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Using Pre-Sales Activity To Establish Trademark Rights

Prepared By: Melissa C. Marsh, Los Angeles Business Attorney
Written: January 2005

Trademark owners seeking to establish protectable rights in the United States must be able to prove that they are actually using their marks in the marketplace. This seemingly simple requirement is governed by technical rules and can present a real challenge for many companies. In particular, companies that subject their products to extensive public testing before sales commence may have a difficult time developing such rights promptly.

In the United States, federal trademark rights are established either by using the trademark in commerce during "the ordinary course of trade" or by filing an intent-to-use application with the United States Patent and Trademark Office (USPTO) and then documenting actual use in commerce. But just when is a trademark owner deemed to be using its mark?

Under federal law, whether a trademark is in "use in commerce" for products is defined as: (1) the placement of the mark on the products and (2) the interstate (or international) sale, or transportation, of the products. To determine whether a trademark owner has met the standard, U.S. courts and federal trademark examiners look at a variety of factors, including the nature and quality of transactions involving the mark and typical practices within a particular industry.

The practices of many companies, including many tech and bio-tech companies, may not fall within the standard definition of "in use in commerce," at least for a considerable period of time. Many companies invest hundreds of thousands, even millions, of dollars developing and marketing new products long before actual product sales take place. Clinical drug trials and software beta testing are examples of these pre-sales practices.

Congress has stated its desire that "use in commerce" be interpreted "flexibly" to encompass "genuine, but less traditional, trademark uses." Congress specifically anticipated that drug developers would spends years testing their products and, as a result, would face difficulties meeting the usual "use in commerce" requirements. As a result, Congress has noted that a drug company's shipment to clinical investigators during the federal drug approval process should typically be considered part of "the ordinary course of trade," and should meet the statutory requirement for trademark use, even if actual sales are months, or years, away.

Congress has not addressed the sufficiency of beta testing the pre-sale stage in which tech firms give preliminary versions of software or hardware to customers for evaluation before releasing the product to the general public as trademark use, but the same principles should apply. Consequently, pre-sales activities including beta testing may be sufficient to establish trademark "use in commerce," either to support a trademark filing or to prove superior rights against another company.

Court decisions suggest that the quantity and nature of test shipments will determine whether shipping beta versions to a third party establishes trademark rights. The shipments should reflect actual market conditions as much as possible. Along with beta testing, other pre-sales promotional steps such as test-marketing and subscription orders can provide essential support.

In one case, free distribution of beta software at a trade show was found insufficient to establish trademark rights when the owner did not offer the software for sale, took no orders for the product at the show, and did not try to sell the product through ordinary trade channels. The owner's activities were seen merely as an insignificant promotional activity. On the other hand, widespread distribution of a software product over the Internet has been held to be sufficient trademark use, even without formal sales, where the mark is used in news releases and end-users refer to the mark when asking about the product.

As the federal Ninth Circuit Court of Appeals has noted, the key consideration for those seeking to show trademark rights without actual sales is whether the owner adopts and uses the mark "in a way sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind" as those of the owner.

This issue is likely to receive close scrutiny in trademark litigation, where first "use" may determine priority of one party over another and where discovery results in careful scrutiny. Companies with concerns about satisfying the usual trademark "use in commerce" standard should be vigilant about keeping records related to dates of first distribution, not just records of initial sales.

If you have any questions, or if would like the assistance of trademark lawyer Melissa C. Marsh, please call 818-849-5206 or Email: MMarsh .

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California trademark lawyer, Melissa C. Marsh, is based in Sherman Oaks and West Hollywood, and serves individuals and businesses throughout Los Angeles County, including: West Hollywood, Miracle Mile, Beverly Hills, Century City, Santa Monica, Burbank, North Hollywood, Valley Village, Toluca Lake, Studio City, Sherman Oaks, Van Nuys, Encino, and Woodland Hills.

© 2005 Melissa C. Marsh. All Rights Reserved.

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.