Startups 101

Using Copyright and Trademark for Separating from the Competition

December 2007

By Jon M. Garon*

This column is part of a series of book excerpts from Own It: The Law and Business Guide(tm) to Launching a New Business Through Innovation, Exclusivity and Relevance.

For the entrepreneur, one of the most difficult steps in putting together a marketable business that will excite investors may be to understand how to select the right elements from patents, copyrights, trademarks, publicity rights and contracts. Although the specifics for each area of exclusivity are explained in greater detail in my book, the following illustrations of how these pieces fit together will provide the entrepreneur with a template for selecting the best business model.

The lessons described earlier suggest that a mature company employs all the techniques for exclusivity in concert. The text is copyrighted, the brand names trademarked, the inventions patented, the trade secrets carefully guarded and the celebrity spokespersons' identities selected to enhance product relevance and recognition. For start-up business, however, there must be some prioritization of assets. Unless the business owner is related to George Clooney or Shaquille O'Neal, there may not be sufficient funds to involve a famous superstar.

In reviewing the various types of businesses, the entrepreneur should look for the best fit. A successful company may eventually have patented products, copyrighted materials, strong trademarked brands, celebrity spokespersons and iron-clad contracts, but this exalted status only develops over time. During the initial stages, the entrepreneur must identify which attribute is most important to the growth of the company and invest the time and effort in protecting that element first.

Every company owns copyrighted material. Brochures, websites, employment handbooks and other documents are all protected by copyright. A copyright-based company, on the other hand, is one that generates its primary income from the sale of copyrighted works. If the company produces content that consumers will purchase independently of the other business activities, then it is in the copyright industry.

Typically, a company centered on copyrighted works would begin with a book, picture, film, musical album or other copyrighted work. Publishers, record companies, some website companies, filmmakers and videogame producers will begin with their copyrighted works as their primary merchandise.

For most of these companies, there is nothing to patent. The ideas in a book or film cannot be protected by the copyright, but the expression of those ideas is protected. Most authors do not also invent items at the same time.

Although few patents develop from copyrighted works, there are plenty of opportunities for trademarks to develop. The company that publishes the book, and the record company that produces the album, both have the opportunity to develop a name for themselves in the type of work they distribute. Companies such as Motown became known for a particular "sound" - a guarantee to audience members of the genre and quality of the music. Book publishers look for the same audience response. The genre and quality becomes the signature for the brand of the company, reflected in the company's trademarks. By staying focused on their style and continuing to improve the quality of their product, media companies can develop a following in the marketplace.

Such focus has the added benefit of attracting new artists. Many authors, songwriters, and filmmakers would prefer to work with a company that understands the audience than with a larger company that will not provide the focus valued by those artists. This becomes an important bargaining advantage for the independent publishers, film distributors and record distributors.

Authors can develop a name for themselves as well. Most authors do not find tremendous success with their first book, nor do most bands top the charts with their first album. Instead, they develop a following over time. As their audience grows, the value of their name and likeness grows as well. For the most famous, they can eventually market their names independently from the books, films, or songs. Novelist Tom Clancy has developed a series of books that are written by other authors.

Finally, the works themselves may generate strong brands and additional products. George Lucas' Star Wars has created far more revenue in toy and merchandise sales than even its record-breaking film receipts. Characters such as James Bond, Sherlock Holmes, Lassie and Elmo have each spun off entire cottage industries.

In contrast to the products sold through association with literary characters, many characters have been specially created to help promote sales of a particular product. The Pillsbury Doughboy, Geoffrey, the Toys-"R"-Us giraffe, the Cheerios Honey Bee, Ronald McDonald, the "silly" rabbit selling Trix and the Lucky Charms' leprechaun are just a few of the ubiquitous marketing characters who inhabit consumer shelves. None of these characters add value to their products or change the product attributes, but each assists the sellers in retaining the attention of the public.

The copyrighted works can be leveraged to generate additional copyrighted works, trademark protected brands, and bankable fame for the authors of those works.

As a conceptual matter, a trademark should not be the basis of a new product. Trademarks reflect the source of goods or services, and therefore should never come first. Nonetheless, for products that would otherwise be commodities, the trademark is the brand and may become the product.

The best trademark-based business is a business that is unique but not patentable. Examples are everywhere. Starbucks has transformed the experience of buying a cup of morning coffee despite the ability of any competitor to purchase premium beans. Krispy Kreme Doughnut's rise and fall was based on the company's high-calorie taste.

For toy companies, Frisbee stands among the most successful of companies, having "invented" a flying disc of plastic. Easy to create and replicate, this commodity toy manufacturer has created an international phenomenon. Its parent company was once Wham-O, a famous brand for goofy outdoor toys. Wham-O flew to success with the Frisbee (originally named the Pluto Flyer) only to lose focus once the company was purchased and operated as a minor division at Mattel. Sold to private investors in 1997, the new management is trying to make business choices that once again fit the customer expectations of the brand.

Dunkin' Donuts has recently studied the experience. The company paid its regular customers to frequent Starbucks while paying Starbucks customers to dine regularly at Dunkin' Donuts. Each population was appalled by the experience enjoyed by the other group. According to the Wall Street Journal report, "Dunkin' says it found them so polarized that company researchers dubbed them "tribes" - each of whom loathed the very things that made the other tribe loyal to their coffee shop. Dunkin' fans viewed Starbucks as pretentious and trendy, while Starbucks loyalists saw Dunkin' as austere and unoriginal."1 These two companies have each developed tremendous success by creating a very distinct brand identity that serves both to attract its core customer and repel the non-customer.

Any company that tries to corner a market with a commodity-based product may experience similar results. The brand identity must have a strong focus, and the identity being developed must resonate with a strong, particular audience. Once this step is taken, there may be opportunities to invent or acquire patented products that meet the audience's expectations for the brand. Companies such as Wham-O are constantly looking for the "next" Frisbee to continue to build the brand's recognition, while Dunkin' Donuts is trying to increase the size of its consumer base without alienating any of its loyal tribesmen.

The Wham-O example also highlights the difference between selling a trademarked product and developing a brand. The successful brand transcends any particular product to communicate attributes about the entire product line to the consumer. Thus, Wham-O, as a brand, communicates a family of outdoor toys that are fun, simple, safe and family oriented. Consumers can predict the attributes of a Wham-O product, even if they have not used it before, because they expect the quality and performance typical of the brand. If a company sells a number of products that have no relationship to each other, then its brand will have less impact on consumers and do less to help it sell products. Put another way, the company that respects its own brand will be more selective in what it chooses to sell in order to maintain the trust of the public. The trademark or product name for an individual item does not have this reach.

For companies based on brand marketing, there is little extension from trademark philosophy to use of copyright for exclusivity. Strong brands that sell commodity products typically have few copyrighted works to set them apart. Starbucks' recent launch of music CDs is an exception to this general rule. As an exclusive retailer of certain musical works, Starbucks is extending its brand, usually associated with coffee, into music merchandise by promising customers a high quality musical experience with their favorite stars and the occasional new artist.

Unlike copyright, opportunities to connect with publicity rights are much higher. Since brand-based businesses are narrow in focus, the right spokesperson may provide a great opportunity for both that spokesperson and the company to connect with the consumers. For a company like Wham-O, good spokespersons might be the reigning Freestyle Frisbee champions, and Starbucks would benefit from publicity from stars who swear by their coffee. Dunkin' Donuts would prefer NASCAR drivers or someone who better personifies the austere or homespun nature of the stores.

This is part of a series of book excerpts from Own It: The Law and Business Guide(tm) to Launching a New Business Through Innovation, Exclusivity and Relevance, which provides a step-by-step guide to developing successful start-up companies using concepts of intellectual property in all aspects of business planning and financing.

* Jon M. Garon is admitted in New Hampshire and California.

 


Footnotes.

1. Janet Adamy, "Dunkin’ Donuts Tries to Go Upscale, But Not Too Far," W. St. J., Apr. 8, 2006, at A1.


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