A trademark is a word, phrase, symbol, design or combination of these that identifies the source of goods used in commerce. "Pepsi" and the McDonald's golden arches are two trademarks recognized around the world. A trademark can carry great economic value because it represents the business reputation of a product or company. Because of this value, federal law treats a trademark as a form of property.
What Trademarks Protect
Trademark rights prevent others from using the mark, or a similar mark that would likely cause confusion, mistake or deception as to the origin of the goods identified by the trademark. Trademark protection is limited to specific classes of goods. For example, Apple might successfully prevent another company from using the word "apple" to sell computers, but might not be successful in preventing another company from using the word "apple" to sell apples. Another caveat is that an unregistered trademark is only valid where it is actually used in commerce. If you register your trademark with the U.S. Patent and Trademark Office, it is accorded nationwide protection.
One exception to trademark protection is "fair use." This doctrine allows another party to make limited use of trademarks, such as for comparative advertising. Coca-Cola might not violate Pepsi's trademark rights, for example, by placing the slogan "Better than Pepsi" on Coca-Cola cans. Another defense, known as "nominative fair use," applies when a reseller or broker of the trademark owner's products uses the trademark to the extent necessary to advertise his own services. A reseller of Microsoft products, for instance, might rely on this exception to use the word "Microsoft" in its advertising literature.
Licensing a trademark is a way of renting it to another party. Licensing agreements must impose restrictions on the use of a trademark. Typically, if you license your trademark to another firm, the licensee pays you royalties based on a percentage of sales revenue. A license can be exclusive or non-exclusive. Under an exclusive license, you can't license the trademark to anyone else. If you grant a non-exclusive license, you can license your trademark to other parties as well.
The ability to license a trademark opens up many commercial opportunities, particularly if you lack the resources to market or distribute your product. You might start a franchise under which you license your trademark rights to other parties. A franchise agreement usually contains many restrictions on the licensee's use of the product. The agreement might specify product quality, hygiene standards and advertising practices, for example. Alternatively, you might grant an exclusive license to another party on terms less restrictive than would be the case with a franchise agreement. If your trademark is registered, trademark licensing can be used to gain access to other geographic markets where you do not currently do business.
It's important to avoid the legal pitfalls associated with the use and licensing of a trademark. For example, if you attempt to license a trademark without restricting the licensee's use of it, you could lose your trademark rights. You might also lose trademark rights if you cease using it yourself and don't license it to another party who does. Further, you must renew your trademark registration periodically or the trademark will be considered abandoned. The first renewal must be filed between the fifth and sixth years after you register your trademark.