Legacies are created by those who are willing to take action, and in this case by those who are smart enough to build up their trade mark portfolios.
Many have a false belief that the registration of a company, and the resulting automatic registration of a company name, results in sufficient protection of a company’s branding. Sooner rather than later, this misguided faith will come crashing down and unfortunately, when it comes to branding, the damage might not be reversible. What this article aims to do is to elaborate on the commercial justifications behind registering trade marks and if anything, should make you realise that a trade mark portfolio is not only an insurance policy, but also an investment – but with way less uncertainty and way more upside.
First off, it is important to understand that the incorporation of your company and the check by the CIPC of whether your company name is available, does not protect your company name or brand. A company name and the following ‘(Pty) Ltd’ abbreviation merely represents the legal character of your business. It does not distinguish your business, products or services from those of another. That’s the job of your trade marks. In this regard, it is possible for you to register trade marks for your business name, products and services, which can be in the form of word marks, device marks or even slogans.
Trade marks are product and service identifiers.
For registration purposes, a trade mark must be able to distinguish the products or services of your business from those of others. This criterion is satisfied if, at the date of application, your trade mark is capable of distinguishing your goods or services, either inherently or due to prior use.
If you meet these requirements, a trade mark provides you with protection for an infinite amount of time (provided you renew your trade mark every 10 years); it secures exclusive use of the mark for you; and allows you to prevent others from using the same or even confusingly similar marks in the marketplace. Why is this important you may ask? You will find a recurring pattern in the marketplace unfortunately, made up of copycats using similar or even the same branding as yours, to ride the wave of your success. This can be achieved by creating competitive products or services, either in competition or just as a subpar version of your offering. This results in clientele being funnelled away from your doors and into the hands of a copycat. What is important to note is that you are not just losing customers, it could tarnish your brand if customers start confusing a subpar offering with your branding. How do you prevent this? Registering a trade mark allows you to prohibit anyone from using the same or even confusingly similar marks in the marketplace.
The above are all excellent reasons for registering trade marks, but if you need a little more of a push, then consider the following compelling commercial reasons. We now know that trade marks help consumers identify the source of goods or services. Psychologically, human beings are more inclined to place their trust in what they believe are reputable products. Branding and marketing strategies are based on the understanding that consumers value brand names more than no name or generic brands. This is because consumers align themselves with trade marks and their accompanying set of qualities. Further to this, consumers are usually willing to pay more for a brand name, because they know where the product or service comes from and as a result, places their trust in that brand.
The above is referred to in the industry as goodwill – the ability to attract and establish clientele. This goodwill is seen as an asset and can either be sold or licensed via its attachment to a trade mark. This means that your trade mark itself is an asset, based on the fact that it has accompanying goodwill attached to it. The more goodwill, the higher the value and the more important protection is. This is in contrast to Jon and Jane Doe who opted not to register a trade mark – any goodwill built up will form part of their business and now cannot be separated like with a trade mark. This means that the only way to sell their goodwill is to sell the business as a going concern, which also makes the commercialisation of their goodwill that much harder.
This is excellent news for trade mark proprietors and forms the basis of franchise arrangements in general. When a company develops a product or service, the initial aim in registering a trade mark is defensive (the ability to prevent others from entering the market with the same or similar marks for the same or similar good, i.e. your insurance policy). However, when we consider trade marks further, an entire new revenue model opens up. Inevitably, the use of a trade mark (and the attached goodwill) can be licensed out to third parties on exclusive or non-exclusive terms for a royalty fee. See these royalties as guaranteed dividend pay outs. For franchise arrangements, a main asset that is licensed and forms the basis of a franchise relationship is the franchisee’s ability to use the franchisor’s trade mark and thereby draw the clientele (via goodwill) attracted to that trade mark within their pre-defined territory. This principle of goodwill sounds odd – I know it did to me the first time – but when considered from a commercial perspective, this ability to garner goodwill is considered an asset and a really rewarding one for that matter.
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Trade marks are seen as intangible assets.
What this means is that your trade mark develops an intrinsic value as your product or service becomes more successful. Further to this, the stronger your trade mark, the more valuable it is. Strength of a trade mark turns on its distinctives, which is made up of its uniqueness and physical appearance, as well as the trade mark register and the number of similar marks on the register. One way of ensuring that the register does not become overpopulated with similar marks is to get your registration on the register as soon as possible, thereby stopping the register from becoming overpopulated with marks similar to yours for similar categories of products or services.
When you are in the process of doing an equity funding round, you will immediately pinpoint the intellectual property section on your due diligence checklist. At this stage, you do not want to be fumbling around trying to get your trade mark registrations in order as it may well be too late, either because of a total block on the register or because of a deal’s time sensitivity. In most cases, an investor will want to see the registration certificates for your trade mark portfolio, failing which, they will have to conduct a search of what currently is on the trade mark register and analyse the risk of investing in a company that has failed to secure this form of protection. At this point you would have invested significant time, money and the building up of goodwill in a particular brand. It will for that reason be all the more devastating if a search indicates that your trade mark cannot be registered due to an existing mark on the register, or if the mark turns out to be weak due to the register being overpopulated with similar marks.
Trade marks can even be pledged as security to secure loan facilities, similar to the manner in which immovable property can form the subject of a bond.
A trade mark offers you so much more than just security and if you play your cards right it can provide you with a lucrative platform for commercialising what can be seen as one of your most important company assets. Talk about the ultimate side hustle. It is undeniable that building your trade mark portfolio is an extremely easy process and carries endless benefits. The sooner you get started the easier it is. Just keep in mind that the trade mark register can be an unforgiving place as well and if you drag your feet, you could find yourself having to either rebrand down the line, possibly losing some goodwill that you worked so hard for, or spend unnecessary costs battling it out with a clowder of copycats that already made it to the register before you. Be smart about your intellectual property strategy from the beginning.
Written by Jacques Stemmet
This article was originally published by Dommisse Attorney’s Inc