Branding and Trademarks: Risk of Becoming Generic in Franchising

December 27, 2019Articles The Legal Intelligencer

Brands are identified by their trademarks. Selecting the right mark, developing it and protecting it becomes essential when the brand is being developed. But trademarks can be lost when the company fails to protect it, or even when the name is so popular that use of the mark cannot be controlled.

Loss of a trademark can mean losses of revenues and sometime even the death of the brand. Imagine that a business built using one name must now convert to using another. Transition to a new name is difficult and brand equity will suffer until rebuilt. The internet has exponentially contributed to brand names becoming generic as the unauthorized use of the marks and the number of people using it can “genericize” the name making it worthless. The brand trademark becomes a generic when it is used as a noun or an adjective people use to describe something unconnected to the owner. A court may revoke trademark protection where use of the brand name is used so common place that it no longer identifies the trademark owner with the exclusive source of the goods or services sold under the mark.

Famous Instances of Brand Genericide

When that trademark is revoked, it’s essentially a death sentence for the original product made by the original company. That’s because revoking the trademark makes it fair game for any competing company to use the same name in marketing and branding.

The marks “aspirin” (registered for acetylsalicylic acid) and “heroin” (registered for morphine) were once exclusively owned by Bayer AG. “Escalator” was registered by Otis Elevator, who used the mark incorrectly in its own patent applications. “Thermos” was registered as a mark in the United States in 1892 and lost its registration in the United States in 1963, but continues as a valid mark in other countries.

The “app store” was first coined by Apple Computer, which attempted to enforce its exclusivity against Amazon in 2011. Apple claimed that consumers would be confused by “Appstore by Amazon” but abandoned the lawsuit and the mark in 2013.

Other famous examples include “trampoline,” “cellophane,” “mace,”  “dry ice,” “TV dinner” and many others that lose their distinctive identity through improper use and lose the protections afforded registered marks.

Companies May Strategically Change Their Marks

In the early 1980s, the hamburger franchise “Jake’s” was a very successful burger concept with three locations in Delaware. Jake’s Hamburgers started to franchise, but ran up against opposition in other states and some foreign countries due to conflicts with its name. This chain was too successful and other restaurants named “Jake’s” kept asserting conflicts over the Jake’s Hamburger rights. The business analysis determined that it would be impossible to expand under just that name in many jurisdictions. As a result, Jake’s changed its name to “Jake’s Way Back Burgers” and were able to expand internationally.

Even where the marks are strong and protected, a company may change its marks to improve its marketing. “Boston Chicken” changed its name to “Boston Market” to convey to consumers that their menu was broader than chicken. “Kentucky Fried Chicken” advertises under the brand “KFC” so that the word “fried” is not prominent. Even “Dunkin Donuts” has evolved into just “Dunkin” to show that it offers much more than doughnuts.

Strategies With Conflicting Marks

Conflicting marks or genericized marks can be the end for a brand. When the name is generic, it must be distinguished or the name should be abandoned so that the cancellation process will be controlled. If another user has senior rights because they used the mark first, then the parties might sign a cross licensing agreement where both parties agree to registration and allows the parties from using the mark consistent with federal trademark registration.

Franchise Sale Disclosures of Trademarks

When franchises are offered for sale, the Franchise Disclosure Document (FDD) must describe the marks and whether a federal registration exists for the marks. If the application is pending, then its status is disclosed and the additional fact that until registered in the Patent and Trademark Office, the unregistered mark may not provide exclusive protection for the franchisees. This disclosure also should state that the name may need to be changed if the challenger is correct.

If the application or the registration is challenged, then the FDD identifies that as well and the lack of protection that would otherwise be available if the trademark was registered. The FDD in such circumstances may advise the franchisee that they may need to change the name of their business if the trademark challenge is successful, and that additional expense for signage will fall to the franchisee. For this reason, it is better to change the name in advance to a more protectable brand name than to pursue a brand name which is possibly compromised.

Where the FDD discloses that the trademark is not yet registered or challenged, it is important to have a knowledgeable lawyer drill down on the issue and determine the risks to the franchise prospect. This is an essential element of any franchise, and most people will buy that franchise regardless of the trademark status. This is where the lawyer can be of most assistance in alerting the client as to risks, and how to limit those risks.

Reprinted with permission from the December 27, 2019 issue of The Legal Intelligencer. (c) 2019 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.