When Business Names Confuse Consumers: The Basics of Trademark Law

Last month, a Florida judge granted an injunction against health club "FIT U" after rival club "YOU FIT" sued for trademark infringement.
A trademark is a brand indicator, letting consumers know the source of a good or service. Therefore, whether a consumer is (or could be) confused as to the origin of a product or service, is a key consideration in trademark lawsuit cases.
To determine whether consumers were confused (or were likely to be confused) by the businesses' names, the court considered seven factors. From there, the court performed a balancing test to decide whether the mark weighed in favor or against consumer confusion.
Here are the factors that they weighed that you might want to consider when naming your business:
1. The strength of the mark.
In trademark law, a business's trademark (the name word, symbol or design that identifies the business, product or service) is referred to simply as a mark. Marks range from weakest to strongest: generic, descriptive, suggestive and arbitrary. The stronger the mark, the more protection it receives under trademark law. For example, a generic mark like aspirin receives very little protection (because it's so widely used to mean many types of pain relief medications), while an arbitrary mark like Apple for computers (where the connection between the name and product isn't clear) receives more protection.
In this case, the court noted that the word "fit" had multiple meanings, and consumers would need to make an "imaginative leap" to associate the mark with a health club.
2. Commonality of the marks.
Whether a mark is commonly used by third parties is another consideration. In this case, the defendant submitted to the court a list of similar trade names with the words "You" and "Fit" used by businesses in several states. (The defendant also submitted a list of 4,342 trademarks registered with the U.S. Patent & Trademark Office with the word "Fit" in them as additional evidence.)
This factor helps the case against a finding of confusion, because the mark is "weakened" by the broad use of the words by other businesses.
3. Proof of actual confusion.
A Yelp review expressing confusion about the two gyms convinced the court that the potential for confusion existed, which weighed in favor of a likelihood of confusion.
4. Similarity of the marks.
"YOU FIT" and "FIT U" are very similar marks, in both sight and sound. In addition, both marks were used to market health clubs, further adding to potential confusion.
5. Similarity of services, service outlets and customers.
The court noted that both businesses were health clubs targeting the same customers: young, independent and frugal individuals. The court found the similarity of the marks in sight and sound, as well as the businesses were offering the same services, namely, health clubs, weigh in favor of a likelihood of confusion among consumers.
6. Similarity of the parties' advertising media.
Where the businesses advertise (television, newspaper, etc.) and their websites are factors courts generally consider, however, in this case, the evidence didn't favor either party, so this point was neutral for both parties.
The court said there wasn't enough evidence in the record to evaluate the parties' advertising media. In other cases, for example, a court could compare the businesses' websites (whether they are similar in design and color), and whether they run ads on television or radio, etc.
7. Defendant's intent.
A defendant's intent to cause confusion among consumers or copy another business is generally considered, however, the court couldn't find intent here so the factor was neutral.
A classic example of intent is when a business is either aware of infringing activity or is willfully blind to it. For example, a retailer was found liable for trademark infringement in January for importing and selling counterfeit Fendi bags. The trial court awarded Fendi more than $12 million in damages because the infringement was willful.
The court balanced the seven factors, finding that four weighed in favor of a likelihood of confusion among consumers, and issued an injunction against FIT U from using the mark in connection with the sale of goods or services.

Customer Privacy Policy Essentials

Business owners deal with customer information every day -- from shopping preferences to purchase history and personal information including credit card numbers and home addresses. We spoke with two privacy experts to find out what you need to know to develop a privacy policy for your online business.
"Every business should protect Personally Identifiable Information (PII)," says
S. Jenell Trigg, chair of the New Technology and Media Practice Group at Washington, D.C.-based law firm Lerman Senter.
PII is any customer information that a business collects such as a customer's name, home address, phone number, e-mail address, or social security number. Trigg says privacy policies are especially important for online businesses because information is easier to collect and can be abused more readily.
Joanne McNabb, director of Privacy Education and Policy with the California attorney general's office, says companies should develop a privacy policy for several reasons. If your company has customers in California, it's the law to disclose what information is being collected and how the information will be used. It's also a trust-building practice with customers who are concerned about how their information is being used.
Here are six tips to consider when developing your privacy policy:
1. Decide how long you will keep customer information.
McNabb recommends businesses disclose how long they will keep information in their policy. For sensitive information, such as credit card numbers, data breach notification laws in many states require businesses to contact consumers and state regulatory agencies if computer systems are hacked or disrupted. The longer you hold on to customer data the greater the risk consumer information will be compromised.
2. Make your policy easy to read.
Privacy policies used to be lengthy and hard to understand. Trigg notes that companies are now encouraged to provide shorter, concise, user-friendly privacy policies that describe what information is gathered and whether it's shared with other companies.

3. Craft clear and conspicuous disclosures.
Your website should have an easy-to-find link to your privacy policy. Apps should have a link on the app platform so customers can know what information will be collected and how it will be used before they download.
4. Don't copy another company's policy.
Trigg cautions against using another company's privacy policy to write yours. "It is very important that a business accurately reflect its actual business and security practices in its privacy policy," Trigg says. If a business copies another company's privacy policy, the Federal Trade Commission (FTC) or state law enforcement groups may find that a business has engaged in deceptive trade practices.
5. Consider hiring an expert.
Lawyers specializing in privacy and data security know the law in various jurisdictions and have experience advising clients, from small to large businesses, regarding privacy matters.
6. Look for resources to help develop your policy.
In addition to seeking out professional guidance, many states provide "best practices" handbooks, available on state government websites. The FTC recently released a list of recommendations to businesses and advertisers, such as providing easy-to-read consumer disclosures and obtaining user consent before collecting sensitive information.

Will the New Patent Law Kill the Garage Inventor and Startup?

What do Walt Disney Studios, Apple and Harley-Davidson all have in common?
They were all born in a garage.
The “garage inventor” has achieved iconic status on the American business landscape.
The image of a lone inventor toiling away late at night in his garage in the hope of discovering the next game-changing invention has become symbolic of American innovation and entrepreneurship. From Mattel toys and Yankee Candle to countless high-tech startups, the garage has been the laboratory and incubator for some of the world’s most recognizable brands and innovative ideas – so much so, that the Palo Alto, Calif., garage where Bill Hewlett and Dave Packard first began tinkering in 1938 has been officially designated as the “Birthplace of Silicon Valley.”
But the days of the garage inventor may soon be coming to an end – and with them, America’s status as the global leader in innovation. Recent changes in U.S. patent law have led to a steady erosion in the rights of the individual in favor of large and foreign corporations, putting today’s garage inventors at a distinct competitive disadvantage.

Related: Why Filing a Patent Just Got More Complicated For Startups

Unlike other patent systems around the world – which favor the rights of the corporation or the state over the individual inventor – the U.S. patent system was designed from the start to encourage the individual ingenuity that would help spark the growth of a new nation.

Recognizing that giving individuals exclusive rights to their inventions for a limited time would incentivize them to share their ideas, the Founding Fathers established the patent system in the U.S. Constitution. And for more than 200 years, this system – designed expressly to foster individual innovation and entrepreneurship – fueled America’s growth and prosperity.

In particular, the U.S.’s “first-to-invent” system was especially beneficial for both the individual inventor and small startups. Under first-to-invent, a garage inventor could secure a patent on an invention even if a large and well-financed corporation had already filed for a patent on the same invention – provided the individual could prove he invented it first. In this way, the first-to-invent system leveled the playing field for small inventors who lacked the staff, capital or other resources needed to pursue patent applications with the speed and agility of big business.

In 2011, however, at the behest of Congress and the president – and amid pressure from lobbyists representing large corporations tired of fighting patent-infringement lawsuits from garage inventors – the U.S. Patent & Trademark Office embarked on a campaign to “harmonize” U.S. patent law with patent systems around the world. “As innovators seek to tap into global markets, it is imperative that the international patent system provide consistent, cost-effective avenues to obtain reliable patent rights in multiple jurisdictions,” the USPTO website states.

Instead of helping other countries adopt the clearly successful elements of U.S. patent law, Congress took the opposite tack, choosing to dumb down U.S. law by aligning it with foreign patent systems, many of which are little more than registration systems that favor the interests of the state or company over the individual inventor.

The result was the America Invents Act. The most significant change in U.S. patent law in decades, the law replaced the first-to-invent system with the European Union’s “first-to-file” system, which awards a patent to the first person or company to file a patent application on an invention, regardless of who actually invented it first. It was a puzzling move, considering that the EU’s patent system is struggling financially due in part to its excessive regulations that favor big corporations over the individual inventor.

Since various aspects of the America Invents Act have been phased in over the past two years – with some provisions only taking effect in the past few months – it’s difficult to ascertain the immediate impact of this major policy shift away from America’s constitutional preference for the rights of the individual and toward a European system favoring the state and big business.

It’s safe to say, however, that the new law will make it much easier for major international corporations to fend off patent-infringement lawsuits filed by garage inventors, who must now race to patent their inventions before a business behemoth gets wind of their development and beats them to it. That will require individual inventors and startups to devote more time and resources to securing legal and professional representation to protect their inventions and less time to what they do best: inventing the new products and technologies that have made America a global innovator. In this way, the patent-law changes may very well hamper innovation at a time when the U.S. economy needs all the innovation and entrepreneurship it can get to drive the nation’s recovery.

It’s also more than a little ironic that the biggest supporters of the America Invents Act included Apple, Microsoft and Google – all of which were founded by individual inventors in a garage. Whether future entrepreneurs will enjoy the same opportunities as Steve Jobs, Bill Gates and Larry Page – without the patent system advantages that helped fuel their success – remains to be seen.

Startups Eschew the Made in America Label

From Martha Stewart's American Made event to Entrepreneur magazine's recent spread on the theme, the obsession with the Made in America label has reached a fever pitch. But what do you do when your product idea can't be made in the U.S.?
That's the question Simon Ford and Malte Barnekow found themselves pondering in 2009, when they were canvassing different locales to house their spirits brand, The 86 Company. "We actually looked to distillers and suppliers in several countries to partner with on making an old school Carta Blanca rum, like the ones that came from Cuba during Prohibition, There were distillers that make excellent rum and were willing to work with us, but didn't have the knowledge and capabilities for the style we wanted to create."
And while the two New York City-based founders considered facilities in the U.S., which accounts for most of the company's sales, they noted a lack of manufacturing capabilities as a core reason why America was out. "Local manufacturing in the U.S. is simply not competitive," says Barnekow. "In my experience, it's twice the price for half the quality, across the board."
In recent years, the U.S. has certainly seen a resurgence in manufacturing, with companies like American Giant and Black & Denim making a commitment to produce products stateside. And various marketplaces and services such as Etsy and Maker's Row have sprouted to support them

Still, some startup founders, who would normally choose to set up shop or source ingredients in the U.S., are either finding the process prohibitively expensive or impossible due to a lack of resources.
Runa is a Brooklyn-based beverage company (with a nonprofit branch) that makes tea and an energy drinks. Yet the main ingredient for the company's tea is called guayusa, a leaf from trees that grow in the Amazon. To harvest the leaf, which required making connections with farmers in Ecuador, was a challenge in itself. "We had to figure out if and how [Ecuadorian] communities wanted to work with us, and we had to get a product regulated and accepted in the U.S. that hadn’t been sold there before," says Dan MacCombie, Runa's co-founder.
MacCombie and Runa co-founder Tyler Gage spent the first six months of the company's life traveling around South America, scouting out places to source their guayusa. The trek also required "convincing people we were legit, had good intentions and we weren’t a bunch of North Americans coming to screw them out of their money and their land, which unfortunately, is something they’ve experienced in the past," adds MacCombie.
Despite its benefits, having a global operation, comes with many headaches. Just ask Jamal Motlagh of Acustom, a New York-based custom clothing company that uses digital technologies to create bespoke menswear.

"Legal issues such as tariffs and import duties have been problematic," says Motlagh, whose company uses fabric sourced everywhere from North Carolina to Turkey but operates mainly out of a factory in China. "Import has been the biggest issue into China. The problem there is that you need a ground logistics team that you can trust. Fabric production and supply is still an old-school game. There aren’t good websites or ways to get a hold of them or their offices globally."
The 86 Company's Barnekow adds that working with distillers from around the world comes with its own set of challenges. "Our caps are from England, our bottles from China, our liquids from Canada, England, Mexico and Panama," he says. "So, yes, we deal with the tedium of time differences, currency fluctuations, regulation, complex tax constructs and a shipping industry that has very little time for small entrepreneurs like ourselves. It makes for a very nice story from a marketing and product perspective, but it does make our day-today lives extremely difficult."
To minimize this difficulty here are three tips that have helped these founders make their international operations work:
Right size your expectations.
"In my experience, a general rule is work with suppliers that are the same size as you," says Barnekow. "Large suppliers are designed to serve large customers. If you are a small company, look for small suppliers. You will speak the same language and have an understanding for each other’s incentives."

Focus on the positive.
"The moment where we think everything would be easier [if we were based] in the U.S. happens every day, but it wouldn’t make me want to run this company," says MacCombie from Runa. "We connect the farmers to the land to the supply chain to the market… I know people starting tea companies now -- good people, more power to them -- but I don’t feel that’s what I want to contribute to the world. The complexity of working with farmers, supporting ecosystems -- that’s what keeps it interesting. I spend more of my time selling tea, but it’s always in the back of my head that I’m doing something that really aligns directly with what I believe in."
Make the most of your situation.
Working directly with the people in the factories as well as the sourcing companies has been very interesting, and I use the time difference to my advantage," says Jamal from Acustom. "I send questions during my work day and later in the night, I’ll get an answer back… So when I wake up, they’ve had a full day to work on whatever the question or problem was."

Will the New Patent Law Kill the Garage Inventor and Startup

What do Walt Disney Studios, Apple and Harley-Davidson all have in common?
They were all born in a garage.
The “garage inventor” has achieved iconic status on the American business landscape.
The image of a lone inventor toiling away late at night in his garage in the hope of discovering the next game-changing invention has become symbolic of American innovation and entrepreneurship. From Mattel toys and Yankee Candle to countless high-tech startups, the garage has been the laboratory and incubator for some of the world’s most recognizable brands and innovative ideas – so much so, that the Palo Alto, Calif., garage where Bill Hewlett and Dave Packard first began tinkering in 1938 has been officially designated as the “Birthplace of Silicon Valley.”
But the days of the garage inventor may soon be coming to an end – and with them, America’s status as the global leader in innovation. Recent changes in U.S. patent law have led to a steady erosion in the rights of the individual in favor of large and foreign corporations, putting today’s garage inventors at a distinct competitive disadvantage.
Unlike other patent systems around the world – which favor the rights of the corporation or the state over the individual inventor – the U.S. patent system was designed from the start to encourage the individual ingenuity that would help spark the growth of a new nation.
Recognizing that giving individuals exclusive rights to their inventions for a limited time would incentivize them to share their ideas, the Founding Fathers established the patent system in the U.S. Constitution. And for more than 200 years, this system – designed expressly to foster individual innovation and entrepreneurship – fueled America’s growth and prosperity.
In particular, the U.S.’s “first-to-invent” system was especially beneficial for both the individual inventor and small startups. Under first-to-invent, a garage inventor could secure a patent on an invention even if a large and well-financed corporation had already filed for a patent on the same invention – provided the individual could prove he invented it first. In this way, the first-to-invent system leveled the playing field for small inventors who lacked the staff, capital or other resources needed to pursue patent applications with the speed and agility of big business.
In 2011, however, at the behest of Congress and the president – and amid pressure from lobbyists representing large corporations tired of fighting patent-infringement lawsuits from garage inventors – the U.S. Patent & Trademark Office embarked on a campaign to “harmonize” U.S. patent law with patent systems around the world. “As innovators seek to tap into global markets, it is imperative that the international patent system provide consistent, cost-effective avenues to obtain reliable patent rights in multiple jurisdictions,” the USPTO website states.
Instead of helping other countries adopt the clearly successful elements of U.S. patent law, Congress took the opposite tack, choosing to dumb down U.S. law by aligning it with foreign patent systems, many of which are little more than registration systems that favor the interests of the state or company over the individual inventor.
The result was the America Invents Act. The most significant change in U.S. patent law in decades, the law replaced the first-to-invent system with the European Union’s “first-to-file” system, which awards a patent to the first person or company to file a patent application on an invention, regardless of who actually invented it first. It was a puzzling move, considering that the EU’s patent system is struggling financially due in part to its excessive regulations that favor big corporations over the individual inventor.
Since various aspects of the America Invents Act have been phased in over the past two years – with some provisions only taking effect in the past few months – it’s difficult to ascertain the immediate impact of this major policy shift away from America’s constitutional preference for the rights of the individual and toward a European system favoring the state and big business.
It’s safe to say, however, that the new law will make it much easier for major international corporations to fend off patent-infringement lawsuits filed by garage inventors, who must now race to patent their inventions before a business behemoth gets wind of their development and beats them to it. That will require individual inventors and startups to devote more time and resources to securing legal and professional representation to protect their inventions and less time to what they do best: inventing the new products and technologies that have made America a global innovator. In this way, the patent-law changes may very well hamper innovation at a time when the U.S. economy needs all the innovation and entrepreneurship it can get to drive the nation’s recovery.
It’s also more than a little ironic that the biggest supporters of the America Invents Act included Apple, Microsoft and Google – all of which were founded by individual inventors in a garage. Whether future entrepreneurs will enjoy the same opportunities as Steve Jobs, Bill Gates and Larry Page – without the patent system advantages that helped fuel their success – remains to be seen.

5 Hiring Practices to Keep You Out of Hot Water With the IRS

If you need more help for your business, should you hire new employees or engage independent contractors? The decision will be based on the nature of the work, your business culture, what you can afford and perhaps, most importantly, government rules.
For the IRS, the question of worker classification -- as an employee or independent contractor -- is high on its audit list. States also scrutinize worker classification when claims are made by workers for unemployment compensation and workers’ compensation. If you decide that independent contractors better suit your needs than employees, make sure your treatment of these workers will be respected by the government.
1. Check both IRS and state rules.
You can’t arbitrarily put the label of independent contractor on a worker and make it stick. It has to be appropriate, based on the degree of control you exercise over the worker. Boiling this down, if you have the right to say when, where and how the work gets done, likely the worker is your employee.
No one factor is determinative. The IRS uses 20 factors that fall into three categories -- behavioral control, financial control and the relationship of the parties -- to determine this. Familiarize yourself with them.
To complicate things, states don’t necessarily agree with IRS classification. A worker may be treated as an independent contractor for federal employment tax purposes but an employee for purposes of state unemployment benefits or workers’ compensation. Check with your state to learn its rules.

2. Use a written agreement.
One of the factors used by the IRS for determining worker classification is the intention of the parties. You can spell this out by using a written agreement with an independent contractor. The agreement can state that the worker understands he or she is not an employee and is personally responsible for taxes, insurance and other expenses. The fact that there may be reimbursement to the worker for certain expenses, such as travel, won’t nix the relationship spelled out in the agreement.
But understand that while this agreement is certainly helpful, it is not binding on the IRS or other government agencies. The government does not have to follow the classification created by the agreement because it is not a party to the agreement.
3. Issue Form 1099-MISC.
If you pay $600 or more to an independent contractor during the year (not necessarily all at one time), you should send IRS Form 1099-MISC to report the annual payments. When doing this, one copy goes to the worker and another to the IRS. Doing this is another indication that you view the worker as an independent contractor. It is also essential for obtaining penalty relief, which I detail below, if it is ultimately determined that the worker is really an employee.
4. Know your industry practices.
If there is a long-standing practice in your industry in treating certain workers as independent contractors, you probably can follow suit. The practice exists if at least 25 percent of your industry follows it.
If you follow long-standing industry practices (and issued a 1099 where required), even if the IRS successfully reclassifies your worker as an employee, you can minimize employment tax penalties by using Sec. 350 relief. This relief is not a section in the Tax Code; it’s the section in a 1978 law that created it.
5. Be consistent.
You should treat workers who are performing the same work in the same way. You can’t treat some as employees and others as independent contractors. And you can’t change treatment from year to year. Stay consistent.
Again, consistency will help you in securing Sec. 530 relief if you need it.
If you still have questions, talk with a tax advisor or employment law expert. Don’t wait until the government challenges you. Get your worker classification right from the start so you can secure independent contractor status for workers if that’s your aim