Legal Strategies for Creative Business Clients: Course

In the context of creative collaborations (like a musical band), why is the concept of an "inadvertent partnership" so dangerous regarding general liability, and how does forming an LLC specifically address this risk?

The two primary issues I bring up with clients in this situation are general liability, and the presumption of equal duties and benefits. We will continue with the musical group example. Let's say George, Paul, John, and Ringo decide they want to play some gigs on weekends for fun, a few free beers and some split of the cover charge at the door. Since they are working together with a profit motive, they have arguably created a partnership, even if they didn't intend to do so in their minds - thus the "inadvertent partnership" concept. Now imagine Paul is a wealthy guy with a few houses, plenty of retirement savings, cars, etc. And let's say Ringo is a good friend from childhood, but kind of "sketch" (as my kids would say). After playing a gig, splitting the door money, and a good number of free beers, Ringo hops in his car to drive home, and causes a fatal car accident that kills a mom and her two kids, while the father lives, but is seriously injured. Since Ringo of obviously at least grossly negligent and responsible for the accident, we know that anything he owns is on the table for the law suit against Ringo. We expect it'll blow past his insurance limits and wipe him out. But in this situation, Ringo was arguably wrapping up the BUSINESS OF THE PARTTNERSHIP, which opens the door for all 3 other partners to be named in the suit because getting home from the gig was arguably a business function. (Not to mention the other guys let him drive after drinking.). Now all three other members of the band (the "inadvertant partners") are at risk of losing all their personal assets due to Ringo's negligence. If they had created an LLC or Corporation, the liability of the business for the accident would be limited to the assets owned by band's LLC or INC. Ringo is still going to lose everything because one is always liable for one's own actions, but the exposure due to the band's gig would be limited to the assets of the LLC/INC and not pierce through to the personal assets of the other band members - assuming the usual formalities of running a business entity are present. The second issue is that in a partnership, the assumed split of profits and losses of the group are split equally. That can be just fine, but if John and Paul are doing most of the writing and composing work, managing the gig calendar, etc. then someday they might get upset that George & Ringo are getting the same compensation for doing less work. The default is an equal percentage split of profits & losses unless there is a writing saying differently - that writing is best handled in an LLC Operating Agreement. Of course there is more to discuss, but this usually is enough to help the musicians in the band make their own decisions about how they want to approach working together.

When advising a client on selecting a new brand name, why is it legally and financially disadvantageous to choose a "merely descriptive" name compared to an "arbitrary and fanciful" name in trademark law?

It's up to the client to make the value judgement of what THEY consider to be "legally and financially disadvantageous" based on their business goals. In some cases a client is just fine and finds it advantageous to have a merely descriptive brand like "Fort Collins Heating and Air Conditioning." It takes zero investment to let people know what the business does. And it IS possible to protect as a TM by filing on the "Secondary Register" with the USPTO (reserved for situations like this), then after 5 years apply for registration on the "Primary Register" at the USPTO with the legal presumption that after 5 years of continuous use, a merely descriptive mark will be assumed to have developed "secondary meaning" and now be fully protectable. The disadvantage to this is that one can't prevent a competitor from using the words "Fort Collins," "Heating," or "Air Conditioning" except if they use all of them as an "indicator of source of goods and services" - in all practical purposes, only a verbatim match would be infringing. The question then jumps past "Suggestive" marks, so we'll come back to that because as both an attorney and a marketing executive, I always suggest people create brands that are suggestive of the goods and services. "Nike" for running shoes. "Apple" (for the teacher - knowing the company started with computers targeted at educators). etc. Arbitrary and fanciful brands are advantageous legally because they carve out the most obvious exclusivity of that brand name in a market place. But that requires a lot of effort to connect the brand to the product/service. In the mass market, arbitrary and fanciful brand names (made up words) are most obvious in the pharmaceutical markets - crazy brand names for pills made up out of the blue using lots of "x" and other rarely used letters of the alphabet. Why, because pharmaceutical companies have insane marketing budgets and can afford to invest in connecting a made up word to a product in the target market. So, I always encourage clients to shoot for Suggestive brands. They still require a quick question of "what is that?" from the buyer, but that question is answered quickly, and with the goal of making the buyer think "oh! that's clever!" and helping them remember the brand. I have an e-workbook walking people through the process titled "No Lame Names" and am happy to share the workbook with those who are interested.