Sid Blum had been running his own firm, GreenLight Fee Only Advisors, for more than three years when in April he received a threatening legal letter from Greenlight Capital Inc., the hedge fund led by legendary short-seller David Einhorn.
Mr. Einhorn's firm — which has more than $6 billion in assets and is well-known for publicly attacking and shorting the stock of Lehman Brothers Holdings Inc. prior to the investment bank's collapse in 2008 — had trademarked the name Greenlight Capital Inc. and in the letter ordered Mr. Blum to stop using the GreenLight moniker. The hedge fund followed up by filing a lawsuit in May. Greenlight Capital declined to comment.
The misstep cost Mr. Blum's firm $10,000 in legal fees. And as part of a settlement reached in July, he agreed to change the name of the firm, which has $15 million in assets, to GreatLight Fee Only Advisors LLC.
All too often, advisers start businesses and complete an initial investigation when naming their firms but miss companies with similar names in related industries, according to trademark attorneys and industry experts.
RECIPE FOR FAILURE
“People don't understand how much work there is to start a new business,” said Stevan Lieberman, an attorney with the intellectual-property law firm Greenberg & Lieberman LLC. “If they're going to do it, they better do it right or they're setting themselves up for failure.”
The first step is to search the electronic system at the U.S. Patent and Trademark Office's website (don't count on Google). But a search for matches isn't sufficient — advisers need to search for similar names, not just the exact name they intend to use.
It's also possible that another firm is using a name, or a “mark,” but didn't file it with the trademark office.
Under U.S. trademark law, a person who uses the mark first has the right to use it even if they haven't filed it with the trademark office.
“Let's say someone is using the mark but hasn't filed anywhere,” said Corey Kupfer, a chief strategist and attorney with MarketCounsel LLC, which works with 800 advisory firms. “They still have common-law trademark be-cause we're a first-use jurisdiction. Whoever uses it first gets it.”
Advisers should search to see if the name has been registered by any of the states, Mr. Kupfer said. Advisers may have filed the name with their state, and assumed that if they got the OK, the name is available.
In Mr. Blum's case, he checked with the state of Illinois and also completed some Google searches but didn't find the hedge fund company in those searches.
“It was a headache. It just comes out of nowhere,” he said. “It's not something you expected or something you would have thought of. Then you're in the middle of it dealing with it every day.”
He was fortunate that his firm's errors-and-omissions-insurance policy covered the bulk of the legal fees. But he's not taking any chances this time. After his firm settled the suit with the hedge fund company, he filed a trademark for GreatLight Fee Only Advisors.
The number of trademark lawsuits has increased significantly in recent years because of the Internet, MarketCounsel's Mr. Kupfer said. “Years ago, if you were operating in Illinois and someone in New York had a similar name, there was a lot less chance you'd even hear about them. Now everyone has a website, and everyone's easily found.”
Attorneys said that companies such as Greenlight Capital have a responsibility to police their marks and make sure no one is using them.
“If you just sit there and a number of other people are using similar marks and you don't stop them, then you'll lose your rights,” Mr. Kupfer said.
In fact, the research to determine if a name is available has become so cumbersome that advisers are advised to get legal help from the beginning.
Looking for names on the trademark list was cumbersome for Owen H. Malcolm, senior vice president and chief operating officer of Sanders Financial Management, which has $160 million in assets.
Founder Emily Sanders named the firm Sanders International, but Mr. Malcolm said they decided to change the name to reflect the advisory focus.
They spent several months looking through the trademark database and had considered the name Monix, but it already was being used. Every other name they considered was already taken.
“We would have had to come up with a really bizarre name, but we're not in a business where we can have a really bizarre name,” Mr. Malcolm said. The firm kept its original name.
Kirk Kinder, adviser and owner of Picket Fence Financial, wanted a unique name for his firm, which manages about $15 million in assets. He chose Picket Fence because it symbolizes the American dream of homeownership.
He still hasn't trademarked the name.
“I think I could legally block anyone else since it has been in creation for a few years,” he said. “But I may revisit this issue soon.”
E-mail Lisa Shidler at firstname.lastname@example.org.