In these straitened economic times, it can be tempting for brand owners to try to extend the revenue-raising potential of a successful trademark to a whole new range of products and services. But when and how should IP owners venture into brand extensions? In session CT21—The Living Brand: Borderless Extensions Limited Only by the Imagination, panelists will explain how in-house counsel can help successfully leverage a trademark’s value and the trust that consumers have in the brand to give the business a head start against the competition.
Mona Lee of Hanol Law Offices, John Joseph Cheek of Caterpillar Inc., Michelle Landy of FremantleMedia Enterprises (Americas) and Alison Tan, The Procter & Gamble Company will discuss what works (and what doesn’t) and the factors brand owners should take into account when deciding whether to extend their brands.
Brand extension examples
The panelists have plenty of examples to share: Caterpillar Inc. branched out from its core heavy machinery business into apparel by licensing its brand to footwear maker Wolverine Worldwide in the mid-1990s. Now revenues from its footwear business alone reach close to US$1 billion. That’s around one-sixtieth of the money Caterpillar pulls in from selling diggers and loaders but it still amounts to a revenue stream that many companies would envy. Entertainment company FremantleMedia Enterprises has bet on its AMERICAN IDOL trademark, extending it into a summer camp business and an attraction at the Walt Disney World Resort in Florida that gives would-be singing stars the chance to audition for a version of the show at the resort. FMCG company Procter & Gamble has extended two of its household cleaning and laundry detergent brands under a franchise model: launching Tide Dry Cleaners and Mr. Clean Car Wash.
The advantages of extending a brand are unmistakable. “It’s clear that there is money to be made,” says Cheek. But the list of positives goes beyond a simple profit and loss account. Caterpillar’s lawyer says it also spreads awareness of a brand. “From a legal perspective, the more avenues that you have to consumers, the greater the chances that your mark is well known—and that can lead to greater protection in those countries that recognize famous marks.” Another key reason for extending the brand is that if you don’t, someone else might. “If we sell clothes under the CAT trademark then no one else can,” says Cheek.
But there are also obvious—and not so obvious—downsides. Taking a well-respected brand and applying it to a new business is a risky strategy. If the new venture fails to live up to the brand promise—or flops altogether—it tarnishes the trademark. “You have to control the way you manage your mark very closely because it is valuable. You can’t afford for a brand extension to mess it up,” says Lee.
Practical problems
IP owners might also face practical problems if they want to sell a business marketed under the same trademark as their core operations. Unlike a company with dozens of brands that can be spun out and sold with little impact on the retained businesses, companies that have extended one mark into many areas could find it difficult to divest just one part of the business. Do they license their mark, for example, or do they simply sell the physical assets of the extended business without the right to use the trademark?
Finally, brand extensions can cause registration problems for the business’s trademark attorneys. Cheek says that Caterpillar operates a vigilant watching program for its marks and has successfully limited what trademarks third parties can register within classes relevant to its long-standing heavy machinery business. As a result, he says, the company has developed what he calls a “keep quiet” space around its marks in those classes where its traditional business operations are registered. “When you extend your brand you typically haven’t established that space. When you make that leap you might land in a spot that already had people in before you, or where bad faith registrants might have anticipated you would get to.”
So what advice will the panelists be giving to other in-house counsel? Be open to brand extension ideas but be aware of the reputational and legal risks. “Brilliant marketing minds are often like that because they don’t think like lawyers,” says Cheek. Ensure that the extended business lives up to the brand promise of the core trademark through a system of strict licensing and closely controlled pre-approval for the way a mark is used. Invest heavily in registering the trademark in new classes in as many jurisdictions as you can afford when you launch a new product. That way will you will reduce the risk of trademark squatters anticipating your expansion plans. Finally, enjoy it: “Brand extension work is really neat for trademark lawyers,” says Cheek. “It drives variety in the issues that we deal with. Otherwise I would just see the same issues over and over for tractors.”
