December 8

Why Hiring a Lawyer May Keep You Out of Court

Are you planning to start a new business or introduce a new product or brand to the market? These activities may increase your risk of litigation if you do not carefully consider and plan for the related legal issues, such as the impact of trademark and other intellectual property, contract/regulatory, employee/Fair Labor Standards Act, tax, and antitrust law.  A good attorney can help you to navigate these laws before they cause you legal headaches:

  1.                   Trademark and other IP issues. Conducting a search for intellectual property rights and obtaining the necessary rights or releases before branding your new product is essential. For example, Research in Motion may have avoided the necessity of re-branding its new operating system mid-launch if it had conducted a proper trademark search before committing to a name for the product. Instead, Research in Motion apparently waited until a federal court granted a restraining order against it, preventing it from launching its product with its chosen name.

RIM may have been able to avoid the expense of re-starting a marketing effort in midstream, not to mention the hassle of litigation, if it had discovered BBx before deciding to name its new product BBX.

2.                  Contract/regulatory issues. An attorney can ensure that all of the necessary paperwork has been completed so that you can open your new venture or bring your product to market. For example, you will need to determine the best form of business venture (corporation, LLC, LLP, partnership, S corporation, etc.) and file the necessary paperwork to establish your business venture. If you will be hiring employees, you will need to obtain the necessary insurance as required by your state. You may also need special licenses to operate your business (i.e. a restaurant may need a liquor license). A lawyer can help you complete these tasks so that they are performed properly and you can focus on marketing and developing your business.

3.                  Employee / Fair Labor Standards Act issues. An attorney can evaluate your payroll to determine if you are properly accounting for and paying your attorneys. The Fair Labor Standards Act can be a minefield for business owners of all sizes. The distinctions between Exempt and Non-exempt workers for purposes of who is entitled to mandatory overtime pay (time and a half) are not always obvious. Consulting with an attorney before you make these determinations could save you the considerable expense of litigating a wage and hour case. If you consult with an attorney in good faith and still make a mistake based on the attorney’s incorrect advice, you may also obtain a reduction in any liquidated damages that you owe on the basis that you had consulted an attorney.

4.                  Tax issues. There are many tax issues involved in running a business and selling products. Most businesses are responsible for collecting, documenting, reporting, and submitting sales tax. You will also owe tax on any profits you make from selling your products. If you have employees, you will also owe employee withholding taxes. It is important to set up a system for tax collection and submission before you start selling your products. If you fail to do so, you may owe back taxes and penalties. Many businesses have even been shut down as a result of owing back taxes. For example, see http://www.sj-r.com/business/x1758551811/State-shuts-down-Sammys-until-back-taxes-get-paid and http://www.pittsburghlive.com/x/pittsburghtrib/news/breaking/s_765540.html

 5.                  Antitrust issues. Do you have market power? Are you trying to use your market power to increase market share, increase or profits, or harm your competitors? Do you have a legal duty to keep your product on the market even if you introduce a new product?  Does the agreement you plan to enter unlawfully harm competition? Are you improperly tying the purchase of one product to another? These are all important issues to consider as you move to enter a new market, introduce a new product, or enter an agreement with your competitors. An experienced antitrust attorney can provide you with the necessary guidance to achieve your goals with the least amount of litigation risk.

Opening a new business, entering a new market or developing a new product can be exciting and profitable. But these activities can also open you and your business to the risk of litigation. The earlier in the process that you consult with an attorney, the easier it will be for you to mitigate your risk of litigation.

 

October 19

The WillaGirl / Wella Trademark Dispute Has Been Resolved

Procter & Gamble and WillaGirl have resolved their trademark dispute before trial. The terms of the settlement have not been disclosed, but WillaGirl will be allowed to continue to market its products under the Willa name.

As I previously noted, this case could have easily come out against WillaGirl.

Because the terms of the settlement are likely going to remain confidential, we can only speculate what each side may have given up to reach a settlement. The media’s depiction of P&G as a “trademark bully” may have influenced P&G’s decision to settle the case before trial.  Or maybe P&G merely sought to limit WillaGirl’s use of the mark and WillaGirl agreed to those terms.  In any case, it is likely that WillaGirl is still out the $750,000 it paid on legal fees to defend the suit before trial.

Only the market will tell if the fight for the Willa name was worth it.

 

September 29

WillaGirl v. Wella – A worthy trademark dispute?

What struck me most about today’s N.Y. Times article about a start-up cosmetics company focused on pre-teens, WillaGirl LLC, and “trademark bully” Procter & Gamble and its subsidiary, The Wella Corporation, was not the similarity of the marks or their intended demographics, but the legal fees that WillaGirl had reportedly rung up to date: $750,000 — before trial.

Some may cheer that a start-up would spend the money to protect its right to use its mark and lament the fact that other start-ups may not have the funds to protect their right to stand up to big corporations.  But $750,000 is a lot of money.  Should WillaGirl have spent its $750,000 in re-branding instead of litigating a claim that it may not even win?

The applicable test for infringement requires the court to consider the:

  • strength of the mark,
  • similarity between the marks,
  • proximity of the products,
  • likelihood that the first owner will bridge the gap (make a product similar to the second user’s products),
  • actual confusion,
  • good faith of the second user in adopting the mark, and
  • quality of the second user’s product, and the sophistication of the consumers.

See Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir. 1961). In determining whether there is infringement, the court may also consider other variables.  (The N.Y. Times article refers to this test as “squishy.” I would say that it is fulsome and allows the court to balance the equities.)

An analysis based solely on a review of the facts set out in the N.Y. Times article and the public complaint and counterclaim suggest that: 1) the Wella mark is strong, 2) Willa and Wella sound and look alike (only one letter is different!), 3) both brands are for cosmetic products for women (albeit of different age group . . . for now), 4) there is a likelihood that Wella or its parent company Procter & Gamble will “bridge the gap” into the preteen market, and that 5) WillaGirl was on constructive and actual notice of the Wella mark.

Because I do not have access to the facts of this case, I have no basis to comment on the three additional factors: whether there is evidence of actual confusion, the quality of either companies’ products, or the sophistication of the relevant consumers.  But even without these three additional factors, the Wella Corporation’s claim seems to pass the frivolous test for infringement.  In other words, this claim is hardly a slam dunk winner for WillaGirl.

And the Wella Corporation has also brought a claim for trademark dilution, which may be an even easier standard of liability for it to meet.  If the Wella Corporation can show that “Wella” is a famous and distinctive mark, then, under the Trademark Dilution Revision Act of 2005, it may establish an actionable claim for trademark dilution by blurring if it can show that an “association arising from the similarity between a mark . . . and a famous mark that impairs the distinctiveness of the famous mark.” 15 U.S.C. § 1125(c)(2)(B).  Again, Wella and Willa are fairly close in look and sound.  Could Wella show that WillaGirl sounds like a new line of Wella products for the pre-teen set?

So the question that I keep turning back to is why didn’t the lawyers settle this dispute before the tab reached $750,000?

Perhaps the lawyers counseled in favor of settlement but the client refused to budge from her chosen brand name.  In the N.Y. Times article, the founder of WillaGirl said that she thought about changing the name but decided against it. But maybe she would have thought differently if her lawyers had made a better case for agreeing to rebrand by setting out in stark terms the cost of litigating the matter, the likelihood of winning, and the cloud of uncertainty that would weigh over her product until the case is resolved.  Or maybe she wouldn’t have.

This case strikes me as one that good lawyering could have resolved well before the eve of trial. But in that case, the legal fees would not be as striking.