It has become an almost perfunctory practice. You catch wind of another business using a confusingly similar name. You then call a lawyer to immediately send out a cease and desist letter. More often than not, this would be the right play. But there are pitfalls to this strategy if you are not careful. In order to understand how a cease and desist letter can backfire in certain situations, it is important to understand how trademark rights are acquired in the United States. Unlike most countries where trademark rights are granted to the first to register a mark, the U.S. grants such rights to the first to register OR the first to use the mark. When a business obtains a federal trademark registration, it confers nationwide rights to use the mark except for geographic areas where a prior user has established common law trademark rights. A prior user’s common law rights are cemented regardless of whether they registered their mark. If you send a cease and desist letter to such a prior user, you may get a response letter demanding that you cease and desist using your mark in their neck of the woods. In that situation, your federal trademark registration is of no effect, and you risk having the tables turned on you by this prior user (assuming that this prior use was uninterrupted). This is because the prior user established their rights to use that name in their area before you obtained your registration. To add insult to injury, if your trademark registration is less than five years old, the prior user can petition the Trademark Office to cancel your registration! Oftentimes, these prior users are not even aware of your trademark registration. But by sending out that cease and desist letter, you put yourself in their radar and opened up your business to more trouble than the initial demand was worth.
Before you start questioning the utility of a trademark registration given this seemingly unfair situation, keep in mind that when a trademark is registered, it “freezes” all prior users in place so they can no longer expand the use of their current business name. If a prior user in State A later decides to expand into your State B, then you as a trademark registrant can prevent such an expansion. Therefore, before sending out a cease and desist letter you need to be reasonably certain that you are not dealing with a prior user. With larger businesses, you can possibly determine this with an internet search. But for smaller “mom and pop” shops, you may not be able to determine when they first used the business name in question. There are companies that can provide you with a report on the earliest use of a name by another business. The cost of such a report is relatively modest given what is at stake, and obtaining a report before sending out a cease and desist letter is money well spent. At the very least, a prudent trademark registrant should consider the risks and rewards of pursuing a business using a similar name, and conduct an internet and public records search to get an idea of the pecking order of trademark users in certain geographic areas.