The Difference Between a Trade Name and a Trademark and Why You Should Care

Small businesses often confuse trade names with trademarks. Specifically, many companies incorrectly assume that once they have chosen a business name and registered that name with their state of incorporation, they have unlimited rights to the name in connection with their business. This is a dangerous assumption and can be so costly it can literally sink a business.

Importantly, registering a trade name does not provide any trademark rights to a registrant whatsoever, and trademark rights (the rights to use something to identify goods/services and distinguish them from competitors’ goods/services) are important: they are a big portion of what allows businesses to build value beyond the actual value of their physical assets. 

To help you avoid the problems associated with misunderstanding your rights, I will try to succinctly explain the role of trade names, how they differ from trademarks, and the problems that merely relying on trade names can cause.

WHAT IS A TRADE NAME AND WHEN CAN IT BE USED?

A trade name is the name under which a company does business. A company may use a trade name for banking, billing, identification (e.g. yellow pages listing), and tax purposes.

There are two types of names a company may use for these purposes:

1. The name provided with the state upon registration as an entity;
2. An "assumed" name, which differs from the name provide with the state upon registration and must be registered with the state separately (you can register many "assumed" names with a state).

Selecting a trade name is not a complicated process and states do not subject businesses to rigorous criteria when approving these names. To the extent that state governments use any criteria at all to reject a name, it is often a matter of ensuring that the business does not misrepresent its industry (e.g. a grocery store using "bank" in the name) or duplicate an existing entity in that state. While procedures vary from state to state, the key point is that state governments never evaluate a trade name as a prospective trademark.

HOW CAN RELIANCE ON TRADE NAMES GET A BUSINESS IN TROUBLE?

Some businesses assume that a registered name gives them the right to use that name for any purpose related to the business. However, when the business is using its trade name to identify its products or services, then the name is functioning as a trademark, and trademark law must be considered. A company has a legal right to use a name as a trademark only to the extent that it does not infringe upon existing trademarks (or dilute famous trademarks). Keeping others from using confusingly similar names in the future also requires steps such as trademark registration and diligent monitoring and defense of your trademark portfolio.

WHEN DOES A TRADE NAME INFRINGE UPON A TRADEMARK?

Infringement is not always obvious. If your name is sufficiently similar to a registered trademark such that it causes "a likelihood of customer confusion", you could be in trouble. You might ultimately have to change your name, spend money on corrective advertising or even pay for the lost profits of the holder of the registered mark, among other things.

Because of these possible complications, your company should establish a relationship with a good trademark attorney who can help you steer clear of infringement before it takes a costly toll on your business. If you plan on using a name as a trademark, you should first research the name for potential conflicts and register the name as a trademark with the appropriate entities.