Trademark and IP Protection with Sharon Toerek - Part 1

On this week’s episode of FranSimple, Mark and Steve Vandegrift are joined by special guest and founder of Legal and Creative, Sharon Toerek. Tune in to learn about the importance of trademark and intellectual property protection. 

If you operate in the world of franchising, subscribe to FranSimple and get weekly news along with a breakdown of the concepts that make franchising so powerful.

Transcript

Mark Vandegrift 
Welcome to latest episode of FranSimple, the podcast designed to make the concept of franchising simple. I'm your host, Mark Vandegrift. And with me is my franchise bro and an all time expert on franchising, Steve Vandegrift. On today's episode, we welcome in an amazing guest, Sharon Toerek, an intellectual property and marketing law attorney. She's the founder of Legal and Creative, a national law firm based in Cleveland, Ohio. And we've had the privilege of working with you, Sharon, for quite a few IP and marketing projects. And we just want to welcome you to the FranSimple Podcast today.

Sharon Toerek 
Thank you, Mark. Thank you, Steve. And thank you for not expressing that in a number of years. I think we all appreciate that.

Mark Vandegrift 
Well, tell us a little bit about yourself.

Sharon Toerek 
Yeah, so I founded Toerek Law, which does business in our client industry as Legal and Creative about a dozen years ago. This is not my first firm, but this firm was one I founded really to meet the needs of marketers who serve in independent agencies across the United States. And so we help independent marketing services firms. They could be marketing agencies, ad agencies, digital marketing, web development. Anyone who's helping their client achieve some sort of business result. And we have them in one of three areas. One is intellectual property. So trademarks, copyrights, licensing. The next is contract development and negotiation. We help our clients enter into good, strong contracts that govern their relationships. And then marketing regulation compliance. So we help make certain that the marketing our clients put out into the world follows the marketing rules, whether it's the FTC's requirements or whether it is compliance with the data privacy rule. We help make sure that they are keeping their campaigns on the straight and narrow that way.

Mark Vandegrift 
Excellent, excellent. Well, one of the first questions, it's always interesting to hear Steve engage with prospective clients. But I think every time I hear him engage, one of the first thing he asks them is, have you trademarked your name? Have you trademarked your various products, whatever it may be? He makes sure that the IP is trademarked because it becomes a system. So, from that standpoint, why are trademarks so important when a business decides to franchise?

Sharon Toerek 
Well, I think in the franchise world specifically, everything that a potential franchisor is packaging to present as a business opportunity is intellectual property. And we always like to use a triangle rubric here at my firm. It's brand, it's your content, it's your transactions. And really what is a franchise system except for the culmination of a well-known or well-established brand, the content, which in the franchise context would mean your policies, your operating manuals, your advertising best practices, all the information that you provide a franchisee so they can successfully run their outlet of a business. It's all intellectual property. And so one of the first reasons why I'm sure Steve has always asked the question is that your franchise offering is only going to be as strong as the steps you've taken to protect the intellectual property you have created along the way of building your successful business.

Steve Vandegrift 
Yes, yeah, we like to say that when someone buys a franchise, they're not just buying a business model. They're also buying the right to operate under a brand. So it's so vital.

Sharon Toerek 
Right. And I think also that a potential franchisor underestimates, and this is not unique to the franchise world. This is true of my life every day working with marketing agencies as well. They underestimate the amount of IP they're accumulating every day and making their business powerful and successful. It's not just the name, although the name is critical for a successful franchise network, but it is, it's those operating standard procedures that have major business profitable. It's your brand guidelines and your advertising and marketing strategies to help a franchisee make a successful outlet out of the business opportunity that they're buying. And so they're creating these systems and processes, all of which are intellectual property. I just think that most entrepreneurs don't necessarily think of them that way. They'll probably, if it's a food related one, they'll probably guard their food recipes. Closely and they understand the value of that being secret sauce, right? Literally, right but not some of the other components of the IP that Are part of the indispensable package in a franchise relationship?

Steve Vandegrift 
So true.

Mark Vandegrift 
Yeah, so a lot of times we have clients start out and they're one or two locations and they aren't necessarily thinking either national or international. Give us a little explanation because we're trying to keep things simple here on the FranSimple podcast. What's the difference between a state trademark protection and federal trademark protection? And do you think it matters in terms of franchising a business?

Sharon Toerek 
The difference between a state registration and a federal registration is the boundaries of protection. I think that's the simplest way to put it. It's the presumption that you hold the rights in a limited area, which would be a state versus a multi-state or a regional or nationwide area. And what you're shooting for, what you should be shooting for is as wide a swath of rights as you can possibly achieve to that brand. Now we're in a digital world now and have been for a very long time and so, and I think Mark, you and I probably had this conversation offline and I think Steve, you and I as well. I don't put a lot of faith in credit any longer into state specific trademark registrations, except for when you don't yet have the basis for a federal registration. If you're not doing business in more than one state. If you have no good intention plans to do business in more than one state, then a statewide protection is all you're ever going to be able to achieve because that's how trademark rights accrue in the USA. But if your plans are expanding beyond the bounds of a state, and anytime you'd have the basis for a potential federal application, we're always going to lean in that direction because it's a wider swath of legal rights and a larger presumption of having exclusive ability to use that name. So we're always shooting for federal and there's different strategies you can use to legitimately claim those federal rights. And we sometimes have to start with state-only registrations, but with the internet being what it is and business being global, it's much easier now than it was at the beginning of my career to start out with federal protection than it used to be.

Steve Vandegrift 
Yeah, and what's interesting is you and I have talked, Sharon, is there's actually a handful of states in the country that if you don't have at least a state trademark, you have to register in essence under the business opportunity law. So sometimes I know you suggested this in the past, that as they're waiting to get their federal protection, there might be some value in getting the state mark as well just to be excluded from having to register in a particular state.

Sharon Toerek 
Right. The other benefit of the federal application system to protect trademarks that is important, I think, in the franchise world to understand is that states do not have what we call intent to use practice, which means that you have to already be using a mark, a name, or a logo, or a combination of those things in the operation of your business. You have to already be in market with it in order to achieve that registration. With federal practice, you can apply based on intent to use, which means that as you're putting your business plans together, you can get your application process started, which is critical because the federal application process takes a long time, minimum 12 months, assuming a completely smooth path from A to Z. So, it's strategic, right? You should speak with your legal advisor about this to see which is best for you. And you make a good point, Steve, that sometimes you have to knit the two together while you're building your program as a franchiser.

Mark Vandegrift 
So, we're gonna get really basic now, okay? Just to keep it simple. What trademark steps are in your process or protections or in your process that you think should be in place before franchising?

Sharon Toerek 
Well, the most critical one is you should be having a professionally conducted trademark search before you pick your brand. There's a lot more do it yourself tools out there these days than there used to be. With the advent of AI, a lot of prompting is done preliminarily, but I haven't seen any of the AI tools rise to level being able to skirt, outside the bounds of a good old fashioned trademark search. You need to know if there are any potentially conflicting trademark registrations. We need to check domain names. We need to check social media accounts. I mean, we have a whole checklist here at our firm, right? But before you pick a brand, before you invest in building out a franchise program, because it's a significant investment, right? You're building this to live for the long term you need to do trademark search. That's the number one step. Do that before you pick your brand.

Steve Vandegrift 
And that is so true. We've had clients, as you know, Sharon, that literally they engaged, we worked with them. They worked with you or a trademark attorney and they found out there's no chance of getting that trade name. And in essence, it was good to learn that upfront. Ultimately, every single client came up with a trade name that everyone felt was as good or better than their original. But man, you talk about a shock to a business owner. And they find out, you know.

Sharon Toerek 
It can be such a heartbreaking experience working with and advising these potential franchisors that a brand that they may have built locally or regionally is not going to withstand a national franchise rollout or that they've made a mistake because they didn't check it at all. And in fact, they've been in conflict all along and maybe gotten lucky so far you know, bigger reward potential, bigger risk. And so certainly before you invest in getting your program out there, you want to know that your name is secured because it's one of the key assets you are licensing to a franchisee when you're offering them a franchise opportunity.

Steve Vandegrift 
That's it. And we explained to clients that yes, you do not have to have federal protection in order to begin granting franchises, but you want to have a strong assurance that a trademark attorney has said, look, it's at least 80% you're going to get it. I know you've made recommendations before that clients, okay, we'll register, we'll file for your original trade name, but maybe you need to pick a secondary name as a backup. And I always felt that was wise counsel in those questionable situations.

Sharon Toerek 
Yeah, it's like I said, it's a heartbreaking scenario to have to change course after money's already been invested. So Mark, circling back around to your question about, and the interest of keeping it simple, make sure the name or system of branding you want to use has been fully vetted from a trademark point of view because you don't want to have to start again after you've already invested in brand development.

Mark Vandegrift 
Yeah, and you know, we ran into a recent challenge. It wasn't a franchised company, although they are considering that and we won't bring up their name, but they did happen to during the full trademark registration period, there was someone that raised a hand that had used that name, but it never registered it. So do you want to give us a little bit of an explanation as if that if one of our franchise clients were to run into something like that, what you would expect the outcome might be.

Sharon Toerek
Right. It's important to remember that trademarks in the United States, you accrue rights in them just by using them in connection with whatever you sell, whatever product or service you put out there in the marketplace branded with that name starts the clock running on your trademark rights. It is just that the extent of those rights is determined by your market area, you know, how, what is your where are your consumers? What are your channels of selling? All those sorts of things and so sometimes it is the case that you have local users of a brand or potential brand who haven't gone through any formal registration processes in connection with that brand. But they have, it's called common law use. They have made use of the brand. It might be the local one or two outlet restaurant or coffee shops or dry cleaners, whatever it might be, they've never registered it as a trademark and it may not be their corporate name, but they're accruing rights. It's on their signs, it's on their receipts, it's on their dry cleaning bags or their hamburger sacks, whatever it is. And so if you're another user and you go through the federal trademark process and then these people pop up, it's not necessarily going to be possible to stop them from their local use of that brand. They're probably not gonna be able to stop you in markets they are not in, but you may have some negotiating to do with respect to the market that they're in. Assuming the products or services compete, if there's no competition in the product or service categories, then you likely don't have a trademark problem at all. It's just gross.

Steve Vandegrift
And there you're basically saying if you're a hamburger place that's using a trade name and a dry cleaner, there's no conflict.

Sharon Toerek
Correct. Not from a trademark perspective, yeah.

Steve Vandegrift
Thank you. I think some of our listeners, they'd love to hear that. That's always a big concern. No, it's not every business. It's businesses specific to what you're offering.

Sharon Toerek 
Right, it's category specific and it's geography specific. And I think those are two important things to keep in mind. And, you know, these are things we have to sort through when we do our trademark due diligence for a client. We might come up with 100 hits and only, you know, four of them may be relevant because of the crossover between potential product and service category conflicts.

Steve Vandegrift
Makes sense.

Mark Vandegrift 
Good. So as you're doing a trademark clearance, you do an initial clearance and then you go and do the full registration. Give us some, I guess, activities that you're doing during both phases and maybe a percentage of times where you find that initial clearance says don't go any further.

Sharon Toerek
Yeah, well, I can give you some of the top self-help strategies and I, you know, this is education only, so I'm not telling anybody how to search or clear a trademark, but I can tell you there are some things, there's some places you should start as a potential franchisor, and where we would start to do what we call knockouts, which means if they're not gonna pass this scrutiny, we don't have any reason to dig further because it's a no-go. So looking at registered trademarks, the United States Patent and Trademark Office. It has its own search feature and it's not super intuitive, but if you find direct hits, then you know you don't need to look any further. So that's one great place to start. Secondly, and I say this with extreme caution because this is where some people stop or where they get excited and they don't finish the due diligence, an available domain name. We all want them. We all want the domain name that is catchy, matches our branding, but you can't stop there. You may want to stop there if the domain name's not available, but finding an available domain name is not the same as clearing a trademark for lots of reasons, both the ones that Steve mentioned before, which is category similarity, and also it's just not trademark clearance. But look, obviously look at the domain name registrars to see if your domain names are available. And a little side tip there, if you are in love with the brand and you find an available domain, please don't leave that search without buying it because it will be gone the next time you go, if you don't. The brokers automate this process and they buy them up and then you might still be able to buy it, but it's gonna be a lot more expensive. You can always release it later if it's something you end up not wanting to use or not being available to use. That's the second. The third, YouTube, believe it or not. The second most powerful and popular search engine on the internet. Poke around and see if you're seeing phrases or components of the brand you want to use, used elsewhere and search other social media platforms as well. This is free to do. Again, you're going to see a lot of noise, so you may not know how to interpret it, but it may knock something out for you that might have been appealing. So those are three places to start. And frankly, we include them in our searches. And when we're doing them, you know, a comprehensive search for a client, and then we go into other, we go into other things. We have to interpret the findings that we see both via registrations and common law uses. We look in industry specific references. There's lots of other, you know, it's navel gazing that I could get into. But in the interest of keeping simple, we don't, you know, really want to go into all those. But it takes some legal analysis sometimes in the things that you're seeing to know whether there's still a possible path for you. But it doesn't necessarily take any navel gazing to know if you've been knocked out. If you see something that knocks you out, then keep going. Go to the next brand. And if you see something that, or if you see that your local or regional business is knocked out for federal trademark protection, then you have some decisions to make. You either figure out a way to evolve that brand or you pick a new one and make it part of your franchise program, whatever the case might be.

Steve Vandegrift 
And it really seems to me, Sharon, like this segment is perfect for those that are just starting a business and ultimately, because, you know, by the time a client comes to us and they're 10, 15, even two, three locations, they probably have the domain that they want. But we have both seen situations where it's not going to pass muster at the federal level with the USPTO. So yes, this is good advice for both franchisors and startup businesses, I think.

Sharon Toerek 
Yeah, I think one of the big takeaways that potential franchisors could have from this conversation today is about domain name availability. Not necessarily meaning a lot in terms of trademark clearance and trademark viability. So you really need both. So don't just stop there, but feel free to start there.

Steve Vandegrift 
Very good input.

Mark Vandegrift 
So after you clear that, you do the initial search and you kind of give the blessing to move ahead. You're doing activity over usually what seems to take about, I don't know, 12 to 18 months. Is that about the right time period? And what's going on in the background while the business is moving forward?

Sharon Toerek 
So while we are preparing and filing, and let's assume we've filed a federal trademark application or a series of them, if you've been given indications based on the search results that it makes sense to pursue a brand from a trademark availability point of view, then you're going to want to start your brand development work, the visual representation of your branding, the you know, your style guides, all those traditional things that your franchisees are going to need to represent your brand consistently and effectively wherever in the country or the world they're going to open an outlet of your business. And so you need to have your brand elements solid before you can comfortably advise your franchisees about the do's and don'ts of brand implementation. Right? It's one of the, one of the hallmarks of franchising is we all do it the same. It is intended to be very consistently implemented. I don't want to use the term cookie cutter because everybody puts their own, you know, flair on things as an entrepreneur, but it is, there's not, you know, originality is not rewarded in the franchise environment the way it might be if you were just having a single outlet entrepreneurial location of a business. Your power is in many. And so you all want to do it the same way. So work on your brand guidelines, work on your marketing systems and procedures that are going to incorporate. And then there's other aspects of the IP around a franchise that you should be developing simultaneously with all this.

Steve Vandegrift 
And from your side, a lot of times once you've filed that application, I think, Mark, to your point, there's a waiting game. It's not like you're constantly going back and forth with the examiner, et cetera, correct?

Sharon Toerek 
You won't hear anything for about nine months. You won't get your first, I've been shocked once in a while and we've seen maybe six months from the time of filing. then, so it's a lot of hurry up and wait, which can be frustrating for someone who's wanting clarity and closure. But it's about nine months from the time of filing to the time of receiving an initial examination is what it's called by the trademark office. And the outcome of those, that initial examination could either be you're good to go, we're going to approve this for the next stage in the process, or hey we have some questions, or no we're not going to allow your application. And these are the reasons why and then that has to be dealt with separately. That is the number one cause of delay ultimately, but either way it's a long process. And so you can't afford to wait on the other parts of building your business in the meanwhile.

Steve Vandegrift 
That's a great point because they can always they find another trade name. They've now established those standards and specifications and they just flip it over to the new trade name, which is what our clients had to do.

Sharon Toerek 
Right, right, exactly so.

Mark Vandegrift 
Thank you for joining us on this episode of the FranSimple Podcast. Return next episode for part two as we finish our discussion with Sharon Toerek on the importance of trademark and IP protection for franchisors. Please remember to like, share, and subscribe to the FranSimple Podcast where we make the concepts of franchising simple. Until next time, have an amazing day.