from DuClaw.

The proceedings could have been even tougher for Ska if they wanted to stop DuClaw from using the “EUFORIA” brand, claiming likelihood of confusion. Since DuClaw owned a federal trademark registration, it is easier for them to prove their rights. That brings us to another advantage of federal trademarks that common law trademark holders do not realize.

Benefit: Common law rights are free

I often get queries asking if there is any way to establish trademark rights for free. The answer is a simple “yes”. Technically you have some level of trademark protection when you first use a mark in commerce, because you become the prior user, as we’ve mentioned previously (assuming no one else is already operating with that name or any similar versions of that name). There is no comprehensive guide on how to establish a common law trademark rights; it is one simple step – open for business.

Yet as you can see, there are many more issues involved. Common law trademark rights are not on the same level as federal trademark rights obtained through registration. Granted, common law rights can, in some cases, nullify another competitor’s “incontestable registration”. Although it is a common misconception that an “incontestable registration” is immune to claims of infringement from third-parties, the fact is that a senior prior user with superior common law rights can still enjoin a party who owns an “incontestable registration” from using the mark in the senior user’s territory.

An encompassing example

Changing the first scenario above, imagine that the New York RICKY’S RUGS company, which opened its doors after you opened yours in San Antonio, decides to file a federal trademark application. They search the federal database and find no such registration, nor do they find something similar. Since you’re a brick-and-mortar shop, you don’t have a website, so they don’t find you with a Google search either. Because you’re not web savvy (please play along), you don’t have any local listings either.

The owners of RICKY’S RUGS in New York think they’re in the free and clear. So they file their application. The United States Patent and Trademark Office (USPTO) finds no conflicting marks, and so approves the application. No one objects during the publication period, so in a few months the RICKY’S RUGS in New York owns a federal trademark registration on the name.

Even though you used the RICKY’S RUGS name first, the New York company now has nationwide rights to the name, save for in San Antonio. Had you filed a federal trademark application, the New York company would have seen that you had at least filed an application. Any attorney filing an application would show them this and advise that they do not file an application of their own. If they did file an application for RICKY’S RUGS, chances are the examining attorney at the USPTO would reject the application.

This is similar to the case of Burger King in Mattoon, Illinois. The owners established the BURGER KING mark there before the national (now global) chain appeared. But because the owners didn’t file for a federal trademark, they had rights only in their local area. The global “BURGER KING” brand cannot enter Mattoon, Illinois, because of the established local trademark. But there is little else the original Burger King owners can do. In the same way, there is little the San Antonio Ricky’s Rugs can do to prevent nationwide expansion by the New York company.

Which path is right for you?

Business owners should understand the differences before making a decision on whether to register a trademark or simply rely on common law rights. If you feel at all unsure about if you need an official registration for your trademark or service mark, you should seek-out professional legal advice before moving forward. Contact me today at 1-866-618-2517 to discuss the option of filing your federal trademark and protecting your business nationwide.

Xavier Morales, Esq.

About the Author:

Xavier Morales, Esq.

Mr. Morales founded this trademark law practice in January 2007 with the goal of providing intellectual property expertise to entrepreneurs and businesses around the country. Since then, he has filed more than 6,000 trademarks with the USPTO. You can learn more about Xavier here.

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