Intellectual property is one of a business’s most valuable and most misunderstood assets. On today’s episode of The Small Business Show, Alex Montagu, founding partner at MontaguLaw, P.C., author of “Who Owns This Sentence?” and speaker, explains the basics of IP and how small business owners can protect their ideas and creations with trademarks.
With more business being conducted online and ownership becoming increasingly intangible, understanding intellectual property, trademarks and the protections they provide is critical. Many business owners, however, have only a surface-level understanding of their rights.
What is a trademark and its benefits?
A trademark is a word, phrase, symbol, design or combination that identifies a company’s goods or services. A registered trademark provides the business owner with exclusive rights to use the mark and legal protection against infringement.
"What we're selling is much more complicated. We're slicing and dicing intangibles and there's a lot of misunderstanding around who owns what."
Trademark law varies by country. In the United States, ownership can arise from the first use of a name, even without registration. Trademarks are also territorial. A U.S. registration does not extend to the U.K., EU or Canada. For business owners aspiring to go global, it’s important to conduct a clearance check in all countries.
The key benefits of trademarks:
- Exclusive rights to use the mark for the associated goods or services
- Legal protection against infringement and unauthorized use
- Stronger position for business expansion, including international growth
- Increased brand recognition and customer trust
Trademarks also provide protection when a business is ready to scale. While the success of a new business venture is uncertain, skipping a clearance search is too risky. Growth can become complicated if a name isn’t properly trademarked, especially for international expansion.
Montagu urges businesses that will be sourcing from manufacturers in China to register a trademark there. A cottage industry exists that registers foreign brand names and holds them for ransom. Businesses will be prohibited from manufacturing in China—unless they pay the ransom. Early registration safeguards both the name and manufacturing access.
How to obtain a trademark
When launching a business, it’s important to conduct a “clearance check” to ensure that the desired business or product name isn’t already trademarked. One of the most common mistakes is committing to a name without checking. Even registering for an LLC under a name doesn’t automatically grant ownership rights. Montagu cautions against developing an emotional attachment to a name, as it may already belong to someone else.
A proper clearance check involves browsing the federal trademark registry. A simple Google search is insufficient because a business may not have an online presence, yet the trademark could still be registered.
The best approach is to use a search firm for a comprehensive check and consult a lawyer to ensure a name is sufficiently differentiated to avoid infringement.
The consequences of trademark infringement
If a business is accused of infringement, the company may be fined and required to immediately cease using the name, resulting in costly legal fees, rebranding, and customer confusion.
Montagu urges small business owners who haven’t conducted a clearance search or registered a trademark to do so immediately.
For businesses that own a trademark, it’s essential to protect it. Keep an eye out for competition that may be infringing. Allowing prolonged infringement and reporting it too late will make enforcement in court more difficult, and a company risks losing rights entirely.
Common misconceptions surrounding ownership
A common misconception is that paying a freelancer, contractor, or company for a website or app automatically grants ownership rights. Without a signed agreement transferring rights, that is not the case. All contracts should be reviewed carefully to ensure ownership is properly assigned.
Trademarks, copyrights and patents each serve different purposes and provide distinct protections. Consulting a lawyer can help determine which is most suitable for a particular business, product or service.
An often-overlooked area is agreements with customers regarding IP use or access to personally identifiable or sensitive information. Terms and conditions alone are insufficient; signed agreements are essential.
Developing an intellectual property strategy
When starting a business, an intellectual property strategy should be prioritized from the start. It’s important to understand the budget, level of protection required, and how much can realistically be afforded.
While budget constraints are real, investing in IP protection early can prevent costly disputes later. Just as a business owner budgets for an LLC or accountant, an IP strategy should receive similar consideration.
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