A $15,000 Lesson on Naming Your Business
When you're so busy just trying to get your new business off the ground, the thought of a costly fight down the road over what you name it seems to be the least of your worries. Not so fast. Before you gloss over the legal ramifications of choosing a business name, heed the warnings of two entrepreneurs who learned the hard way – and paid.
Think big, even when you're small
When Amy Nichols opened a day care for dogs in Virginia, she had no idea it would become a burgeoning franchise. Later she would pay for that lack of foresight.
She first opened the doors at Happy Tails Dog Spa in 2002. Nichols bought the domain name and registered the business in Virginia. She figured there may be other businesses in the U.S. named 'Happy Tails,' but she wasn't too concerned since she had a state trademark. It wasn't until two years later, after the business grew and Nichols wanted to start a franchise, that trouble showed its face.
"In franchising, the name is one of our most valuable components of the business, a protected brand," Nichols said. "When a franchisee goes into a new city, if I can't protect the name, I'm not as valuable."
But when she finally applied for a federal trademark, her hopes were dashed. Happy Tails was already taken.
"I realized this was not going to be as easy as I thought," Nichols said. "And when I started to look outside Virginia I saw [businesses named] 'Happy Tails' all over the place. I had no idea there were well over 300!"
Still, her fight was far from over.
Be realistic about the risks
Entrepreneur John Bottorff's concern was not hundreds of businesses with a similar name—there was only one famous behemoth that stood in his way. Unfortunately, that was enough.
He knew his Phoenix, Ariz.-based company, OracleJane, partly included the name of a giant software maker. But after a cursory legal review, he registered the name with the county and took the risk anyway. He thought OracleJane, which provides object hyperlinking solutions to other businesses (not consumers), was different enough that it wouldn't raise concerns from the famous Oracle.
Within about a year, though, the cease-and-desist letter arrived.
"We knew we didn't have a prayer financially or time-wise to [fight it]. Oracle is very aggressive with defense of their name," Bottorff said. "We [later] learned that they have gone after companies that were at a greater distance than we were of the name Oracle. If I had known that, I would have had second thoughts about using the name at all."
Bottorff ultimately hired a new legal firm, changed the name of his four-employee company to Objecs— and this time, got the federal trademark.
"Our name now reflects a little bit closer to what we do," he said. "In the end, Oracle probably helped us more than they hurt us, but we went kicking and screaming."
Especially considering it cost his company nearly $7,000 in legal fees and new marketing materials associated with the name change. But Bottorff says he recognized that cost would have been multiplied many times over if he chose to fight the software giant in court.
Don't get too attached to a name
Meanwhile, Nichols' dogged determination to keep the Happy Tails name was costing her a bundle.
"It was painful. I was attached to the name, and so were a lot of our customers," she said. "It was a big letdown and one of my bigger learning experiences in business."
Nichols was racking up legal fees, and even went as far as hiring a private investigator to track down the owner of the federal trademark, only to learn the Happy Tails mark was sold to a pet retailer, just two weeks earlier.
Begrudgingly, Nichols finally took that as a sign to move on. She came up with a new name for her franchise, now called Dogtopia, and immediately secured the federal trademark.
"I knew changing [the name of three] stores was going to be a lot easier than changing in the future when we had a lot more locations, not to mention more exposure," she said. Still, it was a $15,000 lesson. There was a new Web site, signage and marketing materials, and legal fees, of course.
But the change, which became official in 2007, apparently worked in Nichols favor. Today, Dogtopia has 34 franchisees across the country.