Why hedge funds should take time to look after their trademarks

It is no secret that the protection of brand names or trademarks is often overlooked or made a lower business priority at many companies, including those in the hedge fund industry. One reason for this problem is that many people believe that trademarks are solely for consumer products and services, such as REEBOK for footwear or COCA-COLA for soft drinks. However, companies such as Coca-Cola, Exxon, Microsoft, Aetna and Merrill Lynch have corporate names that add value to their companies by functioning as strong, protectable trademarks.

A trademark or service mark is any word, name, symbol or device used by a person or entity to identify and distinguish goods or services, and to indicate their source. In other words, if the industry and investors think of a fund or management company name and make a connection with that company’s financial or investment services, this is likely a trademark and one that needs to be protected, defended and enforced. Doing this will help create goodwill, which can result in consumer recognition that financial products or services coming from a particular company are ones can be trusted. In a field where risk is part of the game, gaining consumer confidence through brand recognition can only help a business’s goals. Often fund managers may not think of their management companies or fund names as trademarks because they do not advertise their services in the traditional sense. However, advertising is not required to obtain or maintain trademark rights. All that is required is the use of the mark in commerce.

Hedge funds use marks in a number of ways, including in connection with offering
memoranda, monthly statements to investors and materials distributed to interested investors. Such use can, and has been, considered use in commerce for the purposes of obtaining a trademark registration. Moreover, a hedge fund name may be exposed to the relevant trade and public through unsolicited publicity, such as in industry publications, which is one way that hedge funds and other alternative investments can gain exposure. For example, industry publications frequently use rankings and comparisons that list numerous competing hedge funds and other investments. In these publications, the name of a hedge fund often is also acting as a brand - one that must be chosen carefully and protected.

Once it is understood that an investment vehicle name can also act as a trademark, the next step is to choose the right name, which is not as easy as it may sound. When choosing a name, it is important to consider where a mark falls along the so-called ‘spectrum of trademarks’, which governs how strong a mark is relative to other marks.

Obviously, the stronger the mark, the easier it will be to protect. At the stronger end of the spectrum are fanciful and arbitrary marks, followed by suggestive ones and then descriptive ones, which are the weakest category. Illustrative examples of these types of marks include the following:

• Fanciful – these are the strongest of marks and the most easily protected. They are concocted words or phrases that have no meaning in known parlance, such as EXXON or XEROX.

• Arbitrary – these are also strong and protectabe. An arbitrary mark is a known word or phrase whose use is incongruous to the goods or services being sold, such as APPLE for computers or CAMEL for cigarettes.

• Suggestive - these are strong and protectable marks, but not as strong as arbitrary or fanciful ones. They are words or phrases in which the consumer has a hint or clue about the goods or services to which the mark applies, but must make some mental leap to get there, such as COPPERTONE for sunscreen.

• Descriptive - these marks can be protectable if consumers are shown to associate them exclusively with a single source; however, this can sometimes be hard to do.

An inherent conflict exists at times between those choosing a mark (eg, the hedge fund management company) and those wanting to protect it (eg, in-house and outside lawyers). Companies often want to choose names so that consumers will know exactly to what the name refers, such as Raisin Bran for a bran cereal with raisins or Health Fund for a fund investing in the field of healthcare.

While these names may seem good to use from an ease of marketing standpoint, from a
trademark standpoint they provide little protection and are often hard to enforce. A trademark practitioner can advise on the strength a mark is likely to have in the marketplace.

Once a company has selected a trademark, the next step is to make sure that there are no conflicts with third parties which may be using the same or a similar mark. In the United States, it is a common misconception that if a company name is available with the secretary of state of the state in which the company is incorporating, it is available for use

This often results in a company having to change its name, depending upon the third-party challenges it meets, as registration with a particular state is not a defence to trademark infringement. Rather, clearance with the secretary of state of a particular state typically means only that no third party has filed for an identical name in that state alone. For instance, a particular state may allow the company name Hedge Fund, Inc, even though there is already a Hedge Fund LLC, because the two names are not identical. Certainly, this could cause significant problems in the marketplace if the only difference between two names is the company status.

The process of searching for and clearing a trademark can be particularly involved for hedge funds and other alternative investments because of the global nature of these types of services and the traditional offshore incorporation that is typically involved. Thus, it is recommended that a fund’s counsel search not only the traditional areas, such as the register and secretary of state records, but also other resources where competing hedge fund names might turn up, such as the US Patent and Trademark Office (PTO), the Cayman Islands Monetary Authority, industry publications and the Internet.

After the mark is evaluated by a trademark practitioner, it may be ready for filing with the PTO and in any other jurisdiction in which a company actively conducts (or may conduct) business. The end goal of this process is to have a mark that the company can easily protect from any junior user which may, intentionally or unintentionally, try to ride on the company's coat tails, as happens time after time.

If the fund is already established, it may be possible to avoid some of the rigours of the
clearance process for new marks. Nevertheless, it is still important to protect the mark by:

• searching for it to determine what kind and number of similar third-party names exist;

• registering it; and

• guarding it against unauthorised use.

Protecting a valuable name is as important as picking the right name and may include
monitoring industry publications on a regular basis for similar names, conducting periodic searches on the Internet, sending out legal letters requesting infringers to cease and desist and, when necessary, initiating legal action to prevent others from using the name. It would make little sense for companies such as hedge funds, whose goal is usually to make money no matter what the markets do, to have to spend time and money embroiled in legal battles over a company name. Litigation battles over trademarks are not where companies should be taking risks, particularly when, with some homework and good counsel, it is possible to avoid or minimise any problems before they surface. The time and effort spent on protecting, defending and enforcing a company’s mark will be well worth the investment.

This article first appeared in Hedgeweek on March 19 2007.


This is an insight article whose content has not been commissioned or written by the IAM editorial team, but which has been proofed and edited to run in accordance with the IAM style guide.

Unlock unlimited access to all IAM content