Dominic Green

Dominic Green is the Principal of Green & Associates Solicitors – You can connect via his Linkedin Profile https://au.linkedin.com/in/greendominic for a free 30 minute introductory consultation.

Getting Your Startup off the Ground: 10 Tips to Avoid Crashing and Burning

A lot of startups come to us with part of their plan already in place, having taken the initiative and done things themselves. This is great in theory, as every cent counts when trying to launch a lean startup for success. However, sometimes this inadvertently leads to other problems that can become major setbacks in practice, both in the short and long term. Whether it’s a tax sting or the winding up of a company, unless you’re on the right footing from the get go, if a problem doesn’t destroy the business outright, it may have the potential to do so through the professional fees you’ll have to incur in fixing it. We thought we would share a few general tips to steer the hopeful entrepreneurs in the right direction.

1. Check licensing and regulatory requirements.

Recently, after spending a fair amount of money registering intellectual property (“IP”) and commencing the app development process, a client of ours (although not at that stage) discovered that the licensing provisions in their industry specifically prohibited their core business function. Needless to say, all the blood, sweat, tears and money was completely wasted. In this day and age, the chances are that everything’s regulated. If you’re confident enough, it pays to do your own research as soon as you form your idea and before anything else, and even more so to run your idea past your lawyer.

2. Choose your brand wisely.

Most people don’t realise that business names, company names,domain names, trademarks and so on are all different forms of (sometimes unrelated) property, and owning one doesn’t necessarily entitle you to another, or stop someone else from beating you to one of the others. Depending on the nature and extent of the particular business model and the industry within which it will operate, this area of IP can be a complex and tangled webb for a novice, and often see a business stepping on someone’s toes or having their own brand diluted down the track. As such, it pays to choose a name and branding strategy that is untouched, or at least not so in your specific class of goods or services. There are publicly available registries for this purpose, such as IP Australia’s ATMOSS for trademarks, so you can do some research yourself, but again, a good lawyer should be able to identify any grey area here quickly.

3. Choose the right structure.

The first port of call should be a competent accountant that will provide good advice tailored to your personal circumstances. It’s important to get this right at the outset so the correct entity holds all assets and IP from the beginning or as and when they’re created or purchased. Otherwise, particularly if their value has grown, a transfer later on could attract unnecessary stamp duty and / or capital gains tax. The next step is to think from the perspective of risk management, operations and cost. Ideally, liabilities and assets should be separated and compartmentalised. In some cases, while it may be ideal to have a discretionary trust with a corporate trustee owning shares in a parent company with three subsidiaries, the costs may be prohibitive for a young hopeful. On the other hand, operating as a sole trader may give rise to too much exposure to potential liability, depending of course on the nature of the goods or services you’re offering, and will not provide the foundation to enable equity investments, such as the issue or sale of shares in a company would. Again, a good lawyer will be able to strike the right balance, and leave you with enough flexibility to transition as and when the business grows and needs change. A good lawyer working with a good accountant will be even better.

4. Set the record straight.

No matter how small a business is or how close the co-founders or participants, this is arguably the most important aspect and it needs to be done right. In our experience, the bulk of shareholder and partnership disputes arise between ex-best friends and close family members. Mixing business with pleasure often fails for a variety of reasons, but that’s not to say that’s the norm or it will happen, and in most cases, it probably could have been nipped in the bud early on if an adequate framework was in place. If you’re a company, this means a shareholders’ agreement; a partnership, then a partnership agreement, and so on. They all need to be airtight, especially when it comes to dispute resolution and decision deadlocks, as in the case of an irreconcilable stalemate, the only alternative might be a winding up of the company and the auctioning of any assets to the highest bidder (which might not be you). In addition, any dispute can end up costing big money to deal with. Although it might be awkward or uncomfortable, it really pays to really think about things and be frank with each other from the outset, and to set concrete provisions to deal with these situations that are binding on both parties, and it can make all the difference in the end.

5. Protect your brand.

Once you’re satisfied with your branding, you should assume you’ll make it big or get ripped off, or both, and get some protection in place. Of course, registering trademarks is easy, and patents may be available to you. In our experience though, we are finding that most IP these days is not capable of registration, particularly when it comes to mobile apps. However, the law of contract can help. For example, a good non-disclosure deed could save you from a potential angel investor or app developer beating you to the pump after you’ve revealed all your cards. Similarly, your shareholders’ agreement might save you from a rogue partner, as might actually negotiating your app developer’s terms and conditions or providing your own. In addition, there are also the various agreements startups have with their customers. A good creative lawyer will find a solution.

6. Be careful with capital raising.

Depending on exactly how you plan to offer the opportunity to invest, to whom and in return for what, you could fall foul of particularly onerous disclosure and reporting requirements. The result could be severe if found to be in breach, and even if not, the costs of compliance can be crippling. If you require funds from elsewhere, unless you’re receiving a gift or loan from a family member, you should see a lawyer before taking any steps in this regard.

7. Make sure you comply.

Apart from licensing regulations discussed above, there are other areas of mandatory compliance you need to be across. A general example is privacy, which will apply to most businesses in Australia. There may be other specific areas relating to your business in one State or another. Compliance may involve, for example, having your business policy on an issues such as privacy drafted and made available to your customers. Often the legislation and regulations governing these areas is difficult to interpret, even for the sophisticated entrepreneur, so get a lawyer to do it. For something fairly straightforward such as privacy, it shouldn’t take long or cost much to tick that box.

8. Tend to your flock.

Employment is a key area, and we have been seeing a rise in disputes in this area for startups, especially when it comes to employee share schemes. As a startup trying to run lean, the temptation is always there to offer a stake in the business instead of incurring the risky fixed cost of a salary. This may or may not be accompanied by an instinct to overstate or over promise when it comes to growth projections or expected returns. Don’t think for a second that if it’s not in writing, it’s not enforceable, because it might be. Verbal agreements can still be enforceable promises, and even if the circumstances are insufficient to establish a binding agreement, the promisee may have an equitable cause of action, for example where they relied upon a promise to their detriment. As such, be very careful about what you say, and always qualify it as being an estimate only and made on the basis of real assumptions. Better still, say nothing at all, and have an agreement prepared. In the case of a third party providing one-off or project services, a commercial deed might work. In the case of an actual employee, for example taking a low salary early on in exchange for a greater return or payback later in one form or another, you will need an employment agreement before making any promises. This could also help to avoid a myriad of other potential claims if things really do go south.

9. The customer is not always right.

Imagine a new app with a social user interface where anyone can post almost anything, much like facebook. Through the platform, a user can post images or text that might be defamatory, and as your business owns, operates and makes available the platform, it could be deemed to be the publisher of that material, and therefore liable for it. There are numerous other examples, such as breaches of pirvacy law. In the case of a business selling goods for a particular purpose, or providing services said to be of a professional or expert calibre, there may be potential exposure to product liability, professional negligence and so on. The list goes on. The important point to make is that this exposure can be minimised significantly if your obligations to third parties are imposed on your customers and mirrored, to the extent relevant and possible, and if your gaps are otherwise closed or narrowed as far as possible, through your agreements or terms and conditions with customers or clients. The same applies equally to your suppliers, including app developers. You should always remember that the terms of a contract are open to bargaining, and if someone wants something from you enough, negotiations can take place.

10. Master your marketing.

This step is somewhat related to choosing your brand and also protecting your brand. Today, with most businesses relying more and more on their online presence, digital advertising and SEO are commonplace and competitive, as is deliberately choosing business names or slogans that assist with search results and rankings. Note that even this can amount to IP infringement in some circumstances, so it is worthwhile getting some decent legal advice in this regard too. On the other hand, you need to be very careful about the types of claims you make when advertising your goods or services, to ensure you don’t mislead, overpromise or otherwise breach any regulations. To do otherwise can have serious consequences, ranging from commercial disputes and even litigation through to bans from acting as a company director. Get it right and don’t overstep the mark, no matter how tempting.

Once you have ticked all the boxes above, enjoy the exciting time that embarking on a new venture brings, but note that this list is by no means exhaustive or applicable to every business.

For any related issues, as always, feel free to contact us.

What’s In A Name – Trademarks & Digital Marketing

Note: This is a general commentary on recent cases in Trademark Law, Digital Marketing and Domains, it does not take into account your situation, location or local laws and cannot be relied upon and is not legal advice. Please seek specific legal advice for your particular situation.

The author will offer any Startup88.com reader 30 minutes introductory meeting to discuss your specific requirements, you can contact him via the links at the end of the story.

Introduction

In this digital age, businesses, and particularly start-ups, are turning more frequently to digital marketing, owing to its relatively cheap cost, DIY options, potentially superior accountability and ability to reach a much wider audience than traditional print or media alternatives. What’s more, the marketplace is dynamic, with new innovations popping up almost daily providing more and more ways to raise brand awareness, and also providing new business opportunities for innovators and advisors looking to enter that space of itself.

However, as with anything, such a rapid rate of development brings not only opportunities, but also risks, and not only by reason of shady opportunistic market participants, but also from innocent bystanders, and when virtually all businesses depend on an online presence and strategy to some extent, there is the potential to get stung. Some recent disputes illustrate both types of risks arising in practice.

 

Using Competitors Names in Your SEO Efforts

The case of Lift Shop Pty Ltd v Easy Living Home Elevators Pty Ltd [2014] FCAFC 75 (“Lift Shop v Easy Living”) was an appeal from an earlier decision of the Federal Court. Both parties are Sydney-based businesses supplying home lifts or elevators; both essentially being “lift shops”. The Appellant, “Lift Shop”, had registered its composite trademark (pictured) (composite because of the combination of a number of elements; in this case including words or phrases and an image or design), and the Respondent, “Easy Living”, included in its search engine optimisation (“SEO”) strategy a composite title consisting of more than one website tags, as follows:

‘Easy Living | Home Elevators | Lift Shop …’

(Emphasis added)

Lift Shop alleged that Easy Living’s use of the term “Lift Shop” in its title, metatags and search engine key words, and the consequent result that Easy Living’s site regularly appeared on the first page of Google searches for “lift shop”, amounted to an infringement of Lifts Shop’s trademark and misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)).

The Court held, at first instance and on appeal, that there was no such infringement or contravention on the part of Easy Living, and ordered Lift Shop to pay Easy Living’s legal costs relating to the dispute.

Domain Names & Trademarks

In other news, while the digital world and online community was buzzing over ICANN’s recent expansion of domain name offerings beyond the traditional “.com”, “.net” and “.org” and into virtually “.anything”, at least one opportunistic company was snapping up new domain names at lighting speed and in titanic quantities. Apparently, Yoyo.email has registered over 4,000 “.email” domain names, including “footlocker.email”, “dunkindonuts.email”, “eharmony.email” and “sheraton.email”.

Needless to say, the company is now reportedly facing several Uniform Domain Name Dispute Resolution Policy (“UDRP”) and / or Uniform Rapid Suspension (“URS”) system cases from major trademark holders seeking the cancellation or suspension of the domain names. While some allege Yoyo.email is simply a cyber-squatter – with or without commercial extortive intentions – the company has at least succeeded in one case on the basis that it plans to offer a service certifying that emails sent to given recipients have actually been delivered.

Similarly, legendary luxury carmaker Porsche has just lost a URS case to the owner of “Porsche.social”, with the panel concluding that the planned free online community for Porsche enthusiasts should be entitled to prevail.

Using these examples, we look at how SEO strategies and domain names interact with registered trademarks, taking the position of a trademark owner seeking to protect their brand, and of a new start-up seeking to be innovative without stepping on toes.

What’s in a Name? The Implications of Domain Selection

Perhaps the starting point is recognising that, unlike in some other jurisdictions, such as the U.S.A. and Canada, the registration of a domain name does not of itself provide any proprietary rights in that name in Australia. Rather, the registered holder of a domain name has a license to use the domain for a specified period of time. The license is also conditional, in that, for example, registration must have occurred in good faith and must not contravene a trademark (in some cases even an unregistered trademark), and there are restrictions and prohibitions on the transfer of the license itself. Domain names can be revoked or suspended by the regulator in each jurisdiction for a breach of relevant conditions.

In Australia, in order to register a ccTLD (“country code Top Level Domain Name”, i.e. “.com.au” or “.net.au”), there must be at least some close and substantial connection to the registrant, on the basis of the details of registration of an actual sole trader, company or other registered business entity applying for the domain name.

Generally, it requires the registration of a business name. However, a business name does not necessarily confer any proprietary intellectual property right either. To make matters worse, there is no hierarchy of rights with domain names, and the registration of a trademark does not necessarily do anything more than the registration of a business name does when it comes to establishing a claim to or right in a domain name.

Further still, the restrictions relating to the registration of gTLDs (“generic Top Level Domain Names”) are considerably more lax. In all cases, the domain name registrar is not obliged to conduct any checks to determine whether a proposed domain name is similar to an existing company or business name or trademark, much like local intellectual property administrators such as IP Australia.

It follows that an established business may find itself in a situation where it has a registered trademark, business name, company name and / or domain name, and a domain name including within it that fundamental name is registered, thereby carrying the risk that the established business will see a noticeable decline in website traffic, and possibly also in revenues. In some cases, this may be innocent and inadvertent.

Cybersquatting

At the other, extreme end of the spectrum is cybersquatting – where a party with no legitimate commercial interest in a name registers a domain name similar to the trademark or trading name of another business for profit. Sometimes, this comes in the form of a slightly misspelled domain name, and other times, almost identical domain names are registered, albeit with different extensions.

Generally, cybersquatters will monetise the websites hosted at the domain names, through advertising or strategic redirections, and in some cases, they attempt to extort the legitimate party by offering resale of the domain for an inflated price, usually knowing that the price, while inflated, will still be cheaper than prosecuting an infringement.

Although cybersquatting is expressly prohibited by statute in some jurisdictions, such as the U.S.A., the means of redress are more indirect in Australia. Given the comments above regarding business names, company names and domain names, and the relative lack of protection they provide of themselves here, redress will in most cases come down to the nature and extent of any trademarks in existence.

Trademarks & Domains- Usage & Infringement

A trademark provides exclusive rights to use and authorise the use of the mark, which can be a word or phrase, an image or a composite consisting of several elements of either kind. In Australia, they are defined as ‘a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person’.

Trademarks are specific to the goods or services to which they relate, meaning in some cases, businesses operating in different industries can use exactly identical trademarks, particularly where the mark is just a word or phrase, depending of course on the extent of recognition already gained by the particular mark and the likely outcome its use elsewhere would have. In addition, the scope of trademarks are further narrowed, as the following are grounds for the opposition and rejection of trademarks:

  • if the mark is not capable of distinguishing the applicant’s goods or services in respect of which the trademark is sought to be registered from the goods or services of other persons;
  • if, because of some connotation that the trademark has, the use of the trademark in relation to those goods or services would be likely to deceive or cause confusion;
  • the proposed trademark is identical with, or deceptively similar to, a registered trademark or another trademark the subject of an earlier registration application;
  • another person first used an identical or deceptively similar trademark in respect of similar or closely related goods or services before the registration application, and has consistently done so since that first use;
  • another trademark had already acquired a reputation in Australia in respect of the goods or services and because of that reputation, the registration of the other trademark would be likely to deceive or cause confusion;
  • the applicant does not intend to use, or authorise the use of, the trademark in Australia in relation to the goods and services specified; or
  • the application has been made in bad faith.

As such, the only way to truly own a domain name is to have the actual domain name itself trademarked, but given the wide nature of the above, more often than not a domain name is liable to be rejected or successfully opposed as a trademark, and the registration of a domain name as a trademark does not of itself confer a right to registration of that domain name. A distinction should be drawn here between registering a trademark, such as the word “Porsche”, from a domain name, such as “www.porsche.social”.

Notwithstanding, while a domain name may not always be capable of registration of itself, the use of a trademark within a domain name can amount to a trademark infringement. It should also be noted that here, we are talking not only about registered trademarks, but also unregistered trademarks, that are protected at common law, and sometimes also even vis-à-vis registered trademarks, for example where there has been consistent use in the course of trade since prior to the registration of an identical or deceptively similar mark.

To make matters even more complicated, the prior use of a domain name, together with a business or company name, if the same and consistent, could itself go towards establishing an unregistered trademark, and therefore some extent of protection.

To return to the Porsche example, the name “Porsche” is obviously a registered trademark in many countries. Those registrations would obviously relate to classes of goods or services in connection with motor vehicles. The proposed website to be hosted at the domain “Porsche.social” is stated to be a free website for Porsche enthusiasts, and is therefore, on one view, an infringement of the Porsche trademark, in that the word “Porsche” in the domain name is identical to the registered trademark of the carmaker, and the website itself relates directly to the very same goods or services.

However, in terms of trademark disputes, a domain name will not be taken to be an infringement if the use of the trademark does not actually, or is not likely to, deceive or cause confusion (among other things). In addition, in order to constitute an infringement, the trademark must be used by the alleged infringer as a trademark, or rather a badge or indicator of origin of the goods or services of the alleged infringer.

Owing to multiple bilateral and multilateral treaties in place regulating intellectual property, these conditions are virtually synonymous in most major trading nations.

Moreover, in terms of domain name disputes, under the UDRP and URS systems, the rules are slightly different, and in order to succeed on an application for cancellation, suspension or transfer, a trademark owner must establish not only that the domain name is identical or confusingly similar to their mark, but also that the registered owner does not have any particular rights or legitimate interests in the domain name, and that the domain name has been registered and is being used in bad faith.

In the case of “Porsche.social”, the trademark “Porsche” was not being used as a trademark at all, but rather its use could clearly be seen to have acknowledged and perhaps even promoted the registered holder. Indeed, the website’s promoters were not even selling goods or services, but were in a sense promoting those of Porsche. In addition, the site was apparently not monetised at all, given that it allowed for free access and did not contain advertising, so it could hardly be said that there was any element of bad faith. It is for these reasons that it was entitled to prevail.

To top it all off, the website’s promoters also promised to display disclaimers on the website to the effect that it is not affiliated with or authorised by the carmaker. However, had these circumstances been different, the promoters of “Porsche.social” may have found themselves in some serious trouble.

To expand on the two-tiered good faith requirement, the following are considered examples of bad faith for the purposes of a UDRP / URS dispute:

  • the domain name was registered for the purpose of selling, renting or otherwise transferring the domain name registration to another for a price exceeding the cost of registration;
  • the domain name was registered in order to prevent the owner of a company or business name or trademark from registering that name or trademark in a domain name;
  • the domain name was registered intentionally to disrupt the business activities of another; or
  • the domain name was registered intentionally to deceive people into believing some kind of affiliation exists with the holders of an actual company or business name or trademark for commercial gain.

Although Yoyo.email was successful in defending a recent case brought by eHarmony, this was apparently only on the basis that it had commenced proceedings (then still pending) in the U.S. District Court seeking declaration that its business model is legitimate and lawful. However, in a number of other cases, there have been certain admissions or facts that tend to indicate that Yoyo.email’s model is actually directly in line with the grounds listed above. For example, at least in the case of “PlayInnovation.email”, the panel found sufficient evidence to substantiate the fact that the domain name had been offered for resale, and that there had been intentional attempts to attract internet users to the website by creating confusion as to affiliation, sponsorship or endorsement, in both cases for commercial gain.

From the above, we have seen how the use of a domain name might not amount to a trademark infringement, but only a give rise to a successful UDRP / URS application. Given that this process, at least when compared to litigation, is relatively toothless in that it is limited to a dealing in the domain name itself and does not carry additional risks such as a potential award of damages and the same costs implications, one might be forgiven for assuming that strategic cybersquatting or like behavior is a risk worth taking. However, it should be noted that some of the same conduct, while perhaps not capable of constituting a trademark infringement, may still be actionable under other statutes or at common law. The following are some examples:

  • Misleading and deceptive conduct: as mentioned above. Specifically, a person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or that is likely to mislead or deceive. For example, assume “Porsche.social” did not provide the same disclaimers and offered for sale, or provided links to others offering for sale, used or replica Porsche vehicles without full clear disclosure.
  • Passing off: where one person passes of its goods or services as being, or as being associated with, those of another, by way of a false representation, calculated to deceive and that causes or is likely to cause actual damage. For example, assume Yoyo.email registered the domain name “dunkingdonuts” and arranged those words in a manner similar to the Dunkin’ Donuts composite trademark, then offered deceptively similar donuts for sale via the website.
  • Other actions, such as interference with contractual relations or deceit (fraudulent misrepresentations), depending of course on the particular circumstances and their severity.

While we will articulate the implications of the above more precisely below, the important lesson for now is that the use of certain words, phrases or marks as domain names can land even the most bona fide entrepreneurs in deep trouble, and the holders of registered and unregistered trademarks do have means to recourse. Although, this lesson does not end with domain names, as SEO strategies are perhaps equally effected.

Optimism vs Overzealousness – Pitfalls in SEO Strategies

To return to the case of Lift Shop v Easy Living, recall the discussion above regarding trademarks, and especially the fact that, in order to make out an infringement, the trademark must be used by the alleged infringer as a trademark, or rather a badge or indicator of origin of the goods or services of the alleged infringer. In addition, just as a domain name must be used in a manner that actually does, or is likely to, deceive or cause confusion, the same applies to the use of a trademark as a metatag or otherwise in an SEO strategy.

This case is different from the others discussed above in several material respects. The first and most obvious is that the term “lift shop” was a generic term with universal application to potentially any business selling goods or services relating to elevators, and yet Lift Shop had managed to register a trademark consisting of both words as a phrase.

The second is that Easy Living did not seek to use the trademark as a domain name, or a company or business name, or even the title of its website, but rather only as the third element of its title and in metatags and search engine keywords. The third, yet equally important, aspect of the case is that Easy Living only used the trademark in a descriptive sense, to illustrate the function that its business carried out, but not to distinguish its goods or services from those of other “lift shops”.

Notwithstanding the above, some components of the “danger zones” discussed above were met in the circumstances of this case, such as the fact that Easy Living’s actions did apparently divert traffic away from Lift Shop’s site, and it could easily be argued that the trademark was used with the intention of disrupting the business activities of Lift Shop, and perhaps even the industry at large. However, those danger zones relate only to the UDRP / URS rules, but not trademark disputes.

In terms of the trademark dispute, while the phrase “lift shop” was deceptively similar to the trademark, and the same goods or services were involved, because of the general connotation of the term and the fact that it was clearly used merely descriptively, it could not be said that Easy Living had infringed the trademark.

Specifically, Easy Living’s badge or indicator of origin was “Easy Living”, not “lift shop”, as was made clear by the appearance of that term as the first tier of its search result title. In addition, other businesses in the industry were using the term “lift shop” descriptively (although this is not a determinative factor).

Further, it was also found to be clear, on an objective view, that Easy Living’s intention was to not to deceive or confuse, but rather compete with Lift Shop as an alternative, at that this would be sufficient clear to internet users (although such an intention will not be determinative either).

Similarly, on one view, it could be said that, given the particular nature of Lift Shop’s trademark and its pre-existing reputation within the industry, for example, gave rise to a claim that it was misleading and deceptive conduct. However, the Court also found that, owing to the same general connotation, the fact that it was clear that consumers would see Easy Living as a competitor to Lift Shop, and that therefore, Easy Living was not trying to create any association or affiliation with Lift Shop or its goods or services, the use of the phrase was not misleading or deceptive.

Given the particular facts in issue in this case, and the reasons given for judgment, had Lift Shop’s trademark contained different words or a different phrase, the outcome could have been much different the further away that variation took the phrase from the general connotation found. Similarly, perhaps if Easy Living had used the phrase as its first title in search results, or had it been a duopolistic or oligopolistic industry and a slightly different phrase, it may have been a very different story.

Easy Lifting – Some Helpful Conclusions

In light of the above, here are some generally applicable pointers to take away:

  • Registered trademarks will generally take precedence over unregistered trademarks, domain names, company or business names – register your trademark as soon as possible.
  • Unregistered trademarks can still create enforceable rights as against applicants for registered trademarks or subsequent domain, company or business name registrants – do your due diligence before applying for registration of any of these. The IP Australia website has links to domestic and international databases, and Google searches are always an option for market research.
  • Choose something unique – once you have determined that your word or phrase has not been registered in your class of goods or services, make sure the domain name, company and / or business name is still free and not too similar to others in your space.
  • Don’t stop at one – once you have selected a unique name or phrase for your brand, register it as a trademark, register the business name and register the domain name(s).
  • Always think as if you are going to be huge – register trademarks and domain names in each country you trade in, and in as many variants as possible.
  • Remember to actively use your marks and names and defend your rights in a timely manner to ensure they are upheld.
  • Steer clear of general connotations – base your marks, names and slogans on something truly unique, and limit use to descriptive purposes only in a manner that clearly avoids confusion.
  • Avoid dealing in marks or names for anything other than legitimate business purposes, and only in line with the above.

For more information or specific advice on intellectual property or other issues faced by start-ups, feel free to contact the author.

 

Dominic Green

Principal

Green & Associates Solicitors

27 October 2014

 

Raise Your Weapon – Deadmau5 vs. Disney – Startups Should Protect Their Trademarks Before They Get Traction

Dominic Green

Dominic Green

Guest Post: Dominic Green is the Principal of Green & Associates Solicitors – You can connect via his Linkedin Profile or Startups can fill out the form at the bottom of the page for a free 30 minute introductory  consultation.

The Dispute – Taking the Mickey

For those who don’t know, Deadmau5 (pronounced “dead mouse”) – a Canadian DJ of superstardom status – is perhaps the most successful electronic dance music act on the current global stage.

Deadmau5_head_onHe rose to fame for ground-­‐‑breaking dance floor hits such as ‘Raise Your Weapon’, which have undoubtedly contributed to the financial success of his brand, in light of rumours he commands anywhere from $200,000 to $500,000 for single performances at the likes of Ibiza’s Amnesia festival, Miami’s Ultra Music Festival and the Future Music Festival, which tours Australia annually.

On the other part, Disney needs no introduction, given that Mickey Mouse and a chest of other iconic characters introduced since the historic release of the original “Steamboat Willie” cartoon are etched into the minds of the vast majority of children born since the 1920s.

Although Deadmau5 has been using his logo (pictured) now for the better part of a decade, not only on his products but also as an identifying stage prop helmet worn during gigs, Disney has taken issue only recently.Deadmau5-Logo

In fact, Deadmau5 filed a trademark application for “his image” with the U.S. Patent and Trademark Office back on 28 June 2013, although interestingly, Disney’s opposition to the application – essentially that Deadmau5’ logo is too similar to the Mickey Mouse ears – was apparently only voiced when it filed its first formal opposition on 28 March 2014, and a subsequent opposition to another application on 2 September 2014. Perhaps even more interestingly, the trademark had already been registered in some 30 countries, including the U.K., Ireland, Germany and Japan (although not the U.S.).

To make matters worse, in retaliation, Deadmau5 launched a copyright assault on Disney, claiming that Disney’s use of the cult hit “Ghosts ‘n’ Stuff” without his permission in a “Disney Re-­‐‑Micks” (a short montage clip of old Disney cartoons published online with the song playing in the background) constituted an infringement.

The bizarre aspect of the dispute is that, apparently, prior to Deadmau5’ copyright application, and therefore before the commencement of the dispute, LucasArts, which was acquired by Disney in 2012, had licensed “Ghosts ‘n’ Stuff” for a special mode in its Xbox Kinect game Star Wars, featuring Darth Vader dancing to the track.

Moreover, Disney’s music division had apparently extended an offer for Deadmau5 to remix the Star Wars theme song for the animated series Star Wars Rebels, which would have surely meant even more lucrative exposure for the up and coming DJ.

Needless to say, the offers are said to have been pulled once Deadmau5’ trademark application became known.

The parties are now ear‑to‑ear in a bitter legal dispute, with both claiming, in effect, that they are among the greatest animated characters of all time, and that the intellectual property (“IP”) infringement of the other – each on different grounds – is causing damage to their respective businesses.

With businesses of such magnitude, this multifaceted dispute raises several questions, and implications, for hopeful start‑ups.

What Relevance does this Cat and Mouse Game have for Start-Ups?

Another interesting aspect of this case is that apparently, Deadmau5’ original trademark application – the basis on which all others were made – was lodged in Australia. We discuss the reasons why further below.

For now, it is important to understand that IP protection and infringement are not simply local issues confined within the borders of a single nation. In fact, IP is one of the largest and most important aspects of international law.

Historically, the major commercial nations have cooperated in this area, largely as a means of strengthening trade ties. In some cases, two nations band together to contract in a single treaty governing the two of them, such as is the case with the Australia-­‐‑United States Free Trade Agreement (“the Agreement”), Chapter 17 of which is dedicated to IP issues.

Often such treaties will reaffirm and incorporate other multilateral international instruments, such as the “Madrid Protocol” (1989) and the “Paris Convention” (1967), which are predominantly relevant here from a trademarks perspective; and the “WIPO Copyright Treaty” (1996) and the “Berne Convention” (1971), which are mainly relevant from a copyright perspective.

Generally, these international instruments are effective without a bilateral treaty such as the Agreement, and bind signatory countries to ensure that their own domestic legal systems – in our case the Trade Marks Act 1995 (“the TM Act”) and the Copyright Act 1968 (Cth) (“the CA”), their respective accompanying regulations, and in turn, the common law – uphold the minimum obligations in those treaties. In most cases in this area, the major commercial powerhouses of the world are parties to such treaties, including those mentioned above in which Deadmau5 already had registered trademarks.

As with anything, the U.S. is all too often a force with which all others follow suit, as has been shown to be the case with Australia’s corresponding extensions of copyright terms and more. Without getting too boring, the effect of the international framework is that a minimum benchmark of IP rights and obligations is protected throughout the greater commercial world, which enables protection and enforcement of trademarks and copyright, often without the need to even formally register such interests in foreign countries.

In layman’s terms, what this means for all you existing or hopeful entrepreneurs out there is that the app idea you have – the one that can be downloaded to any smart device and used anywhere in the world – might land you in trouble on the other side of the globe without you even knowing it, and someone else out there could be building their way up to wiping out the brand you’re working so hard to build, even if you’ve taken every measure you can think of at home to protect it.

Deadmau5_live_unmasked

In effect, without having the benefit of specific legal advice based on your own individual circumstances, you can expect that the U.S. system, and therefore the case of Deadmau5 and Disney, is largely analogous here in Australia, and directly relevant to your business plans and/or operations. You should therefore proceed on the assumption that, without taking further action, the rights of others in the countries where your product or service might be used are even greater than they are here, and the rights you’ve acquired or built here won’t take precedence over someone else’s there.

In the next two sections, using this case (which as of the date of writing has not been determined), and applying the Australian system, we can illustrate some tips and traps that may help through some simple “Q&A”.

Lend Me Your Ears – Lessons in Trademarks and Copyright

Q1: Why would Deadmau5 attempt to register his trademark, when it seems this was the catalyst for the mammoth dispute? Would it have been sufficient for Deadmau5’ to rely on his own “copyright”?

A1: The starting point is of course that, yes, copyright can provide effectively automatic enforceable rights that are sufficient to protect your brand in some instances without the need to spend any time or money. However, copyright generally only exits in relation to certain things, meaning your product or service, logo, slogan or whatever else may not be covered.

In Australia, these things include literary, dramatic, musical or artistic works; cinematographic films; sound recordings; and television broadcasts. In addition, copyright has a limited lifetime, and will expire automatically, and perhaps more importantly, the work in question must have been original. If these conditions are met (among others), the “author” will then generally automatically have the exclusive right to reproduce, publish, perform, communicate and adapt the work, for example.

In the case of Disney, it is fairly obvious that “Ghosts ‘n’ Stuff” was an original musical work created by Deadmau5, and therefore giving him exclusive rights. By using the track in it’s “Re‑Micks” without permission, Disney would most likely be found to have infringed copyright. In a seemingly clear cut case as this, there may not be a need to go any further for protection.

The case of Deadmau5 is a different story. While his ears could be considered an artistic work, the glaringly obvious argument against copyright in his mouse ears is that they too closely resemble the Mickey Mouse ears, which tends to indicate that they are not original, but rather an adaptation, and therefore not only does copyright exist, but they may already be in breach of Disney’s copyright. This means, in effect, that Deadmau5 would need to look elsewhere for rights enforceable against others, to be sure, and also to protect himself against Disney.

On the other hand, a trademark, if registered, gives the registered owner exclusive rights to use the mark and to authorise others to use the mark. Obviously Disney already has several registered trademarks relating to Mickey Mouse, which means they could arguably prohibit Deadmau5 from using his ears at all, if it was found that they tended to confuse the public or dilute the distinguishability of Mickey’s ears, for example.

However, sometimes even arguably “substantially identical” or “deceptively similar” trademarks (such as this?) still get registered. If that occurred here, Disney would be prohibited from preventing Deadmau5 from using his ears, expect to the extent that Disney’s trademark allowed them to do so. This leaves certain gaps, to be discussed further below, but for now, it is worth noting it is not all too rare, let alone impossible, for a trademark application to fly under the radar and slip through the cracks.

Q2: Is there anything in particular about the specific form of Deadmau5’ application that might have a bearing on Disney’s opposition?

A2: Absolutely! Before getting to that though, it’s worth noting that Deadmau5’s application can be seen by anyone who cares to search the U.S. Patent and Trademark Office. This is the case in most countries, as it is with our IP administrator, IP Australia. That fact alone raises an important point – your trademark application can be seen at any time by anyone who cares to look for it, which means that your commercial confidences and plans may be discoverable, and you should carefully consider sensitivities and timing when making an application that will be published.

Specifically, there will be a trade-off between beating the rush to “get there first” in your space vs. ensuring you have concrete, bankable protection. In addition, as alluded to in the answer to the previous question, it is up to interested parties to inform themselves of such applications – IP administrators will not inform a business of an application that may be similar to theirs, meaning it is up to you to keep yourself informed and stop others slipping through the cracks by formally objecting to an application (discussed further below); something Disney is famous for.

Looking at Deadmau5’ specific application (U.S. Trademark Application No. 8597 2976), we can see that it is extremely wide, in that, not only has he attempted to secure its coverage over products and services we might expect him to use, such as stereo turntables and headphones, but he has sought its coverage over anything ranging from computer games through to magazines, carry bags, cereals, confectionary and fruit juices.

Every application has to specify a certain class, or a number of classes, of goods and services to which it is sought to apply. At least in Australia, each additional class nominated attracts an addition to the application fee. This obviously involves a choice, but while the choice may seem simple, it can have great implications.

The more classes you apply for, the greater the chances of stepping on someone’s toes, the higher the chances of opposition and the less likely your application is to be accepted; and vice versa. On the other hand though, sometimes, the greater the classes, the better, as the greater the chances you may succeed on one or some classes that may be relevant to you.

The grounds of opposition and rejection are also directly relevant, and in practice go hand-­‐‑ in-­‐‑hand with class selections. They include, for example, that the trademark, in respect of those particular classes of goods or services, would be likely to deceive or cause confusion; is substantially identical with or deceptively similar to another trademark; that the applicant doesn’t actually intend to use the trademark; or that the trademark is similar to a trademark that has acquired a reputation in Australia.

Obviously then, the lesser the classes nominated, the lesser the chances of rejection, meaning an almost identical mark could be used by two different entities operating in different industries, provided of course they did not seek protection in other areas.

Going back to Deadmau5’ application, obviously the number of classes he has applied for would have contributed to both Disney’s identification of his application, and their decision to oppose it, particularly given that the products mentioned above are products that Disney would typically sell. In a sense, one might say this was a foolish move, and one might be correct. Although, it may prove in time to be sheer genius.

Specifically, in the case of nearly identical trademarks and similar goods or closely related services, if there has been honest and concurrent use of the two trademarks, or if, because of other circumstances, it is proper to do so, an application may be accepted subject to conditions or limitations. This could be the case even if most of the other grounds of objection were legitimate in a dispute.

As Courts like to strike a good balance between the parties to any dispute, where it is just to do so, Deadmau5 may have set himself up quite well for a compromise whereby he obtains his protection for an animated mark with facial features, as opposed to just a silhouette, or where he gets the stereo turntables, headphones and so forth, while Disney keeps the backpacks and children’s food.

That is, provided it is not determined that Deadmau5 doesn’t actually wish to produce products of the latter variety, and that his application hasn’t therefore been made in bad faith.

Q3: Is the size of either party, or rather their reputation, relevant, and if so, how?

A3: Yes, size does matter. The first and most obvious reason is, the bigger the incumbent, the more at stake, and the bigger the new applicant, the greater the risk of identification and defensive assault. Also, the size of a brand and its reputation has a direct bearing on the success of objections, such as those based on a pre-­‐‑existing reputation of a trademark in Australia, and also defences, such as that based on the fact that the two trademarks have been used honestly and concurrently.

Depending on the circumstances of any given case, the bigger the name of one party is, the less likely it is that it will require protection. For example, it can hardly be said that Deadmau5’ ears could really be confused with those of Mickey Mouse.

On the other hand, the more a party has come to rely on a distinguishing or identifying mark, the more likely it is that it will be protected.

In the case of Deadmau5 and Disney, considering their respective differences, but their extreme levels of fame, it may well prove to be the case that both will maintain some form of conditional right over their respective mouse ears, enforceable against everyone else.

Q4: What relevance, if any, does Disney’s use of Deadmau5’ songs and their offers have on the situation?

A4: The fact that Disney (or at least its subsidiaries) have known of Deadmau5’ existence, let alone used his music – arguably in a manner that would indicate an association with Mickey Mouse himself – and made offers to him for further collaboration for consideration, could work heavily against them.

Remember, much like Deadmau5’ “Ghosts ‘n’ Stuff”, Disney’s Mickey Mouse illustrations are an original artistic work, and therefore copyright exists in Mickey (which is only due to yet further relatively recent extensions to copyright terms globally). This means that, if it wanted to, Disney could launch an action for breach of copyright against Disney. From the perspective of delay, such an action would be largely the same as their opposition to Deadmau5’ mark.

At common law, a partial or even full defence exists on the basis of the equitable doctrine known as laches or acquiescence. In Australia, it has at least been suggested that this could even be used to effectively shorten statutory limitation periods.

In layman’s terms, in the case of a CA-­‐‑based civil action for damages or an account of profits, Disney may be found to have actually accepted Deadmau5’ actions, and therefore be precluded from anything at all. In the case of dispute proceedings under the TM Act, this could theoretically be used to dilute or even discredit Disney’s grounds of opposition, and/or effectively reduce their limitation for filing that opposition (discussed further below).

Q5: What effect, if any, will waiting so long to apply for registration have on Deadmau5?

A5: The answer to this question is two-­‐‑fold: the first part relating to Deadmau5’ delay in making any application at all; and the second regarding Deadmau5’ delay in making an application in the U.S.

Regarding his application per se, on one view, every second Deadmau5 waited was causing him damage, in the sense that, while he was building a more and more valuable image, partly on the basis of his ears, the risk of an assault from Disney grew, even on the basis of copyright claims they may have had. However, in light of the above, on the other hand, delays were helping to strengthen his foothold.

In terms of his specific U.S. application, this could prove a very smart move. The reasons why are discussed in the answers to question 7 below.

Q6: What effect, if any, will waiting to take action against Deadmau5’ have on Disney?

A6: In addition to the answer to question 4 above, Disney’s delays could have had potentially severe and irreversible consequences. The biggest reason is that there are time limits imposed on the lodging of oppositions to trademark applications. In Australia, IP Australia will advertise an accepted application for a period of two months to enable objections, but after this point, unless a compelling reason is provided and an extension granted (which is extremely hard to achieve), the opportunity to oppose, and therefore to block an application or ensure it is restricted, will be lost.

In Disney’s case, the worst case scenario is that, in relation to any countries in which it may not have already registered trademarks (which is highly unlikely), Deadmau5 may actually now be in a position to oppose their use of the Mickey Mouse ears on products similar to these he may sell. The best case scenario is that, even in the countries in which it had existing registered trademarks, Disney has most likely lost any opportunity they had to restrict the classes of goods to which Deadmau5 may apply his ears and / or to ensure that he can’t use the closer silhouette version of his mark. If Disney had waited any longer, the latter may have also been the case in the U.S.

In each country, much like with real property registers, there are also systems and rules of priority that may have a bearing on the eligibility of a trademark for registration and / or the conditions that may be imposed on the registration of similar trademarks. As you might expect, time is usually the critical factor in priority cases.

Q7: Are there any implications that arise from the fact that Deadmau5’ application was already registered in other countries, and is there any other reasons why Deadmau5 would first apply in Australia, or anywhere other than his home country, the U.S.??

A7: Yes. Under the international system, where a trademark has actually been registered in the country of origin (in Deadmau5’ case Australia), it must be accepted for filing and protected in its original form in the other contracting states. So, in this case, Deadmau5 may have been a little sneaky in applying first elsewhere, perhaps because he knew that Disney was less likely to pick up on foreign applications, and that this would mean a win overseas and a potentially much smoother ride in the U.S.

However, this does not mean that a registered trademark in one country will of itself ensure that an application is successful in another – there are exceptions to the rule for automatic acceptance for filing and protection in foreign countries. Perhaps the most common of these is the case where the trademark, if registered, would infringe the acquired rights of third parties (such as other trademarks and / or copyright in the foreign country).

This exception, as with the others, have largely been built into the domestic systems, such as in the grounds of objection set out in the TM Act and discussed above. While Disney may have a strong argument in this regard, recall the issues discussed above and the fact that it sometimes takes much more, or particular circumstances may trump others in any given case. Possibly the most important of those are again the limitation periods that apply to objections and priority systems in place.

Their significance is exacerbated in the context of international applications, meaning they become even more dangerous (i.e. for Disney), or beneficial (for Deadmau5), given that an application filed in a subsequent country only on the basis of an application made (as opposed to actual registration) in another country could have the effect that the subsequent application will be taken to have been file on the same day as the original application in some cases, meaning, in effect, that domestic statutory limitation periods can be reduced simply by filing elsewhere, possibly in addition to any shortening effect any existing laches or acquiescence argument may have.

 

ED: This is not the only trademark issue DeadMau5 is dealing with, recently he received a Cease & Desist Letter from Ferrari for his highly stylised Nyan Cat Car Ferrari called the Purrari.

Deadmau5 Purrari - Credit Deadmau5

Deadmau5 Purrari – Credit Deadmau5

The Big Cheese – Conclusions

In light of the above, here are some generally applicable pointers to take away:

  • Never underestimate your product or service. Always assume you will become a globally-­‐‑recognised presence – to do otherwise could severely harm you.
  • In some cases, the nature of your product or service may mean that there really is no point in spending time or money trying to protect your image or work. This may mean that copyright is sufficient to avoid trademark applications. On the other hand, it may mean that there simply is just no utility in making any applications for anything.
  • The time or money that seems relatively impossible now may save you mountains in avoided disputes or diverted business down the track.
  • Think very carefully about the competitors in your industry before relying too much on an unprotected image, logo, slogan, sound or otherwise.
  • Consider in depth the timing of any protective measures you may take, and weigh up the risks and alternatives.
  • If your IP is worth protecting, keep a lookout in all relevant countries for potentially infringing use or competing applications.
  • If you become aware of potential infringement, or even competition you can take action about, don’t delay for a minute.
  • For other issues or more specific advice, feel free to contact the author.
  • Dominic Green
    Principal
    © Green & Associates Solicitors 25 September 2014

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 Image Credits Wikipedia