Insurance 5 July 2017

The importance of brand protection and freedom to operate

domain name
Securing a domain name doesn’t automatically give you rights to the name in all aspects of your business

The quality of brand protection can make or break a growing business, whether it operates within the business-to-consumer landscape or the business-to-business world, writes trade mark attorney at law firm Gill Jennings & Every, Rowena Price.

The importance of branding is widely known. A strong brand is one of the first indicators of a well-received funding pitch – as seen on Dragons’ Den – and MBA courses also put increasing focus on brand creation and marketing.

That said, those same courses typically neglect two crucial aspects of brand, which are the freedom to operate – whether you’re safe to use the brand name without the risk of being sued – and the importance of protecting your brand and how you do it.

With so much of a company’s value attached to its brand, it pays to protect it just as diligently as you would the technology or processes that underpin the business.

However, many entrepreneurs and startup founders are not particularly familiar with the details of trade marks and other forms of brand protection, often treating them like the poor relations of patents and other invention protections. Through this lack of understanding, company owners risk derailing their business or stunting its progress before it’s even got up to speed.

The importance of branding  

In effect, brands and trade marks are the outward face of your company, and what you use to communicate to the outside world. People buy into the brand and that instantaneous recognition.

Research, commissioned by the Confederation of British Industry (CBI), has shown that over half of customers are willing to pay a premium for a product if it comes from a company they consider to have a particularly good reputation. Your company should therefore seek to develop a brand which is easily recognisable and is clearly distinguishable from competitors.

But before spending the money and taking this step, entrepreneurs need to recognise why checking their freedom to use and then registering their trade marks at the outset is a very prudent investment for a startup as it safeguards the value of the growing business.

Company and domain names vs trade marks

Many entrepreneurs who are starting out wrongly assume that once you register a name at Companies House, or secure a domain, then you automatically have rights to the name in conjunction with all aspects of the business, including the right to use the name, as well as the right to stop others using a similar name. However, that is not the case and a registered trade mark is entirely different from a company or domain name.

A company name simply identifies a legal entity, and by registering a company name at Companies House (a purely administrative exercise), you will only be preventing other businesses from registering an identical or almost identical company name.

You don’t obtain any enforceable brand protection rights, and cannot prevent other businesses from operating under an identical or a similar name or brand.  You also don’t automatically have the right to use the name.

The same goes for domain names whose registration is, again, a purely administrative exercise.  To be able to stop others using the same or a similar name or brand, you need a trade mark registration.

Another way you can acquire enforceable brand protection rights in the UK (without having to register a trade mark) is through extensive use of your brand name, which gives rise to unregistered or “passing off” rights.

However, to prove you have acquired unregistered rights, you must first have made considerable use of your trade mark in the UK, such that you can demonstrate goodwill and reputation in your business as represented by your trade mark.

In their early stages, startups will rarely have made sufficient use of their trade marks to be able to rely on unregistered brand protection rights to stop other companies using their brand name, which is why registering a trade mark early on is the safest, and the most cost effective option.

The freedom to operate

However, brand protection is about more than just filing for a trade mark, it’s also about clearance checks and making sure your business is safe to use that mark – ensuring freedom to operate.

A common misconception is that once you’ve successfully registered your trade mark (or indeed company name or domain name), you have an automatic right to use it without risk of infringement – that’s not the case!  That’s why separate clearance searches are so important.

If you can’t be 100 per cent sure that you are safe to use your trade mark, then you could risk investing significantly (financially and otherwise) in a brand name that you might later have to drop when you’re challenged by a third party who possesses earlier rights. This costs time and money, and is a real management headache, distracting you from the more pressing matter of growing your business.

Therefore, these searches should not only be conducted as early as possible, but in all your key markets too, not just the in UK.

A trade mark suit is a cost that all businesses want to avoid, and is even more critical for early stage businesses as it is beyond the financial capability of most startups. A startup’s failure to ensure its freedom to operate before going out to market and goes beyond the point of no return, has the potential to financially cripple a business, not to mention jeopardise investment or an exit.

Beyond the financial risks of infringement, strong brand protection is also critical to the development of a business because of its importance to investors and would-be purchasers.

Persuading either of these to part with their hard-earned cash is always a challenge and, in this increasingly competitive arena, people are looking not only for a good product or service in which to invest, but also at the credibility of the company itself.  A coherent and secure brand protection strategy goes a long way to reassuring investors and purchasers that there is a clear plan in place, and instilling confidence that a business has the potential for longevity.

On the flip side, a failure to have researched freedom to operate and to put the proper brand protection in place is a red flag to investors and purchasers, who worry that they could themselves be faced with an expensive law suit and forced rebrand down the line.

Rowena Price is a trade mark attorney and partner at intellectual property law firm, Gill Jennings & Every

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