Think you have a good business name?: On deceptive and deceptively misdescriptive trade names.

In the line of work in which I was able to gain business experience, it was not uncommon for me to see trade names ("marks") that misdescribed the goods or services ("goods") provided. I would most commonly see marks that misdescribed goods when proprietors would devise one suggesting a connection with an environmentally-friendly or "green" product. In the absence of legal action from another person or business for infringement, people can pretty much use whatever trade name they want. However, that does not entitle them to trademark protection under the Lanham Act.

 

Title 15 of the U.S. Code contains the Lanham Act, which is the federal statutory scheme for registering and protecting trademarks. In general, "inherently distinctive" marks can gain federal trademark protection via registration, and descriptive or generic marks cannot. As long as a mark is not "merely descriptive" of the goods or services provided, a descriptive mark can become protectable upon showing of "secondary meaning." Inherently distinctive marks are either suggestive of the goods provided, arbitrary or fanciful.

 

Suggestive marks require imagination, thought or perception to reach a conclusion as to the nature of the goods or services they identify. Trademark Manual of Examining Procedure (TMEP) § 1209.01(a) (October 2012). Arbitrary marks comprise existing words but when used to identify particular goods or services, they do not describe an ingredient, quality or characteristic of the goods or services, e.g., "Apple" for computers. Id. Fanciful marks comprise terms invented solely to function as a mark. Id.

 

A mark that has attained secondary meaning implies that the mark originally did not have significance in the minds of consumers, but use of the mark in commerce has cultivated a source identifying connection in consumers' minds. If a mark is originally descriptive, but several years later consumers immediately identify the mark with the markholder's products or services, it can be registered and receive federal trademark protection.

 

The caveats I initially identified are deceptive and deceptively misdescriptive. I commonly see deceptive or deceptively misdescriptive marks in commerce. Now, this will not normally cause an issue unless the proprietor tries to register the mark, but the markholder's decision to select a deceptive or deceptively misdescriptive trade name may have been changed if he or she had known that the trade name they were selecting cannot ever receive federal trademark protection.

 

When an individual starts a business, it is axiomatic that they will try as hard as they can to make the business as successful as they can. Apple, Microsoft or Coca-Cola were not started with the intention to only compete in a small geographic area. If they had selected a mark that was permanently unregistrable, and could not ever receive federal trademark protection, they would either have had to change their trade name or run the risk of competitors and "knock-offs" incessantly piggybacking off of the source identification or recognition that the trade name had generated in the market place. It is not a stretch to say that those companies may not have survived unless they changed the trade name.

 

Deceptive marks are permanently unregistrable. Deceptively misdescriptive marks are also unregistrable, but can be registered upon showing of secondary meaning. A "deceptively misdescriptive" mark immediately conveys a false idea of the goods or services it identifies. TMEP § 1209.04. It is not a death knell to a mark if it misdescribes goods or services it identifies. To be deceptively misdescriptive, consumers who encounter the mark on or in connection with the goods or services must be likely to believe the misrepresentation. Id. I commonly see this when proprietors want their business to be identified with the green revolution, and the goods or services they provide are not energy-efficient or "green" at all. Depending on how a prospective trademark examiner would decide a consumer's likelihood of believing the misrepresentation, the mark is either unregistrable or permanently unregistrable.

Specification-Compliance on Public Bid Projects, Part 2.

As discussed in my previous post, it is imperative for companies bidding on public projects to comply with specifications. If they do not, their customers or suppliers will hold them accountable for any oversight. Even if they do comply with specifications, business relationships or a customer's buying power (monopsony power) may cause a careful company to eat the cost of someone else's oversight.

In order for a careful company to cover itself, there are a few things the company should always do on public projects. In many cases, these would come in handy on private projects. First, never simply state that you are specification-compliant. Instead, state exactly the drawings and specifications on which your bid is based. It might get tedious, but to note exactly from which sources you get your bill of material or services can go a long way in protecting yourself in the event of later conflict. It is also prudent to date the drawings and specifications. Sometimes, these can change as a project proceeds.

When an oversight occurs and material or services are omitted from a bid, positively stating that you were only shown X number of drawings and specifications may exonerate you. Of course, if you have all of the specifications, then it is your responsibility to examine all pertinent documents to determine what the requirements are. But if you are in an industry where you typically do not receive everything, it would be prudent to note just what you are receiving. If you do, it puts the onus on either your customer or supplier who did have full access to the specifications.

Second, any time you get approval for a deviation, note it, and to whom you talked. If you can, get it in writing. On public projects, addenda are typically issued that may provide for this. Third, be redundant. Even if something is implicit in an industry, not everyone will see it that way. Again, it may be tedious and time-consuming, but you should not assume something is implied in your bid. You may have a page of notes or exceptions, but it can save you a lot in the long run.

Introduction to Specification-Compliance in Public Bids Submission.

Most businesspeople are familiar with the process of public bid submission. It is common in most industries. Whether it is in the private or public sector, the company or governmental entity will publish specifications with their requirements for the project. Events in the distribution chain can get Machiavellian. It is not uncommon for companies to award bonuses to project managers who come in underbudget. As a result, not all the requisite information is always transmitted to parties who need it. When it is, or when requirements change or are subject to a differing interpretation from the engineer on the project or the ultimate customer, somebody is left paying the bill.

In today's economic and business climate, public bid projects are increasingly competitive. In the Midwestern United States, such opportunities are not terribly plentiful. On public bid projects, the engineers are the arbiters. Specifications will say a certain thing, but the engineers (in conjunction with the ultimate customers) are the ones who end up determining whether to enforce provisions of a specification. When conflicts arise, the contractors, vendors and other suppliers act as lawyers, arguing for or against the verbiage of a particular provision in the specification. As mentioned, in some cases, not all parties will have received the pertinent specifications. On many large projects, requirements will be found throughout the specifications. This can involve thousands of pages, so it is not too difficult to see why certain requirements are not always met, omitted, or missed completely.

On large projects, mistakes and omissions can bankrupt a company. That is why compliance with specifications is so important. Public jobs are so competitive that if a company does not supply one of their vendors with the specification, the result will be a more competitive price for them to give their customers in the distribution chain. When a conflict over the goods or services to be supplied ensues, everyone is pointing fingers at another party, expecting them to foot the bill. Thus, a company must be vigilant in making sure that their company is protected from unscrupulous and unreasonable customers or suppliers.

Using the legal process is anathema to most small businesses, because resorting to it is like using the nuclear bomb. In one particular situation you may get your way, but you have damaged business relationships and may have cost yourself much more in the long run. If you use the legal process you will almost certainly not be doing business with the party against whom you are using the legal process. In many cases, word-of-mouth makes others in your industry wary of doing business with you, because the fear is that you will take them to court. Of course, there is also the possibility that this word-of-mouth is actual defamation or business interference, in which case you can take further action. It may even go so far as to be a violation of antitrust or competition law.

Industries have developed ways of dealing with these situations without resorting to the legal system. Surely, individual businesses differ. Some companies use their buying power to bully other companies. Some use a cost-benefit analysis and acquiesce in a situation when it appears likely that they will be able to make more money in the long run by extending goodwill to a company who may actually have made the mistake or omission. In my next post, I will discuss tips and pointers for companies to use in dealing with specification-compliance on public bid projects.

Introduction to Electronic Commerce.

Some people may believe that a contract is not valid unless signed by hand. "Signed," according to the UCC, "includes using any symbol executed or adopted with present intention to adopt or accept a writing." [1] This includes online contracting, whereby an individual can agree to purchase goods via email or another electronic method. This happens in situations where goods are needed quickly. Sometimes one merchant ships goods to another merchant based on a good faith belief that the other party will pay according to the terms of a given email exchange.

For instance, let's say A Seller deals in widgets. B Buyer needs widgets tomorrow, and sends a high priority email to A asking to ship them immediately. B Buyer may not have time to get a purchase order requisition through his company's purchasing department in time to receive the widgets when B needs them. So, A must rely on B's good faith in entering the online contract with no purchase order or handwritten signature. B's intent is surely to enter a contract, because the characters in his email to A indicate his intention to adopt or accept the terms of A's overnight shipment of widgets to B.

Now, if B were a scoundrel, and wanted to evade any terms of A's good faith shipment without a handwritten signature or formal purchase order, B would not be able to do so. Laws authenticating electronic signatures are ubiquitous in the United States. B would be bound by the terms of the online agreement.

Another example might be the situation where B sends another high priority email to A requesting widgets immediately, and A provides the terms of the transaction, but includes no mention of how long the price is valid. Three months and one day later, B sends a purchase order to A for standard delivery at the price sent over three months earlier. What then? Well, the UCC provides that the price quote would be valid for a "reasonable time," but not to exceed three months. [2] Of course, A could honor the quote if the price has not changed, or has changed a small amount. This would be of A's own volition, however, and not what the law provides.

Generally, the determination of reasonableness of time is a jury question. [3] It depends on the nature, purpose, and circumstances of the action. [4] The court and factfinder would likely look to the express terms of the agreement, as well as what is called "course of performance," "course of dealing," or "usage of trade." [5] A "course of performance" is conduct and behavior of parties to a particular transaction if the parties have an agreement involving repeated occasions for performance by a party, and the other party does not object to the performance of the performing party, or acquiesces to it without objection." [6] A "course of dealing" is conduct and behavior of parties with regard to comparable business transactions before entering the subject agreement. [7] "Usage of trade" is probably the easiest concept to grasp of the three. It is "any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect" to the subject transaction. [8]

Express terms prevail over the three others. [9] Course of performance prevails over course of dealing, because it deals more directly with the conduct and behavior of the two or more parties in their prior business dealings with each other. [10] Course of dealing prevails over usage of trade because it deals directly with the conduct and the behavior of the two or more parties in business dealings, but not with each other. [11] Usage of trade is more consistent with industry or geographic standards that each party assumes the other to implicitly implement into their agreement without having to discuss them. Following these guidelines, the factfinder, or jury, would then determine the duration of "reasonable time," in a particular situation.


Citations:
[1] UCC 1-201(b)(37).
[2] UCC 2-205.
[3] St. Ansgar Mills, Inc. v. Streit, 613 N.W. 2d  289, 295 (Iowa 2000).
[4] UCC 1-205(a).
[5] UCC 2-202(a).
[6] UCC 1-303(a).
[7] UCC 1-303(b).
[8] UCC 1-303(c).
[9] UCC 1-303(e)(1).
[10] UCC 1-303(e)(2).
[11] UCC 1-303(e)(3)

Antitrust and Unfair Competition, part 3: Bid Rigging.

Bid rigging occurs when a "commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid." [1] This is sometimes done to meet particular quotas regarding how much business must go through the public bidding process, or as a favor to another party. It is also a type of price fixing among competitors to ensure that the party who is supposed to "win" a contract, in fact wins the contract.

In the public sector context, bid rigging results in harm to the agency seeking the bids, and the public. The agency is harmed because they will receive a higher price than they would through a true competitive bid process. The public is harmed because in the public sector context, they are the taxpayers paying the higher price.

In the private sector context, bid rigging still results in harm to the company seeking bids. It does not affect the public, but it would have an ancillary effect on shareholders of publicly-traded companies. The company would have to pay a higher price to a contractor or vendor for goods or services. This would ultimately lead to lower amounts of cash that could be capitalized and distributed to shareholders. Even if the cost to shareholders would be almost negligible each time the bid rigging occurs, its accumulation would likely have a noticeable impact if it became a part of the company's culture in its purchasing department.

You may or may not have come across an incident of bid rigging in your business dealings. Bid rigging is not necessarily common, but it is not unheard of either. People often try to "team up" with other people in other businesses. Sometimes, the tactics they use in implementing their strategy will run afoul of antitrust law. Technical antitrust violations occur much more frequently than one might initially think. People do not always notice the violations as unethical conduct, because they are helping someone they know. They may not recognize that what they are doing is foreclosing competition from otherwise worthy competitors.

Citations:
[1] Wikipedia, Bid rigging, http://en.wikipedia.org/wiki/Bid_rigging (last visited July 11, 2012).

Antitrust and Unfair Competition, part 2: "Good Ole Boy" Networks.

The essence of "good ole boy" networks is a violation of Section 1 of the Sherman Act. As seen in my last post, Section 1 prohibits concerted action restraining trade. A "good ole boy" network is one governed by a close relationship and a sharing of sensitive business information. The close relationship is one involving nearly exclusive dealing. The sharing of sensitive information involves price dissemination, group boycotts, and other conduct that makes no business sense unless there is reciprocity from the other party.

Section 1 deals with horizontal restraints of trade, among other things. A horizontal restraint of trade is concerted anticompetitive conduct by competitors in the distribution chain in order to eliminate, lessen, prevent or foreclose competition from another competitor or competitors. Examples of horizontal restraints include price fixing, price dissemination, market and customer allocations, and group boycotts and concerted refusals to deal. Within these examples, there are numerous subcategories.

"Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service or commodity only at a fixed price, or maintain market conditions such that the price is maintained at a given level by controlling supply and demand." [1] Price dissemination often results in price fixing. Price dissemination occurs when pricing or sensitive business information is exchanged, resulting in a competitive advantage for one or both of the competitors. Market and customer allocations occur when competitors will allocate customers geographically or demographically, resulting in less competition and higher prices for the consumer. Group boycotts occur when "two or more competitors in a relevant market refuse to conduct business with a firm unless the firm agrees to cease doing business with an actual or potential competitor of the firms conducting the boycott." [2]

"Good ole boy" networks engage in all of the above behavior. They do not do so all the time, but such networks are characterized by barriers to entry such as being part of a specific in-group of like-minded individuals with industry experience and friendships, and the sharing of business information in order to help other members of the network succeed in business. Members of the network will share price information, resulting in price fixing. They will allocate customers and markets so as to not encroach on another member's territory. They will pressure other members to not do business with firms that upset them, or do not conduct business their way. They will also give members of their in-group better prices than they give individuals or businesses outside of their group.

If you are part of a "good ole boy" network, be aware that participation in the above behavior can subject you to criminal liability, as well as civil liability. As mentioned before, civil liability for antitrust violations can result in treble damages, or damages three times the actual amount.

In my next post, I will discuss another horizontal restraint often subsumed within price fixing and price dissemination: bid rigging.

Citations:
[1] Wikipedia, Price fixing, http://en.wikipedia.org/wiki/Price_fixing (last visited July 11, 2012).
[2] Wikipedia, Group boycott, http://en.wikipedia.org/wiki/Group_boycott (last visited July 11, 2012).

Antitrust and Unfair Competition, part 1.

Antitrust and Unfair Competition Law is one of the most complex legal fields. Unlike many other areas of law that simply apply legal doctrine to a given set of facts (one level of abstraction), Antitrust and Unfair Competition Law applies legal doctrine to economic doctrine, and then to a given set of facts (two levels of abstraction). The frames of reference that affect which economic doctrine to apply are fuzzy with Antitrust Law, because the definition of the relevant market can differ greatly. The definition of the relevant market is of paramount importance when determining whether an entity has "Monopoly Power," under Section 2 of the Sherman Act. Monopoly Power is how much market share a given business entity has. If you define the relevant market improperly, a monopolist might appear to have much less of a market share than they actually do.

Section 2 of the Sherman Act ("Section 2") deals with monopolies. Section 1 of the Sherman Act ("Section 1") deals with concerted action restraining trade. Both are nebulously written. Section 2 merely states that persons who monopolize or attempt to monopolize, or combine or conspire with anyone to monopolize any part of trade or commerce, shall be deemed guilty of a felony. Section 1 states that every contract, combination, trust or otherwise, or conspiracy in restraint of trade is illegal. As with Section 2, Section 1 violators are also guilty of a felony. The Clayton Act allows parties injured through Antitrust Law to bring civil actions. Successful civil actions can receive what is called "treble damages," or three times the amount of actual damages.

Neither Section 1, Section 2, nor the Clayton Act can be read literally, because to do so would prohibit much conduct that is not practically anticompetitive and unethical. For instance, noncompete agreements are legal restraints of trade, and quite reasonable when a former employer has imparted an employee with specialized skills and knowledge at great expense. Scholarship limits in the NCAA are also a legal restraint of trade. It is literally a restraint of trade for Division I Football Bowl Subdivision schools to agree to limit their rosters to 85 scholarship players at a given time. But the Court affords governing bodies like the NCAA deference because of the rules needed for effective competition. [1]

That deference comes in the form of the "Rule of Reason." Some conduct is so blatantly anticompetitive that it is per se illegal, or illegal "on its face." Some conduct is so anticompetitive that it only deserves a "Quick Look." Some conduct is anticompetitive, but must be judged carefully. Such conduct is examined using the Rule of Reason, which is a full balancing test of the anticompetitive behavior, its procompetitive effects, and a determination of which outweighs the other.

Section 2 tends to be less relevant to small businesspersons. Attempted monopolization is a crime, but it requires a "dangerous probability" of achieving monopoly power. Usually a small business would not have a dangerous probability of achieving monopoly power, but it all depends on how the relevant market is defined. In a small enough geographic area, some relatively small businesses might indeed be a monopolist. For instance, a company offering a product that has no suitable comparison within the region may very well have monopoly power, with the biggest indicator being that they can have large profit margins because of a lack of competition. In fact, such a scenario is not all that uncommon. But simply having monopoly power is not the issue. Engaging in monopolizing conduct is when the conduct becomes illegal. Monopolizing conduct is conduct that attempts to maintain or achieve monopoly power through anticompetitive behavior.

The take away from Section 2 is that almost all small businesses would not have monopoly power, unless the geographic definition of the market is small enough. However, monopolizing conduct that attempts to foreclose competition is not nearly as uncommon. Even then, without monopoly power, monopolizing conduct does not lead to attempted monopolization unless there is a dangerous probability of monopolization and the intent to do so.

Section 1 will be discussed in greater depth in my next post.

Citations:
[1] NCAA v. Board of Regents of Univ. of Oklahoma, 468 U.S. 85 (1984).