FROM FRESH CUP magazine
A lesson in coffee law: A little knowledge could save you a lot of money
By Donna Gordon Blankinship
In February, Starbucks filed suit in China to protect its Chinese name from being used by a little coffee company in Shanghai. Starbucks is using the rough translation of its name, “xingbake,” in 109 outlets in Taiwan and nearly 100 on the Chinese mainland. Shanghai Xingbake Coffee Shop Ltd has only two stores and does not plan to expand.
What does this story concerning the world’s largest coffee company doing business halfway around the world have to do with small and medium-sized companies in the United States? A lot more than you think. Copyright law, trademark concerns and licensing are all legal issues every retailer should understand enough to know when to call a lawyer. Intellectual property lawyers interviewed for this story say a little information could save you a lot of money and aggravation down the road.
At minimum, you need to know how to stay out of court. The biggest rule: Don’t name your company Starbucks or anything that sounds remotely like it. Insert any other coffee company you have ever heard of and apply the same rule. United States trademark law is quite specific and not that difficult to follow, but it requires some research on your part before choosing a name for your company. Even if you plan to only have one store and never expand beyond your neighborhood, it’s better to plan ahead for success, just in case it comes your way.
Consider the following: if you name your little neighborhood coffee stand Carbucks, for example, because you thought that would be a clever name for a drive-through, and someone who works for Starbucks passes your store one day or sees your ad in the neighborhood newspaper, you’ll be hearing from their lawyers in short order. Why would you want to spend any money defending your name in court, when you could avoid such hassles by being more careful in your name selection? By the way, you shouldn’t treat this article as legal advice. We can only try to help you understand the issues; for legal advice you must contact an attorney.
“For most people, the critical focus would be: are you stepping on somebody else’s trademark,” explains Patrick Dwyer of Patrick M. Dwyer PC, a law practice in Seattle. The standard for legality of a trademark is one of “confusing similarity” and not “indenticality,” so Dwyer says you must use all your creativity and resources in coming up with a proper name for your business. The trademark owner is considered as the custodian of the people’s right to not be confused.
Product names and blends can also be trademarked, as well as processing methods, according to Paul Gilles, vice president of operations at Portland Roasting in Portland, Ore. “One of the problems that retail shops make is that they don’t often consider that they really may succeed so that one shop in their neighborhood may become a chain,” says Gilles, who is an attorney and also has experience running his own coffee shops. “If you have a good concept, whether it be your shop name or whether you create your own product or a unique beverage … folks should be, at a minimum, weighing the cost benefit (of trademarking).”
Portland Roasting, a medium-sized roaster, includes the words “100% pure micro roasted coffee” as part of its logo. This expression, which they represents their commitment to quality and freshness (they only roast for the order, never warehousing the coffee) possibly could be trademarked but Portland Roasting has not registered it as a trademark and also has not registered any of its blends, according to Gilles. Other companies, however, have taken this additional step, which is expensive but can be helpful in trying to protect a product name.
In 1997, for example, Starbucks sought to enforce its trademark for its “Christmas Blend” to stop a small company based on an island near Seattle from selling a coffee blend with the same name. Starbucks eventually dropped the suit but not before getting a lot of press about the conflict. Enforcement is up to the company that owns the trademark, but having the legal right to use a name will make most of these conflicts pretty clear cut.
Gilles believes the value of registering your trademark and taking advantage of intellectual property laws far outweighs the effort or the expense of doing so, even though it can cost thousands of dollars in attorney fees to research and register one trademark. “The energy and the passion and the money you put into building your business can be significantly deteriorated by not having done that,” he adds.
The lawyers interviewed for this story all agreed that if you have any dreams of expansion, you should trademark your name as soon as your cash flow makes this financially feasible.
It’s expensive because you will undoubtedly need to hire an attorney to help you register your trademark. You can do some preliminary screening before you contact an attorney, however, and you should do this even if you won’t be able to afford the trademark registration just yet. Dwyer says your first clue about whether a name can be trademarked is: “If you have to ask, then it’s too similar.” Stay away from names that sound like something very well known. He says the best rule is to make sure your customer will think of you, not just coffee when they learn your name. Name your store after a family secret or your favorite pet. Keep in mind that you cannot buy exclusive rights to your personal name, any geographical name or any descriptive name like delicious. Avoid common names that promote pleasure or joy — they’ve all been trademarked already, if they are not too common to get a trademark.
State trademark registration is less expensive, but in today’s smaller world, it doesn’t seem to offer the protection necessary, according to Dwyer, who points out that you engage in interstate commerce every time someone from another state buys a cup of coffee at your store.
“Ninety percent of the work I do has to be with people making unfortunate choices about what name to use,” Dwyer says. “The No. 1 prevalent attitude is people just aren’t thinking about it at all. It’s just not good business to ignore that.”
You may be wondering if this issue is common in all industries, the surprising answer, according to Dwyer, is that name problems around trademark concerns is notably prevalent in the coffee industry.
A related issue is the use of other company’s brand names in your store, according to Jeffery Osterman, partner in Weil, Gotshal and Manges LLP of New York. It is perfectly OK to say you sell a certain brand of coffee, for example, but you have to be very careful not to imply that there is some sort of sponsorship.
“You’re perfectly free to tell people you are selling specific products. You have to do it so it doesn’t confuse consumers into thinking that somehow you are more authorized than you are,” Osterman explains.
Here’s an interesting story to illustrate this point. The National Football League has exclusive rights to the words “Super Bowl” and the NFL has worked hard to protect this trademark over the years. Stores that try to run “Super Bowl Sales” often receive a letter from the NFL’s lawyers saying they cannot use that trademarked name.
“The stronger a trademark is the broader range of goods and services it will protect,” Osterman says. “The strongest category is arbitrary or fanciful or just made up names” like Xerox or Kodak that become closely associated with the product they sell. For more information about trademark law, visit the Web site of the United States Patent and Trademark Office, www.uspto.gov
Another legal issue to concern yourself with is copyright law, which is somewhat related to trademark but other rules are involved. There are two reasons to be concerned about copyright when you own a small retail business. One concerns your marketing materials and advertisements, the other concerns playing music in your store.
What you need to know about advertising and marketing is that ad copy is protected by copyright laws. You cannot use other people’s copy without their permission. If you think someone is copying your ads, you should ask them to stop. The applies to your ad slogans and design as well as the detailed way you promote your business. You can register anything written on behalf of your business on the Library of Congress Web site for $30. Dwyer says this is your most effective legal protection because if you do find someone is treading on your territory, you can sue them and if you win they will have to pay your legal costs and also statutory damages with no proof that you were injured at all.
It’s also possible to protect your copyright without registering it, Dwyer adds, but the legal statutes are less clear and you would have to prove that you were injured and how much you were injured and you would not recover attorney fees. Copyright lasts the lifetime of the author or creator plus $75 years.
One of the most common ways a retail establishment breaks the law is by playing music in the store without proper licensing or permission. The laws on this issue are rather complicated, but according Osterman, there are a few key areas to keep in mind.
Copyright law protects the public performance of musical compositions. Ordinarily the public performance requires a license, but 5 or 10 years ago, Congress exempted out certain kinds of retail establishments for playing radio broadcasts and TV shows. The exemptions involve how big the store is. If your store contains less than 3,750 gross square feet and has no more than six loudspeakers and no more than four in one room, you can put the radio on in your store without a license.
Osterman adds, however, there are no exemptions for playing CDs or other recorded music in your store without a license. That is why there is a whole industry called the background music industry, which negotiates the rights to be able to let their customers play music. Surely you’ve heard of Musak? Well, that company and its sisters were born of necessity. If you currently play CDs on your store stereo, turn on the radio or get a license. Don’t wait around to be caught.
Copyright also protects “expressive creative works,” which covers a board range from how your menu is laid out to your Web site and even the interior design of your store. For more information on the copyright law, visit the Web site of the U.S. Copyright office, http://lcweb.loc.gov/copyright.
Osterman says the Supreme Court ruled a few years ago on the issue of copying a restaurant’s look and feel. “The Supreme Court said you could have protection – trade dress rights — if it turns out that consumers associate that look and feel with you,” he says. “You shouldn’t go out and retain someone to recreate the interior of Starbucks. They might claim that they have trade dress rights.”
On that note, we’ll end this story with the legal issues surrounding licensing, which is when coffee companies actually pay you to recreate their “look and feel” in a location where they normally wouldn’t do business, such as an airport or as part of a university food service. Peet’s Coffee & Tea of Berkeley, Calif., which calls itself “The grandfather of specialty coffees” since it was founded in 1966, is also one of the grandfathers of coffee law. Most of the time when you experience some freshly brewed Peet’s Coffee it will be in a Peet’s Coffee bar, but the fact that most customers are unaware of is that Peet’s also has partnership agreements with Larry’s Market in Seattle, Safeway around the country, and has also been doing licensing with campus and airport food services to expand their reach and serve their customers away from “home.”
According to Bill Lilla, executive vice president of food service for the company, says they have been involved with licensing for about three years with a selected list of partners who can give “their guests” an experience identical to visiting a Peet’s Coffee bar. “We only do licensing where we don’t have options to control the environment” like in an airport or food service at a university, he says.
“There are difficulties when you do licensing,” Lilla adds. “It’s always important to make sure the partner fully understands your expectations. Our customers are very demanding of Peet’s. They have expectations.”
In addition to the financial benefits of licensing — he calls customers in airports “captive” and therefore a good market for a specialty coffee company — there’s a long-range potential benefit of building a loyal customer base in new places. IN the future, Lilla expects to make licensing agreements with entertainment complexes, health care centers, hospital food courts, etc. “We’re all waiting for the first coffee shop on mars. I think that’s going to happen in our lifetime,” he adds, only partially in jest.
As with all the legal issues discussed in this article, attorneys are a necessary part of any licensing agreement.
“If you’re a small company, for almost anything that involves potential legal hassles, its not going to be worth the trouble to fight. It’s difficult to be too conservative when it comes to intellectual property law,” Osterman says.