Changing Names: The Perils of Rebranding
Whether by design or decree, rebranding a business is beset with challenges, finds Tom Phillips.
When Muzmatch, Ltd. (UK), a dating app for Muslims, lost the right to use its name in April 2022, its founder and CEO called it “heartbreaking.”
Shahzad Younas, who in 11 years built up a six million-strong membership, became a target of legal action by Match Group, Inc. (US) and a casualty of an ultra-competitive industry.
In its case heard before the London High Court, Match Group, Inc., which owns a portfolio of dating apps, including Tinder, complained that consumers would mistakenly assume Muzmatch, Ltd. was a “sub-brand” specifically targeted at Muslim users because of its use of “match” in its name.
Muzmatch, Ltd. is considering an appeal, according to company statements. But if that fails, the company will have to rebrand—a move that will create unwanted uncertainty over its future success.
Creating and building a brand takes a huge amount of time, work, and money, so switching to a new name has the potential to unwind all that effort.
Muzmatch, Ltd.’s story is unusual: successful trademark oppositions against brands that big are rare (the company has raised US $9 million in funding). But Muzmatch’s ability to attract investment and its user database belies its age, and as a company founded in 2015, which has grown to 65 employees, it is still counted as a startup among its competitors.
In their enthusiasm to raise funding and promote their ideas and products, small- and medium-sized enterprises may leave brand strategy lower down on the list of considerations, explained Roman Brtka, partner at Bird & Bird, LLP (Germany). This is a mistake, he warned.
“When third parties invoke earlier rights against a startup’s trademarks or signs, it can, in the long run, threaten the whole business. This might not only result in time-consuming and costly litigation, but also in financially burdensome rebranding measures,” said Mr. Brtka.
More typical reasons for a brand to rename stem from legal or organizational changes (like a company reorganization, merger, or acquisition) or cultural or societal considerations, including a desire to update a brand to reflect a new direction, attract a new set of customers, or reflect cultural sensitivities.
The most highly publicized recent rebrand was Facebook, Inc. (US), which switched its name to Meta Platforms, Inc. (operating as Meta) in late 2021. The change caught most analysts and users alike by surprise and was accompanied by a new direction for the company.
Also interesting about this rebrand was the success the company had in keeping it almost entirely secret prior to launch. For a brand as well-known and closely watched as Facebook, even its intellectual property (IP) applications are news.
But Samantha Grainger, principal and legal consultant, and head of the Dubai Trade Mark Group at Rouse (United Arab Emirates), said businesses have options if they want to keep a planned rebrand under wraps until they are ready to disclose.
“When looking for a mark to rename to, as with all major trademark projects, careful trademark clearance and due diligence must be conducted.”
Valentina Nieß, Noerr (Germany)
“One strategy to consider is to file the application in the name of a stealth entity to establish priority rights and protect its IP rights. When the time is right, the registration can then be assigned or licensed to the business before making a rebranding announcement,” explained Ms. Grainger, who also recommends the use of confidentiality agreements across the board to minimize risks of leaks.
In addition, Valentina Nieß, counsel, Noerr (Germany), recommended limiting the number of people involved in the naming projects and insisting all external designers and contractors sign strict non-disclosure agreements.
The trademark applications themselves can be made under a different name or filed internationally, later claiming priority under the Paris Convention, she said.
“Acquiring already existing trademarks registered for the goods in question from third parties that have (longstanding) priority may also prove a viable possibility,” Ms. Nieß added.
Meta, with deep pockets, has already employed this strategy. It was widely reported that the company was behind a US $60 million deal to acquire the trademark rights of holding company, Meta Financial Group, Inc. (US).
Risks of Rebranding
There are other risks that companies should also weigh when considering rebranding. The biggest is a loss of authenticity, said Sonia Katyal, Distinguished Haas Professor, co-director, Berkeley Center for Law and Technology, University of California, Berkeley (US), is co-authoring an empirical study on company rebranding over the last 20 years, looking at their motivations and the impact of social media and social justice on their decision.
The importance of being authentic is greater following social movements, such as Black Lives Matter, and brands ignore this at their peril, she warned.
“There is a growing constituency of stakeholders, particularly younger consumers, who tend to be markedly influenced by a desire for authenticity and cultural sensitivity.
“Consumers are more skeptical than ever before, and therefore harder to connect with. So rebrands that are seen as merely cosmetic—or that fail to take into account the need to really connect with a larger group of consumers to keep up with the changing times—risk coming across as inauthentic,” said Ms. Katyal.
In Ms. Nieß’s view, renaming a company or its main product is a bold move “under any circumstances.” There is the risk of losing historic goodwill associated with the prior trademark, and customers unwilling to accept the new brand, she said.
There are ways to mitigate these risks, however. For instance, companies can maintain familiar elements, such as a color scheme or specific part of a logo, and they can consider gradually building up use of a new brand by first using it as a sub-brand for a specific collection or product line.
“This also allows to test the market for a promising consumer response before heavily investing in advertising or manufacturing under the new name,” she added.
“When third parties invoke earlier rights against a startup’s trademarks or signs, it can, in the long run, threaten the whole business.”
Roman Brtka, Bird & Bird, LLP (Germany)
When the Worst Happens
It goes without saying that no company would want to face a forced rebranding. This holds especially true for startups, which would more keenly feel the legal costs associated with such litigation.
According to Flavia Ștefura, senior associate at MPR Partners (Romania): “The first steps to avoiding trademark infringement would be best taken at the very setting up of the business, when a trademark clearance due diligence should be undertaken.
“When choosing a name, logo, or image as the building blocks for a brand, aside from checking what already exists in the market, a business may consider registering it as a trademark before extensively investing into it.”
Generally, any non-voluntary rebranding is challenging and may involve “losing customers and goodwill” associated with the former mark, said Magnus Greaker, partner at Advokatfirmaet Thommessen AS (Norway).
“Therefore, it is crucial to carry out a proper freedom-to-operate analysis before picking a brand/trademark to ensure that the use of the brand will not infringe the trademark rights of third parties,” he added.
Mr. Brtka said companies undergoing a rebrand should try to choose a name that clearly distinguishes their business and products from others.
Startups should also focus on other kinds of IP. Another quick and often cost-efficient way to protect a brand is to file designs—for example, logos or the look or the appearance of the business, such as the design of showrooms or websites.
All these hold advantages for startups that do not yet have a clear brand strategy, he added.
Ms. Katyal said the best rebranding advice is to do what may be hardest: to shift toward engaging more deeply with a much wider group of diverse, younger consumers than a company may have initially envisioned.
When taking this new direction, she said, “trademark lawyers operate at the epicenter of this connection.”
“They can play a leadership role in making sure that a rebrand is more than just cosmetic—by ensuring that a brand immediately transitions away from selling racially insensitive merchandise, or by figuring out strategic ways to build partnerships and support constituencies that have been previously overlooked,” explained Ms. Katyal.
She added: “By looking to ways to engage more deeply with the public, or to collaborate with new partners, a rebrand can be much more than just cosmetic, and can signify a broader, exciting new direction.”
Video courtesy of Adobe Stock / Nailstocker
Tuesday, May 3, 2022
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