Startup Legal Lessons from the Biography of Steve Jobs (Part 3)
With the movie “Jobs” opening in theaters this week, we are taking a look at the startup legal lessons raised in Walter Isaacson’s bestselling biography on Steve Jobs. Not surprisingly, given the dynamic history of the company Jobs co-founded and led, the book touches upon numerous legal issues encountered by Apple. These legal issues, as presented in Isaacson’s book, serve as a useful framework for addressing some of the common legal issues faced by startups and entrepreneurs today. This is Part 3 of a multi-part series. This post discusses trademark issues in selecting a company name.
Selecting the “Apple” Name
Steve Jobs and Steve Wozniak selected the name “Apple Computer” on a ride from the airport to Los Altos. Jobs was on a “fruitarian” diet and had just visited the “All One Farm” apple farm near Portland (where he used to spend weekends pruning the apple trees and seeking enlightenment). On one hand, the name Apple Computer would typically be considered to be a strong name from a trademark perspective. As discussed in this prior post, the name “Apple” does not, by itself, suggest to the consumer the nature of the underlying business (making computers). Accordingly, trademark law would consider the name to be arbitrary, and therefore highly distinctive. Highly distinctive marks, like Apple for computers, receive greater protection under trademark law.
Selecting a name that is eligible for strong trademark protection is only half the battle when considering a company name. Entrepreneurs should also make sure that their name does not conflict with any existing trademarks. In the case of Apple Computer, it did. Apple Corps, was the name of the Beatles holding company. Apple Corps first sued Apple Computer for trademark infringement in 1978. The suit settled with Apple Computer paying Apple Corps a modest payment and the parties entering into a “coexistence agreement.” The Beatles would not produce computer equipment; Apple could not market any music products.
Apple Corps v. Apple (Not Just) Computers
Apple Computer’s business originally focused on “just” computers, but as we all know, it did not always stay that way. This is a good example of a common mistake made by entrepreneurs, who are often unconcerned with an existing mark similar to their own in a seemingly unrelated field. The experiences of Apple Computer, however, demonstrate how seemingly unrelated businesses can suddenly become related through changes in technology and business models.
On numerous occasions, Apple Computer sought to incorporate music-related technology or services into its products. In the late ’80’s, Apple Computer introduced its Musical Digital Interface and in 1991, Apple Computer launched a Mac with the ability to play music files. Apple Corps sued over both launches resulting in payments of millions of dollars by Apple Computer. In 2003, Apple Computer launched the iTunes Store, and Apple Corps sued again. The parties finally resolved these issues in 2007 with Apple Computer paying Apple Corps $500 million to acquire worldwide rights to the mark, and then licensing back Apple Corps the right to use the mark in connection with the Beatles.
While Apple had the resources to withstand these repeated disputes, it would be cost prohibitive for most startups to address a trademark dispute from a well-financed entity like Apple Corps. While startups can change their brands, this is also cost intensive not only in terms of mechanically changing the brand but also in terms of the lost good will that a startup has built up with customers, investors, and other partners.
Performing a Preliminary Trademark Clearance
To avoid selecting a company or product name that conflicts with existing rights, entrepreneurs should at the very least conduct a preliminary trademark clearance. The Entrepreneurship Clinic provides this trademark clearance checklist for entrepreneurs to make sure their name does not have any readily apparent conflict with existing marks. One common misunderstanding among entrepreneurs is that just because a mark is not registered at the U.S. Patent & Trademark Office does not mean that another party does not have rights to that mark. One can obtain common law trademark rights merely by using a mark in commerce. Accordingly, even if your chosen company name does not appear on the U.S.P.T.O. trademark database, one also needs to check to see if that mark is nonetheless being used in commerce. Once a company or product name has been preliminarily cleared, entrepreneurs would be wise to engage a trademark attorney who can perform a more thorough search on commercial databases covering additional registries and sources of information on possible uses of a mark. While entrepreneurs often relish their status as risk-takers, selecting a company name is one area where taking on risk makes little sense.