When a hedge fund or private equity fund is initially formed, its reputation is inextricably linked to that of its founders. As with any successful business, however, the value of hedge and private equity fund names over time will evolve from the goodwill and reputation that they have developed, distinct from the founder’s individual reputation. To maximize this value, hedge and private equity funds would be best served to plan and execute a tailored trademark strategy to successfully brand their company and fund names.
A well-developed trademark strategy begins by selecting a name that is protectable, differentiates you from your competitors, communicates your core message, and avoids violating the rights of others. While investment advisers and management companies of hedge and private equity funds often don’t think about trademarks outside of the valuation of investment opportunities for their clients, creating and protecting your own intellectual property will benefit you as you strive to build your reputation, mature beyond the first generation of founders and/or position yourself for growth through strategic acquisitions, sale or investments. Whether you are in the process of organizing a fund or have been operating for years, trademark issues should be considered and tailored alongside other operational and legal risk assessments.
Select management company and fund names that are distinct, build on a common term, and/or are associated with a theme distinguish you in the marketplace and position you as a cogent brand. For example, building a family of funds around the term “Athena,” the Greek goddess of wisdom, would associate these positive attributes with your funds. Using “Athena Capital Management GP” for the general partner name, “Athena Capital Management LLC” for the investment adviser’s name, and fund names such as “Athena Master Fund” and “Athena Overseas Fund” unify your various entities and funds, and immediately communicates to investors that all of the funds emanate from the same source. Selecting a unique theme, such as Indian spice names for a fund dedicated to Indian investments, would have a similar effect.
A descriptive term is a term that directly describes a characteristic or quality of the underlying product or service. For example, “All Bran” for cereal, and “The Children’s Place” for a kids’ clothing store, are both legally descriptive because they immediately convey information about the goods/services being sold. Words like “Best” and “Ultimate” are also descriptive in that they indicate a quality of goods/services, rather than identify their source. Likewise, in the example “Bank of Boston," "Bank” is descriptive and “Boston” is geographically descriptive (rendering the mark as a whole descriptive), because these terms immediately communicate aspects of the underlying services, namely banking services from Massachusetts.
Descriptive marks are attractive from a marketing perspective, as consumers know precisely what is being offered without the seller needing to educate them. However, from a legal perspective, descriptive marks are accorded limited protection because the law does not permit one party to monopolize a term that others need to use. In this regard, descriptive marks can be registered as trademarks only after they have acquired recognition by consumers, known as “secondary meaning.” Even then, similar marks will be permitted to exist so long as the marks are far enough away to avoid confusion. By way of example, “Home Depot” and “Office Depot” are both legally descriptive marks in that they immediately communicate information about the stores (i.e., a “Depot” for “Home/Office” goods). While these marks are protectable because they have been used and advertised to such an extent that consumers associate each term with only one source, the scope of protection for each mark is limited such that the other, unrelated mark, is permitted to coexist. Similarly, “Boston Private Bank & Trust Company” is unrelated to “Bank of Boston” referenced above, yet both coexist in the banking space.
It goes without saying that funds want to use descriptive terms such as “Partners,” “Value Fund” and “Global Equity Fund” to communicate placement in the fund’s structure (in the case of “Partners”) or to identify the focus of the fund (in the case of “Value Fund” and “Global Equity Fund”). To optimize your brand value, however, it is best to incorporate a distinctive term to distinguish your company/funds from others. The level of protection accorded to this additional term will depend in significant part on the composition of the term itself.
More specifically, a made up term, known legally as a “fanciful” term – such as “Drillogy” for funds dedicated to oil investments – would be most protectable, in that such term did not exist before you created it (think “Xerox” and “Kleenex”). A term that exists already but is unrelated to hedge funds, known legally as an “arbitrary” term – such as “Peacock” for a family of funds having nothing to do with birds – also has a high level of protection, in that while you couldn’t stop use of the term for its actual meaning, you could stop others’ use in your unrelated field (think “Apple” for computers). A term that communicates something about the underlying services but requires imagination to get there, known legally as a “suggestive” term – such as “Safari” for a fund dedicated to African investments – is accorded less protection than a fanciful or arbitrary term, though still more protection than a descriptive term. When selecting a mark, these categories should be kept in mind, as they directly impact the strength and enforceability of your mark.
Once you find a term you like, you should determine whether any third parties are using an identical or substantially similar term for the same or related services in the U.S. If you plan to use your mark internationally, e.g., by operating a fund abroad or securing investments abroad, you would be best served to search your mark in the countries in which these activities are expected to occur. Considering international markets early will avoid your building up goodwill and reputation in a mark in the U.S., only to discover years later that you cannot use or register it abroad and thus need to curb your expansion or expand under a different name.
A trademark search is conducted through counsel, with the underlying report generated by an outside search company. Since SEC regulations and the private nature of funds often renders information on funds hard to find, a trademark search is useful in that it provides a comprehensive listing of available information from which counsel may analyze the level of risk presented by prior third-party marks or company names. A trademark search garners information from U.S. and state trademark registers, domain name registries, industry directories, and Internet databases. This process enables counsel to quantify the risk of selecting a particular mark and permits you to make an informed business decision as to how to proceed. Counsel would then work with you to tweak your name/mark to minimize risk, or may guide you to choose an alternative name/mark altogether. While changing course is never welcomed, doing so before you build a reputation is better than needing to defend a lawsuit and/or change your name once it’s already known in the industry. If the risk identified by the trademark search is deemed reasonable, federal trademark registration should be sought.
Federal registration of a trademark provides many advantages and is a valuable tool to combat infringement by third parties. For example, a federal trademark registration (1) grants the exclusive, nationwide right to use the registered mark with the goods/services identified in the registration; (2) establishes the presumption that the registrant is the owner of the mark and that the mark is valid; (3) permits the mark to be included in the U.S. Patent and Trademark Office (“PTO”) records, making it more likely that third parties will have notice of the mark and therefore not adopt a similar mark; (4) provides a basis to sue for federal trademark infringement; (5) provides a basis to assert rights against a domain name similar to the registered trademark; (6) assists enforcement efforts by establishing credibility; and (7) adds value to the registrant by creating an appreciable asset.
Without a federal registration, your company would have at most “common law rights” in its name/mark(s), which rights must be established through evidence of use. Common law rights are limited to the geographic region in which they are known, which may have practical implications for funds whose reputations are not known nationwide. For example, if you manage a fund in Connecticut and are not known in California, it would be difficult for you to prevent operation of a California fund under a similar name. Likewise, your expansion to California could be precluded in light of the California fund’s prior rights in that region. If you own a federal registration, nationwide rights are presumed and reputation need not be proven.
U.S. trademark law permits a trademark application to be filed based on an “intent to use the mark in commerce.” As such, it is possible – and advisable – to apply to register company and fund names before a fund is launched, so as to stake your ground. That said, for a U.S. applicant to perfect its application into a registration, the applicant must show that the mark is in use in interstate commerce. Documented proof of use must be submitted to the PTO, which documentation becomes publicly available on the PTO’s website.
Funds use marks in a number of ways that constitute cognizable trademark use, including in connection with offering memoranda, monthly letters to investors, and materials distributed to potential investors. In light of the public disclosure of these documents upon submission to the PTO, special attention should be paid to redacting any information (e.g., index comparisons) that you do not want to be publicly available.
A fund’s reputation is one of its most significant assets. While you rely on your managers to maintain that reputation through performance, choosing distinct and protectable names and marks for your company and funds can distinguish you from competitors, and solidly position you in the minds of investors, potential investors and the industry. You strongly protect your investors’ assets. You should also protect your own.
Erica D. Klein is a Partner in the Intellectual Property and Technology Law Department at Kramer Levin. Carole Klinger assisted in the preparation of this article.