New Hampshire, along with every other state, provides for state registration of trademarks, service marks, and trade names. Unfortunately, business owners and attorneys unfamiliar with trademark law often misjudge the level of protection that state registration affords.
The following illustrates the inadequacies of state trade name, business name and trademark protection and highlights the importance of obtaining a federal registration of a name or mark. Although the names have been changed to protect the innocent, the facts below are identical to several cases that we have handled on behalf of clients.
Michael and Matthew Form Blue Chip
Michael and Matthew worked as software engineers for a large Southern New Hampshire technology company. When the company decided to downsize, they both took early retirement and in 1992 began their own software development and consulting business. Their business lawyer advised them to form a corporation, and after several weeks of brainstorming, they chose "Blue Chip Software, Inc." In addition to forming a corporation in 1992, they also filed for and obtained a New Hampshire service mark and trade name registration for BLUE CHIP SOFTWARE.
Blue Chip Software, Inc. flourished, and within five years the company had grown to twenty employees. Michael and Matthew decided to launch an advertising and marketing campaign throughout New England, and given the company's success, Michael and Matthew began to wonder if Blue Chip Software, Inc. could someday provide services nationally.
One afternoon Michael received a letter from an attorney demanding that Michael and Matthew immediately cease and desist from using the name BLUE CHIP SOFTWARE, because such use of that name was likely to cause confusion with his client's federally registered BLUE CHIP trademark. Apparently, Surge, Inc., a Florida corporation ("Surge"), had registered BLUE CHIP with the US Patent and Trademark Office in 1989 for computer software products. Surge had only recently started selling its products in New Hampshire, and it had been alerted to the existence of Blue Chip Software, Inc. by one of its New Hampshire customers.
While Michael and Matthew acknowledged that Surge's 1989 federal registration predated the formation of their corporation in 1992, they could not understand how Surge could have superior rights in New Hampshire when the New Hampshire Secretary of State permitted the incorporation of Blue Chip Software, Inc. and had granted them a service mark and trade name registration. Moreover, Michael and Matthew knew that they were the first party to actually use the name in New Hampshire. Because Surge had federally registered the BLUE CHIP mark prior to Michael's and Matthew's use of the name in New Hampshire, Surge had nationwide priority to use the mark. Once Surge could show a likelihood of entry into New Hampshire, federal law allowed Surge to stop Michael and Matthew from using BLUE CHIP SOFTWARE.
Faced with having to change their company name and stop use of the BLUE CHIP SOFTWARE service mark and trade name, Michael and Matthew knew they would lose a great deal of the name recognition and value they had created (known as "goodwill"). They would also incur significant out-of-pocket expenses associated with changing the name of the company. With a better understanding of their rights and of the law, Michael and Matthew vowed not make the same mistake twice. This second time around, they would conduct a trademark search and obtain a federal registration in order to assure themselves that their new company name and mark would be protected throughout the country.
State v. Federal Trademark Protection
While most states provide for registration of trademarks, these registrations — whether trademark, service mark or trade name -- offer little legal protection beyond serving as proof that on a certain date the registrant began using the mark in that state. In fact, state registration provides no real advantage over reliance on mere common law rights.
State trademark or trade name registrations cannot override the rights provided by federal trademark law. When state trademark law conflicts with federal trademark law, the U.S. Constitution provides that federal law preempts state law. In fact, state registration does not even guarantee a person the right to use the name or mark throughout the state. Federal law provides that a state registrant may use a name only in the limited geographic area where continuous use had been established prior to the date of the competing federal registration.
A more significant problem arises (as illustrated in the case discussed above) when a person, believing they have the right to use and register the mark in a state, fails to conduct a search of federal and state marks prior to adoption and use of the mark. Under the Lanham Act, a person who obtains a federal registration that predates another person's use of the same (or a confusingly similar) mark has superior rights to use the registered mark throughout the United States, regardless of whether the person has been granted a state registration or was the first person to use the mark in the state. Under trademark law, a federal registrant has a nationwide right to a mark if they have a federal registration and show a likelihood of entry into an area where a local junior user exists. Junior users of a mark, such as Michael and Matthew, are living on borrowed time. The junior user's use of a mark can only continue for as long as the federal registrant remains outside the market area; once the federal registrant shows a likelihood of entry, the junior user must cease use of the mark.
Michael and Matthew did not conduct a trademark search prior to using the BLUE CHIP SOFTWARE mark, and therefore they were unaware that Surge had a federal registration. Unwittingly, they continued to use the BLUE CHIP SOFTWARE mark, building goodwill and name recognition, before realizing they had inferior rights that could be taken away as soon as Surge entered their geographic area of use. Like too many business owners, marketing personnel, and business attorneys, Michael and Matthew mistakenly assumed that because the New Hampshire Secretary of State allowed them to register a corporate name and service mark in New Hampshire, they had certain rights that could not be taken away. Little did they know that any rights they were purportedly given by the state registration were conditional at best.
In today's economy, it is rare to find a company doing business in only one state. A company relying solely on a Certificate of Incorporation from a particular state or a state trade name/trademark registration may be living on borrowed time. Because federal law dictates that a federal trademark preempts a state trade name or trademark, a company should strongly consider federally registering its name or logo in order to avoid the possibility of having to change the name of the company or product.