The risks of building a brand you don’t own

Zuru owners Nick Mowbray (left), Anna Mowbray, Mat Mowbray

Sometimes young companies run so fast and with such energy that they forget to do the basics, such as asking if they own their brand name.

Coming up with a name for a business can be just as difficult as choosing a book title or a rock group’s name. Whatever you choose, it better be good because it’s tough to change once customers start to recognise it.

Unfortunately, most of the good dictionary words are already under trade mark protection. That’s why companies often have crazy-sounding brand names that have barely anything to do with English. They certainly catch the public’s eye, but invented words require a lot more marketing investment before they catch on.

Nick Mowbray, co-founder of one of the world’s biggest toy companies Zuru (along with his brother Mat and sister Anna), was reminiscing on LinkedIn about when the business used to be called “Guru.”

At the time, the Guru name made a lot of sense. It refers to a person who is widely considered an expert and to whom people travel for advice and insight. What a great name for a company full of engineers and manufacturers!

But it wasn’t to be. It turned out that the Guru name was already protected under trade mark by an existing business.

When the Mowbray siblings discovered this annoying little legal detail, they were dismayed. The company hadn’t generated much profit yet (or revenue) and the two were living on only a few dollars a day, trying to make it big in Hong Kong and the US. Fighting an expensive dispute in court over their name was simply out of the question.

If it was just about changing the letterhead on stationery, then the issue would have been straightforward. However, the Mowbrays had already invested a good portion of their precious capital into building machinery for a factory. Most of these tools were inscribed with the name “Guru” since the company’s third toy range was almost ready to be manufactured.

So, being the intelligent engineers they are, the siblings brainstormed ways to solve the trade mark problem without needing to replace all their machine tools. They figured the most efficient way would be to change one letter on the name. But which letter?

They went through the alphabet and landed on “Z” as the best candidate. The siblings painstakingly changed each “G” to a “Z” on their tools and machinery. It took time, but once they were complete “Zuru” had successfully avoided a trade mark lawsuit. The company is now worth $4 billion with dozens of best-selling toys on shelves across the world.

In a way, the siblings were lucky to learn they were infringing on a trade mark early in their careers. It gave them the time to alter the brand. The Zuru story could have been much worse.

For example, a few years ago EverEdge was called in to help a client clean up a horrible trade mark mess.

A young Australian tech firm had quickly created a decent portfolio of products and a long list of clients in its home country. It was humming along, spending north of $1.5 million on marketing each month. The brand was well-known, and the company’s leadership had eyes set on expanding into the US market.

The company’s first mistake was thinking that the brand protections it had secured in Australia could be transferred to the US. They couldn’t. The US trade mark system is very different to Australia’s. But that might have been easily fixed if it wasn’t for the second, much bigger, problem.

In all the hustle and bustle of being a startup, the company “moved fast and broken things” but it also failed to fully protect its brand. The protection it had was for the device mark, not a word mark. This meant that the company only controlled its logo rather than the text-only name.

And it turned out that an American company owned that word mark. The moment the Australian firm landed in the US, it was immediately hit with lawsuits. The owners of the word mark rights refused to budge and the Australian business was forced to rebrand from scratch – even back in its home base of Australia! – and write off more than $36 million of sunk marketing costs.

Ouch.

Who knows what would have happened to Zuru if it didn’t learn about the infringement early? If it had invested millions into marketing the brand “Guru,” a rebrand might have been enough to pop the company’s ambition before it got up to cruising speed.

The lesson is that trade marks and brand are a bit like real estate: the best are probably already owned by someone else. If a company has a great product in one country, there is a good chance that a rival will have a similar product in another country which will have a strong brand.

It’s important to do your homework to ensure you have the right defences for the brand, trade mark, copyright, word marks – and the full suite of intangible assets. That will save you plenty of heartache down the track.

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