image: Proenza Schouler

image: Proenza Schouler

Despite the widespread reliance on trademarks within many industries, including fashion, many entrepreneurs lack a real understanding of what a trademark is, how it functions and what its real value is. Put simply, a trademark is any word, name, symbol, or design, or any combination thereof, used in commerce to identify and distinguish the goods of one from those of another. It can be a designer’s brand name, as in the case of Prada or Proenza Schouler, but such protection also extends to brands’ logos, such as Chanel’s double “C” mark or Louis Vuitton’s monogram print. 

But what does it really mean to have a word or symbol identify and distinguish a manufacturer’s or seller’s goods?  Within the fashion industry, for instance – whether it be luxury names like Gucci or department stores like Macy’s – consumers automatically connect these names (read: trademarks) to the distinct goods they produce. Businesses across all industries likewise embody trademarks that identify a particular brand via words, logos, and/or colors: JetBlue, Delta, and American Airlines in the airline industry; Coca Cola and Pepsi in the beverage industry; BMW and Toyota in the auto industry. Such marks prompt recognition through marketing and branding, and eventually, when successful, consumers will (positively) associate the brands with their goods and services. The more recognition trademarks amass, the more value they add to a company.

Take the following examples of the several of the teen retailers that filed for bankruptcy, only to be saved by either private or public entities shortly thereafter. Not long after Aeropostale filed for bankruptcy in May 2016, the troubled apparel chain’s plan to emerge from bankruptcy was approved by a federal judge, and Aéropostale will exit Chapter 11 protection as a leaner retailer with 229 stores owned in part by mall operators Simon Property Group and General Growth Properties. Those two landlords teamed up with liquidators, currently in the process of shutting down hundreds of Aéropostale stores, to submit a $243 million bid that would avoid outright liquidation of the whole chain.

Similarly, American Apparel filed for bankruptcy in October 2015, and is being bailed out by a group of hedge funds, including Standard General and Monarch Capital, which are set to take over the company after injecting capital immediately before and during the bankruptcy case. In a classic debt-for-equity conversion, American Apparel’s secured lenders will exchange $230 million in debt for ownership of the company. They’re also expected to provide $40 million in financing to help the company exit Chapter 11 bankruptcy as well as an additional $40 million secured loan.

It can be argued that the failing companies’ established trademarks (and thus, their brands), in part motivated these investments – or at least contributed to the high price tags the “failing” companies commanded. Carrying a strong trademark bestows a sense of legitimacy to a company, financially troubled or otherwise, elevating the overall value of their services and/or goods. Just as an individual’s net worth is calculated as his assets minus his liabilities, when a business owner wants to sell her company or files for bankruptcy, the net worth of the company is drastically increased if she has substantial assets. If these failed businesses did not carry strong trademarks, the value of their services and/or good would have more likely equated to nothing.

As the International Trademark Association defines it, “the value of a trademark lies in the goodwill associated with that trademark. Goodwill is an intangible asset that provides added value to the trademark owner’s worth (such as a recognizable brand).” Thus, if a company does not maintain strong trademarks, its value could decrease significantly.

An important note is that an official trademark requires more than popular recognition. Some business owners believe that in the United States, common law trademark rights arise from actual use of a mark and not the registration of the mark with the United States Patent and Trademark Office (“USPTO”). However, only an officially registered trademark grants a company the right to sue for infringement in federal courts (in cases of unauthorized use of a trademark, on or in connection with goods and/or services in a manner that is likely to cause confusion, deception, or mistake about the source of the goods and/or services), recover profits, damages and costs for such infringement, or block the importation of goods bearing an infringing mark.

Furthermore, if a mark is not registered with the USPTO, the owners are at a great disadvantage in properly protecting the mark from infringers for two reasons: First, an infringing individual could claim they were unaware of the mark’s existence. By filing for a federal trademark, the registrants put the entire country on notice of its trademark and the goods/services provided under it. Registering a trademark with the USPTO also grants the right to use the ® symbol in connection with the word, name, symbol, or design, which serves to further deter potential infringers.

Second, a company that fails to obtain a trademark for its brand/mark also forfeits the ability to attain incontestable status. Provided after five years of registration with the USPTO, incontestable status serves to protect the registrant’s exclusive rights to utilize the mark by affirming conclusive evidence of the validity of the mark. This protection can eliminate many potential lawsuits early on and save a business owner thousands of dollars in litigation. 

Assuming the goal of most companies is to grow a profitable and highly recognizable brand, trademarks (especially notable ones) are very valuable to businesses. By not acquiring federal trademark registration, a company misses a huge opportunity to prevent the global market from becoming flooded with similarly named products or brands, which can eventually weaken the strength of the original mark and the company’s potential to recover damages in an infringement case.

At the end of the day, what may at first glance seem like a redundant step for a well-known brand, filing for a trademark can only benefit a company. And in the fashion industry, established brands and new companies, alike, should take every possible precaution to protect themselves, given that in this industry, securing intellectual property protection is rarely so straightforward.

Biana Borukhovich is an Intellectual Property Attorney based in New York. (Editing by Nicole Malick)