Why a $4B business is in a fight to keep its name
Clubhouse, the hottest new kid on the social media block, currently valued at $4 Billion, is being sued for trademark infringement.
How could this happen? And how can your business avoid a similar situation? Read on.
The Lawsuit
Clubhouse is being sued by SBS Consulting Group, a sports sales consulting firm that counts NBA and NFL teams among its clients. One of SBS’ services is a networking platform called TheClubhouse®. SBS registered its trademark with the USPTO in December of 2019. This begs the question of how Clubhouse was able to register its own trademark and the shocking answer is . . . it never did.
In other words, Clubhouse does not own a nationwide right to its name. At best, it has a "common law" trademark. At worst, it is infringing a registered trademark and will be forced to change its name.
This puts Alpha Exploration Co., the company behind Clubhouse, in a vulnerable position. This case will require the court to determine whether there is a "likelihood of confusion" between the two trademarks. On one hand, SBS’s product is much more of a membership-based community than a communal podcast. On the other hand, I could see a court feeling that the services are too similar for comfort, and therefore ruling against Clubhouse. But apart from these questions, my primary question is: how could this happen? How do you reach the level of success of something like Clubhouse and never bother to register the trademark?
So I investigated. Here is what I came up with:
The Backstory
Clubhouse was started by the entrepreneurial duo Paul Davison and Rohan Seth. Both had tried starting other businesses before, with mixed success. Their latest venture was an effort called Talkshow that started in 2019. However, the duo decided that the format of Talkshow was too formal, and wanted to create a more communal vibe. They changed some features of the app, rebranded as Clubhouse, and got on the scene just in time for the pandemic to heat up in March of 2020. Even if Davison and Seth had been able to predict the success of Clubhouse, they probably didn’t have any time to prepare for it because things started happening really fast. Two months later they got $10 million from an investor, even though Clubhouse still only had two employees. As of this month, Clubhouse has 10 million users. Talk about going from zero to one hundred.
This is 100% speculation, but if I had to guess, this is probably one reason why they never registered their trademark. I’m guessing that when your app grows that fast, you’re losing more sleep over the code breaking down than you are about getting legal protection.
The Plot Thickens
Oh but the plot thickens. On July 28, 2020, three months after Clubhouse arrived on the scene, Alexander Frederiksen of Sweden applied to register the trademark CLUBHOUSE specifically for “Application software for social networking services via Internet”. This means that even if Clubhouse applied for a trademark today, its application would be stalled because of Frederiksen’s pending application.
In short, if Clubhouse wants to claim its trademark, it will have to contend with both a pending registration by Frederiksen and an existing one by SBS.
How to Avoid This Problem
This is a pretty bad position to be in while still trying to manage growth and court potential investors and/or buyers. So how can businesses avoid a situation where they’ve become successful, but are suddenly at risk of losing their name?
In a phrase: the 1(b) application process.
Trademarks can be reserved ahead of time at the USPTO. This process is called a 1(b) application and is a great way to lock down a name in advance (or find out that the name is already taken before spending oodles of money on branding). If Clubhouse had tried to reserve its trademark in advance, the SBS mark could have been dealt with before the app launched. For example, the two companies could have reached an agreement to peacefully coexist since they are catering to different target audiences.
Hopefully SBS and Clubhouse can work it out. In the meantime, this is a good reminder for businesses everywhere of the value of locking down a trademark before launch.
Thanks for reading the Bevel Law Blog! While this information is hopefully helpful to you, nothing in this blog is intended to be legal advice. Always consult a lawyer before making any legal decisions based on topics in this blog.
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