Ocean City Resort Uses Trademark Infringement Lawsuit to Bolster Position for Franchising

Seacrets, an Ocean City, Maryland resort with a national reputation, recently succeeded in a federal trademark infringement lawsuit against a luxury hotel chain. The result, which included punitive damages and a permanent injunction against the competing hotel, is helping pave the way for Seacrets to move forward with its plans to expand nationally through franchising.

Franchising is a growth model that allows successful business owners to grant "franchises" to independent business owners who then own and operate similar businesses under the franchisor's tested business system. Central to any successful franchise system is a strong trademark - the brand that represents the franchise in the public eye.

When a company seeks to expand nationally through franchising (or through any other method, for that matter), it needs to be confident that it will be able to use and protect its trademarks on a national scale. National exclusivity is obtained through trademark registration with the USPTO. However, even federal trademark registration won't necessarily prevent startups and competitors from trying to use confusingly similar brands (case in point: the Seacrets trademark infringement lawsuit).

Thus, as this demonstrates, trademark registration with the USPTO is really only the start of the trademark protection process. Companies - franchisors included - need to proactively monitor and enforce their trademark rights in order to avoid market confusion, and in extreme cases even loss of exclusive rights altogether.

Getting back to the case, by taking care of this trademark infringement issue early, Seacrets not only took appropriate (and necessary) steps to protect its trademark, it also improved its position for transitioning into franchising.

This is because, among other things, franchisors are required to disclose pending litigation and threats to their trademarks in their Franchise Disclosure Documents. With a multi-million dollar investment on the line, as a potential franchisee would you rather see, "We are aware of a third party's use of a similar trademark that may negatively effect our rights in our principle trademark," or "We recently succeeded in obtaining a permanent injunction to enforce our exclusive trademark rights"?

In addition, if a franchisor's or other "national" brand's trademark rights are limited, it is going to run into practical issues at some point in its expansion. A "prior rights" holder is likely going to be able to keep them out of certain geographical locations, and this means either (i) not going there at all, or (ii) developing an offshoot brand that is sufficiently dissimilar to avoid any trademark infringement implications. Of course, this means more trademark work anyway, not to mention the additional costs and administrative and regulatory issues that attend promoting multiple brands.

In conclusion, whether you are staring a new business, franchising, or exploring other expansion methods, securing exclusive trademark rights and monitoring and enforcing those trademark rights over the long haul should be top priorities. Only through consistent and proactive trademark protection can a business truly maintain control of its brands.

Jeff Fabian assists business owners in protecting their brands so that they can stay focused on running their businesses. Visit www.fabianip.com for more information, and follow Jeff on Twitter @FabianOnIP.

This article is provided for informational purposes only, and does not constitute legal advice.

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