Your company name. How can anyone but you and your family know what it really means? The years of toil; the late nights and weekends; the time devoted to building a dream; the blood, sweat and tears; the integrity, the ethics, the reputation built and achieved over decades, the standing in the community. It's more than just a name; it's your legacy. How can you protect its meaning and ensure it continues to stand for all you have built over the years?
Will the people buying your business (whom you barely know, in most cases) attach the same meaning, awe and reverence to the name that you have? Or to them is it just a marketing tool to be used to build the top-line sales?
Welcome to the dilemma facing most family businesses when it comes to selling and diversifying investments. But do not despair; there are many techniques for protecting the name of the founder and ensuring it is not sullied by a successor or acquiring entity.
Inventorying the names
Before any sale, the company should take inventory of all ways that the founder's name—and the different variations of it—has been associated with the business. Some immigrant families may have shortened or “Americanized” the name in order to assimilate, so the founder may have been known by a variety of names. For example, maybe the last name was changed (as in the case of Ralph Lauren, in which “Lifshitz” became “Lauren”). Or perhaps the founder had a nickname or used a shortened version of his name, such as “Jerry” in lieu of “Gerald.”
The list should also indicate just how the name was used in connection with the company's goods and services. Once you have inventoried what has been used, you can determine what is worthy of protection.
Trade names, trademarks and service marks
Some names will qualify only for trade name protection. A trade name is the name that a business trades under and is generally considered as identifying the business and its goodwill. Trade name protection is typically obtained on a state-by-state basis where the company has transacted business or intends to transact business.
Trade names are similar to trademarks but identify the company generically rather than a particular service or good. Trade names can usually be registered online for a nominal fee through your state's corporation department, usually part of the secretary of state's office.
If the name is directly associated with a service or good, it likely qualifies for trademark or service mark protection. Trademarks are words, names and symbols used to indicate the source of the goods and to distinguish them from those of other companies. Service marks are similar, except they are applied to services rather than goods. (Under the Lanham Act, the federal legislation governing trademarks, a trade name can be registered as a trademark/service mark only if the trade name is also used to identify goods and services in addition to its character as a trade name.)
If not already protected, the names in use and those recently used should be registered. Trade names can last forever if the goods/services continue to be sold and if the marks are properly registered and renewed over time. In general, the owner of a registration must periodically file Affidavits of Continued Use or Excusable Nonuse under 15 U.S.C. §1058, and Applications for Renewal under 15 U.S.C. §1059. (Federal registration also entitles to the registrant to other advantages beyond those addressed in this article.)
Domain name protection
In today's electronic age, protection of the name is not complete without researching whether domain name registration is appropriate for the founder's name and its variants.
Depending on your intentions, you may wish to preserve only the “.com” domain extension or go for as many as you can obtain: “.com,” “.net,” “.biz,” “.tv,” “.us,” etc.
Identify the concerns
Now that you have the name protected to the extent you can, your next task is to identify your concerns related to the use of the name after the sale of the company, as well as uses the family is condoning in advance. If your attorneys know what the concerns are and know the uses that are acceptable to the family, they can draft provisions that should eliminate those concerns, or exact a penalty for any violation.
These concerns may include: changes in the scope or product lines of the business; future changes in the ownership of the company; use in advertising or marketing materials; use in ways that might embarrass the founder's family; use by unapproved persons; use by persons of an immoral character; use by the company in connection with illegal or wrongful conduct; and use in a manner inconsistent with the political, religious and social views of the founder.
A list of pre-approved uses of the name might include: use in a manner consistent with past usage; use in pre-approved formats and with pre-approved materials, such as on letterhead or business cards, on the website or in marketing materials; use only with existing products and services; use only with the present acquirer's ownership and management; use only for a specified duration of time after closing of the sale.
The acquirer will likely want unfettered use of all the assets, including the founder's name. The seller, on the other hand, will want to have a number of controls to prevent undesired use of the founder's name.
Assuming an asset sale, the family may desire to hold on to ownership of certain assets, including the trade name, trademarks and service marks. This can also be accomplished in a stock transaction by transferring the intellectual property at issue to a holding company controlled by the founding family.
To the extent that the selling family allows the buyer to use the founder's name, they can license it under whatever terms they deem desirable. For example, the selling family can limit the license to only certain pre-approved uses of the name.
Tools and solutions
There are many tools and mechanisms available to the savvy seller to protect the name and reputation of the founder. Each case is different; what is appropriate in your case will depend on the exact circumstances of your family business and the concerns of your family.
Neal A. Jacobs is managing attorney and principal at the Jacobs Law Group PC, a boutique business law firm in Philadelphia (www.jacobslawpc.com).