It is a situation we see repeated all too often. A successful small business owner is considering a major expansion – either by franchising or by opening more company-owned offices. The business has many of the key ingredients for success. However, as we investigate the trademarks of the business, we learn of potential problems.

For example, suppose the business is a theme restaurant with three locations, all company-owned and local. All locations use the same trademark – MR. MIRLITON’S. The phrase MR. MIRLITON’S is accompanied by a drawing of a man in the shape of a mirliton. For those of you who are not familiar with the mirliton, it is a vegetable with a taste similar to a zucchini. It is also called a mango squash or vegetable pear. Our little mirliton character is stirring a pot of food and has a chef’s hat. The face on our “Mirliton Man” bears a strong resemblance to the restaurant’s founder and owner. The Mirliton Man and the trademark MR. MIRLITON’S are prominently featured in the signage, menus, and advertisements for the restaurants.

We ask the client how he came up with the name and the Mirliton Man design. He tells us that when he started the restaurant his son’s girlfriend offered to help. She was a college student at the time, majoring in marketing and advertising, and she also did some graphic design work. She drew the mirliton character. The idea for the name MR. MIRLITON’S was a joint idea of the founder, his son, and the girlfriend. A mirliton recipe was one of the signature dishes and they all thought it would be neat to have a name that included the word “mirliton.” The girlfriend did the character for free; nothing was ever put in writing. The founder says he would always let her and her friends eat for free at the restaurant. She and the son broke up about two years after the third location opened and our clients are not sure where she is.

Does our client have a problem going forward with his ambitious plan to expand through franchising? He very well might. Trademark rights are acquired by use. Because the girlfriend never used MR. MIRLITON’S or the Mirliton Man character as a trademark, she cannot have any rights in the name or design based on trademark law.

The problem is the copyright. There is no copyright protection in single words or short phrases. Therefore, the girlfriend cannot claim to own the restaurant name — MR. MIRLITON’S – even if she was the only person to think of it. However, original designs, such as the Mirliton Man character, are protected by copyright. The girlfriend, as author, owned the design of the creator. Even if the client had paid her, unless the ownership was transferred in writing, the ownership remains with her. So what kind of rights did the client get? The client has a license to the design. Copyright licenses do not have to be in writing, they can even be implied from conduct. And there is the problem. It is probably reasonable for us to assume that the implied license allowed the client to use the design for the three current locations. However, if the franchising plan goes forward the girlfriend may claim the increased use is beyond the scope of the implied license.

What is the best way to address this problem? The prudent course of action is to find the girlfriend and have her execute an assignment that clearly transfers the copyright ownership in the Mirliton Man design to the client. Even if she demands money, a reasonable amount paid now will probably be less than the attorney’s fees or damages that could be incurred in litigation. If we ignore the potential problem and press on, and the girlfriend sees the franchise have wild success, she may demand a higher amount. If she cannot be found, we can send a letter to her last known address. The letter would state we believe that the license granted long ago includes the right to use the design on an unlimited number of locations, and the right to sub-license franchises to use the mark. Such a well-documented letter would show that the client acted prudently in case the girlfriend later appears and files suit.

The lesson learned here is an obvious one. Even with a small business, make sure you have the necessary rights to the intellectual property that is a key part of your business.

More on the proactive protection of trademarks, copyrights, and trade secrets.