Imagine that you own a bakery in New York City called “Little Box of Heaven.” You have only one store, but it’s located in a popular section of Brooklyn. You have been in business for 12 years under that name. “Little Box of Heaven” is on your signage, boxes, and business cards. On a recent trip with friends to San Diego, you are strolling around the city and are stunned to see a bakery also titled “Little Box of Heaven.” Its font is different, and it does not sell exactly the same pastries and good that you do, but it is a bakery nevertheless. And the name is identical.
What should you do if you encounter another business using a name for its product or service that is identical or very similar to yours? How can you stop it? Before you pick up the phone to call an expensive attorney, take a minute to look at how and whether a lawsuit is likely to solve anything.
Your first question is whether you have a federally registered trademark. Trademark registration can give you the nationwide right to use a particular business name for a certain category of goods. In the example above, you might have a trademark over the name “Little Box of Heaven” for bakeries, but you might not have protection over that name for guitars, automobiles, or medication. In other words, marks exist within particular spheres (known as "classes").
If you have a federal trademark, it gives you a stronger case for infringement if you see another business trying to use a similar name in the same sphere or "class" of goods or services.
If you do not have a federal trademark, however, you still are protected under your state’s unfair competition laws. Broadly speaking, these would prevent another business selling identical goods from opening up across the street. However, state laws would not protect you from such a business opening up across the country. So in this example, you might be able to sue a bakery that opens up under "your" name in Brooklyn, but probably not one in San Diego.
Putting aside the question of whether you have a federal trademark or not, consider the effects of another business using your name. In our example, a bakery in San Diego is using the same name as your bakery in Brooklyn. Is it likely that customers walking into either store for coffee are confused about the owner of the store? Perhaps a few. Is it likely that the San Diego store is taking business away from your store? Probably not, since most bakeries operate by walk-in traffic. Maybe, if you both are selling goods online, some Internet customers would be confused as to which of the two bakeries is the one they want, but probably not many.
Now consider the cost of suing. Typically, lawyers who handle trademark cases charge $250 per hour or more (especially in larger metropolitan areas). Full-blown trademark litigation can easily cost over $20,000, and that number can increase depending on the location of the litigation and the possibility of appeal.
These sorts of costs might make sense for certain companies, such as high-end fashion companies, whose value is largely based on brand (such as Prada or Louis Vuitton). But for small businesses, it pays to carefully consider whether a particular dispute over a mark is worth litigating. Let’s look at this issue a little more closely.
If your mark is being used in one state only, your infringement suit will most likely be brought in state court, and the laws of your state will determine how attorneys’ fees will be paid. In most states, the courts will not require the loser of a lawsuit to pay the winner’s attorneys’ fees. Stated bluntly, even if you win, you’ll have to pay your own lawyer, which can be expensive.
However, in a few jurisdictions, such as Colorado, North Carolina, Wisconsin, and Puerto Rico, the prevailing party is awarded attorneys’ fees as a matter of course, and in a few others (Alaska, Iowa, Maine, Minnesota, Missouri, Oklahoma, Texas, and Washington), the court has discretion over whether to award attorneys’ fees, usually in exceptional cases only.
The upshot? Chances are you will be paying your own lawyer regardless of whether you win or lose the case.
If your mark is used across state, territorial, or international boundaries, you will probably end up in federal court. Federal law occasionally permits an award of attorneys’ fees to a victorious plaintiff, but only when the trademark infringement is exceptional—that is, obviously intentional.
Unless you are dealing with a clear case of bad intentions by the infringer, do not count on attorneys’ fees in federal trademark litigation. Most courts follow the so-called “American Rule,” which means that each side pays its own attorneys.
Although courts have discretion to award attorneys’ fees in unusual cases, they are required to award treble (or triple) damages—and order the defendant to disgorge any profits caused by the infringement—in cases where willful trademark infringement is proven.
Willful infringement cases therefore have the potential to generate a considerable sum of money over and beyond what the true trademark owner actually suffered from the infringement. Since the goal in most cases is to stop the infringing use—which will happen if the court finds that infringement occurred— the trademark owner can use the damages to pay whatever legal fees are incurred.
Trademark lawyers understand this and may therefore be willing to represent plaintiffs in willful infringement cases and defer payment of their fees until the case settles or a judgment is obtained. This is not a contingency fee, because the fee isn’t based on the outcome of the case. It is only a method of deferring fees until the plaintiff is in a better position to pay them.
A common strategy is to file an infringement lawsuit and ask the court to grant emergency relief until the case can be fully litigated and decided in a trial. This type of relief—termed a preliminary or temporary injunction—typically orders the alleged infringer to stop using the mark in question pending the outcome of the lawsuit.
Because, as a practical matter, getting slapped with an order of this type puts the alleged infringer in an untenable position from the outset, the party bringing the suit usually reaches a settlement on very favorable terms. To obtain a preliminary injunction, you must convince the court of two basic facts:
The first fact is easy to show. The mere existence and use of an infringing mark daily robs the owner of the infringed mark of its customer base and the business goodwill that the mark represents. Because there is no real way to measure the loss of goodwill in monetary terms, this type of injury is usually considered irreparable as a matter of course.
The second fact—probable success—is another matter. Here the judge has to be convinced that the plaintiff’s infringement claim is strong enough to warrant depriving the infringer of the right to use its mark without first holding a trial.
Some judges are more willing to do this than others, and it is impossible to predict whether an attempt to get a preliminary injunction will be successful. Once the court rules on a request for a preliminary injunction, the losing party has a powerful incentive to settle. Because the outcome of the preliminary injunction request usually results in an early termination of the case, the legal fees associated with the normal trademark case often are much less than if the case were fully litigated. But they may still be high—routinely at least $10,000—because it takes a lot of preparation to successfully handle the preliminary injunction proceeding.
Whether a preliminary injunction and settlement are obtained or the case goes to trial, using the courts to resolve an infringement claim can be, and usually is, very costly. But many otherwise reasonable people insist on litigation. Why? Probably for the same reason many otherwise reasonable people behave stubbornly in divorce proceedings—emotional attachment to being right.
Sadly, the question of who has the right to use a mark often affects people in an emotional way that doesn’t always serve their long-term economic interests. Remember the “Little Box of Heaven” example. Even when another business is using your exact trademark, it is possible that the use still does not impact your bottom line—at least, not enough to engage in expensive and time-consuming litigation. Often, small businesses are better off focusing on development and growth rather than protracted court battles.