Trademarks are invaluable assets.  They are the primary means through which most companies identify themselves to the public, and the primary means through which the public identifies and distinguishes one company from another.  Yet many hedge fund managers do not register their trademarks with either the United States Patent and Trademark Office or the trademark offices of other countries in which they conduct business.  By failing to register their trademark rights, hedge fund managers are potentially losing out on some important benefits they would otherwise enjoy and in some cases may even be risking the loss of their trademark rights.  Since trademark applications can be filed both before and after a hedge fund has launched, even managers of active funds who have not yet registered their trademarks should give serious consideration to filing a trademark application.  Below we briefly discuss what a trademark is and the factors fund managers should consider in deciding whether or not to register their trademarks.

What is a trademark and why are trademarks important to hedge fund managers?

A trademark is generally a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs, that identifies the source of a product or service and distinguishes the source of that product or service from the source of other products or services.  In the case of hedge funds, the fund’s trademark is frequently the same as or comprises a portion of the fund’s name.  For example, in the case of a fund where the investment manager is ABC Capital Management, LLC, the general partner is ABC Capital, LLC, and the fund is ABC Partners, LP, the mark ABC may be considered the fund’s trademark, since it is by this portion of the fund’s name that the fund is recognized by the public.

Establishing valid trademark rights is important because owning valid trademark rights entitles the trademark owner to prevent third parties from using the same or a confusingly similar mark for the same or related goods or services to those of the trademark owner.  This can prevent the public from being confused between two or more funds with similar names or marks.  Although hedge funds are generally precluded from advertising, and relationships with investors are developed primarily through personal connections, confusion can and frequently does arise through external sources.  As one court noted in finding trademark infringement where both parties were in the investment business:  “High-level investment business is commonly conducted based on trust and personal relationships among individuals.  If any investor reads about a [Defendant] investment … and mistakes that transaction for a [Plaintiff] investment of which it was not aware, it may well feel ‘cut out’ of a potential lucrative deal. … [I]ts business relations with [Plaintiff] could be soured.”  Morningside Group Ltd. v. Morningside Capital Group, L.L.C., 182 F.3d 133, 140 (2d Cir.  1999).

1. Trademark registration in the United States

A.  In the United States, trademark rights are generally acquired through the use of a mark in commerce.  This means that so long as a mark is in use in the United States in compliance with the technical requirements of United States trademark law, registration is not necessary to establish trademark rights.  Unregistered trademark rights, however, are limited to the geographic areas in which the mark is actually in use and a zone of natural expansion.  As a result, to the extent that a fund manager is only operating in certain states, it would be difficult for it to prevent another fund from using the same or a similar mark in other states.  This could present difficulties as the manager’s activities expand into additional states.  In contrast, a fund manager whose mark is federally registered on the Principal Register (which is the register on which registration of most hedge fund trademarks is sought) enjoys a presumption that it is entitled to the exclusive right to use its mark throughout the entire United States.

B. If a manager is only preparing to conduct business, and has not yet commenced using its mark in compliance with the requirements of United States trademark law, filing a federal trademark application gives the manager a way of reserving rights in the mark.  In the absence of such a filing, a third party fund may be able to adopt the same or a confusingly similar mark.

C. Federal registration on the Principal Register provides constructive notice of ownership of the mark eliminating claims of good faith adoption and use of the mark by third parties.  Because hedge funds are generally precluded from advertising, third party funds may not be aware of them when choosing a new name.  Registration of the fund’s trademark increases its visibility, however, thereby increasing the likelihood that a third party fund will discover it when conducting a clearance search prior to choosing a new name.  As a result, third party funds will be less likely to choose the same or a similar name for their businesses.

D.  Other legal advantages to registration on the Principal Register include the following:

(1)     presumptions that the registrant owns the mark and that it is valid; in one notable case, among the factors a court considered in finding that use of a trademark by a commercial lending broker did not infringe the identical mark used by a hedge fund was the hedge fund’s failure to register its mark (Omicron Capital, LLC v. Omicron Capital, LLC, 433 F. Supp. 2d 382 (S.D.N.Y. 2006));

(2)     the U.S. registration can be a basis for obtaining registration in certain foreign countries;

(3)     the registration entitles the owner to file actions concerning the mark in federal court;

(4)     the registration entitles the owner to enhanced damages if successful in an infringement action; and

(5)     under certain circumstances, the registration can become incontestable, which means that it can only be challenged on certain narrow grounds prescribed by statute.

Further, trademark registration is perceived from a marketing perspective by many as a means through which a manager can establish its brand and institutionalize its image.

2. Trademark registration in foreign countries

In contrast to the United States, trademark rights in most foreign countries are acquired through registration, not use.  Therefore, fund managers who have not registered their trademark rights in those countries may not be able to preclude third parties from adopting the same or a similar mark for the same or related services.

3. Caveats

Although registering trademark rights can confer significant benefits, there are certain limitations which should be borne in mind when deciding whether or not to file a trademark application.  Significantly, in many countries including the United States, filing a trademark application and obtaining a trademark registration do not eliminate the prior trademark rights of third parties.  Therefore, under certain conditions, third parties with relevant prior trademark rights may object to a later-filed trademark application or a trademark registration, and the trademark offices of various countries may raise objections to an application that are based on prior third party applications or registrations that are enforceable in that country.  Responding to these objections can be time-consuming and costly and may not be successful.  Careful consideration should therefore be given to conducting a trademark search prior to filing an application in order to assess any third party risks.

4. Application process

Preparing a trademark application is usually fairly straightforward and involves providing the trademark office with basic information about the applicant and the mark.  After filing, the trademark offices of most countries (including the United States) will examine the application and notify the applicant (or the applicant’s attorney) of any objections.  Among the objections that may be raised by the trademark office is that there is a third party with an application or registration for the same or a confusingly similar mark.  In addition, the trademark offices of most countries provide third parties with the opportunity to object to an application.  Therefore, although a trademark application can be filed at any time, it is generally advisable to file an application as early as possible in order to reduce the risk of objections based on third party marks.  Conducting a trademark search prior to filing an application can also aid in identifying any third party risks.

Assuming no objections are raised to a trademark application, or that any objections raised are minimal, obtaining a trademark registration is generally a relatively inexpensive process.  The process can become much more expensive, however, if significant objections are raised.

Trademark registration can provide fund managers with valuable benefits.  If you have any questions about trademark registration, please contact Beth Alter at Seward & Kissel’s Intellectual Property Group at (212) 574-1427 or alter@sewkis.com.

Seward & Kissel’s Intellectual Property Group counsels clients in connection with their trademarks, copyrights, technology transactions and related matters throughout the world.