Medical Device Link.

Originally Published MX March/April 2003

GOVERNMENTAL & LEGAL AFFAIRS

Vigilant policing may be necessary to prevent loss of valuable IP assets.

Margaret C. McHugh

Medical device companies' highest priority when it comes to protecting their intellectual property is generally their patents—and reasonably so. However, trademarks and company names can be equally valuable to those companies, and equally important to protect. Trade names like VISX, Medtronic, and C. R. Bard, for example, mean something in their markets.

Moreover, if they do not properly attend to their company names and trademarks, device companies can encounter serious problems when they bring their products or services to market, sell their shares publicly, try to have their shares listed on an exchange, undertake due diligence for the purpose of fund-raising or acquisition, or enter into any number of important corporate transactions. Deficiencies in trademark maintenance can damage a company's value to potential investors, interfere with possible partnership arrangements, and create unnecessary legal risks.

Thus, there are many good reasons to maximize and protect the value of these intellectual property assets. The means to this end include proper trademark and company name selection and clearance, trademark registration, and a well-constructed trademark enforcement program.

Protecting One's Good Name

A trademark or service mark, recognized in law, can be a word, slogan, symbol, design, sound, or any combination of these that identifies and distinguishes a marketable good or service and indicates its source.¹ A trademark is a mark that is applied to goods only, and a service mark is one used exclusively with services. The term mark, used occasionally in this article, refers to either or both of these. While a trade name is not the same as a trademark, it may serve as a trademark if it is used on products. Used in advertising the services offered by a company, it is effectively a service mark of that company.

The Company Name. A common misconception is that a search of the state secretary of state's corporate records followed by incorporation under a name not found there entitles a company to exclusive use of its chosen name. In fact, the secretary of state, in searching a corporate name, typically looks only for identical matches within that state. However, a name need not perfectly duplicate another to cause a problem. Preexisting names and marks that are not identical with the new company name but only "confusingly similar," in the parlance of courts analyzing trademark infringement claims, can be asserted against the latecomer regardless of whether it is an incorporated firm.²

Further, the check of corporate records does not disclose whether there exists a state or federal trademark registration, or a common-law unregistered name or mark, that would conflict. And because the state office's company name check searches corporate information pertinent only to that particular state, there is no way to know from that perusal what the situation might be in other states.

By using a trade name without proper trademark clearance, a company may inadvertently stumble into a trademark infringement lawsuit—sometimes years after it commenced operating under that name. This can ultimately result in an embarrassing and expensive involuntary change of corporate identity just when the firm has begun to achieve market recognition. Getting a trademark attorney to clear the mark professionally is a way to avoid this potentially devastating problem (see below).

Risks from Trademark Neglect. The most notorious risk concerning trademarks is, of course, a trademark infringement claim, with the concomitant possibility of treble damages, liability for attorneys fees, and injunctions. For example, the conglomerate Tyco International was recently forced to defend against a lawsuit seeking an injunction to prevent it from using its Tyco house mark with some disposable medical devices owing to the plaintiff's preexisting rights to the use of the mark Tycos with stethoscopes. As a result of the suit, Tyco's right to expand use of its house mark to nondisposable medical instruments was limited.³ Similarly, a manufacturer of a handheld product for determining human body temperature by measuring heat within the ear was sued for using a mark similar to the plaintiff's service mark for a scan of human bodies using thermal-imaging technology.⁴

Trademark neglect creates other risks besides that of litigation. Patent rights are often expressly covered in written agreements involving licenses, financing transactions, asset sales, and joint ventures and other collaborative arrangements. But drafters of such agreements sometimes forget trademarks, resulting in later disputes. At termination of the joint venture, or when the founder of a company leaves, interested parties may differ over who owns the marks related to the goods and services introduced through the parties' joint effort. It is critical for the parties to an agreement to consider, before entering into it, who owns the marks associated with the products and services, and whether licenses or assignments are appropriate.

Trademarks and a corporate name help distinguish one company and its goods and services from other companies and their market offerings. They are therefore valuable tools for developing brand and market awareness. Having trade names that are properly registered and maintained can enhance the value of a company that is trying to obtain financing or to sell any of its assets. The prospective investor or buyer will want to see that the company has clear ownership and title, that appropriate applications are on file or registrations issued, that there are no infringement issues, and that the trademarks have not been abandoned. A strong and active trademark policy makes a company more attractive as a potential investment.

The Right Trademark. The keystone of a strong trademark policy is proper selection of trademarks. Possible marks for products and services may be generated through simple brainstorming sessions, by mixing and matching words and syllables suggestive of some aspect of the product or service, by creating new quasi-words out of whole cloth, or through consultation with an outside marketing agency. Once a manageable number of candidates have been identified, it may be helpful to search the Internet for any appearance of the proposed marks and of terms similar to them, and to check whether domain names corresponding to the proposed marks have been registered. Regardless of the method employed in selecting a trademark, the decision should take into account the strength of the mark. A strong trademark is a more valuable asset than a vulnerable one.

Trademark law regards trade names as occupying a spectrum from generic to fanciful, increasing in strength along the way. A generic name is the common name for a product. An example is collagen, for the biocompatible soft-tissue implants used to plump wrinkles. Next along the spectrum, a descriptive term describes, in natural language, a feature, function, or purpose of the product or service. Examples are Power Peel (Aesthetic Lasers Inc.; Annapolis, MD) for a tissue abrasion device, and Breathe Right (CNS Inc.; Minneapolis) for nose strips to promote efficient breathing.

From the standpoint of trademark strength, a better category of terms are those merely suggestive of what the product might be or its capabilities might comprise. For example, Iceberg (Sportmed Medical Products; Irvine, CA) as the name of a cold therapy device for reducing swelling suggests that it will chill inflamed tissue; Marathon (DePuy Orthopaedics Inc.; Warsaw, IN), applied to a medical device and apparatus used to implant artificial hips, suggests durability; Octopus, (Medtronic Inc.; Minneapolis) for a surgical heart stabilizer, reflects the fact that it has several sticky appendages that attach to the heart; and Nimble (Cook Inc.; Bloomington, IN) suggests agility in a vascular guidewire.

Further along the spectrum is an arbitrary mark, a word that has a meaning but not one with an apparent connection with the product. For example, Dart and Slingshot (both Innovasive Devices Inc.; Marlborough, MA) are medical devices for knee repair. A fanciful, or coined, mark is one that is just made up. It may convey no medically relevant meaning at all, such as Mako (Medassist Group; Tampa, FL) for a knee orthosis. On the other hand, a coined mark may be composed of elements that each have a relevant connotation, such as ArthroCare (ArthroCare Corp.; Sunnyvale, CA) for surgical tools for joint repair, Invisalign (Align Technology Inc.; Santa Clara, CA) for an orthodontic apparatus, and Orthotrac (Orthofix Inc.; McKinney, TX) for an orthopedic ambulatory traction device. The strongest and best trademarks are those that are arbitrary or fanciful.

With an awareness of these concepts, a company should be better able to select trademarks that are relatively strong—that is, more easily protected. Nonetheless, conflicting views regarding the appropriate trademark for a company's goods or services often are hard to reconcile before the final selection. Advertising and marketing personnel, for example, tend to prefer marks that have some descriptive meaning so that prospective customers have some idea of the products' or services' attributes, whereas a trademark attorney prefers marks that are arbitrary or coined. There are ways to satisfy both preferences, however. One is to invent a new word by combining a descriptive term with an arbitrary or fanciful component.

Clearance by Legal Counsel. Before fully adopting a trade name or trademark, it is important for the company to have competent trademark counsel conduct a search to determine whether other parties are using the same or a similar mark for similar goods or services. An attorney can help a firm pare down its list of choices through preliminary scans, which are designed to eliminate marks that are already registered or for which applications have already been submitted. Marks that clear this scan should then be subjected to a full trademark clearance search.

The full search takes in marks that have been disclosed in a wide range of sources, including federal and state trademark registers, trade and telephone directories, Dun & Bradstreet databases, and domain name registrars. A knowledgeable attorney should review the search and provide a legal opinion as to whether the proposed mark is available for the client's use and registration. This opinion enables the company to make an educated decision regarding the risk of a trademark infringement claim growing out of its use of a particular mark.

Registering a Trademark

Once a proposed trademark has cleared a full search, the next step to consider is filing a federal trademark application in the United States. (International trademark protection may also be appropriate if use of marks in other countries or expansively on the Internet is anticipated. In many countries, the first to register a mark is considered its owner in that country. Therefore, filing should be sought as soon as practicable.)

Although registration of marks is not mandatory in this country, a registration, once issued, provides a trademark owner with certain significant procedural advantages and benefits. These include a legal presumption that the registration holder is the owner of the mark and has used the mark nationwide, constructive notice nationwide of a claim of trademark ownership, and the ability to bring a trademark infringement action in federal court.

Many company executives are not aware that actual use of a mark is no longer a prerequisite for filing a trademark application. They therefore do not take full advantage of the provisions of the 1989 amendment to the Trademark Act that allow a party to file an application based upon a bona fide intent to use the mark in commerce.⁵ The intent-to-use basis was created specifically for situations where a company—as is commonly the case with medical device manufacturers—must make major investments in developing, introducing, and marketing new products, and needs some assurance of the right to use a trademark before undertaking full-scale product commercialization. Since the Trademark Act amendment, a company can essentially put a proposed trademark on secure hold until testing and product introduction have been completed and the mark is put into use with products sold in commerce.

After an intent-to-use application has been filed, and once a notice of allowance is issued from the Trademark Office (which now takes a minimum of about a year from the filing date), a trademark applicant has a full 36 months from the date of the notice of allowance to begin using the mark in commerce. Filing an intent-to-use application therefore preserves a company's priority over junior users (that is, later applicants and users) for about four years while the company completes testing and development, and finally brings a product or service to market.

Policing Trademark Use

In-House Use Policy. Whether a company has registered a mark or not, it is essential that its staff and agents use the marks properly in advertising and on the product itself in order to protect it from infringers, to avoid a claim of abandonment, and to keep it from falling into the public domain. A written policy on proper trademark use should be created and distributed to all employees, particularly those most likely to refer to trademarks publicly. Company officers and anyone involved in marketing, advertising, or public relations must become familiar with the policy. Some simple rules can and should be learned and adopted by all employees (see sidebar).

Consistent, proper internal use of trademarks will not ensure that an intellectual property mark is recognized and accepted as property by the general public, but it can go a long way toward that end.

Generic Use. The trade names of products in some fields—and medical devices are among these—are prone to fall into the public domain through genericizing. That is, the name comes to be generally employed as the common descriptive or generic term for a product rather than treated as, and identified as, a trademark. The name aspirin is a notable example of a trademark that became genericized.

Once a trademark has become generic, it must remain available for all to use. Therefore, a finding of genericness provides the target of a trademark infringement claim with a defense and renders the term at issue ineligible for federal trademark registration. A claim of genericness also can be used aggressively by a party seeking to cancel an existing trademark registration through either a court action or an administrative proceeding before the United States Patent and Trademark Office.

Genericizing may occur in several ways. Frequently, the producer of a new and unfamiliar product has simply failed to designate it by an acceptable common or generic name as well as by the term claimed to be a trademark. In the absence of any alternative, the public tends to refer to the new product by its trademarked name alone, and the exclusive rights to ownership of that mark are lost. This is particularly common in cases where the innovative item is under patent protection—and thus enjoys exclusivity—for many years after its introduction. Consequently, it is important that a medical product manufacturing firm devise a generic term, if none yet exists, that characterizes its new device prior to bringing it to market under a trade name.

Loss of Rights through Carelessness. Trademark rights also are sometimes lost through failure to construct and adhere to a strong trademark compliance program. A company's own employees may lapse into the unfortunate habit of using the trademark, both internally and externally, as a product's common descriptive name. A company seeking to exploit its technology or discoveries may enter into agreements with third parties, such as joint ventures, strategic alliances, and distribution or licensing agreements, without providing for protection of its marks. By thus inadvertently treating a trademark as the generic name of its product it may cause others to do the same.

Violations by Publishers. Another common cause of the loss of exclusive trademark ownership is the improper use of trademarks by authors and publishers of articles and books. Some publishers, particularly those of scholarly articles, are notoriously reticent to recognize trademark rights. Nevertheless, trademark owners should make an effort to notify them about improper usage and help supply them with generic terms to be used in conjunction with the trademark. Owners also must educate their own employees in this regard. Vigilance is required to avoid a loss of trademark rights through such improper uses.

Conclusion

Trademarks are valuable company assets that help to establish brand identity. Company officers responsible for managing a firm's intellectual property portfolio should be careful not to neglect trademarks. In sectors such as medical technology, where joint ventures, licensing, and related transactions are common, many traps are set for the careless trademark owner. Moreover, failure to pay close attention to use of the company's name and trademarks can result in needless and expensive litigation over rights to the name or mark—and potentially to loss of all rights in it.

Building a strong trademark portfolio begins with selecting the right mark. But keeping it depends on a program of educating employees, distributors, and even consumers on proper trademark usage. Only that can ensure that ownership of this valuable form of intellectual property is maintained and protected.

References

1. The Lanham Trademark Act, U.S. Code, vol. 15, sec. 1127 (1999).

2. See, for example, Motorola Inc. v. Griffiths Electronics Inc., 317 F. 2d 397, 400 (C.C.P.A. 1963).

3. Welch Allyn Inc. v. Tyco Intern. Services AG, 200 F. Supp. 2d 130 (N.D. N.Y. 2002).

4. Therma-Scan Inc. v. Thermoscan Inc., 118 F. Supp. 2d 792 (E.D. Mich. 2000).

5. The Lanham Trademark Act, U.S. Code, vol. 15, sec. 1051(b) (1998).

Margaret C. McHugh is a partner in the copyright and trademark group of Townsend and Townsend and Crew LLP (San Francisco), an intellectual property and litigation firm. E. Lynn Perry, a partner in the law firm of Thelen, Reid and Priest LLP (San Francisco), also contributed to this article.

Copyright ©2003 MX