Trademarks serve as highly valuable assets for Managed Services Providers (MSPs), and this article aims to highlight key reasons why MSPs should take proactive measures to protect that value. Trademarks play a crucial role in establishing and promoting the MSP’s brand, building, and protecting its reputation, and creating and supporting a distinct identity for its goods and services. By obtaining legal protection for their trademarks, MSPs can safeguard their intellectual property and gain a competitive advantage in the industry. It is important for successful MSPs to develop effective strategies to acquire, maintain, and enforce their rights pertaining to these assets.
Before going further, though, it is important to cover some basics about trademarks. A trademark is a symbol, logo, word, or slogan that identifies a specific good or service. Trademarks are often accompanied by symbols like ®, TM, or SM. Although MSPs do receive certain legal rights to their trademarks upon initial use, for the reasons discussed in this article, they should strongly consider investing additional time and resources in registering key trademarks with the United States Patent and Trademark Office (USPTO).
Building Value
As noted above, a well-managed trademark portfolio can serve as a highly valuable financial asset for an MSP. The financial value of such a portfolio can manifest in various ways, and this section will explore three key contexts in which it contributes to building value: (1) enhancing the MSP’s brand and market position; (2) facilitating licensing and franchising opportunities and income; and (3) supporting mergers and acquisitions.
Value in Enhancing the MSP’s Brand
Developing a robust trademark portfolio is crucial for MSPs to establish a strong protectable brand presence in the marketplace. Trademarks play a vital role in creating brand recognition and fostering loyalty among clients. By registering and safeguarding distinctive brand names, logos, and slogans, MSPs can differentiate themselves from competitors and cultivate a unique identity. This not only instills client trust but also fosters long-term relationships. A solid portfolio ultimately encourages clients to choose the MSP’s goods and services over lesser-known brands or alternative providers, resulting in continued income from a loyal client base.
Value in Licensing and Franchising Opportunities and Income
An MSP also can generate revenue through licensing its trademark portfolio, either by granting others the right to use them in commerce or through franchising. The MSP industry has experienced rapid growth in recent years, attracting entrepreneurs who see franchising as a viable entry point. Some notable MSP franchises include:
- CMIT Solutions, which boasts over 200 locations nationwide.
- Computer Troubleshooters International, with a presence in over 100 locations nationwide.
- Networx, operating in more than 50 locations nationwide.
Purchasing a franchise allows entrepreneurs to leverage an established MSP’s brand, reputation, and intellectual property. As part of the franchise fee, the MSP can charge the franchisee for a license to use the MSP’s trademarks. To make an MSP franchise appealing to entrepreneurs, it is essential that the MSP takes proper measures to protect its intellectual property, including registering its trademarks with the USPTO and actively pursuing infringers. Moreover, as a franchise grows in popularity, there is an increased risk of unauthorized parties freeloading off of the MSP’s name and brands without paying the franchise fee. In such cases, it is crucial for the MSP to possess legal rights and remedies to combat these infringers. As discussed further in Section 2 of this article, registering trademarks with the USPTO grants the MSP the strongest rights and remedies available to protect its intellectual property.
Value in Mergers and Acquisitions
Just as franchising has experienced significant growth in the MSP industry, mergers and acquisitions activity has also seen a notable surge. Trademarks are of utmost value and importance within a MSP’s intellectual property portfolio, playing a crucial role in attracting potential merger or acquisition interest. A strong trademark portfolio showcases the MSP’s brand identity, a history of intellectual property protection, and a proactive approach to managing these assets. Conversely, a poorly managed portfolio can lead to legal disputes, reputational damage, and financial penalties – consequences that acquiring companies seek to avoid. Additionally, acquiring companies will want to verify that the MSP has not infringed upon third-party trademarks or faced infringement allegations. Therefore, effective management of trademarks is essential for an MSP to enhance its appeal to companies that may wish to merge with the MSP or to acquire it.
Right to bring Lawsuits in Court
To help protect the value that an MSP creates in its trademarks, nothing deters an infringer more effectively than the looming threat of litigation and the potential financial burden of compensating the trademark owner. To access the legal system and to claim damages from an infringer, the MSP must register its trademarks with the USPTO. It is worth noting, though, that owners of trademarks possess certain legal rights even without registration. In the case of trademarks, owners have the right to use their marks in connection with the goods and services that they offer. Additionally, they have some authority to prevent others from using similar marks that might cause confusion in the marketplace. However, these rights are generally limited to the specific geographical area where the trademark owner has been utilizing the mark. Further, in most cases, legal action only would result in the infringer being ordered to stop using the mark, but the trademark owner would not be able to recover monetary damages.
Therefore, a primary benefit of registering a trademark with the USPTO is the ability to initiate legal action against an infringer and to hold it accountable for its unauthorized use of the intellectual property. In the case of a registered trademark, the trademark owner could collect from the infringer: (1) the profits the infringer gained from using a confusingly similar mark; (2) actual damages (explained further below); and (3) attorney’s fees and expenses. These monetary damages are in addition to the court’s power to issue an injunction, preventing the infringer from further using the confusingly similar mark. As for actual damages, they typically encompass: (i) the profits the trademark owner would have obtained if the infringement had not occurred; (ii) loss of goodwill; (iii) costs incurred for corrective advertising to rectify consumer confusion between the trademark owner’s goods or services and those of the infringer; and (iv) royalty expenses (particularly relevant in cases where the trademark owner licenses the use of their trademarks to others). Further, in cases where an infringer utilizes a mark in association with counterfeit goods or services, a court may mandate payment ranging from $1,000 to $200,000 per counterfeit mark per type of goods and services sold (up to $2,000,000 in cases where the infringement was committed willfully). Consequently, the accumulation of these damages can escalate quickly when multiple instances of infringement occur.
By registering their trademarks with the USPTO, an MSP significantly strengthens its position and leverage when dealing with infringers. Often, the mere threat of legal action is enough to prompt an infringer to immediately cease its misuse of the trademark, making it unnecessary for the owner to pursue a potentially costly and time-consuming court case. However, the trademark owner must decide whether this resolution is satisfactory or if the infringer’s substantial financial gain and resulting financial harm warrant seeking monetary damages through further legal proceedings. Ultimately, registration provides the MSP with a potent tool to protect their intellectual property rights and pursue appropriate action against infringers.
Maintaining the Value of the Trademark Portfolio
Once an MSP registers its trademarks with the USPTO, it will need to take steps to maintain and protect those trademarks so that they do not lose their value. Trademark owners will need to file with the USPTO a Declaration of Use or Excusable Non-Use between the fifth and sixth year after registration. Additionally, between the ninth and tenth year after registration, and every successive ten-year period thereafter, the owner will need to file a combined Declaration of Use and Application for Renewal (trademarks need to be renewed every ten years). Failure to meet these filing requirements will result in the trademark losing its registered status, along with all of the associated value and benefits.
In addition to the above maintenance filings, trademark owners should actively monitor for potential infringement by others and for the filing of trademark applications for brands, logos, or slogans that could be confusingly similar to their own trademarks. Seeking assistance from attorneys or utilizing third-party watch services can be beneficial for MSPs in these monitoring efforts. Neglecting to act against infringers or against those filing for potentially confusing trademarks can lead to the dilution and loss of value for the MSP’s trademarks. Familiar examples like KLEENEX and XEROX demonstrate how a registered mark can become genericized, diluted, and lose its value for the trademark owner.
Ultimately, even after the MSP receives its registration certificates from the USPTO, indicating that it has successfully registered its trademarks, there still is work to do to make sure that the MSP continues to enjoy the full value and benefit of its trademark portfolio.
To conclude, MSPs should conduct a thorough evaluation of their name, brands, logos, and slogans, ensuring that they have implemented the necessary measures for proper protection. While not all may qualify for trademark registration with the USPTO, it is advantageous for an MSP to consult a trusted attorney to develop a comprehensive brand strategy. Such legal guidance will help identify marks worthy of consideration for registration. Furthermore, an attorney can offer valuable advice on safeguarding the value inherent in the MSP’s existing registered trademark portfolio.