Three Risks of Neglecting to Apply for a Trademark

Three Risks of Neglecting to Apply for a Trademark

A start-up or company entering the US market should highly consider registering its intellectual property. IP registration can afford the registrant statutorily mandated benefits such as the possibility to recover attorneys’ fees and obtain double or, in some circumstances, treble damages. At a minimum, a start-up or inbound company should, with the assistance of counsel, undertake a trademark search of the brand or mark that they intend to use. This preliminary check will help to uncover if anyone in the US is using the same or a similar mark.

Entrepreneurs should consider the risks of neglecting to apply for a trademark:

Your unprotected brand can be a liability for you right now. Liabilities cost money.

The chances of your chosen brand name being the same or confusingly similar to that of another business are significantly high. Every year, the USPTO (the federal agency that administers trademark registrations) rejects over half of the trademark applications mainly due to how confusingly similar the chosen marks are. If you have been using an unregistered trademark, you could be infringing on someone else’s rights and could be sued by another business owner. If sued, proving the validity of your mark will be a long and costly process.

You might not be able to stop others from infringing on your trademark rights.

The flip side of infringing on someone’s rights is that other people might infringe on your rights by using a trademark very similar to yours. However, without a registered trademark, it might be extremely difficult to stop them. One of the benefits of trademark registration is that ownership is presumed, making it easier to prove your rights in court. Without a protected mark, you risk losing ownership, and all the work put into your brand.

Less attractive investment opportunity. Investment risk.

People want to invest money in businesses with minimal risk and serious growth potential. In a transaction or fundraise, there is risk:

  • Associated with building a business based on brand names or logos that you don’t own.
  • That you’ll have to pay out royalties to someone else down the road.
  • You’ll have to rebrand and lose some of your brand equity.
  • That you will deplete your cash, litigating a trademark infringement case.
  • That your opportunities for growth may be severely impacted by the fact that you don’t own the federal trademarks associated with your brand, products, and services.

This makes your business a less attractive opportunity for investors and could dent the credibility of the management team. If you’re looking for funding now, or even if you’re building a business that you might sell later, this is something to seriously consider.

It is understandable that most newer business owners (and even some seasoned business owners) don’t fully realize the importance of owning federal trademarks. This note, while just touching the surface, highlights the sharpest potential impact of not protecting your brands and products.

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