San Diego Business Lawyer Blog

Cease and desist letters claiming trademark infringement have an intimidating effect on their recipients. Most San Diego business owners are bewildered and have no idea how to respond. They have been in business for months if not years, and have constructed signs, circulated business cards, advertising and other promotional materials, published websites, formed a corporation and built goodwill and customer loyalty all under their existing name. Now some company they have never heard of is telling them they need to abandon their identity and start all over, a costly endeavor. Ideally, businesses will conduct a trademark search before deciding on the use of a name and logo and then file their own trademark registration, but this is of course hindsight. There are two very important things to keep in mind upon receipt of a cease and desist letter claiming trademark infringement: don't panic and don't ignore it.

Don't panic because in many cases the issues can be resolved without having to abandon your business' identity. Your mark may not actually infringe on the claimant's mark, you may have a common law trademark giving you the right to use the mark in your geographical area, or the claimant may be willing to license use of the mark, place some limited restrictions on use or request some reasonable modifications to the mark. Remember that pursuing trademark infringement claims is an expensive endeavor and it is often economical for the claimant to work out an agreement with alleged infringers. Usually, a San Diego trademark attorney can assist in resolving the dispute for a reasonable cost. Of course, in some circumstances the claimant will not walk away so easily. It depends on the size of the claimant's business, the strength and recognition of the claimant's mark and the geographical scope of the claimant's customer base. A business won't get very far opening a hamburger joint called McDonald's and utilizing a big yellow "M" at the forefront of its logo's design. McDonald's will pursue a trademark infringement claim no matter the expense.

Don't ignore it because some companies will pursue their claims even if they are not as big as McDonald's. Once a trademark infringement claim is filed in Federal court, you lose significant bargaining power. Even if you capitulate and agree to change your business' name, the claimant will almost certainly want to be recuperated for bringing the action including attorney's fees and other costs associated with filing suit. With or without an attorney, open the lines of communication.

If hiring a lawyer is not economically feasible, start by calling whoever sent the letter and ask them whether there is room for negotiation. However, be careful about making any admissions, especially in writing. For instance, your case will be significantly weakened if you send a letter to an attorney for the other side admitting that your mark infringes on theirs and apologizing for the mistake. Instead, let them know that in the interest of avoiding legal fees and litigation costs you are willing to work something out. Ask what it will take. If you feel you have a strong position, tell them why - your mark has been in use in San Diego County for 10 years well before they obtained their federal trademark registration (giving you a common law trademark). Or suggest that the two marks really aren't that similar and there isn't any likelihood of confusion. If your position is weaker, suggest alternatives that won't involve reinventing a marketing campaign. Maybe the design of your website is too similar to theirs requiring a simple fix. Maybe they'll be willing to license the mark for a nominal fee given that the marks are being utilized in two different states. However, it's best not to play attorney with these folks. Be conciliatory so that they understand your willingness to cooperate. If at any point it seems like you are in for a battle, that's probably the time to contact a trademark lawyer regardless of the cost.

Few doubt the importance of protecting a business' name and logo with a federal trademark. Yet, many business owners focused on more immediate problems and concerned about the cost and time associated with applying for a trademark put the task aside. Some local businesses that have had a name and logo in continuous use prior to other trademark registrations will benefit from common law trademarks. However, if those businesses begin marketing themselves on line (even if only locally), they may run up against trademark infringement claims. In addition, the common law trademark will only protect a business' name within a limited geographic area where the business is located. While there is no need for all business owners to fall victim to the "you can't afford not to trademark" doomsday threat, it is important to evaluate your risk. Consider consulting a trademark attorney for guidance.

If you do need a federal trademark, the process is relatively straight forward but can be challenging for the lay person. The first step is to be sure that someone else hasn't already trademarked the name. This does not necessarily mean that your trademark cannot include the same words as other trademarks. The question is whether your trademark is similar enough to an existing trademark for a similar product or service such that it creates a likelihood of confusion to the consumer. Registering a trademark without an attorney requires some research to better understand this concept and evaluate your trademark against existing registrations. The actual search for existing trademarks is simple enough and can be conducted on the United States Patent and Trademark Office (USPTO) website using the Trademark Electronic Search System (TESS). If there is a potentially conflicting Trademark, be sure to check its status. It may be that the trademark registration was canceled. Finally, qualifying for a federal trademark requires that the mark at issue be in use in interstate commerce. A restaurant that serves customers from other states does business in interstate commerce as does just about any internet business.

The next step is to draft a description. This includes a description of the mark and the goods and/or services the mark will be used with. Refer to the USPTO's manual Acceptable Identification of Goods & Services for valuable assistance in preparing your description. You will also need to select a classification. The classification options are listed on the USPTO website. The trademark application also requires an actual representation of the mark. The mark can consist of the words only in standard letter format or can be a designed logo.

Continue reading "How to File for a Federal Trademark? " »

Continued from Marketing Your Product or Service: Business Plan Part Four.

Funding: The Funding section sets forth the amount of funding necessary to start or expand your business. A strong business plan doesn't merely ask for a fixed amount of money. It sets forth the company's funding requirements in detail and includes different funding scenarios. It describes how the money will be spent, whether future funding will be necessary and how the current and/or expected future financial condition of the business will accommodate the debt. What does the five year horizon look like? Is the company seeking equity investment or a loan? What terms will best fit with the company's financial strategy? The funding section should also specifically state how an injection of capital will benefit the company's bottom line, and should delineate best and worst case scenarios. Tell the prospective investor or lender the company's long range financial strategies, how profits will be used and what the return on investment will be. In addition, describe precisely how the funds will be used including whether some or all of the funds will be needed to pay off debt or for capital expenditures. Be sure to tie your funding needs to the company's strategic goals. Lenders want to know that you will be able to repay your debt and investors want to know that there will be a positive return. Show them that the company has a plan to allocate resources efficiently and effectively.

Financials: The Financial section of the business plan is the dollars and cents section. It tells the reader about the company's current financial health and its projected financial health over the next five years. This is where you crunch the numbers and it is your opportunity to show the prospective lender or investor just how sound your business plan really is. The financial data backs up the funding requests. The financial sections should include historical financial data (typically three to five years back or for as long as the company has been in business if shorter than three years). Provide the company's accounting records including income statements, balance sheets and cash flow statements for each year, and identify any collateral. The prospective financial data should project the company's finances for the next five years including forecasted income statements, balance sheets and cash flow statements. It is helpful to provide monthly projections especially for the first year, and quarterly projections thereafter. It's important to discuss assumptions made to support projections. If you project increased revenue for year two based on increased advertising in the third quarter of year one, say so. Be sure your assumptions make sense and are consistent with your overall business plan. Don't expect that the reader will make these connections for you. It's also important that your funding requests are consistent with the financial projections. Finally, the Financial section should close with a brief analysis of the company's financial information including an analysis of historical and prospective trends. Use of excel spreadsheets and graphs are great tools.

Appendix: The business plan should conclude with an appendix that lists all of the supporting documentation such as: resumes and letters of reference; marketing materials; supporting data for market analyses: licenses, permits, trademarks or patents; leases, contracts, and other legal documentation; corporate, partnership or LLC documentation; and list of professional advisors such as your accountant, business attorney and banker.

For more information on starting up a new business see Starting Your Own Business. If you are considering purchasing an existing business, check out Purchasing an Existing Business Offers Benefits Often Overlooked and Considerations When Purchasing a San Diego Business.

Continued from Describing the Company: Business Plan Part Three.

Marketing:  Once you have a complete understanding of what your target market is, it is critical to have a plan to capture a competitive share of that market.  The Marketing section of your business plan should tell the prospective investor exactly how you intend to accomplish this important goal.  Your marketing strategy should be unique, creative and effective.  It's important to tell the reader in this section: how the company intends to penetrate existing markets; how the company intends to distribute its products; what the company's plans for growth are; and what the company's marketing strategy is or will be.  Explain the business' strategies in detail.  Does it intend to expand via acquisition of other businesses or franchising?  Does it intend to expand the customer base via advertising and promotion?  How will the company use various marketing tools to grow the business?  There is no "one size fits all" marketing strategy.  However, zeroing in on these fundamental components assists in the development of a strategy that has the best chance of success.  

The Marketing sections should also set forth your sales strategy if your business relies on or will rely on a sales force.  What type of sales force will you use?  How will you recruit and train them?  Will they be independent contractors or employees?  How will they be compensated?  What type of system will you have in place to identify and prioritize customers?  Will they be contacted by phone or in person?  What is or will be the average number of calls necessary to make one sale?  Show the reader that the sales force will be productive.  

Service or Product Line:  The Service/Product Line section describes what the company is selling, and explains why potential and current customers will benefit from your particular product or service.  What distinct advantages will your business offer?  Will you provide customers solutions they cannot find elsewhere?  Do you own, have pending or intend to obtain copyrights, patents, trademarks, trade secrets or licenses that will provide an advantage?  If so, in what way will they be advantageous to the company?  Is there any research and development (R&D) underway?  What about competitors?  Describe your R&D goals and compare them with other R&D efforts in the industry.  Explain why your solutions are important to the client base, and anything else that will set your business apart from its competitors.  Provide a detailed description of the company's services and/or products and pricing schedules.  Include promotional and marketing materials. Is the product or service seasonal?  If so, how will the company deal with seasonal trends?  What is the availability and cost of necessary supplies and raw materials?  Who are the company's suppliers?  This is your opportunity to pitch the product or service to the prospective investor or lender, to explain why people will be willing to purchase your product or service at profitable price points and to explain how you will be able to meet those price points.  

Continued in Funding and Finances: Business Plan Part Five.

Continued from How to Fund Your New San Diego Business.

Choosing the right business entity for your new San Diego venture is a critical step that should be made early in the process.  It's important to diligently examine the pros and cons of each choice before deciding on what business entity to go with.  In some cases, opting for a sole proprietorship or general partnership remains a practical option.  In other cases, the owner or owners desire the creation of a more formal entity such as a corporation, limited liability company (LLC), limited liability partnership or professional corporation.  The ultimate choice will depend on the nature of the business, the number of owners and the capital investments being made.  The goal is to minimize potential liabilities including taxes.  The correct business entity choice for any particular company will depend on the individual characteristics of that company.  Your accountant and business attorney can provide guidance.  Nonetheless, there are some general issues to keep in mind:  

Limiting Liability:  One of the main reasons people opt for a formal business entity is to insulate owners from company liabilities.  Limiting the liability of owners encourages investment offering a distinct advantage over operating as a sole proprietorship or general partnership.  However in most cases, the owners of new businesses are required to give personal guarantees for commercial leases, loans and contractor agreements.  If so, the benefits of the formal business entity become less relevant, particularly if the business is adequately insured and intends to form an LLC or S-Corporation resulting in pass-through taxation.  If the owners have to personally guarantee loans and commercial leases, have insurance to cover civil liabilities and are going to elect pass through taxation so that they are taxed as individuals, there is little incentive to go through the expense of forming a formal entity.  

The Limited Liability Company (LLC) or S Corporation:  Most people forming new businesses end up narrowing the choice of business entity to an LLC or S-Corporation.  This is because they want pass through taxation to avoid the prospects of double taxation associated with C-Corporations.  If you are forming a new business and your main goal is to limit owner liability, the LLC is generally a good choice.  It offers more flexibility than the S-Corporation, and allows for unequal allocation of income, deductions and losses to the owners.  On the other hand, the S Corporation may offer some advantages to those concerned with self employment and FICA taxes.  If there is any doubt between these two forms of business entities, it's best to consult with your accountant (preferably a CPA) or tax advisor for input.

Continue reading "Choosing the Right Business Entity for Your New Business" »

Continued from The Market Analysis: Business Plan Part Two.

Company Description:  As the title suggest, this section describes the business.  In the Company Description, the San Diego business owner summarizes the nature of the business, how the business is organized, the needs of the marketplace and the reasons why your business will succeed.  The information in the Company Description may be repetitive of other sections.  Be careful not to copy exact language from the Market Analysis or the Organization and Management sections.  Instead, use the information in these sections to help paint a broad picture of the company and how each of these factors interrelate with each other within that broad picture.
 
Organization & Management: The next section in a typical business plan is Organization & Management.  It sets forth in detail the company's organizational structure, ownership and management structure and identifies the owners, management team and/or board of directors and their qualifications.  This section tells the reader whether the company is a California corporation, limited liability company, partnership or sole proprietorship.  It then identifies the owners, their percentage interest in the company, the role each will play in the company's operations and describes their respective experience levels in the industry and exactly how that experience will benefit the company.  It is often helpful to provide the reader with an organizational chart that covers all aspects of the company's operation and tells them who does what.

The Organization & Management section also describes the qualifications of key management personal and corporate officers, and the salaries and benefits offered to keep them.  It shows the reader that the company is in good hands, and intends to maintain that level of quality over time.  It's important to set forth the details of the owners and management team's qualifications, including their names, percentage and type of ownership (if owners), position and description of their primary job duties and responsibilities, unique experience and skills, employment history and track record with other companies and recognition in the industry.  What are their achievements?  In short, prospective investors want a resume for each person that will have influence over the success of your business.  

Continued in Marketing Your Product or Service: Business Plan Part Four.

Continued from Be Prepared Before Undertaking a New Business Venture.

Marshalling the resources necessary to fund a new San Diego business can be intimidating. In fact, it's probably the biggest reason many decide against a new venture. How in the world will I come up with the capital necessary to: purchase an inventory; purchase equipment; lease commercial space; hire employees; pay an accountant and/or a business attorney; and/or pay for insurance? And even if I come up with the necessary funding to open my doors, will I be able to continue paying the company's expenses? What about my personal expenses? These are important questions and they require a funding plan that takes into account start up requirements as well as the company's short term and long term financial needs.

To properly evaluate a business' capital needs, it's important to have a strong business plan that clearly defines the company's strategy for success and sets forth detailed projections of the company's short term and long term finances. It will also define how an infusion of capital will be spent (whether on operating expenses or capital expenditures necessary for real estate and equipment). A critical analysis of the financial landscape aids in determining just what level of funding is needed and whether additional funding will be needed down the road. The more detailed and well reasoned your business plan, the more likely lenders and investors will provide needed capital. They will want to know how the money will be spent.

There are numerous ways to finance a new business' operations. In most cases, new businesses are funded via a combination of resources. Personal assets, credit cards, bank loans, third party loans, 2nd mortgages, loans from friends and family, partners' capital, sale of a corporation's shares or a limited liability company's membership interest, venture capital, sale of personal assets such as stocks, automobiles and boats are all common and legitimate means of raising capital. The first step is to inventory your personal resources. Whether via the sale of assets, withdrawal of cash from checking and savings accounts or via a second mortgage on your home, tally the dollar amount of the investment you are able to make. In deciding the amount of personal assets to invest in your new business venture, be sure to consider the need to meet personal expenses over time (preferably two years). Under your business plan, will you be paid a salary? Will you have enough money set aside as a cushion should the business prove unable to pay your salary or worse fail? These are important questions. Remember that you can opt to keep some reserves and make up the difference in needed capital via other means.

Continue reading "How to Fund Your New San Diego Business" »